L-1 visas being used to lower U.S. wages

July 1, 2006

The L-1B visa was designed as a procedure for employers transferring their foreign workers to U.S. posts for temporary assignments. It was introduced in 1970 to help multinational companies relocate key employees to posts in the United States from other countries for limited-term assignments.

Today, the visa program is the center of rising discontent, as a means to lower U.S. wages by replacing U.S. workers with much cheaper labor from overseas. Some experts also argue that the L-1B is being used to circumvent the tighter rules and restricted availability of the familiar H-1B visa.

High-profile abuses of the L-1B visa system spurred congressional action and led to reforms in 2004. No one knows if the reforms are having the intended effect of curbing abuse or having the unintended effect of adding red tape for those companies that use the visas legitimately to transfer knowledge.

The debate will continue as more companies become multinational and it becomes critical to their competitiveness to move their best employees—whatever their origins—into the right positions.

Critics claim foreign-owned companies with operations in the United States, along with U.S. companies with operations abroad, are using L-1B visas to bring in low-cost labor to fill U.S. jobs that otherwise would go to higher-paid Americans.

Use of L-1 visas has shot up in recent years, particularly among those bringing information technology (IT) workers to this country from India. (L-1A visas are for executives or high-level managers; L-1B visas are for employees with specialized knowledge, such as IT professionals.)

U.S. Citizenship and Immigration Services (USCIS) reports that the number of approved L-1 petitions jumped from fewer than 30,000 in 1995 to nearly twice that number in 2000. (Unlike H-1B visas, there are no annual caps on L-1 visas.) The annual numbers of L-1 visas granted have since declined but have remained consistently above 40,000 since 2002.

From 1999 to 2004, according to a DHS report released in January, ninety percent of the companies that most often petitioned for L-1 workers were computer- and IT-related outsourcing service firms that specialize in labor from India. Nearly half the L-1B visa petitions in 2005 were for Indians, far outpacing any other nationality and up significantly from only 10 percent in 2002.

Some see the increase as an inevitable byproduct of a growing global economy. As U.S. companies capitalize on growth markets abroad, they say, it stands to reason that firms need to transfer employees back and forth between sites to transfer expertise.

Does the same hold true for foreign-owned companies in the United States? Or are other factors at play? Are U.S. companies, as some critics allege, setting up offices abroad for the purpose of bringing in highly skilled Indian labor at lower wages?

Typically, a company identifies a high performer in a subsidiary, provides him with additional training at corporate headquarters and then sends him back to his home country to spread his newly gained knowledge. In fact, knowledge sharing is the primary reason for intracompany transfers, according to several companies that use L-1B visas.

For companies that use the L-1B visa as it was originally intended, that ease of transferring key employees across borders may be at risk because of a few highly publicized cases of gaming the system. As a result, immigration lawyers claim, there are numerous other L-1 visa cases of seemingly well-qualified employees that have been rejected.

L-1Bs have come under increased scrutiny because of alleged abuses, particularly involving Indian-owned companies. Some have been accused of using L-1B visas for employees who should be subject to the more stringent H-1B rules.

But applicants and companies know that L-1B visas are easier to obtain. A March article in The Economic Times, published by India’s largest media house, stated: “If the criteria can be met with, for Indians, L-1 visa is a better option than H-1B under which workers are restricted by quota numbers and have to be paid wages at the prevailing market rates, and its procedure is onerous.”

The Economic Times article rankled many who are displeased with L-1B visas. Kim Berry, president of the Programmers Guild, an organization formed during the dot-com boom to help tech workers develop their careers, says that because there are no minimum wage requirements, these visa holders “continue to work here in the United States, earning Third World wages.”

Berry says that, in theory, companies could use L-1B visas to set up shop in India for a year or two and then begin transferring Indian employees to replace U.S. workers. “It’s completely legal. It’s amazing, but it’s legal.”

In response to The Economic Times article, the U.S. Department of State released this bulletin to U.S. embassies: “There is no legal reason why aliens eligible for H-1B status cannot legitimately seek out other types of visas, including L. On the other hand, the inability of aliens to obtain H-1B visas can lead to increased fraud and abuse of the L and other categories, and posts need to be sensitive to this possibility.”

Indian IT companies came under scrutiny because of concerns that they contract employees out to other companies, rather than having them work for the firm that petitioned to bring them into the United States, often called a “body shop.”

There was a major uproar in 2002 when Siemens Information Communication Networks in Lake Mary, Fla., outsourced its IT department to an Indian company, Tata Consultancy Services. The U.S. workers who were being laid off were ordered to train their replacements—Indian nationals brought in on L-1 visas at lower wages.

Mike Emmons, a consultant who had worked for Siemens for six years, was one of about 20 people who lost their jobs when Tata came in. Emmons says he helped train three of the Indian replacements. “They were just average [skilled] people,” he says.

Although they were brought in on a “knowledge transfer visa,” for specialized expertise, they had to be trained on fundamental skills. Emmons says he spotted one new employee reading the introductory textbook to using the database language—a skill level well below what an L-1 visa purportedly requires.

“It’s a misuse of the visa program,” argues Ron Hira, assistant professor of public policy at the Rochester Institute of Technology. He’s also the vice president for career activities of IEEE-USA, which works to support the careers of U.S. engineers. Both the H-1B and L-1B programs “can be easily gamed,” he says. Not all companies do so, he adds, “but because they can be easily gamed, they are.”

Concerning the L-1B program, Hira maintains there is a tendency “to ignore that it’s used to undercut U.S. workers by bringing in low-cost workers.” In addition, “because there are no controls over what people are being paid, it can” lower wage rates for everyone, he says.

Although companies need to be able to bring in those with specialized knowledge, Hira continues, there need to be “ways we can weed out bringing in rank-and-file personnel.”

Indeed, in response to the Tata case in Florida, Congress moved to eliminate “body shops” by passing the L-1 Visa Reform Act of 2004. Under the measure, L-1B workers can no longer work primarily at a worksite other than that of their petitioning employer if the work will be supervised by another employer or if the person is providing labor for hire, rather than services related to the specialized knowledge of the petitioning employer. The reform measure applies to all L-1B petitions filed after June 5, 2005.