August 07, 2020

New Executive Order Requires Federal Agencies to Ensure That Contractors Do Not Use Foreign Labor to Displace American Workers

On August 3, 2020, President Donald Trump signed an executive order and released a related fact sheet in furtherance of the White House’s continued efforts to ensure that federal agencies focus on using United States labor in their federal contracts. This new executive order, which is arguably in furtherance of the previous Buy American Hire American executive orders, requires federal agencies to review their contracts and subcontracts from fiscal years 2018 and 2019 to assess whether their contractors used temporary foreign labor to perform the contracts in the United States or performed such contracts in foreign countries when the work had previously been performed in the United States. Federal agencies are then required to determine whether these temporary foreign labor hiring practices and/or offshoring practices negatively affected opportunities for United States workers. Within the next six months, agencies are required to submit reports to the Office of Management and Budget with their findings and to recommend, if necessary, any proposed corrective actions and the timelines to implement such actions.

The executive order has more far-reaching implications beyond federal contractors. The order also requires the Departments of Labor and Homeland Security to take measures necessary to protect all United States workers from any adverse effects on wages and working conditions caused by employment of H-1B workers at job sites, including third-party job sites. Such measures must ensure that all employers of H-1B workers, including secondary employers, adhere to the requirements of section 212(n)(1) of the Immigration and Nationality Act (8 U.S.C. 1182(n)(1)). For example, employers who are considered H-1B “dependent employers” cannot displace any United States worker employed by the employer within the period beginning 90 days before and ending 90 days after the date of filing of any H-1B visa petition supported by an application under this provision, and all employers must pay H-1B workers either the prevailing wage level for the occupational classification in the area of employment or the actual wage level paid by the employer to all other individuals with similar experience and qualifications for the specific employment in question.

According to the White House, this executive order furthers the Trump Administration’s policy to ensure that low-cost foreign labor does not displace American workers. The president has already proposed a number of reforms to the United States’ H-1B visa program, which provides U.S. employers the opportunity to petition for and hire foreign workers in specialty occupations.

This executive order follows a recent Tennessee Valley Authority (TVA) announcement regarding plans to outsource 20% of its technology jobs to companies based in foreign countries. As a result, President Trump retaliated by firing Skip Thompson, his appointee to the position of TVA Chairman. According to the White House, the move by TVA, a federally-owned corporation, is expected to cause more than 200 highly skilled workers in Tennessee to lose their jobs and cost the local economy tens of millions of dollars over the next five years. The White House views the executive order directives as critical in the midst of a pandemic when many Americans have already lost their jobs. The White House has also expressed concern that outsourcing information technology jobs involving sensitive information may pose a national security risk.

Although the executive order currently only requires agencies to undertake an analysis and issue a report on their findings, we expect that this order will have a substantial impact on government contractors and, among other things, will significantly impact contractors’ compliance burdens. Agencies may propose rulemaking that impose additional restrictions on the use of H-1B workers for federal contract work. Government contractors must now be even more strategic about the workforce they hire and rely upon to perform federal contracts. Contractors already face numerous compliance obligations and restrictions on the use of foreign workers, especially in the technology industry, along with the new executive order may serve as an additional disincentive to providing services to the government and is seemingly inconsistent with the Department of Defense’s technology innovation efforts. This executive order may result in an increase in the cost to perform contracts by increasing competition for the limited pool of Americans with the specialized knowledge needed to perform certain work.

As a result, there are likely to be adverse impacts on the supply chain, as this series of executive orders will upend regulations that companies have relied upon for decades in establishing their manufacturing processes and practices. Not only do these executive orders create business instability, they also fail to recognize that companies, regardless of size, are not capable of creating new manufacturing processes and supply and distribution chains overnight. Thus, in addition to the negative effects the new executive order has on government contractors, the new order will most certainly adversely impact the government when it finds itself unable to acquire critical goods and services, especially as it finds itself the target of retaliatory action by nations with which the United States has pre-existing and long-standing trade agreements. Certainly, the devil will be in the regulatory details, and while this executive order may have political appeal, the actual impact may be far more complicated. 

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