To B-1 or to H-1B? The Service Provider’s Dilemma

We have previously discussed on this blog the increasing difficulty that offshore service providers are facing in obtaining U.S. visas for its employees that are non-U.S. citizens (see “The Buzz about Visas for Offshore Service Provider Personnel and the Link to On-Shore Hiring“). The rejection rate for H-1B visa applications has skyrocketed over the past two years, which has added to the administrative headaches that offshore service providers face when trying to bring their top talent to their U.S. client sites.

In the midst of this, Infosys has been battling allegations from internal whistleblowers that it has been abusing the visa application process in order to circumvent the administrative hurdles. Whistleblowers claim that Infosys has been applying for B-1 visas for its employees, which contemplate very short term visits (e.g., a visit for a conference) as opposed to the more difficult to obtain H-1B visa, which are required for long term projects and are subject to an annual cap on the number that the U.S. issues. In addition, the B-1 visa doesn’t include the prevailing wage and federal tax requirements that an H-1B visa requires. Infosys has denied abusing the visa system for its own benefits. However, Infosys was dealt a judicial blow recently when one of its employees, who alleged in a lawsuit that Infosys wrongly obtained B-1 visas in its work, won a federal court decision that set aside an arbitration clause and will allow him to bring his case to a jury. The employee, Jack “Jay” Palmer alleges that he was pressured by Infosys to systematically apply for B-1 visas when H-1B visas were required. The federal court held that the arbitration clause Palmer signed as part of his employee agreement is not binding, and Palmer may bring the case in front of a jury.

In response to the decision, computerworld.com stated that Infosys released a statement, which said that while the decision “is not the one we had hoped for, it is one that we have planned for. We take very seriously our obligations under the law and specifically our responsibilities to comply with the immigration laws and visa requirements in all the jurisdictions where we have clients. The fact is that there is not, nor was there ever, a policy to use the B-1 visa program to circumvent the H-1B program.” In addition to the civil suit, Palmer’s allegations have ignited the interest of the U.S. Department of Justice, which has begun a grand jury investigation into Infosys’s tax and immigration practices.

As for the broader implications of this issue, what should a consumer of IT services be concerned about? While Infosys’s visa application headaches appear on the surface as a purely internal issue to Infosys, if global delivery suppliers are unable to bring top talent to clients in the U.S., their service delivery capability may suffer. Even worse, it is possible that if the visa issue is particularly widespread that suppliers’ currently deployed employees may be in the U.S. illegally and suppliers may be forced to withdraw such personnel from their accounts. As customers, it would be wise to ensure that your services contract with your offshore services provider appropriately warrants that the service provider is obligated to obtain, and maintain, H-1B visas for personnel that are key to the delivery of the services. In addition, clients should scrutinize suppliers’ proposals for staffing on-shore activities with offshore personnel, consider the increased delivery risk that imposes and understand suppliers’ plans for managing this risk.