Cutting Off Loose Ends: DOL Proposes To End Substitutions, Permanent Validity, And Improper Commerce Of Labor Certifications
The much anticipated proposal to end substitutions of foreign nationals and set a time limit for the validity of labor certifications (LC) has finally arrived. On February 13, 2006, the US Department of Labor (DOL) published its proposed regulation in the Federal Register and requires submission of public comments no later than April 14, 2006. 
The proposed regulation seeks to cut off loose ends left by the overhaul of the labor certification system in the implementation of PERM in the spring of 2005. Even assuming that the proposed regulations are finalized without change, what effect will the changes have to employers, foreign nationals who legitimately use substitution? Will it impact the free movement of workers in our global economy?
This article will explore these issues and offer plausible solutions in the hopes of stimulating debate that will lead to the submission of comments to the proposed regulation and result in a fair and just rulemaking.
Historically, substitutions have been frowned upon by the DOL. In 1991, DOL published an Interim Final Rule that banned substitutions.  The rule was challenged in court and overturned in Koortizky v. Reich, 17 F. 3rd 1509 (D.C. Cir. 1994) on a technical matter. In 1995, DOL reinstated the former rule through memoranda containing processing guidelines.  The memos confirmed there was no limit to the number of substitutions that could be filed prior to the approval of an Adjustment of Status (Form I-485).  The new DOL policy caused a rise in substitution filings and a strain on its resources, especially in cases where the LC had already been approved. Consequently, DOL decided to delegate substitution of foreign nationals on approved LCs to Legacy INS as of March 1996. 
The practical nature of substitution practice evolved into a DOL concern in the advent of Section 245(i) of the Immigration and Nationality Act (INA). Under §245(i), foreign nationals who were out of status could proceed with to complete immigrant visa processing without leaving the U.S. in exchange of a $1000 penalty fee if the labor certification or immigrant visa petition had been filed prior to April 30, 2001.  Prior to this date, §245(i) had existed in a prior incarnation but had expired on January 14, 1998.  Through heavy lobbying efforts from pro-immigration groups, the law was reinstated in December 2000 but only until April 30, 2001.
In response to the enormous backlog created by 245(i) filings, and its problematic experience in the initial adjudication of cases, DOL requested an independent audit of its files and published its findings. The rush to file cases prior to the short window of the revived §245(i) resulted in skeletal filings and, according to DOL’s audit report, a high incidence of fraud. The DOL sought to eradicate any room for fraudulent filings and consequently revamp the entire labor certification system.
Although the new Permanent Electronic Review Management (PERM) labor certification system took two years to implement, it brought with it new stringent requirements including, new recruitment requirements for professional positions, registering of job orders, certification of prevailing wage prior to filing, which creates a window for recruitment and filing, DOL verification of employers and their intent to sponsor an alien beneficiary, electronic filing of a complex form, and strict audit system. However, the preamble to the final PERM regulations admitted that the DOL left unchecked as the substitution of foreign nationals as another source of fraud. 
Furthermore, tied to the question of whether to permit substitutions in light of PERM was whether permanent validity of labor certifications also encouraged fraudulent filings by allowing substitution of foreign nationals at any time after certification.
Between the PERM implementation on March 28, 2005 and the date of these new proposals, the immigration bar, pro-immigrant groups, and the DOL have debated substitution issues and advocated against limiting the practice or LC validity in any way. The proposed regulation also introduces two additional prohibitions, which will be discussed in turn.
There can be no doubt that with the new proposed regulations, the debate will intensify once again in search of a fair result, albeit compromise.
The Proposed Regulation
The preamble to the proposed regulations reiterates that substitutions were historically permitted because of the lengthy processing of labor certifications and some I-140 petitions. However, these delays opened a window of opportunity for unscrupulous practitioners, employers, and third party brokers to profit from the sale of labor certifications. Also, the fact that labor certifications have an indefinite validity date has been an incentive for the continued sale of labor certifications. In these situations, DOL states, it is not uncommon for labor certifications to embody fictitious job opportunities, or true job opportunities not truly open to U.S. workers.
Specifically, the preamble lists five federal court cases were unscrupulous individuals were prosecuted for the fraudulent filing and sale of labor certifications. Notably, one of the prosecutions involved an attorney that filed 2,700 fraudulent labor certifications and then sold them to foreign nationals for $20,000 each for substitution purposes. In light of the US Citizenship & Immigration Services (USCIS)’s backlog reduction initiatives, and the reduction of I-140 processing times, DOL believes there is not any justification for the retention of substitution practice.
Prohibition of Substitutions
The prohibition seeks to eliminate the use of approved LCs as a marketable commodity for substituted foreign nationals. In recent times, federal investigations and prosecutions uncovered a series of practices where fraudulent applications were filed for nonexistent employers, or submitted without an employer’s knowledge. Sometimes, employers were paid to use their name in LC applications.
Unfortunately, this phenomenon is common in ethnic communities where agents, or brokers, work together with unscrupulous attorneys and small businesses to ‘recycle’ unused labor certifications for a premium. But to draw a broad stroke to eliminate this problem, DOL is in essence ‘railroading’ businesses that use substitution as a legitimate mechanism to ensure the best foreign employees are retained.
The fair solution is to focus a strict approach to (1) §245(i) filings, or (2)a ban on substitution after the Backlog Elimination Centers (BECs) complete its cases. Multiple LC filings as a source of potential fraud have already been limited by DOL in a series of Frequently Asked Questions posed on its website.
Limiting Restrictions to §245(i) filings
Suspending the Proposed Regulation until BEC Complete Cases
It is reasonable to suggest a ban on substitution in the PERM system because the nature of the system prevents changes to the application upon filing, as the preamble to the proposed rule states. But given the high volume of traditional and RIR cases still pending at the BEC, the rule should be implemented after the BEC has completed processing all its cases, and limit any restriction to the source of the perceived fraud, namely §245(i) filings. To do otherwise will result in the following problems:
The Cap-Out Problem
For example, some corporations use substitution to replace a terminated foreign national with a new, perhaps key, foreign national beneficiary. Under the American Competitiveness in the 21st Century Act of 2000 (AC21), a labor certification must be pending for at least 365 days at the time the foreign national reaches the sixth year in order to receive extensions beyond the H-1B time limitation. If the substituted foreign national will reach his maximum H-1B validity in one year or less from the time he joins the corporation, this individual would not be able to continue working for the corporation.
In other instances, a corporation may relocate key foreign nationals to its other offices across the country. If the new positions are different, the foreign nationals will lose their respective LC and will have to file a new applications. Consequently, these foreign nationals could be adversely affected by their own cap-out problem. The foreign national beneficiaries could also potentially lose their jobs and the corporations will lose significant revenues from the substituted foreign nationals’ contribution to the business. Corporations will also have to face low employee morale if these limitations are imposed.
Shifting the Problem Across Agencies
The substitution ban is mainly focused on pending and approved cases not yet filed with USCIS. This suggests that substitutions can still be processed at USCIS. Until recently, there has been little or no record matching by USCIS of prior I-140s filed for the same employer. Only on rare occasions has USCIS tracked the number of filings, mostly when it involved ability to pay issues in small companies. In other instances, USCIS has approved subsequent I-140s in substitution cases without mention of the automatic revocation of the initial petition.
DOL is simply shifting the problem to USCIS – a problem that arose mainly in the aftermath of 245(i) filings. To prevent continued fraudulent filings, both DOL and USCIS must track all questionable filings to better identify when an I-140 substitution is being submitted and then request proof of the bonafides of the substitution. If substitution is a problem, it must be addressed at both agencies, in an even and fair manner. To date, USCIS has not announced a similar ban on substitution practice, although there has been informal talk in local AILA Chapter Meetings with DHS officials about moving forward with a similar rule.
The use of substitution of foreign national beneficiaries in labor certifications has been helpful in light of the massive retrogression of visa numbers in the last year. It has also been helpful in avoiding processing delays at USCIS, which contrary to the preamble of the proposed regulation, still exist. It seems unlikely that by October 2006, USCIS will meet its goal of processing all cases in under 6 months, as planned in the backlog reduction initiative discussed earlier.
Substitution has also been useful as a recruitment tool in a time of retrogression. Many corporations have jobs that have been certified by DOL as not having available US workers, where the original foreign national beneficiaries have moved on to other companies, or have obtained permanent residence through a family petition. These corporations seek new talent from its existing pool of workers or through new hires for these certified jobs. With visa retrogressions so deep, a new qualified foreign national may not risk new employment if they will be limited to their own visas without the possibility of gaining permanent residence in any other way.
The Proposal Violates the Nature of the LC Process
DOL is also concerned that substitutions generally that take place years after the filing or approval of the LC and therefore believes new filings should be warranted. Such a theory goes against the nature of the LC process, namely, the testing of the job market and the availability of US workers of the job opportunity at the time of filing.
However, the law of labor certification only requires the testing of the job market at the time the application is in process. It is focused on the job offered and the availability of US workers, not on the identity of the foreign national beneficiary. If no US workers are available, then the LC turns to the foreign national’s qualifications. If he or she meets the minimum requirements, the LC is certified.
The identity of the foreign national beneficiary is not what drives the labor certification process; it is the job opportunity and the lack of US workers available to fill the position. Once DOL approves the case, it certifies the unavailability of US workers for the stated job opportunity and the certification implies that availability of US workers is unlikely to exist in the near future. To lose an approved LC because of a ban against substitution will result in multiple filings for the same foreign national, higher expenses for employers to find qualified workers for a shortage occupation, and longer delays for workers to obtain legal permanent residency. These delays will have adverse affect corporate growth and possibly the U.S. economy on a larger scale.
Permitting Substitution Upon Justification & the Ability to Pay Analogy
As briefly mentioned earlier, perhaps a more salient approach would be to differentiate the levels of proof required in substitutions, similar to the way the USCIS adjudicates I-140 ability to pay issues. Under such an approach, the DOL (and perhaps also the USCIS) could require (1) evidence of the bonafides of the substitution and (2) proof of the steps undertaken to avoid substitution prior to certification of the traditional or RIR filing. Justifications such as cap-out problems, quantified projected losses if a substitution is not granted, retrogression and the relationship to the corporation’s needs, and similar evidence could ‘legitimize’ substitutions to these agencies.
Moreover, for companies with a minimum of 100 employees, a more streamlined inquiry should be available at the discretion of the agencies. For these businesses, a sworn statement from an officer or upper management should suffice.
Limited LC Validity
DOL’s Peculiar Fixation with the Number “45”
Under the proposed rule, once an LC is approved, an employer would only have 45 days from the certification to file Form I-140 with the USCIS. But why “45” days?
DOL has set this time frame for replies to supervised recruitment, responses to NOFs, and 45-day letters. The imposition of any time line to file must be rooted in logic. The use of 45 days for submission of a recruitment report under the old system was justifiable. It contemplated the time an employer could monitor recruitment responses and submit its report to the State Workforce Agencies (SWAs).
NOFs also allowed for 45 days, with the possibility of extension requests, to submit a response. Here, the issues commonly involved in NOFs could generally be addressed within 45 days. If not, DOL liberally granted a first extension – sometimes, even a second extension for good cause.
With regard to the 45-day letters from the Backlog Elimination Centers (BECs), 45 days is really an adequate time to contact the employer and solicit a signature for continuing the case or withdraw it. The process is simple.
Even PERM Audits permit similar time frame, albeit a bit short, for responding to DOL’s objections. However, I-140s can be often complex and lengthy in preparation. A better solution is warranted.
Extensions Upon Justification: The NOF Approach
But perhaps this approach would serve employers well. Recently, the PERM system experienced problems in promptly issuing the LC certification to the employer. In many cases only the cover letter of the approval was sent out, but not the certified ETA 9089. This issue was brought to DOL’s attention over the last few months. Under the traditional and RIR systems, approved LCs would be sent to the employer or its attorney within a quick turn around after adjudication of the case, whether it was initial adjudication or after a Notice of Findings. Unfortunately, this has not been the case under PERM. Some practitioners have also reported that the time gap between the electronic approval of the PERM LC and the actual receipt of the document has commonly been up to 90 days. Would it not be a better practice, if one is to be established at all, to permit extensions under justifiable circumstances? A different solution should be examined:
The Prevailing Wage Determination Approach
At its very essence, the current proposed rule goes against the meaning of certification. If a legitimate employer will be required to process another case simply because it could not file the I-140 within 45 days of certification, the employer would be required to spend additional resources in legal fees and possibly re-advertising, even after a determination has been made by DOL that there are no available workers.
DOL seeks to maintain the integrity of the permanent labor certification system. But maintaining the integrity of the system can be achieved in more realistic ways. If LCs are to be limited at all, perhaps DOL should establish extended, but not unlimited, validity periods for the LCs. Limiting the validity of the LC to a reasonable time after the issuance of the certified forms could be a plausible solution.
A reasonable time will have to be the average time employers take to file the initial I-140s after LC certification. Both DOL and USCIS would have to prepare statistics on the length of time from the issuance of the LC approval to the filing of the I-140. But this would require additional resources that perhaps neither agency has, but the Congress should grant. In the absence of government resources to determine these statistics, how do we define what a ‘reasonable time’ is for purposes of establishing an expiration date to LCs?
Under PERM, for example, many SWAs issue prevailing wage determinations valid from 90 to 180 days, others from 180 days to one year to allow for the job to be advertised, recruitment to take place, compliance file to be prepared, and Form ETA 9089 to be filed.
In the I-140 context, many employers, especially small businesses, tend to have difficulties proving ability to pay. In this regard, a period of more than 45 days is necessary to properly prepare a strong case. It is also common for delays to be incurred in I-140 filings because foreign national beneficiaries may need to retrieve their academic credentials from abroad, obtain a US equivalency through an independent evaluation agency, or obtain the necessary experience letters, if not already on file. There are also many instances where the foreign national is out of the country on vacation, absent on maternity or sick leave, and may not be in contact with either the employer or the attorney.
Because there is no method to predict when a labor certification will be approved, whether in the old system or under PERM, it will be unfair to establish such a short period for which to prepare what could be a complex I-140 filing without allowing some flexibility. A fair approach would be for the DOL to anticipate that an I-140 will be filed from 90 days to 180 days from LC approval.
Prohibition of LC Sale
The proposed rule also establishes an explicit ban on the sale, barter and purchase of labor certifications. Although this is a very good idea, the way DOL intends to implement the rule is far reaching. Employers will be prohibited from receiving payments of any kind from any source for filing a labor certification. The types of payments contemplated by the new proposal include (1) fees charged by an employer for hiring the foreign national beneficiary; (2) receiving “kickbacks” from part of the foreign national’s remuneration by way of payroll deduction or the like; (3) paying the foreign national beneficiary less than what is indicated on the labor certification application; (4) employment concessions such as goods and services, or (5) receiving payments from the foreign national beneficiary, attorneys (attorney fees and costs), or agents involved in the filing of the LC.
The theory behind this proposal is rooted in the concept of the employer as the owner and force behind the LC process. Therefore, DOL believes only the employer must bear the costs associated with this process without reimbursement of any kind by any party. Payments of any kind would otherwise invalidate the bonafides of the job offer.
The LCA Prevailing Wage Approach
The problem with this proposal is several levels deep. First, it assumes that the wage indicated on the application is the fixed prevailing wage that must be paid at the time the case is filed or is pending. However, the labor certification is, by its very nature, conceptually rooted in the job opportunity as a future job offer. The prevailing wage may be certified with data available at the time of certification, but the employer is not obligated to pay this rate until the foreign national beneficiary obtains legal permanent resident status, which is often many years after LC approval.
Another reasonable alternative to this proposal is simple. Rather than meddling into the attorney-client relationship by prohibiting any payment to an attorney (for legal fees and costs), DOL should implement a system of attestations into the permanent LC program, similar to the H-1B regulations. The employer can attest to the fact that no kickbacks, reduction of wages, or other benefit will be reduced from the foreign national beneficiary’s salary. There ought to be a provision permitting reduction of attorney’s fees from the certified wage, as long as the reduced amount does not fall below prevailing wage.
The complete ban of the improper commerce of LCs is a worthy concept, given the high level of fraud the DOL has identified – mostly from the §245(i) program. But to attempt to cure the problem in a broad rulemaking is not the answer. Legitimate considerations must be taken into account to ensure a fair regulation.
The proposed debarment rule, although good in spirit, is also overbroad. This writer agrees that unscrupulous employers, attorneys, and agents should be barred from filing LCs because it is an abuse of the system; and that any improper commerce of LCs must be stopped. But the DOL should at least offer some specific criteria as to how it plans to do this.
The proposed regulation will suspend processing of LCs when a criminal indictment, which is tantamount to a finding of guilt until proven innocent. This is a direct contradiction to the American system of justice. The DOL would also suspend processing if there is “possible” fraud of misrepresentation taking place. This seems too harsh a consequence for an administrative rule that is also excessively vague.
If one looks at the actual debarment language, DOL intends to exercise debarment even when an employer fails to comply with supervised recruitment or an audit request. What if the employer decides not to pursue the LC application at the PERM audit or supervised recruitment stage? Such a withdrawal is tantamount to fraud or misrepresentation? Hardly, absent an adequate and thorough examination. The DOL should at least investigate before implementing the extreme penalty of debarment. Perhaps the rule should be amended to say that debarment would be imposed upon a finding of egregious failure to comply with multiple audit requests, or multiple supervised recruitment directives.
Debarment should be exercised after an investigation is complete, or after an official department or judicial determination of fraud, misrepresentation, or improper commerce of LCs is made. This would be a fair system. But the proposed regulation is not aimed in this direction.
The new proposed regulation is a direct response to the high incidence of fraud stemming from §245(i) filings. The DOL should focus a strict rule to those filings instead of penalizing all employers under assumptions that will ultimately harm legitimate businesses. This is an issue that DOL needs to address but not at the expense of legitimate corporations which fuel a good percentage of the immigration process. The proposal is designed to cut-off the loose ends left by the revamped LC system. But the rule also cuts-off reasonable alternatives to the absolute ban on substitutions for legitimate users and the imposition of a short shelf life for LCs. Although LCs should not be sold under any circumstance, the rule interferes with the attorney-client relationship, and does not examine the useful provisions of the H-1B program as a guide to a better solution. Finally, the debarment rule assumes guilt instead of innocence. Although it is true that permitting the sale of an immigration benefit is bad government, an overreaching prohibition that will have an adverse affect legitimate business needs is also bad government.
The DOL has invited the public to submit comments on the proposed regulations by April 14, 2006. The foregoing discussion is intended to offer plausible alternatives that can be argued from a specific company’s perspective. All these issues should also be quantified in terms of the economic, financial, as well as, human resource costs each entity will incur as a direct result of DOL’s overreaching proposal.
Although the intention of the proposal may be commendable with regard to banning the sale of LCs in the black market and barring unscrupulous parties from benefiting from the permanent labor certification program, each of the four proposals are much too broad. Both the ban on substitution and the limitation on validity of approved LCs fall in the face of laws like AC21, which promote the free movement of workers. The DOL must understand that the free movement of workers is an essential concept in the global economy of the 21st Century.
2 The proposed Program Electronic Review Management (PERM) regulations were first published at 67 Fed. Reg. 30466 on May 5, 2002. The final rule was published on December 27, 2004, with an effective date of March 28, 2005. See, 69 Fed. Reg. 77326.
7 Legal Immigration Family Equity Act (“LIFE”) Pub. L. No. 106-553, 114 Stat. 2762 Title XI of HR 5548 (December 21, 2000), H.Rep. No. 106-1005 at 185; 2000 H.R. 4942 and LIFE Act Amendments, Pub. L. 106-554, 114 Stat. 2763, Title XV, Division B, of H.R. 5666 (Dec. 21, 2000), H.Rep. Conf. 106-1033; 146 Cong. Rec. S11850-02 (daily ed. Dec. 15, 2000–Senator’s Joint Memorandum).
Romulo E. Guevara is a senior attorney with Littler, Mendelson, Bacon, & Dear, PLLC in Phoenix, Arizona, where he specializes in business immigration law for large corporate clients. He is a member of the AILA Young Lawyers Division (YLD) National Steering Committee. Rómulo frequently contributes articles analyzing the latest developments in immigration law to a wide variety of immigration law journals. He has also lectured at conferences for AILA and ILW.com, and has served as Associate Editor on recent AILA publications. Rómulo graduated from Hofstra University School of Law in 1996 and has been practicing immigration law since 1997. He is originally from El Salvador.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.