Full access to Entrepreneur for $5

Disney Lawsuit Highlights Issues With H-1B Visa System

This story originally appeared on Fortune Magazine

When about 250 workers at Disney’s data systems hub in Florida were laid off a year ago, the pain of the pink slip was made worse by a condition of their severance pay that required some of them to train their replacements—workers from India who were in the United States on H-1B visas.


On Monday, two of the laid-off workers sued the entertainment behemoth for colluding to violate the law by using H-1B visas—temporary work permits for the highly-skilled—to use foreign workers even though they would displace American employees. Also named in the complaints are two lesser-known consulting firms HCL and Cognizant, which import workers on H-1B visas and then contract them out to U.S. firms—in this case, Disney.

In a statement, Disney called the lawsuits “completely and utterly baseless.” Disney Parks “has hired more than 140 U.S. IT workers” since its reorganization, “and is currently recruiting candidates to fill over 100 more IT positions.” Cognizant said in a statement that it “fully complies with all U.S. regulations regarding H-1B visas.” HCL did not return Fortune‘s request for comment.
The Disney incident draws attention to companies’ practice of booting American workers for foreign replacements, and it highlights outsourcing companies’ significant role in the fierce competition for a limited supply of H-1B visas. Thirteen global outsourcing companies were among the 20 firms that received the most H-1B visas in 2014, according to The New York Times, which cited the analysis of federal records by Howard University professor Ronil Hira. Those top 20 companies were awarded 40% of the visas available—some 32,000. Outsourcing companies are winning an outsize share of H-1Bs for a simple reason: the visa procurement process is a game of numbers, and they are going big.
A maximum of 85,000 H-1B visas are issued by the United States each year—65,000 are allotted to first-time applicants and 20,000 are for graduates from American colleges and universities with advanced degrees. The system was set up in the 1990s so that companies that wanted to hire a highly skilled foreign worker could simply apply for a visa and receive it. And it used to be that easy.

But the information technology boom of the late 2000s and, now, the recovering economy have made the process of securing an H-1B visa increasingly difficult, says Neil Ruiz, executive director for the Center for Law, Economics, and Finance at George Washington University. For the past three years, the number of H-1B visa petitions has exceeded the 85,000 slots within a few days of the start of the annual application window every April.

The visas are awarded by lottery to companies that apply during that period. And, like buying tickets for a Lotto or Powerball drawing, the more applications a company files, the better its odds of winning.

“[Outsourcing companies] put in a huge number of petitions, and that’s all it comes down to,” says Jonathan Rothwell, a fellow at the Metropolitan Policy Program at the Brookings Institution.

Startups or smaller companies are at a disadvantage because they may file visa applications that reflect their anticipated need—perhaps a software engineer or two. And they may very well lack the legal resources of a large corporation. Smaller firms may get lucky and secure the visas they applied for, but the numbers are not in their favor.

Congress has taken some action that could curb outsourcing firms’ dominance of the H-1B visa process. The $1.1 trillion Omibus spending bill, which President Barack Obama signed into law in December, increased the fee that large employers pay for new H-1B visas to $4,000 from $2,000.

Those fees will take full effect during the next H-1B application window this April. It’s not known what impact they will have on outsourcing companies, but it’s possible that such firms could simply pass that expense onto their clients.

Some members of Congress—including GOP presidential hopeful Ted Cruz—have sought to increase the minimum wage paid to foreign workers to lessen the visa’s appeal to American companies looking for less expensive labor. Others have called for a reduction in the number of H-1B visas made available each year.

At the same time, several tech companies and their leaders,most notably Facebook’s Mark Zuckerberg, have called for an increase in the number of H-1B visas. Republican presidential candidate Marco Rubio has also voiced support for upping the maximum.

But adding to the current 85,000 cap would not necessarily change the share of visas that go to outsourcing companies, says Ruiz. It would just increase the number of visas available to everyone—outsourcing companies included.

This story has been updated to reflect comments from Disney.

Claire Zillman

Written By

Claire Zillman is a writer at Fortune.com