Offshoring Industry Trends Affecting California Employment Law

Offshoring Industry Trends Affecting California Employment Law

By Steve Danz

Businesses around the world are expected to spend nearly $1 trillion dollars on outside IT labor services in 2017. Perhaps this figure does not seem overwhelming on a global scale, but, the implications for employers and employees, on a micro-level, can be jarring and disruptive. Take, for example, the case of the IT department at the University of California at San Francisco (UCSF). Earlier this year, UCSF completed the transition to offshore their entire clinical IT team to an India-based company named HCL, resulting in the displacement of approximately 80 employees. A mere seven months ago, these individuals were gainfully employed. Next thing they know, they are being asked to train their replacements, ultimately culminating in the termination of their employment in favor of their new, ostensibly less expensive, counterparts.

What is striking is how pernicious this trend has become. In this case, this “organizational solution” was implemented at UCSF, a public nonprofit educational institution, who could not reasonably defend such a decision by borrowing the tired line used by for-profit companies that the move was in the “best interests of the shareholder and the bottom line.”  According to UCSF, the move will save nearly $30 million annually and will curb clinical-side IT costs that have nearly tripled between 2011 and 2016. In reality, the $50 million dollar contract would send the majority of the work to India and bring foreign IT staff to the UCSF campus on H-1B Visas.

Aside from the privacy and security concerns resulting from offshoring IT services, there are numerous business and employment law related concerns.  For instance, many large corporations are merely “shells” and offshore every job that does not interface with customers.  This makes it more difficult to bring a breaching or harmful company to court, and may even curtail enforcement from certain agencies such as the California Labor and Workforce Development Agency and the U.S. Department of Labor.  Our court system and laws have a storied history of protecting California workers.  Permitting companies to contract their labor with the ability to simply terminate a contract, or to instantly disappear altogether, is unacceptable.

When the lines are blurred between employment and contract labor, it not only affects our American tax system by giving reprieve to unscrupulous corporations, it also destabilizes and disenfranchises the American workforce.

The legislature must ensure that these companies are held accountable for how they pay and treat their workers.  This may mean creating new laws to govern these types of contracting industries.  We could look north of the border for an example where Canadian laws permit a third, legally recognized category known as “dependent contractor.”  This worker is economically dependent on, and subject to the control of, one principal employer, but uses his or her own tools and may expect a profit from the services provided. In return, an employer must give the dependent contractor reasonable notice of termination and the dependent contractor can sue the principal similar to how an employee may sue the employer.

The Protect and Grow American Jobs Act, introduced by Darrell Issa, a California Republican, and Scott Peters, a California Democrat, aims to curb the outsourcing of American jobs by reforming the nation’s high-skilled immigration program and helping to adjust the requirements in the issuance of H1-B Visas.  One way that the bill may encourage U.S. based companies to hire American workers is by increasing the minimum salary for foreign workers under the H-1B visa program from $60,000 to $100,000.  This will unquestionably help when companies are considering hiring an American worker versus a foreign worker.

There may still be time to save American jobs.  California’s legislature, as it usually does, should take the lead in protecting our local economy by introducing similar legislation and fighting for the employees, before it is too late.

Steve Danz is senior partner and chief trial attorney at Stephen Danz & Associates. He represents plaintiffs in wrongful termination, discrimination, disability, wage and hour class actions, and false claims act whistleblower litigation in partnership with the Department of Justice.

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