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Offshore Outsourcing Legislation in 2009

During the 2008 Presidential campaign, the outsourcing community, particularly those involved in offshore outsourcing, were quite concerned with then-Senator Barrack Obama’s comments on the damage being done to American workers by offshore outsourcing and his commitment to fight it.

However, since President Obama’s election, the fate of offshore outsourcing remains unclear. During a March 2009 Town Hall meeting, President Obama admitted that not all jobs that had been outsourced overseas would be coming back, on the theory that many of those jobs were for low-wage, low-skill workers, and that bringing them back would not help the economy since “there’s no way that people could be getting paid a living wage on some of these jobs – at least in order to be competitive in an international setting.” Instead, President Obama put forth the notion that the country has to create higher-skilled, higher-paying jobs that can’t be outsourced.

About a month later, as part of his tax reform plan, President Obama announced a proposal to close certain tax loopholes which, according to the President, currently make it possible to “pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.” While it remains to be seen whether the closing of these loopholes would actually have any impact on offshore outsourcing (it appears that any such closures would affect only U.S. companies who operate offshore captives, while U.S. companies who outsource work to offshore vendors would see little to no impact), President Obama’s plan appears to be on hold while his administration tackles more critical domestic and international issues.

This doesn’t mean that the debate on this issue is over. In fact, several bills were introduced at both the federal and state levels over the last year that would impact offshore outsourcing. Below is a brief summary of some of those key bills. Although none of these bills have as of yet been enacted, they may give some indication as to the direction we may be headed.

Current attempts to enact anti-offshore outsourcing legislation at the federal level generally fall into one of three categories: (1) requiring call centers to identify their location; (2) restricting the transfer of personal information for processing outside the U.S.; and (3) limiting government funds for entities that outsource some of all of their services to foreign companies. In September 2009, a bill was introduced (H.R.3621) that would require employees at a call center who either initiate or receive telephone calls to disclose their physical location. In January 2009, a bill was introduced (H.R. 427) that would prohibit a business from transferring personally identifiable information of a U.S. citizen to any affiliate or subcontractor in another country without providing such citizen with notice of such transfer. Also in January 2009, an amendment to one of the financial rescue bills (H.R. 384) would have prohibited entities who received bailout funds from outsourcing new customer service or call center jobs to foreign companies.

At the state level, bills have been introduced to cut off state perks, including financial assistance and tax incentives, for companies that send work off-shore or out of state. For example, in New York, the “State Financial Incentive Protection Act” (A 4250) was introduced on February 2, 2009, and would prevent financial incentives provided by the state from going to companies that outsource jobs outside of the state. In this Act, “financial incentives” was very broadly defined as “any agreement or understanding between the State of New York and a business entity…providing for awards, grants, loans, loan grantees, tax benefits and other financial assistance to such business entities.” The New Jersey legislature introduced A 3516 on December 8, 2008, which has a similar intent as the New York bill by prohibiting businesses that outsource jobs overseas from receiving state contracts or grants as well as the investment of state funds in such businesses. A Pennsylvania bill (HB 440) takes a slightly different approach: the bill would require that all government contracts for services include a provision that requires all services performed under the contract, or performed under any subcontract awarded under the contract, to be performed at a physical location within the United States.

It should be noted that none of these bills actually prohibit offshore outsourcing. Rather, they attempt to place stumbling blocks in the way of U.S. companies that want to send work offshore. Regardless of their impact, everyone involved in or contemplating offshore outsourcing transactions should keep a watchful eye on these legislative developments.