Last week the New York Times reported the latest innovation from employers who use the H-2B visa temporary foreign worker program to hire workers to staff traveling carnivals (think your local county or state fair): an employer-created union that collectively bargains with employers on behalf of workers to keep wages artificially low. Thanks to a loophole in H-2B wage regulations, low-wage, low-road employers are permitted to pay their temporary foreign workers dreadfully low wages.

The genesis of the prevailing wage loophole

For about half a decade, thanks to an H-2B wage regulation the George W. Bush administration illegally put in place in 2008, employers of landscapers, dishwashers, tree planters, maids, janitors, carnival workers, and construction workers were allowed to pay their H-2B employees as little as the local 17th percentile wage. (This is legally defined as the “Level 1” prevailing wage, based on Labor Department wage survey data for the job and local area.) After the rule was struck down in federal court in 2010, the Obama administration promulgated a final wage rule in 2011 that would have required employers to pay H-2B workers the local average wage (what’s also known as the Level 3 prevailing wage). However, this effort led to years of federal litigation brought by H-2B employers that stopped the rule in its tracks, and spurred an onslaught of corporate lobbying that convinced members of Congress from both major parties to deny funding to the Labor Department to enforce the rule.

Finally, in April 2013, the wage rule for the H-2B program was re-promulgated as an interim final rule issued jointly by the departments of Labor and Homeland Security. (The fact that the rule was issued jointly negated the main legal challenge, namely that the Labor Department lacked authority to promulgate any H-2B wage regulation.) The 2008 and 2013 H-2B wage rules both required employers to pay their H-2B employees the wage set out in an applicable collective bargaining agreement (CBA). But under the 2008 rule, if no CBA applied, then employers were allowed to pay the 17th percentile wage. The 2011 final H-2B wage rule that Congress blocked would have required employers to pay the higher wage between the CBA wage or the local average wage. Under the 2013 rule, if no CBA covered the H-2B worker, then the employer would have to pay the local average wage.

Here’s an example of how much an employer saves by paying the 17th percentile wage versus the local average wage: For an H-2B employer in Richmond, Rhode Island, the 17th percentile wage for “Amusement and Recreation Attendants” is $8.70 per hour, while the local average wage for all workers in that job is $10.40 an hour. Under the 2008 H-2B wage rule, that amounts to a savings of $1.70 per hour per worker. Perhaps that doesn’t seem like a lot, but it ultimately puts a lot of extra money in the employer’s pocket if he has an entire crew of H-2B employees working around the clock for months at a time. And paying a sub-average wage for H-2B jobs discourages U.S.-born job seekers in the area from ever applying for those jobs.

Under the 2008 and 2013 wage rules, employers also had the option to pay the wage set by the federal Davis Bacon Act (DBA) or Service Contract Act (SCA) if either law applied, even if it was lower than the average wage. Since few H-2B jobs are covered by the DBA or SCA, in 2013 the local average wage became the de facto minimum for most H-2B jobs. The 2013 rule also allowed employers to keep using private wage surveys (as the 2008 rule allowed) that they conducted themselves or paid someone to conduct on their behalf. (Private wage surveys should never be allowed, since they are only ever used to pay workers less, but that is a topic for another blog post.)

How the prevailing wage loophole affects temporary foreign carnival workers

Since under the 2013 wage rule a lower wage set out in a CBA trumps the local average wage—and because carnival employers can no longer pay the 17th percentile wage as the 2008 rule permitted—the carnival employers decided to create a union that they controlled that would write CBAs with low wage rates. How do we know this is likely the case? Perhaps because, as the Times reports:

Several officers of the union, the Association of Mobile Entertainment Workers, also had close ties, it turned out, to two businessmen — one in Texas, the other in Mexico — who have long supplied carnivals and fairs with itinerant Mexican workers.

But the real smoking guns are the agreements the union negotiated:

And the evidence, advocates say, that the union was formed to serve the interests of carnival companies rather than workers is reflected in the bargaining agreements it struck. Those deals allow companies to pay workers a weekly rather than hourly salary and give them the right, under certain circumstances, to use the cost of housing to offset added pay.

If the allegations in the Times’ report are true, it’s a diabolically clever move by these low-wage, low-road employers, and it shows just how far they’re willing to go to exploit and underpay guestworkers on temporary nonimmigrant visas. The National Labor Relations Board is currently investigating the alleged “union,” which will be disbanded if it is dominated by or is supported financially by the employer.

Fast forward to April 2015. The departments of Labor and Homeland Security jointly promulgated an updated final H-2B wage rule, which is now in force. The 2015 wage rule rejects the 2011 rule approach (i.e., the employer pays the higher of the CBA, DBA, SCA, or local average wage), and keeps in place the requirement in the 2008 and 2013 wage rules—namely, that the employer must pay the CBA wage if one exists. This means that a legal framework will continue to exist where employers are incentivized to create fake unions that they control in order to keep wages low. If the departments of Labor and Homeland Security want to prevent employers from gaming the system in this way, they should step in and amend the 2015 wage rule so that it takes the approach of the 2011 wage rule: require that employers pay their H-2B workers the higher of the local average wage or the CBA wage, or if one exists, the Davis Bacon or Service Contract Act wage rate.