The House passed a bill that would require public companies to disclose the number of domestic and foreign workers they have with an eye to revealing data on American jobs companies have outsourced to overseas locations.
The House passed the second of two securities bills considered this week, once again on party lines, this time for a bill designed to help investors better understand the global movement of U.S. public companies’ jobs. The Outsourcing Accountability Act of 2019 would require public companies to disclose the number of domestic and foreign employees they have for the purpose of identifying for investors the number of American jobs that such companies have outsourced to foreign countries. The outsourcing bill passed by a vote of 226-184. Previously, the House passed legislation to curb stock buybacks.
Outsourcing, risk, and messaging. House FSC Chairwoman Maxine Waters (D-Cal) noted that pubic companies currently must disclose the total number of employees they have but not where those employees are geographically located. The sponsor of the bill, Rep. Cindy Axne (D-Iowa), cited the case of Wells Fargo, which laid off Iowa workers ostensibly due to technology advances, but Rep. Axne said she heard from constituents who had to train their overseas replacements. Representative Axne said her bill would disincentivize companies from deceiving the public about job growth by citing job creation data that may actually be due to overseas hiring while engaging in U.S. layoffs.
Representative Carolyn Maloney (D-NY), chairwoman of the House FSC’s Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, added that outsourcing can expose companies to reputational and operational risk from, for example, political unrest and trade disruptions. She also suggested that it is harder for companies to train distant employees or to ensure regulatory compliance. All of the above, said Rep. Maloney, are things that can harm companies and investors and that these risks are material.
House FSC ranking Member Patrick McHenry (R-NC) described the bill as a name and shame bill that would add another non-financial disclosure requirement to the federal securities laws. He said that, in some cases, the bill could put lives at risk for people that are employed in countries around the globe. Later, Rep. McHenry touted the Tax Cuts and Jobs Act’s tax reform provisions for bringing more jobs and greater pay back to the U.S. He also said President Trump’s "aggressive trade agenda" was designed to keep jobs in the U.S. instead of outsourcing them via bad trade deals. Representative McHenry further cited the rising rate of labor force participation in the U.S. as another reason the bill is unnecessary.
Mechanics of outsourcing disclosure. The Outsourcing Accountability Act of 2019 (H.R. 3624) would require public companies to make new disclosures about the number of domestic and foreign workers they have:
- Who must report? Public companies with securities registered under Exchange Act Section 12.
- When is the report due? The first report would be due in the first full fiscal year after enactment.
- What must be disclosed? Companies subject to the disclosure requirement would have to disclose total numbers of their domestic and foreign employees: (1) a company and its covered subsidiaries must disclose the total number of U.S.-domiciled employees; (2) the company and its covered subsidiaries must disclose the total number of employees who both physically work and are domiciled outside the U.S.
Additionally, the data to be disclosed must be disaggregated in different ways depending on whether the data is for domestic or foreign employees. For disclosures regarding domestic employees, the data must be disaggregated by U.S. state and U.S. territory. For foreign employees, the data must be disaggregated by country. For both domestic and foreign employees, the data also must be "compared using a percentage change calculation to any such total reported by the issuer in the most recent annual report of the issuer." Emerging growth companies (i.e., a company with total annual gross revenues of less than $1,070,000,000, as adjusted for inflation) would be excepted from the outsourcing disclosure requirement.
The bill’s disclosure requirement would be self-executing. However, the SEC "may" adopt rules to implement the bill’s provisions.
Republican amendments rejected. The outsourcing bill was the subject of several amendments proposed by Republicans. First, Rep. Huizenga sought to add a provision that would make the outsourcing disclosure unnecessary if the issuer is already required to make disclosures under Exchange Act Section 13(p) (conflict minerals) or under the CEO pay ratio disclosure provision contained in Item 402 of Regulation S-K.
Representative Huizenga said his amendment would acknowledge that existing disclosures are sufficient. According to Rep. Huizenga, the bill would hamper economic growth through a policy of overregulation: "Once again, we are using the massive power of the federal government to bully companies around."
Chairwoman Waters countered that the amendment would gut the bill and limit the outsourcing disclosure only to small reporting companies, foreign private issuers, and some registered investment companies. She also offered some political advice to new members of congress: "Any time any company is shipping jobs out of your district, no matter where they are going, you raise the questions. You ask why they are doing that. Don’t be ashamed to do that. Don’t think that something is wrong with doing that. You were elected to represent the people in your district." The Huizenga amendment was defeated by a vote of 184-229.
Second, Rep. French Hill (R-Ark) sought to amend the bill to require disclosures only if the information involved is material. According to Rep. Hill, the bill would not disincentivize companies because they will still do what is in their long-term best interest. He also cited the potential for competitive harm from disclosures and the availability of the Worker Adjustment and Retraining Notification (WARN) Act (29 U.S.C. §2101, et. seq.). The WARN Act requires, subject to exceptions, 60-days advance notice to employees and to state officials of a plant closing or mass layoff.
Chairwoman Waters responded that a materiality standard would let companies effectively opt out of the disclosure requirement, a point Rep. Axne also noted because companies could decide what to tell the public. Representative Axne also countered that the WARN Act does not require disclosure regarding whether layoffs were due to outsourcing. The Hill amendment was rejected by a vote of 187-224.
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