The Department of Justice has created an unworkable regulatory scheme whereby companies that endeavor to comply with the International Trafficking in Arms Regulations forbidding the “export” of technical data to individuals without sufficient ties to the United States (i.e., “U.S. persons”) are forced to violate anti-discrimination in hiring statutes.[1] The Department of Justice should change their regulatory and enforcement practices to clarify how companies can comply with the government’s conflicting requirements. Until such action is taken, there are certain practices we recommend that companies should implement to limit their liability.
What is ITAR?
The International Traffic in Arms Regulations (ITAR) controls the import and export of defense and military-related technologies and items for national security purposes.[2] ITAR controls the exchange of items included on the United States Munitions List (USML), which are termed “defense articles.” [3] Defense articles may be physical weapons (such as tanks, missiles, and other instruments of war), technology relevant to national security, or technical data (such as information necessary to manufacture other defense articles, software source code, and other defense-related information).[4] ITAR is read broadly, such that releasing data like a computer program to a foreign, unlicensed person or entity, even within the borders of the United States, is considered an unauthorized “export.”[5] This means that U.S. employers need to ensure that everyone that is granted access to such protected information is a U.S. person.
Who Is a U.S. Person?
ITAR creates a distinction between U.S. persons, who are automatically compliant, and foreign persons, who need to procure an export license to be compliant. A U.S. person is defined as either a U.S. citizen, U.S. national (a person owing permanent allegiance to the U.S., such as a person born in American Samoa or Swains Island), a lawful permanent resident (such as a green card holder), a U.S. corporation, or the U.S. government.[6] A foreign person, on the other hand, is defined as any person or entity not listed above.[7] Thus, employers of foreign persons who must access USML technical data as part of their job responsibilities will need an export license to do so.[8] As any business in this space knows, these licenses can be cost-prohibitive and time-consuming to obtain.
Between a Rock and a Hard Place: Export Restrictions or Anti-Discrimination Regulations
ITAR’s purpose is clear: protecting U.S. national security. But compliance with ITAR can put a company at odds with other laws and regulations. The Immigration and Nationality Act (INA) and Title VII of the Civil Rights Act of 1964 prohibit discrimination in hiring, firing, and recruitment decisions based on national origin.[9] These laws and their implementing regulations, while noble, can create legal problems when employers enact restrictive hiring practices when hiring for jobs that require the viewing of USML technical data.
Some employers have enacted policies that screen out foreign persons when hiring for these jobs which violates the anti-discrimination provisions even while being ITAR compliant. These employers might not be able to obtain an export license for foreign persons, because of a lack of resources, the sheer confusion of navigating ITAR compliance, or even the fact that certain nationalities are completely prohibited from obtaining ITAR licenses. Regardless of the reason, an employer may be held liable for discriminatory employment or hiring practices even as they attempt to comply with ITAR requirements in good faith.
DOJ Guidance and Enforcement
The DOJ’s Immigrant and Employee Rights Section, Civil Rights Division (IER) is responsible for enforcing the anti-discrimination provisions of the INA and has made it clear that it will pursue litigation against companies who hire only U.S. citizens in order to try to be ITAR compliant.[10] In 2016, the IER issued a guidance letter to a law firm that stated that ITAR should not be a reason for discrimination in hiring but instead an export license should be obtained for non-U.S. personnel if they are required to access ITAR information.[11]
The IER has already brought several lawsuits in such cases that have reached large settlements. One such suit was brought against Honda Aircraft Company LLC for restricting job postings to applicants who were US citizens.[12] Its apparent INA violation cost the company a civil penalty of $44, 626.[13] Another suit was brought against Clifford Chance US LLP, a large international law firm, for apparent INA violations. [14] Due to the law firm’s alleged misunderstanding of ITAR restrictions, Clifford Chance excluded foreign persons from positions requiring document review of ITAR related information.[15] The DOJ pounced, forcing the firm to settle and agree to pay lost wages to the individuals affected by its hiring practices as well as a civil penalty of $132,000. [16] It also reached an agreement to allow IER oversight for two years as well as required training for relevant employees about the requirements of INA. Another similar suit was filed against Setpoint Systems Inc. based on restrictive hiring practices for certain positions to comply with ITAR.[17] Setpoint Systems ultimately settled with the DOJ for a civil penalty of $17,475.[18] Each of these cases demonstrate that compliance with both ITAR and non-discrimination laws is crucial, even where compliance with both does not seem possible.
What Could to be Done to Make Compliance Clearer?
The Department of Justice should first clarify its regulatory and enforcement practices to make it easier for companies to navigate compliance with these regulatory regimes. These clarifications should include whether exigent circumstances, such as immediate contract deadlines that would make applying for an export license impracticable, would warrant screening for U.S. persons in hiring and employment decisions. Additionally, if it is the expectation of the U.S. that employers seek export licenses for non-U.S.-person employees instead of screening them out in employment decisions, then the process must be streamlined. It currently takes months, if not longer, to obtain an export license, and that process usually requires specific knowledge of the exact USML category, product, and information the prospective employee will access, limiting the ability of that employee to take on new government contract tasks after the employee’s initial assignments are complete. While these kinds of changes may be overly optimistic, there are still various strategies for minimizing risks in the meantime.
What should Companies do in the Meantime to Comply with ITAR?
These are difficult issues to navigate due to the legal ambiguities involved in complying with both export regulations and non-discrimination obligations; however, companies can still minimize their risks. Perhaps the most prudent thing for companies to do is to consider the feasibility of obtaining an export license when determining whether a company can or should hire additional employees. This would avoid restrictive job postings that limit employment based on nationality. Hiring decisions should be based on ability to work in the United States and then employers should apply for the export license needed to comply with ITAR. Furthermore, if information related to citizenship is being collected due to the company’s legitimate security or business concerns, such as determining if an employee would need a license, it is critical that the company have a policy in place to govern the collection and use of that information, so that it is not being used as a basis for employment decisions. Ultimately, a business operating in the export realm often faces a nigh impossible choice of which law to comply with. Consulting a lawyer ahead of time can provide much needed protection and guidance so that a business does not activate the government’s trip wires of competing laws.
If you have questions about complying with export regulations while also complying with anti-discrimination regulations, please contact the experienced government contract and labor attorneys at Eckland & Blando LLP.
[1] Co-authored by Robby Dube, associate at Eckland & Blando. Research and drafting assistance provided by Atiya Oberoi and Kenneth Cooper, law clerks at Eckland & Blando.
[2] 22 C.F.R. § 120.1.
[3] 22 C.F.R. § 120.3.
[4] 22 C.F.R. § 120.6 (defining defense article); 22 C.F.R. § 120.10 (defining technical data).
[5] 22 C.F.R. § 120.17.
[6] 22 C.F.R. § 120.15.
[7] 22 C.F.R. § 120.16.
[8] 22 C.F.R. § 120.17.
[9] 8 U.S.C § 1324b (1996); 42 U.S.C § 2000e-2(a) (2008).
[10] Office of Special Counsel for Immigration-Related Unfair Employment Practices, U.S. Department of Justice, Guidance Letter (2016).
[11] Id.
[12] Justice Department Settles Immigration-Related Discrimination Claim Against Honda Aircraft Company LLC, U.S. Department of Justice, Feb. 1, 2019, https://www.justice.gov/opa/pr/justice-department-settles-immigration-related-discrimination-claim-against-honda-aircraft.
[13] Id.
[14] Justice Department Settles Immigration-Related Discrimination Claim Against International Law Firm, U.S. Department of Justice, Aug. 29, 2018, https://www.justice.gov/opa/pr/justice-department-settles-immigration-related-discrimination-claim-against-international-law.
[15] Id.
[16] Id.
[17] Justice Department Settles Immigration-Related Discrimination Claim Against Setpoint Systems Inc., U.S. Department of Justice, June 19, 2018, https://www.justice.gov/opa/pr/justice-department-settles-immigration-related-discrimination-claim-against-setpoint-systems.
[18] Id.