In the United States, the change in control of both houses of Congress, as of January 2007, raises the possibility of significant new federal legislation affecting global services. State and local legislative initiatives will continue. Executives responsible for procurement or supply of business-process services will confront new U.S. legal issues in 2007 and 2008. Contract negotiations and governance structures need to deal with emerging legislative rules.

State Laws

Federal constitutional issues may prevent the enforcement of any state law that impedes the free trade in goods and services in interstate or international commerce. Clearly, under the Supremacy Clause of the U.S. Constitution, state laws must cede to conflicting federal laws under the principle of preemption, if Congress is intended to occupy the field.

In trade related to global services, Congress has given the President authority to negotiate trade agreements, in addition to presidential constitutional powers. In short, the states have limited capacity to regulate domestic or offshore outsourcing.

Political sentiment against “exportation of jobs” has spawned several proposed state laws. These proposals are largely oriented towards prohibiting the use of the state treasury to support any services that are provided by foreign workers.

State economic analysis. Several states have considered possible laws to study the economics of outsourcing and offshoring. In an approach considered by New Jersey, a commission will study the issues associated with the practices of outsourcing and offshoring.

State economic development Assistance funding. In some states, legislation (either pending or enacted) would prevent payments from “economic development assistance,” “public assistance,” or other subsidies to enterprises that hire foreign contractors.

State government contracts. In awarding contracts for services, states may seek to prohibit or require disclosures of labor performed outside the United States or the state, while others would simply give preferences to local labor. Many states (such as Arizona, home to many call centers, New Jersey, New York and Oregon) have considered laws to prohibit any state contracts to vendors or economic assistance applicants that perform any of the work (whether by employees or contractors) at a site outside the U.S.

Proposals in other states (California, Connecticut, Maine and New York) would only require disclosures, without prohibitions, on offshoring practices, describing the job descriptions and percentage of work offshored for state contracts.

State preferences for local providers. Federal law requires that the beneficiaries of funding of economic development programs hire only U.S. citizens and lawfully present aliens. States have seen the value of similar legislation.

Shifting of governmental health-care burdens to private employers. Unions, unable to unionize private service contractors, have shifted their approach to lobbying for statutory requirements that local employers be required to pay health-care insurance benefits. In one bill in California, local biotech, defense and aerospace industries using janitorial service contractors would be urged to “tell their cleaning contractors that they will support family health-care insurance for their contract janitors.”