The Deemed Export Rule: Balancing Requirements Under U.S. Export Control and Anti-Discrimination Laws

Phillips Lytle LLP
Phillips Lytle LLP

In a press release issued earlier this year, the Immigrant and Employee Rights Section of the U.S. Department of Justice (DOJ) announced that it reached a settlement agreement with Honda Aircraft Company, LLC (“Honda Aircraft”), resolving a claim that Honda Aircraft had violated the Immigration and Nationality Act (INA) when, in an effort to comply with U.S. export control laws, Honda Aircraft refused to consider or hire certain employment-authorized non-U.S. citizens because of their citizenship status.

In recent years, the DOJ has increased its enforcement efforts on this very issue, focusing on employers that violate the INA due to a misinterpretation of their obligations under U.S. export control laws. There is no indication this trend will slow any time soon. As a result, employers with products and technologies that are subject to U.S. export control laws must proceed cautiously and ensure their hiring practices comply with both export control and anti-discrimination laws.

Intersection of the INA and U.S. Export Control Laws

Under the INA, employers are prohibited from discriminating against employment-authorized individuals based on their citizenship, immigration status or national origin.1 As such, employers are generally prohibited from considering — or even inquiring about — the citizenship or immigration status of current employees and applicants. However, the INA does not prohibit discrimination because of “citizenship,” which is otherwise required in order to comply with a law, regulation or executive order.2

Under U.S. export control laws, the unauthorized export or transfer of controlled goods, technology or software to a foreign country is prohibited. For instance, the International Traffic in Arms Regulations (ITAR) regulate defense articles and services, as well as technical data related to defense articles and services, while the Export Administration Regulations (EAR) control commercial articles, technologies and software that have both civilian and military applications.

Notably, under the “deemed export” rule, the release of controlled technical data (under the ITAR) or technology (under the EAR) to a non-U.S. person is deemed to be an export to his or her country. Under the ITAR and EAR, U.S. persons include U.S. citizens, U.S. nationals, lawful permanent residents, and “protected individuals” under the INA (i.e., individuals granted asylum or refugee status).

Honda Aircraft and Related DOJ Enforcement and Guidance

In the February 2019 press release regarding its settlement with Honda Aircraft, the DOJ alleged that Honda Aircraft published at least 25 job postings that required applicants to be U.S. citizens or lawful permanent residents to be considered for the available positions. Based on its investigation, the DOJ concluded that Honda Aircraft’s violation of the INA was due to a misunderstanding of the company’s requirements under the ITAR and EAR. The DOJ indicated that, while the ITAR and EAR may limit the unauthorized transfer of controlled technology to non-U.S. persons, they do not require or permit employers to restrict hiring to only U.S. citizens and legal permanent residents, who hold so-called “green cards.” Under the settlement terms, Honda Aircraft agreed to pay a civil penalty of $44,626 and provide training on the INA’s anti-discrimination provisions for certain employees.

In March 2016, the DOJ released a Technical Assistance letter, providing guidance on when and how employers may ask applicants about their citizenship or immigration status to comply with export control laws, including the ITAR and EAR. In its letter, the DOJ explained that, to the extent an employer asks such questions, they should be (1) limited to positions that are subject to export control laws, (2) asked of all job applicants and (3) asked only to determine whether the employer will need an export license for certain individuals in particular positions. The DOJ further explained that employers should avoid rejecting a job applicant based on his or her answers.

Finally, showing the enforcement trend, last year the DOJ reached similar settlements with two (2) employers accused of violating the INA by hiring only U.S. citizens for positions involving ITAR-controlled information. The first employer settled a civil penalty of $17,457, while the second employer agreed to pay a $132,000 penalty. Both employers were also required to provide training and modify their hiring policies to comply with the INA going forward.

What Should Employers Do Now?

In light of the DOJ’s guidance and recent enforcement actions, employers should review their current internal policies to ensure they comply with both U.S. export control and anti-discrimination laws. As the DOJ settlements demonstrate, the potential liability for violating such laws can be substantial.

Additional Assistance

For assistance with export control and international trade matters, please contact Jon P. Yormick, Special Counsel, at jyormick@phillipslytle.com, (716) 847-7006, (585) 238-2000 x7006 or (216) 928-3474. Should you have any questions regarding the INA, hiring practices or any other labor and employment matters, please contact Luke B. Kalamas, Associate, at lkalamas@phillipslytle.com or (585) 238-2035.

  1. Title VII of the Civil Rights Act of 1964 (“Title VII”) also prohibits discrimination based on national origin.
  2. The U.S. Equal Employment Opportunity Commission, the agency responsible for enforcing Title VII, has taken a similar position, indicating that “[w]hen U.S. citizenship is required by federal law, the failure to hire an individual because he or she is not a U.S. citizen does not constitute national origin discrimination in violation of Title VII.”
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2 Comments

  1. Andrew Parr on May 8, 2019 at 9:09 am

    The fact that a U.S. State Export Council deemed to post a law firms marketing pitch; for me, doesn’t take away the benefit of keeping the public informed about the latest developments in DOJ’s interpretation of the INA with regard to the nexus between “Deemed Exports & Anti-Discrimination”.

    Personally, I believe that DOJ’s rulings are misplaced. As I’ve seen time & time again, business units jump through a lot of hoops and candidates are strung along for weeks/months as the review process goes along; only to find in the end that the costs in terms of time, $$$ and resources that it would take to bring a non-US Citizen (or US Person – as the case may be) on to an export controlled position are prohibitive in most cases. DOJ doesn’t seem to factor in what it takes to implement an appropriate Technology Control Plan (TCP) to safeguard a company’s technology. I believe Honda and the others in industry were doing the non- Citizen/Persons a favor by not unduly getting their hopes up. Sometimes the law is not humane – even when it tries it’s best to be so.

    • toddhiser1 on May 10, 2019 at 12:15 pm

      Thank you for the comment Andrew! Just to be clear, the Ohio District Export Council (DEC) is a private non-profit organization that assists local exporters and is not affiliated with any US state. We appreciate hearing your opinion and encourage you to bookmark out blog!

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