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USCIS Issues Guidance on Employer-Employee Relationship Requirements for H-1B Petitions - January 15, 2010

Today a new USCIS memo was released that could severely limit the ability of IT Consultancy Firms to sponsor H-1B applicants. Since April 2009, the government has been changing their interpretation of many aspects of the H-1B program, to the detriment of employers and prospective H-1B employees. This is certainly due, at least in part, to the government's new focus on fraud prevention in the H-1B program. While we are certainly in favor of any new procedures or interpretations that could reduce fraud in the H-1B or any other program, we are discouraged by the fact that government is seemingly issuing new guidance in many aspects of the H-1B program without notice.  Furthermore, we are discouraged by the fact that their new interpretations are being followed inconsistently, to the detriment of legitimate H-1B employers, and are clearly causing excessive delays, uncertainty, and erroneous denials.

To qualify for H-1B status, one of the requirements is that an employer-employee relationship exist between the employer filing the H-1B application and the prospective H-1B employee.  The USCIS memo that was released today (Determining Employer-Employee Relationship for Adjudication of H-1B Petitioners, Including Third-Party Site Placements, Donald Neufeld, January 9, 2010) clarifies the definition of "employer-employee relationship" and what type of documentation can be used in order to prove that this relationship exists.  The memo states that the employer-employee relationship exists when the petitioner has the "ability to hire, pay, fire supervise, or otherwise control the work of any such employee" and the petitioner must be able to establish that it has the right to control when, where and how the beneficiary performs the job.

The memo lists a variety of documentation that can be used to prove that this relationship exists, and clearly states that the government will look at the totality of the circumstances (with no one factor being decisive).  In order to make this determination, the memo indicates that adjudicators will look to the following criteria:

  1. Does the petitioner supervise the beneficiary and is such supervision off-site or on-site?
  2. If the supervision is off-site, how does the petitioner maintain such supervision, i.e. weekly calls, reporting back to main office routinely, or site visits by the petitioner?
  3. Does the petitioner have the right to control the work of the beneficiary on a day-to-day basis if such control is required?
  4. Does the petitioner provide the tools or instruments needed for the beneficiary to perform the duties of employment?
  5. Does the petitioner hire, pay, and have the ability to fire the beneficiary?
  6. Does the petitioner evaluate the work-product of the beneficiary, i.e. progress/performance reviews?
  7. Does the petitioner claim the beneficiary for tax purposes?
  8. Does the petitioner provide the beneficiary any type of employee benefits?
  9. Does the beneficiary use proprietary information of the petitioner in order to perform the duties of employment?
  10. Does the beneficiary produce an end-product that is directly linked to the petitioner's line of business?
  11. Does the petitioner have the ability to control the manner and means in which the work product of the beneficiary is accomplished?

The government provides an example of an IT Consultancy Firm that hires an H-1B employee to work as a computer analyst and the Consultancy Firm contracts the employee to a third-party company to fill a core position to maintain the third-party company's payroll.  In this scenario, the government indicates that the required employer-employee relationship does NOT exist.  The memo indicates that there is no qualifying relationship due to the fact that specific position was not outlined in contracts between the IT Consultancy Firm and the third-party client company; that the H-1B employee reported to a manager who worked for the third-party company; that the H-1B employee did not report to the IT Consultancy Firm for work assignments (but instead received them from the third-party company); the IT Consultancy Firm did not have control over how the H-1B beneficiary completed daily tasks; that the end-product that the H-1B employee worked on did not relate to the IT Consultancy Firm's line of business; and that progress reviews were completed by the client company.  Many of these factors are typical in Computer Consultancy contracts, which is a great cause of concern.

Of additional concern is the requirement that the employer must document that the employer-employee relationship will exist for the duration requested on the H-1B application, and that an itinerary covering the entire period requested needs to be provided with the H-1B application.  Typically, IT Consultancy Firms assign employees to short-term projects and do not know which specific project the employee will work on once the initial project is complete.  Even if the IT Consultancy Firm is well-established with years of consistently placing employees on projects (without benching employees), that fact is that consultancy companies typically cannot determine exactly where an employee will be in two or three years.

These new developments are frustrating and could severely limit consultancy firms from utilizing the H-1B program.  We encourage you to contact us with any questions and will provide updates as they become available.