Recent USCIS Memo on Employer-Employee Relationship Requirements for H-1B Visa Petitions: Regulation by Memorandum?

Donald Neufeld, Associate Director or Service Center Operations for the United States Citizenship and Immigration Service (USCIS) recently issued a guidance memo to its adjudication officers, Determining Employer-Employee Relationship for Adjudication of H-1B Petitions, Including Third Party Site Placements ("Neufeld Memo" or "Memo"). The Memo clarifies what constitutes a valid employer-employee relationship, in the context of petitions for H-1B visas, which are commonly used by IT staffing agencies and consulting groups for placing skilled workers at third-party worksites.1

On February 18, the USCIS held a "Collaboration Session" in Washington, D.C., to address the growing concerns about the implications of the Neufeld Memo. Approximately 500 people (400 via teleconference) attended the two-hour session, in which USCIS officials responded to the "unintended consequences" caused by the Neufeld Memo. Several participants, including the American Immigration Lawyers Association (AILA), requested that the USCIS formally withdraw the Neufeld Memo. The USCIS representatives explained that Senator Chuck Grassley (R-IA) had contacted the USCIS directly to complain about H-1B fraud. Whether the consequences of the Neufeld Memo were intended or not, the USCIS's hasty response to pressure from Senator Grassley has had serious repercussions for consulting companies and staffing agencies that place H-1B employees at third-party clients' worksites. In what may turn out to be a classic case of throwing the baby out with the bathwater, the Neufeld Memo applies not only to those companies that have abused the H-1B system, but the blanket policy also applies to several highly regarded IT consulting companies and staffing agencies that have no prior record of any H-1B violations.

The Memo's Guidance

Pursuant to the Neufeld Memo, H-1B petitioners must clearly show that an employer-employee relationship will exist between the petitioner and the beneficiary, and establish that the H-1B petitioner will be responsible for the overall direction of the beneficiary's work. Moreover, the petitioner must also have the right to control the employee's work, which includes the ability to hire, fire and supervise the beneficiary. Lastly, the H-1B petitioner should be able to establish that it will maintain control throughout the duration of the requested H-1B validity period.

The Memo ultimately concludes that although some staffing agency employment scenarios and third-party placements meet the employer-employee relationship requirement, many others do not. In the majority of those situations, the petitioner and beneficiary do not maintain the requisite employer-employee relationship for the duration of the requested H-1B visa's validity period. Furthermore, the Memo states that the lack of guidance in clearly identifying the relationship has created problems in applying the requirement to specific employment relationships, including independent contractors ("IC"), self-employed individuals (albeit the Memo does not provide any clear distinguishing features that differentiate a "self-employed individual" from an independent contractor), and beneficiaries placed at third-party worksites.2 Although the latter relationship is quite common within certain industries, the Memo states that it creates particular concern as to whether a valid employer-employee relationship exists.

The Employer-Employee Relationship

Citing the H-1B regulations, the Neufeld Memo explains that a U.S. employer that files an H-1B petition must have "an employer-employee relationship with respect to employees under this part, as indicated by...