H-1B Update: The Neufeld Memo Redefines the Employer-Employee Relationship
On January 8, 2010, USCIS issued new guidance regarding how it will adjudicate H-1B petitions. This guidance, also referred to as the Neufeld Memo, takes a close look at which "employers" may file H-1B petitions, and in particular, what constitutes a valid employer-employee relationship. Since the Neufeld Memo was released, there has been an outcry from the immigration bar, H-1B petitioners, and beneficiaries alike over the potential for a radical change to USCIS's long-standing practices and policies of approving H-1B petitions. In essence, some relationships that previously supported H-1B status no longer will. Petitioners most dramatically affected will be those filing on behalf of beneficiaries working at third-party worksites.
The term "United States employer" is defined as:
[A] person, firm, corporation, contractor, or other association, or organization in the United States which:
- Engages a person to work within the United States;
- Has an employer-employee relationship with respect to employees under this part, as indicated by the fact that it may hire, pay, fire, supervise, or otherwise control the work of any such employee; and
- Has an Internal Revenue Service Tax identification number.
8 CFR § 214(h)(4)(ii) (emphasis added). The Neufeld Memo seems to ignore the fact that "control" is merely an alternative element of the second prong above. Explaining that its guidance provides clarity to the definition of "employer," and borrowing from the common law and the Supreme Court, the Neufeld Memo takes aim at the employer's "right to control," providing the following factors to be considered in determining the existence of an employer-employee relationship:
- Does the petitioner supervise the beneficiary and is such supervision off-site or on-site?
- If the supervision is off-site, how does the petitioner maintain such supervision, i.e., weekly calls, reporting back to the main office routinely, or site visits by the petitioner?
- Does the petitioner have the right to control the work of the beneficiary on a day-to-day basis if such control is required?
- Does the petitioner provide the tools or instrumentalities needed for the beneficiary to perform the duties of employment?
- Does the petitioner hire, pay, and have the ability to fire the beneficiary?
- Does the petitioner evaluate the work-product of the beneficiary, i.e., progress/performance reviews?
- Does the petitioner claim the beneficiary for tax purposes?
- Does the petitioner provide the beneficiary any employee benefits?
- Does the beneficiary use proprietary information of the petitioner in order to perform the duties of employment?
- Does the beneficiary produce an end-product that is directly linked to the petitioner's line of business?
- Does the petitioner have the ability to control the manner and means in which the work product of the beneficiary is accomplished?
The Memo notes that no one factor is decisive and that adjudicators will review the totality of the circumstances when making a determination as to whether the employer-employee relationship exists.
Even when the H-1B petitioner meets the first four elements of the second prong in the U.S. employer definition, namely, that it may "hire, pay, fire, [and] supervise [the] employee," USCIS apparently has interpreted this to mean that it may still impose a requirement for proof of the element of control, and that it will deny applications if adequate proof is not provided. In essence, the Neufeld Memo creates a new documentation requirement for H-1B petitioners, which is particularly onerous to satisfy for employers who wish to place beneficiaries at third-party worksites. Before the Memo, such employers were required to provide evidence establishing the precise position and duties in which the beneficiary would be engaged at the third-party site. Now, in view of the Neufeld Memo, they must also include evidence to satisfy as many of the right-to-control factors as possible.
The Neufeld Memo suggests a combination of the following or similar types of evidence to accompany an initial H-1B petition:
- A complete itinerary of services and engagements, including names and addresses of actual employers;
- Copy of signed employment agreement between petitioner and beneficiary;
- Copy of employment offer letter;
- Copy of relevant portions of valid contract between petitioner and client establishing that petitioner will continue to have right to control employee;
- Copy of signed agreements, statements of work, work orders, and letters between petitioner and authorized officials of end-client company where work will be performed by beneficiary;
- Copy of position description or other documents that describe skills required to perform the job offered, source of instrumentalities and tools needed to perform the job, etc.;
- Description of performance review process; and/or
- Copy of petitioner's organizational chart demonstrating beneficiary's supervisory chain.
Moreover, the Memo imposes a similar documentation requirement on petitioners seeking to extend H-1B petitions. Petitions for H-1B extensions must now be accompanied with evidence that a valid employer-employee relationship was maintained during the course of the expiring H-1B. Such evidence may include time sheets, performance reviews, and pay records. If USCIS is not convinced that the "employer-employee" relationship was maintained throughout the course of the expiring H-1B period, the extension petition may be denied unless there is some other compelling reason to approve it.
Ironically, the federal government, which seems to employ more contractors than it does employees, may also be adversely affected by the Neufeld Memo. Many large companies concerned with maintaining low headcount regularly employ staffing companies. These large companies as well will feel the effects of Neufeld. And medical industry personnel, including physicians, nurses, and physical therapists will undoubtedly be affected. The ramifications of the Neufeld Memo may be especially devastating to remote areas which rely heavily on H-1B healthcare workers to provide necessary medical services.
Some practitioners claim to have seen the writing on the wall - that even before the Neufeld Memo, USCIS was issuing lengthy RFEs in response to H-1B petitions, requesting submission of substantial documentation, including such documentation that would support the Neufeld "right to control" factors. More than a few practitioners view the Neufeld Memo as a good thing, reasoning there is now more of a "bright line" test, or a blueprint for moving forward, that responses from USCIS will be more predictable, that U.S. companies have been given an opportunity to reevaluate their respective business models. But far more practitioners, as well as AILA, argue that the supposed guidance in the Neufeld Memo is a substantive rule change which cannot properly be imposed by a memorandum, that the broad definition of employer is inconsistent with the law, and that applying the guidance in the Neufeld Memo to H-1B petitions will serve to overturn decades of precedent and regulatory interpretation and to deny eligibility for benefits to large numbers of deserving people.
While it is unlikely the Neufeld Memo will be retracted, it may ultimately be revised under pressure from AILA. Threatened or actual litigation may change the contours of the guidance. If the substance of the Memo remains the same, however, there can be no denying that the rules of the game will have changed. Indeed, Service Centers have already begun to borrow from the language of the Memo in issuing RFEs and denials. So what can be done, now and in the future?
Those most vulnerable to the changes in the Neufeld Memo would be wise to examine their business models and ascertain whether anything might be done to fit under as many of the right to control factors laid out in the Memo as possible. For example, the H-1B petitioner might document administrative processes, clearly defining for whom its H-1B employees are working, to whom they report, and how their work is assigned to them such that they are not perceived as being employees of the petitioner's clients. The following are additional strategies that may maximize the likelihood of H-1B petition approvals:
- When submitting the H-1B petitions:
- for each document submitted as evidence, indicate how the document demonstrates the right to control;
- Parrot the language of the Neufeld Memo in initial petitions, extension petitions, and responses to RFEs;
- List all locations of employment and provide contracts for each;
- Show that all (or as many as possible) of the right-to-control elements will exist for the duration of the H-1B period;
- Err on the side of inclusion. Take a "kitchen sink" approach to initial petitions and responses to RFEs by providing as much documentation as possible - USCIS seems to be inviting 100 or more page submissions;
- Consider providing examples of work product; and
- Consider submitting affidavits from coworkers and supervisors as evidence of right to control.
- As an H-1B employee, retain all your pay stubs if the petitioner plans to file an extension on your behalf.
- If the H-1B worker is a shareholder of a company, think about creating a committee of owners to whom the H-1B worker can report.
- As an H-1B petitioner:
- Retain documents regarding hiring, promotions, demotions, relocations, etc.
- Investigate and resolve upfront issues relating to proprietary information of the end client that that client may not wish to share with petitioner for submission to USCIS;
- Consider assigning a notebook computer to every employee;
- Consider crafting contracts with end clients to include language allowing for petitioner's "right to control" the H-1B beneficiary (remember, the issue is right to control, not actual control); and
- Exercise caution when moving employees from one location to another without an LCA specific to each location.
- For staffing companies, consider requiring supervisors to regularly evaluate performance of those employees the company places.
- Consider whether the petitioner can qualify as an agent (beyond the fashion model context provided in the Neufeld Memo); this may be successful where the beneficiary is self-employed or uses agents to arrange short-term employment.
Perhaps an even greater concern is the potential widespread applicability that the Neufeld Memo may have on other areas of employment-based immigration. For example, does the Memo affect what may happen at the Consulate when an H-1B worker arrives to have his visa stamped? Will the Memo affect adjudication of other employment-based petitions, e.g., EB-1, L-1, I-140, etc.? The answer unfortunately appears to be yes. While the Memo specifically states that its focus is on the H-1B petitioner, our office is aware of denials of I-140 petitions that have already been issued in which the guidance in the Neufeld Memo was apparently relied upon.
With all the uncertainty that the Neufeld Memo brings, if you are considering petitioning for an H-1B worker, or are a potential H-1B beneficiary, it is best to consult with an immigration attorney to maximize the likelihood that your petition will be approved. To discuss how we can be of help to you in preparing your H-1B filing, please call our offices at (847) 763-8500 or e-mail ContactILA@immig-chicago.com.