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Rami Fakhoury on IT Immigration

The Neufeld Memo – New Ground Rules for H-1B Documentation (and a lot of the Same, Old Problems)

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>The Neufeld Memo - New Ground Rules for H-1B Documentation (and a lot of the Same, Old Problems)  >>




This Version Submitted January 19, 2010>>



Copyright 2010 FLG/ ILW.COM>>



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fficial&sa=G&ei=oZX9SuviNc-6lAfE7syxCw">  Fakhoury Law Group produces occasional client alerts and background papers to alert clients to breaking news in the Immigration Law field.  >>

This document outlines developments related to the release on January 8, 2010 of a USCIS Memo that is of importance to companies that utilize the H-1B program, particularly firms that may place non-immigrant workers at client sites.  The Memo was written by Donald Neufeld, Associate Director Service Center Operations.[1]  >>

This document outlines new guidance to USCIS officers at Service Centers processing H-1B applications, and also signals a new focus for the agency's efforts to regulate outsourcing and so-called Job Shops.  The Neufeld memo is important to all H-1B employers because it lays out an expanded list of documents in several categories that companies will now have to provide with initial petitions for H-1B workers.>>

 Significantly, the Neufeld Memo identifies a number of categories of outsourcing applications that the Service will approve and a list of documents that will be required.  It also describes several scenarios involving types of cases lace w:st="on">lacename w:st="on">Servicelacename> lacetype w:st="on">Centerlacetype>lace> examiners should not approve, and provides what appears to be a more solid legal rationale for how it makes these decisions.  >>

In addition to heightened documentary demands, the memo instructs examiners how they should deal with the issue of employer "control" over the work of H-1B beneficiaries assigned at third-party client sites.  While some of these issues are not new, this is a significant statement of how USCIS will treat certain categories of applications, and a warning that the agency will be requiring all applicants to address and document issues related to control.  Finally, it communicates that USCIS will also be enforcing rules against the self-employment of investors, the hiring of independent contractors, and will be looking at certain indicators that H-1B petitioners are actually employment agencies, and will deny those determined to be operating outside the traditional "employer- employee relationship."  >>






Q.  What are the attestations and/or documents that now need to be filed with H-1B petitions to demonstrate control?>>


A. The memo signals that new filings of H-1B petitions will have to attest to, and where applicable, be accompanied by the following types of documents: >>

A complete itinerary of engagements that specifies the dates of each service or engagement, the names and addresses of the actual employers, and the names and addresses of the establishment, venues, or locations where the services will be performed for the period of time requested;>>

Copy of signed Employment Agreement between the petitioner and beneficiary detailing the terms and conditions of employment;>>

Copy of an employment offer letter that clearly describes the nature of the employer-employee relationship and the services to be performed by the beneficiary;>>

Copy of relevant portions of valid contracts between the petitioner and a client (in which the petitioner has entered into a business arrangement for which the petitioner's employees will be utilized) that establishes that while the petitioner's employees are placed at the third-party worksite, the petitioner will continue to have the right to control its employees;>>

Copies of signed contractual agreements, statements of work, work orders, service agreements, and letters between the petitioner and the authorized officials of the ultimate end-client companies where the work will actually be performed by the beneficiary, which provides information such as a detailed description of the duties the beneficiary will perform, the qualifications that are required to perform the job duties, salary or wages paid, hours worked, benefits, a brief description of who will supervise the beneficiary and their duties, and any related evidence;>>

Copy of position description or any other relevant documentation that describes the skills required to perform the job offered, the source of the instrumentalities and tools needed to perform the job*, the product to be developed or the service to be provided, the location where the beneficiary will perform the duties, the duration of the relationship between the petitioner and the beneficiary, whether the petitioner has the right to perform additional duties, the extent of petitioner's discretion over when and how long the beneficiary will work, the method of payment, the petitioner's role in paying and hiring assistants to be utilized by the beneficiary, whether the work to be performed is part of the regular business of the petitioner, the provision of employee benefits*, and the tax treatment of the beneficiary in relationship to the petitioner*;>>

A description of the performance review process*; and/or>>

Copy of petitioner's organization chart, demonstrating beneficiary's supervisory chain.>>

The above requirements stated in the Neufeld memo are virtually identical to the demand-list of documents attached to a typical USCIS Request For Evidence (RFE) that Immigration Attorneys and clients have been receiving for years.  [* An asterisk denotes documents that were not commonly called for or provided previously]  >>

This is a long list, and may seem an unduly burdensome requirement for additional documentation of "control" from H-1B employers with client site placements.  These   were previously most often seen in RFEs.  Now, the Service has articulated a requirement that these same documents be provided up front with initial H-1B filings, and is putting filers on notice that missing any of the eight listed elements will likely result in an RFE and a denial.>>


Q.  What part of these documentary requirements appears to present a worrying new direction in H-1B enforcement?>>

A.  Several elements stand out in the documentation  requirements stated in the Neufeld Memo>>


A very close reading of the memo reveals USCIS citation of several court decisions that considered several key questions: >>

    when a beneficiary is actually an employee or an independent contractor,>>

    when a petitioning firm actually operates as an agent as opposed to exercising control a bona fide employer, and, >>

    the question of when is a director of a company actually employed as opposed to being a mere investor.  >>

The decisions cited, the distinctions drawn in those decisions, along with several of the required documents listed in the memo, indicate that USCIS is looking more closely at the related issues of Self-employed Beneficiaries, Independent Contractors, and Agents as Petitioners.  We will examine these, below, in greater detail at pp. 7-8.>>


Q.  What are the specific documents and elements that must now be demonstrated to enhance the chances that a petition will be approved or renewed under the new guidelines?>>

A.  Here are some specific items identified in the Neufeld memo:>>

1.    Contents of H-1B support letter

-   Name supervisor, title, contract information, work location, frequency beneficiary reports to the supervisor, and how petitioning company exercises ongoing supervision  and control over the beneficiary.
-   Mention petitioner has sole and exclusive authority to hire, promote, and fire the beneficiary.
-   Mention any proprietary software, methodologies or tools utilized or developed by the petitioner as opposed to the third-party client or the foreign national, himself (NOTE: those that belong to the petitioner are weighed in favor of establishing the employer-employee relationship, while those provided by the third-party client indicate the petitioner may not have full control over the work; in addition, if the bulk of "tools and instrumentalities" are owned and brought to the job by the beneficiary,  this may indicate the beneficiary is an independent contractor, a factor which can also be used along with other factors to deny the petition.) 
-   Mention any performance reviews that are conducted exclusively by the petitioner.
-   Provide description of petitioner's performance review process.
Describe how beneficiary's duties to be carried out are essential to petitioning company's core line of work>>

- Describe direct and indirect company benefits and support the petitioning employer provides to the petitioner, such as paid education, paid or subsidized medical/dental, life or other insurance, job training, HR counseling, travel, transportation, childcare, and housing allowances, perks, and company leisure and community activities. 

For managers, executives, directors or beneficiaries with equity interest in petitioning firm, specify the following:

-    Whether the organization can hire or fire the individual or set the rules and regulations of the individual's work either by employer's direct right of control or by right of partnership as specified in incorporation agreement.
-    Whether and, if so, to what extent the organization supervises the individual's work, including the functional and project management authorities of others within the organization.
-    Whether the individual reports to someone higher in the organization or must answer to other partners who may be able to combine to outvote the beneficiary.
-    Whether and, if so, to what extent the individual is able to influence the organization and the functional and organizational limits thereupon.
-    Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts.
-    Whether the individual shares in the profits, losses, and liabilities of the organization (if a minority share, so state, if majority interest or joint venture, specify implied right of mutual veto and other constraints on powers of beneficiary, such as limits on powers specified in Articles of Incorporation or corporate by-laws.

2. Include the employment offer/acceptance letter listing title and job duties of beneficiary, and make sure it is signed by both the petitioner and beneficiary.

3.    Include organization chart listing the personnel above and below the beneficiary, and where all these individuals fall within the lace w:st="on">U.S.lace> company

4.   Include work itinerary (Scope of Work).

5.   Include
service agreement between petitioner and customer.

Make sure there is language in the agreement that states the petitioner has "sole right to control the manner and means for accomplishing the services to be performed under the agreement" 
-   If current existing agreement does not include this language, obtain amendment that incorporates this language
-   Avoid any language in agreement that states services are to be provided by petitioner on an "as needed basis"

6.     Letter from any third-party end customer, which has itinerary consistent with H-1B support letter, job title, duties, duration of project, states beneficiary is not an employee of the customer, and indicates the name of petitioner's supervisor to whom the beneficiary reports.

7.    Neufeld Memo also lays out certain rules and procedures that will apply to the issuance of Requests For Evidence (RFEs)

-       Examiners must specifically state the issue at hand
-   Examiners must tailor RFE and request "specific illustrative types of evidence"
-   Has potential to force examiners to do a better job reviewing evidence and may make them more accountable; may make it easier to respond to RFEs.

8.    H-1B extension petitions and items to include to show maintenance of employer-employee relationship during prior H-1B period:

All W-2s and paystubs for current year
-   Copies of all of the beneficiary's time sheets with the petitioner or similar records of actual attendance at work
-   Copies
of the beneficiary's prior year's work schedule
-       Copies of any promotion letters issued to the beneficiary by the petitioner
-   Copies of any pay increase letters issued to the beneficiary by the petitioner
-    Copies of any letters from petitioner to beneficiary transferring the beneficiary to a new work location
-     Copies of any performance reviews of the beneficiary performed by the petitioner
-     Evidence of any work product, achievements, bonuses, awards to the beneficiary (example:  e-mail communications acknowledging any milestones, achievements, etc.)
-     Evidence of insurance or other cash value benefits provided to the beneficiary by the petitioner.>>




Q.  What is the basis for the above list of required attestations and requirements?>>

A.  The Neufeld memo lays out five scenarios of "valid employer-employee relationship," and three categories that are unacceptable for H-1B approval  >>

The basis for requiring all these documents, particularly from companies that place  H-1B workers at client sites, is found by Neufeld in the common law principle of "control. " This amounts to an unstated acknowledgement by USCIS that previous USCIS policy interpretation lacked adequate legal support, as is explained in a section that follows at the bottom of this memo.  >>

The criteria lace w:st="on">lacename w:st="on">INSlacename> lacename w:st="on">Servicelacename> lacetype w:st="on">Centerlacetype>lace> examiners will now use for determining whether the H-1B employer-employee relationship exists are stated by Neufeld as follows:>>


Valid employer-employee relationship would exist in the following circumstances: [p.7]>>

1)   Traditional Employment [Right to Control Scenario]>>

2)   Temporary/Occasional Off-Site Employment>>

3)   Long-Term/Permanent Off-Site Employment [Right to control specified and actual control exercised]>>

4)   Long-Term Placement at a Third-Party Work Site>>

5)   Agents as Petitioner - regulatory exception to No Exercise of Control Rule>>

(Example given:  a runway model beneficiary with a modeling agency petitioner.  The third-party client fashion house is the "actual employer."   Nonetheless, an exception exists for "one who is traditionally self-employed or who uses agents to arrange short-term employment on behalf with numerous employers.")>>


The following scenarios would not present a valid employer-employee relationship: [p.8]>>

1)   Self-employed Beneficiaries [No separation Between Individual and Employing Entity; No Independent Control Exercised and No Right to Control Exercised]>>

2)   Independent Contractors [Petitioner has No Right of Control; No Exercise of Control]>>

3)   Third-Party Placement/"Job Shop" [Petitioner has No Right of Control; No Exercise of Control]>>



Q.  Does this new policy mean that it is more likely that my company's petitions for H-1B workers will be denied?>>


A.  That depends.  Release of Neufeld Memo is Reaffirmation of Status Quo H-1B Policies and Not a New Published Regulation >>


 First, we should observe that release of the Neufeld memo does not amount to publication of a new agency regulation.  Instead, it is a restatement of informal but binding policy USCIS has in fact been adopted and imposed on petitioners for several years.  The Neufeld Memo specifies that the petitioner must document four elements:  >>

1) the "employer-employee relationship will exist between the petitioner and beneficiary,">>

2)  "establish that the employer has the right to control the beneficiary's work, including the ability to hire, fire, and supervise the beneficiary."  >>

3) In addition, " The petitioner must also be responsible for the overall direction of the beneficiary's work. [8 CFR 214.2(h)(4)(ii)] >>

4) Lastly, "the petitioner should be able to establish that the above elements will continue to exist throughout the duration of the requested H-1B validity period."  >>


These elements will have already been documented or attested to previously in petitions submitted in recent years.  What is new about it is that the memo lays out a set of more coherent and extensive rules for qualifying companies that employ H-1B workers at client sites.  The memo also suggests that USCIS will look more closely at self-employed and independent contractors, groups that were previously barred from H-1B and several other visa categories.>>


Q.  Why should persons who operate independently as consultants and those who direct companies in the lace w:st="on">U.S.lace> on H-1B and L-1 visas be particularly concerned about the Neufeld Memo?>>

A.  The Neufeld Memo concerns itself heavily with the side-issue of common law of agency and cites several Supreme Court decisions that deal with the distinction between agents and employers, employees and independent contractors, and executives and investors.  >>

Persons who are self-employed and independent contractors may not self-petition in the H-1B and several other categories.  In addition, USCIS restricts the use of agents as petitioners to a handful of occupational categories, such as fashion models, and often has used "control" as a basis to challenge the "employer-employee relationship" and deny H-1B and L-1 workers assigned to client sites.  The renewed emphasis in the memo on factors such as documenting benefits and tax treatment of beneficiaries, employer provision of tools, and suggests that this is a developing area where the Service intends to more closely review petitions.    >>

The Neufeld memo specifically identifies its doctrine of control in a 1991 Supreme Court decision, NATIONWIDE MUTUAL INSURANCE CO. ET AL. v. DARDEN 503 U.S. 318 ... ("Darden").  The Court stated in Darden that since no one factor was decisive in determining the distinction between agent and employer, "all of the incidents of the employment relationship must be assessed and weighed."   USCIS has taken that out of context to impose an excessive and unreasonable burden of documentation to establish the mandatory employer-employee relationship.  However, USCIS is limited by its own regulations to the types of documents it can ordinarily demand to establish the qualifications of the beneficiary and to describe the nature of the proposed duties to those stated at 8 CFR 214.2(h)(2)(I)(B). [See, Appendix I, below]  The Service appears to be exceeding its own regulations with regard to demands for evidence in H-1B cases.>>

Another case cited by Neufeld is CLACKAMAS GASTROENTEROLOGY ASSOCIATES, P. C. v. WELLS 538 U.S. 440.  ("Clackamas").  That 2003 decision dealing with the Americans with Disabilities Act (ADA) examines the question of whether a Director-Shareholder in a professional corporation is, indeed, treated under common law as an "employee" of that firm, and that the "common law element of control is the principal guidepost to be followed whether director-shareholder physicians in this case should be counted as 'employees.'"  This case is helpful and should be cited when the Service takes an overly-restrictive view in cases of proprietors petitioning as L-1, O-1 or EB-1-3 executives or managers.   The elements that this decision cites as key to the employee relationship are:>>



"Whether the organization can hire or fire the individual or set the rules and regulations of the individual's work>>

"Whether and, if so, to what extent the organization supervises the individual's work>>

"Whether the individual reports to someone higher in the organization>>

"Whether and, if so, to what extent the individual is able to influence the organization>>

"Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts>>

"Whether the individual shares in the profits, losses, and liabilities of the organization."  >>


One should expect that in executive, manager and director cases that USCIS will now require additional documentation of these elements, the last one being held as a contra-indicator of employee status.>>



Q.  What was the older basis for requiring the element of Control, and how does the Neufeld memo change things?>>

A.  Shortly after DHS took over legacy INS, examiners at USCIS Service Centers expanded the practice of issuing denials and Requests For Evidence (RFEs) in H-1B cases citing a Fifth Circuit case, Defensor v Meissner (2000, CA5 Miss) 201 F3d 384. >>

That panel decision, rendered against a Mississippi nurse placement agency, reached the overly-broad conclusion that employers in outsourcing industries are not "true employers" but are merely "token employers," and thus the stated job requirements of companies that place H-1B employees at client sites are "irrelevant." >>

The Defensor decision has, in turn, been taken by USCIS to justify imposition of excessive evidentiary burdens on outsourcing companies, particularly a requirement that consulting firms provide a copy of contracts with third-party clients and other normally privileged information to prove that the consulting work that will be done is and shall continue to be professional in nature.  Quite predictably, in many cases, potential H-1B sponsors and their third-party clients, sensing potential compliance risks, refuse to produce such documents.  The entirely foreseeable result has been a dramatic decline in the number of petitions for this type of case that have been filed in recent years, with major H-1B users exiting the U.S. market, moving operations offshore.   That has produced a broad potential class of adversely effected parties, including firms that provided support and services to H-1B using companies.>>

With minor variations in wording, USCIS and the AAO have issued thousands of RFEs and denials that incorporate Defensor language.  >>



Q.  How does the Neufeld Memo affect my ability to appeal an adverse H-1B decision?>>

A.   Release of Neufeld Memo is Reaffirmation of Status Quo and Not a New Published Regulation>>

Petitioners who have received denials based upon Defensor dicta or who may receive denials based in similar objectionable grounds under the recent Neufeld memo may still appeal their decisions to the AAO or move to the Circuit courts for review and remand for re-adjudication consistent with law and regulation, bearing in mind the six-year statute of limitation for suits against federal agencies.[2].  >>

Looking closely at the January 8, 2010 Neufeld memo, we find far more substantive similarities than differences with previous prevailing USCIS policy, particularly Defensor dicta, and most of the legal issues that arise from unlawful agency procedures in recent years still apply. >>

 As we observed above, release of the memo does not amount to withdrawal of reliance upon Defensor or publication of a new agency regulation, and the courts will not necessarily show the Neufeld memo any particular deference.[3]  >>

While it is a somewhat more coherent exposition of de facto policy than was the Defensor decision, it does not present much of an actual change or improvement in H-1B procedures and requirements from the petitioner's standpoint.  Furthermore, the Neufeld Memo does not correct the USCIS practice of failing to publish regulations to reflect substantial and widely applied agency policy.  Finally, while it is the latest expression of de facto policy and binding agency norms, the memo has no controlling effect upon the AAO or even the actual practices of lace w:st="on">lacename w:st="on">Servicelacename> lacetype w:st="on">Centerlacetype>lace> examiners.  The memo states it is only intended for guidance and may not be relied on for a benefit, but is codified in Adjudicators Field Manual (AFM), which is binding authority, so it clearly contradicts itself.[4]   Nonetheless, it is most certainly not a rule published in The Federal Register that might be owed judicial deference under APA standards.   USCIS has still not brought itself into conformity with APA "publish and comment" requirements for its departure from published H-1B regulations.    >>

To recap appellate implications:>>

   the Neufeld Memo does not substantially correct improper previous agency practices in its instructions to USCIS examiners or with previous lace w:st="on">lacename w:st="on">Servicelacename> lacetype w:st="on">Centerlacetype>lace> interpretation;  >>

   It does not much change USCIS de facto procedures or binding norms that aggrieved some firms, and the prospects for litigation remain pretty much as they were previously when the Service relied upon the Defensor decision for support of substantially similar policies;>>

   Passages of the case authority cited appear to be taken out of context;>>

   The memo is an attempt to bypass rule making procedures under the Administrative Procedures Act (APA);>>

   The Memo does not appear to follow the plain language in the regulations, which is higher binding authority;>>

   The memo is clearly directed at IT companies with discriminatory intent and effect;>>

   The memo may embolden examiners to flout regulations, and treat H-1B s with inappropriately elevated standards in a manner similar to National Interest Waivers, O-1s, EB-1 extraordinary ability alien petitions;>>

   The  memo states it is only intended for guidance and may not be relied on for a benefit, but is codified in AFM, which is binding authority, so clearly contradicts itself.>>

   Finally, the memo distinguishes between the Right of Control and Actual Control, and requires a showing of both.   Nonetheless, the regulations state the petitioner only has to show a Right of Control to establish an "employer-employee relationship.">>




If you have questions about the Neufeld memo and related USCIS policies, or if you want to explore appellate options, the Fakhoury Law Group is ready to assist you.  You may find that while the issues are complex, and challenges facing H-1B employers remain formidable, your options for successfully achieving immigration goals are much wider than you previously believed.>>











A.   Regulatory Definition of the Term "Employer-employee Relationship">>

The Defensor dicta emerged as an attempt to fill the statutory vacuum of the term "employee" in such a way as to curtail benefits eligibility for H-1B workers at outsourcing companies.  The 5th Circuit decision effectively says that the Service need not accept the stated eligibility requirements by H-1B employers that outsource workers.  Instead, USCIS reads the decision to justify imposing a high burden of proof of the specialty nature of the employment at client sites than on other H-1B employers who keep their workers posted on-site.  Defensor has been cited many times to deny petitioners who cannot or will not provide sometimes staggering demands for evidence about specialty employment and employer control.   The Neufeld memo continues the movement away from the plain-language meaning of the statute and the regulations into results-oriented adjudications.  >>

The INA quite simply states that an H-1B petitioner must be a "intending employer," and mentions nothing about making distinctions between companies that outsource beneficiary workers and those that don't. [8 USC Sec. 1101(a)(15)(H)(i)(B)]  The term "employee" for H-1B purposes is not defined in the Act.[5] >>

The terms "employer", "employee" and "employer-employee relationship" found in the regulations are part of a brief and seemingly straight-forwardly worded passage.  Chapter 8, Sec. 214.2(h)(4)(ii) of the Code of Federal Regulations (CFR) defines a lace w:st="on">United Stateslace> employer for H-1B purposes as follows:>>

United States employer means a person, firm, corporation, contractor, or other association, or organization in the lace w:st="on">United Stateslace>, which:>>

1)   Engages a person to work within the lace w:st="on">United Stateslace>;>>

2)   Has an employer-employee relationship with respect to employees under this part, as indicated by the fact it may hire, pay, fire, supervise, or otherwise control the work of any such employee; and >>

3)   Has an Internal Revenue Service Tax identification number. [emphasis added]>>


 With the Neufeld memo, the Service has continued to stray away from its own regulations.  Current USCIS doctrine bears little relationship with the regulatory definition of an H-1B employer contained in the operative phrase: "may hire, fire, supervise, or otherwise control the work of any such employee . . ."   The agency imposes elaborate tests for demonstration of control over the worker, and that is fundamentally at variance with standard of evidence provided by the regulation.  Even when the petitioner clearly demonstrates that it "supervises" the beneficiary, meeting the plain-language requirement of the regulation, USCIS still requires extensive documentation of control, even though control is merely an alternative element.  Even where the H-1B petitioner undeniably meets the first four elements, USCIS has interpreted this to mean that it can still impose a requirement for elaborate documentation of the element of control, and denies applications if this is not produced to its own satisfaction.  This is a clear abuse of discretion by USCIS.>>













[1]  See, Donald Neufeld, Associate Director, Service Center Operations, DHS, USCIS, HQ 70/6.2.8, AD10.24,  Memorandum for Service Center Directors, "Determining Employer-Employee Relationship for Adjudication of H-1B Petitions, Including Third-Party Site Placements", Additions to Officer's Field Manual (AFM) Chapter 31.3(g)(15)(AFM Update AD 10-24)(Jan. 08, 2010), linked at: 

[2] 28 U.S.C. 2401(a) states that "every civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues."

[3] One finds in a footnote attached to a Supreme Court decision cited at page 2. of the Neufeld memo an interesting  reference that may inadvertently point directly to the very limited degree of deference that Courts will show agency guidelines of this type.   See,  CLACKAMAS GASTROENTEROLOGY ASSOCIATES, P. C. v. WELLS 538 lace w:st="on">U.S.lace> 440, 449, Ftn. 9. >>

[4]  This memo makes it clear that the Neufeld directives are intended for "training and instruction purposes only."  In addition, USCIS binding policy memos bear a "P" in the title, which this does not.  

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