The Neufeld H-1B Memo: Legally Enforceable Policy Directive or Grounds for Law Suit?: A Position Paper by Rami D. FakhouryTP[1]PT and Mark LeveyTP[2]PT

UBACKGROUND

On January 8, 2010, USCIS issued a directive that is of importance to companies that utilize the H-1B program, particularly firms that place non-immigrant workers at client sites or have owners working on H-1B or L-1 visas. The memo to Service Center Directors was written by Donald Neufeld, Associate Director Service Center Operations, hereinafter, the “Neufeld memo” .TP[3]PT

The Neufeld memo 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. It has also aroused concerns about what appears to be new restrictions on non-immigrant visas for upper managers who have an ownership interest in petitioning companies. 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 Service Center examiners should not approve, and provides what the agency now claims to be a legal rationale for how they are to make 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 restatement 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, and of greatest concern to some observers, it communicates that USCIS will also be more strictly 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.”

The memo has raised questions about the legality of what some comments see as new USCIS policies restricting eligibility for non-immigrant visas, potentially in the L-1 as well as H-1B category, of upper managers with a proprietary interest in the petitioning firm. The American Immigration Lawyers Association (AILA) issued the following statement on that point, which calls on the agency to reverse the Neufeld directives that, according to AILA, violate “the intent of Congress in the INA as well as longstanding agency precedent and policy.” The AILA response is below:

"The Neufeld Memorandum, the AAO’s recent non-precedent decision and the adjudications at the Service Centers that are applying these decisions to current filings seek to overturn over fifty years of consistent precedent and regulatory interpretation to categorically deny eligibility for benefits to an entire class. Moreover, this longstanding line of precedent decisions is entirely consistent with the intent of Congress, which has amended the INA numerous times since the first decision in Matter of M, but has never taken action to specifically exclude working owners as beneficiaries of employment-based nonimmigrant and immigrant petitions irrespective of the degree to which the working owner controlled the petitioning entity. AILA urges USCIS to immediately rescind the Neufeld Memorandum, and issue a new policy memorandum that clearly sets out the agency’s official position on this issue, provides a correct interpretation of the Darden, Clackamas and Yates decisions, and upholds the intent of Congress in the INA as well as longstanding agency precedent and policy. AILA believes this memorandum should include all employer-sponsored immigrant and nonimmigrant visa petitions, state that under Yates the Service must not resort to the common law definition of employee, that it is the agency’s position, based on Congressional intent and longstanding precedent, that working-owners are employees for all such petitions and that any required employer-employee relationship is satisfied where the petitioner is a U.S. legal entity." Letter to USCIS dated Jan. 26, 2010; AILA InfoNet Doc. No. 10012760.

UANALYSIS

A. Evidentiary Requirements Under Neufeld Imposed Without Meeting APA Requirements for Notice and Comment

While it does not articulate entirely new policy, the Neufeld memo continues and amplifies an alarming trend toward USCIS departure from lawful regulatory requirements under the Administrative Procedures Act (APA) that agencies publish significant policies with broad application that deviate from published rules and procedures.

First, there are things that have not significantly changed by issuance of the Neufeld memo. Under the APA, federal agencies and departments have flexibility in the way they can regulate. Agencies can make rules either through publication of binding regulations or by a case-by-case adjudications method. Both approaches to rule-making are perfectly acceptable pursuant to the Supreme Court’s seminal 1947 Chenery II decision; that case sets out the original ground rules for such matters, allowing agencies a choice, but the decision also imposed limits on how rule-making may be done. For instance, under the Chenery principles, the agency may not issue case-by-case rulings that violate a previous published rule, and rulemaking by adjudication is only permitted to affect a small, specific class of applicants. Any rule that has more general application must be published under the APA “notice and comment” requirement. [5 U.S.C. Sec. 553] Unless and until the agency eventually publishes its new rule in The Federal Register it does not have force of law. Even the most deferential standard possible, embodied in the Chevron decision, mandates that agency decisions are not entitled to deference by the courts unless they hold the “force of law.”TP[4]PT The burden is on the agency to establish the rationality of such an informal interpretation under an older Skidmore standard, “according to its persuasiveness.”TP[5]PT

Recent decisions interpreting Chevron limit “Chevron deference” to agency rulings derived by APA § 553 formal “notice and comment” process, and withhold it from more informal types of agency decision-making by the agency. The vast majority of USCIS and DOL rulemaking is de facto rules and binding norms, not published regulations. The limits on the use of the informal approach in the context of immigration have been interpreted in a line of federal decisions as follows:

In Raungswang v INS, 591 F.2d 39 (9P^th^P Cir. 1978)TP[6]PT the Ninth Circuit held that legacy INS had abused its discretion in denying the investor visa petition by adding requirements without allowing for notice. In that case, the panel considered the appropriateness of new requirements imposed through adjudication by the Board of Immigration Appeals on investor visa immigrants beyond those expressly stated in the then pertaining regulations. The Circuit found informal rulemaking in that instance to be impermissible, applying the following analysis:

We are aware that, as the INS argues, courts must give "great deference" and "controlling weight" to an agency's interpretation of its own regulations. E. g., United States v. Larionoff, 431 U.S. 864, 872, 97 S.Ct. 2150, 53 L.Ed.2d 48 (1977); Udall v. Tallman, 380 U.S. 1, 16-17, 85 S.Ct. 792, 13 L.Ed.2d 616 (1965). That doctrine is inapplicable, however, when the agency's interpretation " 'is plainly erroneous or inconsistent with the regulation.' " United States v. Larionoff, supra, 431 U.S. at 872, 97 S.Ct. at 2156 (quoting Bowles v. Seminole Rock Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 89 L.Ed. 1700 (1945)). We have thus refused to defer to an agency construction that "is clearly contrary to the plain and sensible meaning of the regulation." Hart v. McLucas, 535 F.2d 516, 520 (9th Cir. 1976). What is clear in this case is that the interpretation of the INS is contrary to the plain language of the regulation, and that there was no reason for Mrs. Ruangswang to expect, when she sought to comply with the regulation, that the requirements for receiving an adjustment of status would be anything other than the objective criteria set forth in the 1973 regulation.

Hence, under principles of agency interpretation, the Board's application of the law cannot be sustained. The objective criteria of the 1973 regulation were clearly met by Mrs. Ruangswang. There simply is no room for the agency to interpret the regulation so as to add another requirement.

There is a second element applied by the Circuit in the Raungswang analysis [18-22]. The court ruled INS may not make use of informal rulemaking through adjudications “to change course in midstream” where the departure from previous agency practice has an adverse consequence on a party, and where the party had reliance on the previous rule:

Our review of whether the proper law was applied, however, does not end when we determine that the added requirement is not justified by agency interpretation. We must still consider whether the Board may establish the standards that it sought to apply by the adjudicatory proceedings in this case and have them bind Mrs. Ruangswang.

Through a series of cases commencing with its second decision in SEC v. Chenery Corp. (Chenery II), 332 U.S. 194, 67 S.Ct. 1575, 91 L.Ed. 995 (1947), the United States Supreme Court has held that administrative agencies may properly use adjudication to "announc(e) and (apply) a new standard of conduct," Id. at 203, 67 S.Ct. at 1580. In NLRB v. Wyman-Gordon Co., 394 U.S. 759, 89 S.Ct. 1426, 22 L.Ed.2d 709 (1969), Justice Fortas, speaking for a plurality of four, stated that although the NLRB could not, in light of the Administrative Procedure Act, establish binding prospective rules by adjudication, it could establish a new standard of conduct that would be binding on the parties before it in any particular case, and that such adjudications could have stare decisis effect.

More recently the Court again considered this question, and, relying heavily on the two former cases, held that the adjudicative forum can often be used to announce new principles applicable to the specific parties before the NLRB in particular cases, even if the principles involve a change from past policies. NLRB v. Bell Aerospace Co., 416 U.S. 267, 290-95, 94 S.Ct. 1757, 40 L.Ed.2d 134 (1974). The Court cautioned, however, that "there may be situations where the Board's reliance on adjudication would amount to an abuse of discretion or a violation of the Act . . . ." Id. at 294, 94 S.Ct. at 1771. The Court suggested that the "adverse consequences ensuing from . . . reliance (upon the NLRB's past decisions may be) so substantial that the Board should be precluded from reconsidering the issue in an adjudicative proceeding." Id. at 295, 94 S.Ct. at 1772. Adjudication might also be inappropriate where "some new liability" results from "past actions which were taken in good-faith reliance on Board pronouncements," or where "fines or damages" are involved. Id.

While the Court favors, whenever possible, the use of prospective quasi-legislative rule-making powers to formulate new standards rather than ad hoc adjudication, See, e. g., Chenery II, supra, 332 U.S. at 202, 67 S.Ct. 1575; NLRB v. Majestic Weaving Co., 355 F.2d 854, 860 (2d Cir. 1966), we have not received definitive limits on agencyHU6UH use of adjudicative proceedings to change course in midstream. We are, however, convinced that what the Board seeks to do in this case is beyond the bounds of that which is permissible under Bell. The adverse consequences voluntary departure at best, and deportation at worst are certainly substantial. In the sense that the requirement added to the 1973 regulation prevents an adjustment of status, there is some new liability. Finally, if there was good faith reliance on the 1973 regulation, Bell militates against allowance of the adjudication method.

Following Ruangswang, the 9P^th^P Circuit further limited the ability of INS to informally expand the reach of its regulations by adjudications in its subsequent ruling, Patel v. INS. As the Board of Immigration Appeals ruefully observed upon remand in Matter of Patel, 15 I&N Dec. 2842 (BIA, 1980)TP[7]PT:

Subsequently, in Matter of Wang, 16 I&N Dec. 711 (BIA 1979), another case arising in the Ninth Circuit, we distinguished the Ninth Circuit's Ruangswang opinion holding that an alien who had made an investment more than a year after Heitland was decided had had adequate notice of its

requirements and had to comply with them. However, the Ninth Circuit has recently rendered another decision which holds that the Heitland requirements cannot be added to the terms of the regulation even where there has been ample notice. Patel v. INS, 638 F.2d 1199 (9P^th^P Cir. 1980) Accordingly, since the present case arose in the Ninth Circuit, the Heitland requirements will not be applied in determining whether the respondent has established eligibility for classification as an investor. Consequently, on the basis of the immigration judge's finding that the respondent has satisfied the specific criteria set forth in 8 C.F.K. 212.8(b)(4), we conclude that the respondent is eligible for investor classification.

As the BIA notes, the Patel decision is very significant inasmuch as it holds that the element of lack of notice is not the sole ground upon which abuse of discretion may be found in such cases. Another impermissible practice, as the court finds in Patel, is the application as dicta of rules discarded from previous regulations that do not appear in those actually published as final regulations. The Circuit observes in the Patel ruling [9]:

After the promulgation of this new regulation in 1973, the Board decided Heitland, supra, 14 I. & N. Dec. 563, a case arising under the "substantial amount of capital" requirement of the pre-1973 regulation. Heitland overruled previous Board interpretations of "substantial," and stated that the alien's investment "must tend to expand job opportunities and thus offset any adverse impact which the alien's employment may have on the market for jobs ...." 14 I. & N. Dec. at 567. Although Heitland was concerned only with the pre-1973 "substantial amount of capital" requirement, it stated in dicta that the recently-promulgated and facially-objective 1973 regulation must also be construed to require that the investment expand job opportunities. Id. at 566-67. Thus, by adjudication, the Board attempted to add a requirement to the 1973 regulation which had been expressly discarded during its rule-making proceedings.HU2UH

B.		    USCIS is presently engaged in precisely the same agency practice that Patel barred.  Potential litigants are now adversely effected by the application by USCIS of dicta regarding heightened levels of evidence of control and “full itineraries” required of companies that outsource  H-1B workers to third-part client sites.

What, in fact, appears to have happened is that portions of Proposed Regulations published in 1998, but never published as Final Regulations, have been selectively implemented in order to carry out the Defensor decision and a de facto policy of restricting H-1B outsourcing.  This sort of selective implementation of proposed regulation is well outside the permissible limits of an agency’s normal discretionary power to interpret its own regulations, and is ultra vires.  Once the regulatory process has commenced by publication of proposed rules, these can only be adopted by publishing final or superceding regulation.  Furthermore, application of such de facto rules or binding norms, where they conflict with existing law, regulation, agency rules or binding norms is an abuse of discretion, and they may not be relied upon in adjudications.  They certainly deserve no deference by courts of review.

Meanwhile, both the and Patel cases remain good law and both are widely cited in subsequent cases across the circuits.

The stated purpose of the 1998 proposed regulationsTP[8]PT was as follows:

to amend the Immigration and Naturalization Service's (Service) regulations to accommodate the needs of certain United States employers with respect to the filing of new and amended petitions for H-1B nonimmigrant workers. This rule was written in response to a number of complaints received from certain industries which asserted that the current H regulations contain requirements with which some U.S. employers cannot comply. In addition, the current regulations contain certain procedures which are burdensome to both the Service and to the public. Specifically, this rule proposes to amend the Service's regulation with regard to the submission of itineraries with certain H-1B petitions. [30421]

Specifically, those proposed rules laid out new regulatory provisions for H-1B petitions. A regulatory change was proposed regarding the potential placement of a beneficiary at multiple client sites, the regulatory change proposed at 214.2(h)(2)(i)(B) read:

Services or training in more than one location.--(1) H-1B petitions. An H-1B petition which require services to be performed or training to be received in more than one location must include, to the extent possible, a complete itinerary with the dates and locations of the services or training to be performed. The petition must be filed with the Service Center having jurisdiction over the place where the petitioner is located. The address which the petitioner specifies as its location on the petition shall be where the petitioner is located for purposes of this paragraph. If the petitioner has not yet determined all of the locations where the beneficiary might be employed at the time of filing, the petitioner must provide an itinerary of all definite employment and provide a description of any proposed or possible employment for the period of time covered by the petition. Petitions filed by an agent must also comport with 8 CFR 214.2(h)(2)(i)(F).[30421-22]

Of course, proposed regulations have no real effect until published in final form, and this provision did not make it into the Code of Federal Regulations. See, APA, Secs. 552, 553. The actual regulation currently reads:

214(h)(2)(i)(B) Service or training in more than one location. A petition that requires services to be performed or training to be received in more than one location must include an itinerary with the dates and locations of the services or training and must be filed with USCIS as provided in the form instructions. The address that the petitioner specifies as its location on the Form I-129 shall be where the petitioner is located for purposes of this paragraph.

The requirement for submission of “a complete itinerary” for H-1B workers assigned to multiple worksites clearly did, however, become a de facto norm, but without the allowance for “to the extent possible” and without becoming regulation, as the APA would require. In the present matter, the Service is imposing a burden of evidence in excess of what is consistent with the regulations, and even exceeds what was in the proposed regulations.

Instead, a general statement of job duties and itinerary along the lines of those specified in the Aytes and Crocetti memos is no longer acceptable to the agency, as the present denial at issue makes manifest. Similarly gone by the wayside is the guidance offered in the Aytes memo regarding the factors that a Service Center adjudicator should consider in deciding the credibility of a petitioner’s itinerary:

The petitioner’s past hiring should also be considered in determining whether the petitioner has met the itinerary requirement as discussed in the regulation. Certainly a company’s demonstrated past practice of employing H-1B nonimmigrants in conformity with the statute and regulation should be given significant weight in determining whether the itinerary requirement has been met. [Aytes memo, Ibid.][IBID.]

C. Application of standards amounting to substantive agency rules without publication of final agency rules violates APA requirements.

The Administrative Procedure Act (APA) sets forth the requirements for “informal rulemaking,” the process generally used by agencies to issue legislative rules. The informal rulemaking process, “notice-and-comment rulemaking,” requires that DHS first issue a notice of proposed rulemaking (NPRM) and provide an opportunity for public comment on the proposal before it can issue a final rule. APA §§ 5 U.S.C. 553.

 That process normally follows a three-step sequence of publication of proposed regulations, public comment, and finally publication of final agency regulations.  However, publication of final rules is not mandatory if the agency finds good cause to adopt a rule without prior public participation. 5 U.S.C. 553(b)(3)(B). The good cause requirement is satisfied when prior public participation is impracticable, unnecessary, or contrary to the public interest.   Where the agency determines that it will implement its interim rule as final regulations they must be “a logical outgrowth” of the Agency’s interim rule.

Here, the petitioner does not object to the Agency's decision to not adopt its proposed 1998 amendments to the regulations at 214(h)(2)(i)(B). DHS may choose to not implement its proposed regulations if they are not published in final form. See Am. Iron & Steel Inst. v. EPA, 886 F.2d 390, 400 (D.C.Cir.1989) ("One logical outgrowth of a proposal is surely, as [an agency] says, to refrain from taking the proposed step."). However, USCIS in this case did more, and less —after taking the first step in its rulemaking, USCIS adopted only a select portion of it in such a way as to cherry-pick its original 1998 mandate, contradicting the original stated purpose “to accommodate the needs of certain United States employers with respect to the filing of new and amended petitions for H-1B nonimmigrant workers.” Once a rules change is proposed, it may be completed or abandoned, but never partially implemented in such a way as to significantly alter the meaning of the original proposal. As the US Court of Appeals for the District of Columbia Circuit found in Environmental Integrity Project v. EPA, 425 F3d. 992 (October 7, 2003) at 16, this type of:

“flip-flop complies with the APA only if preceded by adequate notice and opportunity for public comment. Compare Alaska Prof'l Hunters Ass'n, Inc. v. FAA, 177 F.3d 1030, 1034 (D.C.Cir.1999) ("When an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended its rule, something it may not accomplish without notice and comment."), and Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579, 586 (D.C.Cir.1997) ("Once an agency gives its regulation an interpretation, it can only change that interpretation as it would formally modify the regulation itself: through the process of notice and comment rulemaking."), with Hudson v. FAA, 192 F.3d 1031, 1036 (D.C.Cir.1999) (stating agency may change its longstanding policies without notice and comment, so long as "there is no dispute as to the regulation's meaning"), and Syncor Int'l Corp. v. Shalala, 127 F.3d 90, 94 (D.C.Cir.1997) ("[I]nterpretative rules and policy statements are quite different agency instruments. An agency policy statement does not seek to impose or elaborate or interpret a legal norm. It merely represents an agency position with respect to how it will treat—typically enforce—the governing legal norm.").

If USCIS desires to modify or implement the 1998 rules in this instance, the requirement for a NPRM is mandatory - a requirement the agency itself recognized in its publication years ago of the Proposed Rules.  The agency may not now plausibly argue that rulemakings are exempted as mere “interpretation” or for “good cause” (“impracticable, unnecessary, or contrary to the public interest;” e.g., for such things as “emergencies”). In this case, clearly USCIS cannot now, eleven years later, claim that there is an emergency, or that it would be contrary to the public interest to delay formal publication of the rule.

Similarly, a member of the public could not have anticipated that the 1998 proposal would result in the de facto rule, thus the APA requirements have not been satisfied. That proposal expressly allowed an exception for production of itineraries to “the extent possible.” In fact, as the present matter illustrates, the agency is imposing on the petitioner an impossible or impractical burden for itineraries that detail unforeseeable future assignments. The de facto rules also defeat the purpose stated for the 1998 proposals, which were “written in response to a number of complaints received from certain industries which asserted that the current H regulations contain requirements with which some U.S. employers cannot comply.” The de facto rule and current actual agency practice do not even suggest a course of action similar to the proposed rule and, therefore, the de facto rule could not have been anticipated by the public.

Furthermore, pursuant to the APA, the agency’s decision has to be reasonable; and it must provide a basis for its decision and show how the rule will achieve its purpose. The APA notice-and-comment process recognizes that changes may be made to the proposed rule based on the public comments received, but the courts have required that any changes made in the final rule be of a type that could have been reasonably anticipated by the public – a logical outgrowth. If the “logical outgrowth test” is not met, the agency needs to provide a second notice with an opportunity for public comment on the changes.

The USCIS de facto rule violates APA §§ 551(5), 553(c), because it was not a “logical outgrowth” of the Agency's proposed interim rule and therefore did not comport with the requirements of notice-and-comment rulemaking. See Sprint Corp. v. FCC, 315 F.3d 369, 375-76 (D.C.Cir.2003); Kooritzky v. Reich, 17 F.3d 1509, 1513 (D.C.Cir.1994).

Once the comment period closes and the agency has reviewed the comments received and analyzed them, the agency has only three options: the agency may proceed with the rulemaking proposed, issue a new or modified proposal, or withdraw the proposal. It may not partially implement the delayed rule in such a way that it evades the “logical outgrowth test.” Before issuing a final rule, the agency makes any appropriate revisions to the various supporting analyses prepared for the NPRM. The final rule may be published in the Federal Register or personally served on affected interests.

Finally, the provisions contained in a final legislative rule cannot be made effective in less than 30 days after final publication, unless it is granting an exemption, relieving a restriction, or for “good cause,” which includes such things as emergencies. Sometimes agencies will set implementation or compliance dates that are later than the effective date of the rule. This may be because the rule is being implemented in stages following its effective date, because the agency may want to allow compliance with the new rule before it is required, or for other reasons. None of these latter exceptions apply in this matter.

Furthermore, the agency’s construction of its H-1B and L-1 rules fails the older Skidmore standard of deference test articulated as a four-factor test (which echoes Chenery), examining: (1) the thoroughness of the agency's investigation; (2) the validity of its reasoning; (3) the consistency of its interpretation over time; and (4) other persuasive powers of the agency.TP[9]PT

By no imaginable legal standard, therefore, do USCIS dicta such as its broad reliance on the Defensor decisionTP[10]PT carry the force of law, and they further fail under other standards of deference. The articulation of the same unpublished rules in the Neufeld memoTP[11]PT, while better reasoned, have the same fatal shortcoming. Even where better argued, the effect of certain key Service policies still discriminate against certain forms of technical consulting services predominantly offered by firms based in India and China. Restrictions on cross border services of this kind remains in violation of trade treaty commitments the U.S. has signed and ratified. The courts do not owe these dicta Chevron deference. [See, Sec ___] There is no legitimate doctrinal reason why the courts should or would choose to defer to such a procedurally defective construction by the agency, particularly since they violate law as well as constitutional rights . As this book will show at length, these dicta are neither rational nor consistent with Congressional intent. Finally, they violate the rights of U.S. firms who have a cognizable interest in benefits available under law, and guaranteed by Treaty. If USCIS does not move on its own to abandon or modify its stance on these and related issues, there is good reason to expect relief may be available in the courts.

The main reason this sort of informal rulemaking has gone largely unchallenged in recent years is fear in an extraordinary era of draconian government power over foreign entities, an era that may be passing. After 9/11, employers and immigration lawyers groups were understandably and justifiably afraid that they, too, would be targeted for retaliatory action.

Indeed, the immigration bar has started to fight back, as occurred in 2008, after the Labor Department moved to audit all of the PERM labor certifications filed by Fragomen, Del Rey, Bernsen & Loewy, a prominent and respected national immigration firm that is also the largest PERM filer with hundreds of pending cases. FDB&L is not shy about filing law suits against the government, and it often wins the cases it files, and, indeed, the Labor Department backed down. TP[12]PT

These flawed agency policies have done a great amount of economic damage, and there is a class of aggrieved parties with standing in the courts. Dozens, perhaps hundreds, of companies have suffered serious economic and reputational losses, particularly in targeted industries, such as Indian IT consulting and foreign-based financial firms that receive discriminatory treatment by USCIS and other agencies. Should there be class-action suit against the agencies on these and related issues, the class could be both sizable and formidable, including large multinationals and numerous small entities.

D. Persons who operate independently as consultants and those who direct companies in the U.S. on H-1B and L-1 visas should be particularly concerned about the Neufeld Memo

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, HTNATIONWIDETTU MUTUAL UTTINSURANCETTU CO. ET AL. UTTvTTU. UTTDARDENTTU 503 U.S. 318 ...UTH (“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 HTCLACKAMAS GASTROENTEROLOGY ASSOCIATESTTU, P. C. UTTvTTU. UTTWELLSTTU 538 U.S. 440.UTH (“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.

E. The Neufeld memo is an extension of the older basis for USCIS requiring the element of Control, which is not substantially rectified or changed by the Neufeld memo

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, TUDefensorUT 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.

F. The Neufeld Memo does not affect a potential litigant’s ability to appeal an adverse H-1B decision

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.TP[13]PT.

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.TP[14]PT

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 Service Center 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.TP[15]PT 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 Service Center 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.”

TP[1]PT HTURami D. FakhouryUTH is the founding and managing member of the “AV” rated boutique Corporate and Business Immigration Law firm of the Fakhoury Law Group, P.C. His practice focuses on business-based employment immigration, particularly in the information technology, engineering industry, health care workers, investors, academics and individuals of exceptional ability.

TP[2]PT Mark Levey has 20 years immigration-related experience as a case manager, editor and international consultant. He has worked for major D.C. law firms and abroad as a USAID prime contractor Subject Matter Expert on immigration. Mr. Levey has numerous publications related to immigration law and procedure, global trade in services, and regulatory reform.

TP[3]PT 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: Hhttp://www.ilw.com/immigrationdaily/news/2010,0521-neufeld.pdf

TP[4]PT See, UCHEVRON U.S.A., INC. V. NRDC, 467 U. S. 837, 842-45 (1984) .U

TP[5]PT See, HUUNITED STATES V. MEAD CORP.UH, T533 U.S. 218 (2001)T 185 F.3d 1304, op. cit. , HTUSkidmore v. Swift & Co.UTH, 323 U.S. 134 (1944).

TP[6]PT See, HTUhttp://bulk.resource.org/courts.gov/c/F2/591/591.F2d.39.77-2375.htmlUTH

TP[7]PT See, HTUhttp://www.justice.gov/eoir/vll/intdec/vol17/2842.pdfUTH

TP[8]PT See, Federal Register/Vol. 63, No. 107/Thursday, June 4, 1998/Proposed Rules/pp. 30419-23, HTUhttp://ftp.resource.org/gpo.gov/register/1998/1998_30421.pdfUTH.

TP[9]PT See, HUCHRISTENSEN V. HARRIS COUNTYUH, 529 U.S. 576 (2000); op cit., Ibid..

TP[10]PT See, HTUDefensorUTTU v Meissner (2000, CA5 Miss) 201 F3d 384 UTH.

TP[11]PT 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: Hhttp://www.ilw.com/immigrationdaily/news/2010,0521-neufeld.pdf

TP[12]PT See, HUFRAGOMEN, DEL REY, BERNSEN & LOEWY, LLP v. CHAO et al.UH , DCDC, Case No. 1:2008cv01387 (August 8, 2008); related, Department of Labor, 'U.S. Department of Labor auditing all permanent labor certification applications filed by major immigration law firm,' June 2, 2008. HUhttp://www.dol.gov/opa/media/press/eta/eta20080752.htmUH.

TP[13]PT 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.”

TP[14]PT 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 U.S. 440, 449, Ftn. 9.

TP[15]PT 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.

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

This Version Submitted January 19, 2010

EXECUTIVE SUMMARY

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 Service Center 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.”

FAQs - FREQUENTLY ASKED QUESTIONS ABOUT ISSUES OF EMPLOYER “CONTROL” OVER H-1B WORKERS

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 U.S. 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 INS Service Center 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 U.S. 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."

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.

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].

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 Service Center 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 Service Center interpretation;

· 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 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.

CONCLUSION

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.

APPENDIX I

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 5^th 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 United States employer for H-1B purposes as follows:

United States employer means a person, firm, corporation, contractor, or other association, or organization in the United States, which:

1) Engages a person to work within the United States;

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: http://www.aila.org/content/default.aspx?docid=30956

[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 U.S. 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.

[5] See, 8 USC Sec. 1101, Definitions, http://www.law.cornell.edu/uscode/uscode08/usc_sec_08_00001101----000-.html;

Rami Fakhoury on IT Immigration

About Rami Fakhoury

Archives

May 2010

May 28, 2010

The Neufeld H-1B Memo: Legally Enforceable Policy Directive or Grounds for Law Suit?

May 21, 2010