The USCIS Memo by Donald Neufeld dated January 8, 2010 (“Neufeld Memo” or “Memo”), available at http://tiny.cc/z3ZU8, has understandably sparked significant concern and indignation. (See New USCIS Memo on Employer-Employee Relationship for H-1B Petitions: Is It A Way To Keep Certain Workers Out, www.cyrusmehta.blogspot.com). The Memo targets certain service-related industries such as IT consulting firms. The Memo also creates new rules in violation of the Administrative Procedure Act’s notice-and-comment requirement.1 Although the Memo poses many problems, we explore whether it can serve as a blueprint for companies moving forward to assist them in establishing that they exercise sufficient control over their employees at client sites.
The Neufeld Memo signals that USCIS has not taken the realities of modern service-oriented business models into account in issuing the guidance. The Memo focuses on clarifying the definition of the employer-employee relationship in the context of immigration law. The INA actually provides a more nuanced definition of employer than many federal statutes, which often define the term employer or employee circularly (e.g., under the Americans with Disabilities Act an “employee” is “an individual employed by an employer.” 42 USC § 12111(4)). The regulations provide that a US 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 that 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.
8 C.F.R. 214.2(h)(4)(ii). The Neufeld Memo asserts that it now provides guidance due to a lack of clarity in the definition and that it relies upon the common law and the Supreme Court in emphasizing the employer’s right to control the employee and in delineating factors to assess that control. Although clearly a key element of the definition under the INA, the Memo’s focus on control does not realistically capture the many ways that the employer-employee relationship now manifests in the global economy.
Defining this relationship has been problematic across contexts throughout US history and throughout the development of the common law.2 As the Supreme Court has pointed out, the focus on “control” developed initially in the context of vicarious liability and determining when and whether an employer could be held vicariously liable for the wrongful acts of an employee subject to its control, and the principles developed in that context do not clearly serve other purposes for which a definition is needed. See NLRB v. Hearst, 322 U.S. 111, 120 (1944).
In the 1940s, the Supreme Court determined that the term “employee” had to be construed within the context of the federal statute at issue, not just based on the common law agency principles focusing on the “control test”. For example, in one case where the Supreme Court was dealing with a union matter under the National Labor Relations Act, the Court held that the term employee “must be understood with reference to the purpose of the [NLRA] and the facts involved in the economic relationship.” Id. at 129 (emphasis added). More recently, the Supreme Court has abandoned this more nuanced interpretation in favor of the “control test.” See Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318, 323-324 (1992). However, Hearst and cases like it are helpful in reminding us that federal statutes are created to address particular problems and statutory definitions should be (and in fact are) “construed in light of the mischief to be corrected and the end to be attained.” Hearst, 322 U.S. at 124.3
The purposes of the immigration laws are manifold, but important functions of the laws include protecting workers’ rights and determining whether the entry of a foreign national worker benefits the U.S. The immigration laws and regulations governing the H-1B visa category were designed to ensure that US workers’ wages and working conditions would be protected, and that foreign workers would not be exploited. If applied with these goals in mind, the control test as interpreted by USCIS in the Neufeld Memo can be a help to IT consulting businesses. These businesses can use the Memo as a blueprint for updating and clarifying their business practices and mine it for arguments in support of an H-1B petition.
Every service related business requires performing work for a client and in those settings the client requesting the service will need to provide some guidance as to what it needs to have done. For example, some IT consulting businesses conduct software development for a client, marketing their services and distribution of computer software with associated consulting services to meet the needs of clients, or some permutation of these and other important functions. It is important to emphasize that placing an employee at a client site does not automatically transform the client into the employer. Furthermore, the employee placed at a client site is typically not “expected to become part of [the client’s] regular operations”, as the Neufeld Memo seems to suggest. Normally, an H-1B beneficiary is assigned by the petitioner to work for a particular client to achieve a specific goal for the client. The client does not dictate the education/experience requirements of the position with the petitioner for which the beneficiary was hired, nor does the client dictate the beneficiary’s job duties, reporting duties, or duties of confidentiality vis à vis the petitioner. Rather, the client has usually chosen the petitioner as a consultant because the petitioner hires people of the caliber necessary for their projects. In some cases, a client will need to provide greater input to the petitioner on how it wants a project completed, but the petitioner retains ultimate control over and responsibility for the beneficiary’s work and compensating the beneficiary for that work.
In pursuing initial H-1B petitions and extensions, service-based companies such as IT consulting firms should examine their employer-employee relationships and their business models to determine where they fall with regard to the factors delineated in the Memo. With regard to the company and the clients, what is each party’s goal in a particular project and how are those goals set? The IT consulting company should clarify its processes, and clearly define for whom the beneficiary works, who the beneficiary reports to, is paid by, etc., to ensure that their employee is not somehow swallowed into the client’s operations. Keep in mind that the consulting company need not control every aspect of its employees work day. The Memo clearly distinguishes the right to control the employee from actual control of the employee:
The right to control the beneficiary is different from actual control. An employer may have the right to control the beneficiary’s job-related duties and yet not exercise actual control over each function performed by that beneficiary. The employer-employee relationship hinges on the right to control the beneficiary. (Neufeld Memo, note 6.)
In addition, the company should examine the various elements of its business – does it focus purely on staffing or does it engage in other pursuits such as software development or marketing or any other endeavor that has resulted in any type of physical or intellectual property? It is important for companies to pay close attention to the services they offer and the means by which they offer those services. There may be proprietary elements to their methods or processes, their high service level standards, or tools specific to their company that their employees use in providing a service to a client. If a company markets itself through the quality and skills of its employees, that may be seen as a marker of the employer-employee relationship. The lack of proprietary software therefore should not undermine the ability of an employer to file an H-1B petition.
Those companies that are purely staffing agencies should explore whether they meet the requirements of an “agent” under the regulations. According to the regulations, in order to qualify as an agent performing the function of an employer, the staffing agency must guarrantee the wages and other terms and conditions of employment by contractual agreement with the beneficiary or beneficiaries of the petition. The agent/employer must also provide an itinerary of definite employment and information on any other services planned for the period of time requested.
8 CFR 214.2(h)(2)(i)(F)(1). Thus the agent-as-employer must show that they are functioning as an employer, and provide proofs that establish the employer-employee relationship in the context of their business. Here again, the company must do its due diligence to determine how its own operations prove the employer-employee relationship, using the factors delineated in the Memo as a guide.
With regard to the itinerary requirement, the Memo has taken the specific terms of the regulations governing a different circumstance, namely where an agent represents both the employer and the beneficiary, and has applied the specifics of that limited regulation throughout the H-1B context.4 Thus, the Memo requires (taking language from 8 CFR § 214.2(h)(2)(i)(F)(2)), presentation of an itinerary 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.” Neufeld Memo at 8. For most businesses, this requirement is not practicable and does not realistically reflect how businesses contract with one another for consulting services. This requirement in fact does not make sense in terms of the control test and establishing the employer-employee relationship. It goes beyond that concept and requires businesses to predict future clients and projects with impossible accuracy. This requirement seems especially unnecessary in light of the fact that the DOL regulations already address the situation where a new worksite arises, and allows an employer to obtain a prevailing wage and file a new LCA to cover any new worksites before an H-1B beneficiary is sent to that site for a project.5
The regulations define the type of beneficiaries who may be sponsored by an agent-as-employer as workers who are “traditionally self-employed” or workers who “use agents to arrange short-term employment on their behalf with numerous employers.” 8 CFR 214.2(h)(2)(i)(F). An argument can be made that individuals working as IT consultants are the type of employees who normally use agents, i.e., staffing agencies, to arrange short-term employment. To some extent, these short-term projects define the IT consulting business and are in part why it is a successful business model.
We encourage IT consulting companies to conduct careful self-reviews because of the key role they play in the US economy. These companies provide an essential service to all levels of US companies, and often to major US companies that employ significant numbers of US workers. These companies depend on IT consulting companies to assist on important projects of various lengths and terms – and often jobs for US workers are promoted and supported by such projects.6 Significantly, HR departments at companies who need the services of IT consulting firms have neither the time nor the capacity to find and hire an IT worker for short- or medium-term IT projects. US companies (and therefore US workers) will certainly be hurt by an end to IT consulting companies who can provide these services. Thus in a strong sense, IT consulting businesses are too important to fail.
In light of the above discussion, we hope that USCIS will interpret the Neufeld Memo in the “totality of the circumstances” taking into account the goal of protecting workers and the business realities of the global economy. As the Memo states:
[T]he petitioner will have met the relationship test, if, in the totality of the circumstances, a petitioner is able to present evidence to establish its right to control the beneficiary’s employment. In assessing the requisite degree of control, the officer should be mindful of the nature of the petitioner’s business and the type of work of the beneficiary.
When read carefully with an eye toward teasing out arguments in support of IT consulting firms, many of the factors presented in the Neufeld Memo are workable and not so limiting as we first believed. Of course, there is the strong possibility that USCIS will interpret the Memo narrowly rather than in the more flexible, reasonable, realistic terms we suggest here. But, in the hope that reason will prevail, we have presented some initial suggestions for IT consulting firms to assist them in clarifying or updating their business models to establish that their companies do in fact meet the control test under the factors delineated in the Neufeld Memo.
*Myriam Jaidi is an Associate with Cyrus D. Mehta & Associates, PLLC where she represents clients on a full range of employment- and family-based immigration matters. Ms. Jaidi received her J.D. from the University of Michigan Law School where she served as Editor-in-Chief of the Michigan Journal of Race & Law and was awarded the Dores McCree Award for Service to the Law School Community. She received her M.A. from Stanford and her B.A. cum laude from Harvard University in History.
2 In a 1944 Supreme Court case, NLRB v. Hearst, 322 US 111 (1944), the Court noted the “long and torturous history” behind the development of the “control test.” See 322 US at 121 and n.19. “Few problems in the law have given greater variety of application and conflict in results than the cases arising in the borderland between what is clearly an employer-employee relationship and what is clearly one of independent, entrepreneurial dealing.” Id. at 120.
3 Various federal authorities do keep context in mind when applying the control test. For example, the control definition has been used to protect employees against business practices that recast employees as “independent contractors” by disavowing “control” over the worker thus allowing businesses to pay them less, avoid the headache of claiming them on their taxes (and paying the taxes!), and avoid providing employee benefits, or meeting their obligations under ERISA.
4 This is one area where USCIS has clearly gone afoul of the notice and comment requirements.
5 See 20 C.F.R. § 655.730(c)(5) & 20 C.F.R. 655.734(f); see also, Letter to Lynn Shotwell from Efren Hernandez, Director, Business and Trade Branch, CIS (Oct. 23, 2003).
6 It is important to note that destroying a business model like IT consulting firms that provide such a critical service to US companies, will end up eliminating jobs for US workers by forcing US companies to move entire projects off-shore so that they can be completed.