H-1B Employers Must Prove Employer-Employee Relationship

As of April 22, 2011, the USCIS has accepted approximately 8,000 petitions subject to the 65,000-cap and 5,900 out of the 20,000 H-1B master’s cap. If the trend for this fiscal year follows that of 2008 and 2009, 25-30% of these H-1B petitions will be the subject of a request for evidence (RFE). This is double the RFE rate for 2007.

An RFE is sent when an adjudications officer needs additional information on the pending petition or application. One of the main reasons for the increase in RFEs is the January 2010 guidance on employer-employee relationships issued by Donald Neufeld, USCIS Associate Director for Service Center Operations.

The Neufeld Memorandum requires an H-1B petitioner to show not only that the foreign national will work in a specialty occupation, but also that a valid employer-employee relationship will exist between the petitioner and beneficiary during the H-1B validity period.

An employer-employee relationship exists when the employer has the right to control the manner in which the services are to be performed by the employee. In the H-1B context, such a relationship may be lacking in certain instances where the beneficiary performs work at off-site locations or for third parties.

The memorandum lists eleven questions that must be addressed in order to establish an employer’s right to control, including whether or not the petitioner will supervise the beneficiary on-site; hire, pay and have the ability to fire the beneficiary; provide employee benefits; and evaluate the beneficiary’s work product.

The USCIS analyzes the evidence with a view to the “totality of circumstances”. The H-1B petitioner will pass the employment relationship test if it can prove its right to control the beneficiary’s employment, if not the actual exercise thereof.

The Neufeld Memo illustrates through different scenarios which types of relationships would be valid or approvable and which ones would not be eligible for H-1B status. The first type of valid relationship pertains to a traditional employment scenario where the petitioner exercises actual control over the beneficiary’s employment. In this scenario, the beneficiary works at a location owned or leased by the petitioner, is given benefits and compensated as an employee by the petitioner for tax purposes.

The three other examples of valid relationships involve placement at off-site or third-party work locations and vary according to whether the placement is short- or long-term. In these situations, the petitioner must clearly show its right of control through documentary evidence such as the employment agreement, contracts with its clients, pay stubs, and proof that petitioner reviews the beneficiary’s work product.

The memorandum also lists examples of situations where the employer-employee relationship is absent. Self-employment – where there is no employing entity that can exercise control over the beneficiary’s work – is not approvable for H-1B employment. Independent contractors do not have the status of employees and are not subject to the control of the petitioner.

Third-party placement or “job shops”, under which most staffing scenarios fall, also fail the control test and do not qualify for H-1B status, according to the USCIS memo.
Even when the I-129 petition is for an extension and not for initial H-1B employment, the USCIS requires evidence that the petitioner continues to have the right to control the beneficiary’s work.

The latest version of Form I-129 contains revisions that reflect this stricter policy. The employer must make additional attestations if the beneficiary is assigned off-site and include an itinerary with the petition.

The USCIS issued the Neufeld Memo after Congressional scrutiny in response to a 2008 report that showed that 21% of H-1B petitions contained either fraud or technical violations.

Since its release, the memorandum has drastically changed the way certain types of H-1B petitions and extensions are adjudicated. The Neufeld Memo particularly impacts IT staffing and consulting companies but has been shown to result in unintended consequences for other types of employers.