Neufeld memo not legislative rule
Fee surcharge on staffing firms

On August 13 2010 the US District Court for the District of Columbia dismissed with prejudice Broadgate, Inc v USCIS. The decision ruled against a suit that challenged the Neufeld Third-Party Placement Memo. Judge Joan Kessler concluded that the memo did not constitute "final agency action" under Section 704 that might be subject to judicial review and the notice and comment requirements of Section 553 of the Administrative Procedure Act.

Neufeld memo not legislative rule

The court concluded that the memo merely provides "interpretive guidelines" for the implementation of 8 CFR § 214.2 and does not bind US Citizenship and Immigration Services (USCIS) adjudicators in their determination of plaintiffs' H-1B visa applications. The decision ruled on this central issue under DC Circuit precedent regarding whether the Neufeld memo had the effect of a "legislative rule" binding on the agency or the public. Kessler observed that:

"Whether a disputed 'rule' is a legislative rule turns on whether it has 'the force of law', meaning that "Congress has delegated legislative power to the agency and... the agency intended to exercise that power in promulgating the rule." Am. Mining Congress v. Mine Safety & Health Admin., 995 F.2d 1106, 1109 (D.C. Cir. 1993). The agency's intent to exercise legislative power may be shown where the second rule effectively amends the previously adopted legislative rule, either by repudiating it or by virtue of the two rules' irreconcilability. Id."

The decision found that "the evidence demonstrates that the Memorandum is intended to provide only guidance for application of the Regulation", largely based on a finding that four petitions submitted by the plaintiffs had been approved despite the existence of the memo. The plaintiffs had claimed that their business model was irreconcilable with the policy articulated in the Neufeld memo, and had expressly sought the court's protection for it in the injunction request. Having failed to establish imminent harm, this decision followed the RCM Technologies case,(1) cited by both parties, which similarly found a lack of showing of harm in an injunction sought in 2009 against a USCIS policy unsuccessfully challenged in a DC court by agencies that employ H-1B physical therapists.

The court ruled solely on those technical grounds that the policy could not be reviewed under the Administrative Procedure Act and subordinate measures, and did not rule on the validity per se of the USCIS policy requiring common law "control" of H-1B workers. However, Kessler did find (without elaborate explanation of the reasoning applied) that the agency's application of the common law doctrine in this instance was not inconsistent with existing regulations. She also ruled against the plaintiffs' contentions that the memo violated requirements of the Regulatory Flexibility Act(2) by failing to perform a Regulatory Flexibility Act analysis before issuing the memo. The Regulatory Flexibility Act requirement was found to be contingent on a finding that the policy challenged amounts to a legislative rule. The court also rejected:

"Counts IV and V, Plaintiffs claim that Defendants have engaged in arbitrary and capricious rulemaking in violation of 5 U.S.C. § 706(2)(A) and (D) because the Memorandum redefines the employer-employee relationship without justification or authority and was written by Neufeld, a USCIS employee not authorized by law to issue rules."

Having found that the Administrative Procedure Act review did not apply in this case, the court was not obligated to rule on these subordinate issues.

Fee surcharge on staffing firms

By coincidence, on August 13 2010 President Obama signed into law a $2,000 surcharge to be applied to H-1B and L-1 petitions filed by companies with a high percentage of non-immigrant workers (for further details please see "New legislation hikes H-1B and L-1 filing fees").

According to congressional leaders, the measure is intended to target large foreign staffing firms directly. Senate Immigration and Homeland Security Committee Chairman Charles Schumer, the principal Senate sponsor, stated his view of Congress's intent on introducing the bill for the Senate vote, which was carried by unanimous consent. Schumer made clear that he and others in Congress see the business model of such firms as harmful and contrary to the original intent of US non-immigrant visa programmes used by these firms:

"The business model of these newer companies is not to make any new products or technologies like Microsoft or Apple do. Instead, their business model is to bring foreign technology workers into the United States who are willing to accept less pay than their US counterparts, place these workers into other companies in exchange for a consulting fee and transfer these workers from company to company in order to maximise profits from placement fees. In other words, these companies are petitioning for foreign workers simply to provide these same workers to other companies who need cheap labour for various short-term projects."

The president made no reference in his signing statement to objections raised by the Indian government and trade groups, which view the move as discriminatory and directed at large, successful global outsourcing firms based in that country.(3)


In view of the Broadgate v USCIS decision and the actions of Congress, it can safely be concluded that IT outsourcing firms employing the traditional outsourcing business model will increasingly be restricted from the US market, and their compliance costs will continue to rise substantially, eroding or erasing their cost advantage.

Outplacement firms that wish to maintain operations in the still lucrative US market must now work closely with counsel expert in alternative business models, such as in-sourcing and near-sourcing, to develop appropriate plans for risk mitigation and restructuring.

For further information on this topic please contact Rami D Fakhoury at Fakhoury Law Group PC by telephone (+1 248 643 4900), fax (+1 248 643 4907) or email ([email protected]).


(1) See RCM Technologies, Inc v US Dep't of Homeland Security, 614 F Supp 2d 39 (DDC 2009).

(2) 5 USC § 601 and following.

(3) See "Despite Indian concerns, Obama to sign border security bill", August 13 2010,