The United States Citizenship and Immigration Service (USCIS) has issued new guidance regarding requirements for H-1B petitioners just in time for the 2011 H-1B cap. USCIS’ January 8, 2010, memo “Determining Employer-Employee Relationship for Adjudication of H- 1B Petitions, Including Third-Party Site Placements” (“H-1B Memo” or “memo”) goes into great detail regarding the employer-employee relationship requirement for H-1B petitions and concludes that most staffing companies and companies that utilize third-party placements do not qualify as H-1B petitioners.

Employer-Employee Relationship

The H-1B regulations define a U.S. employer filing an H-1B petition as “having 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.”1 Stating that the “right to control” is the primary element in establishing an employer-employee relationship rather than one of several factors, the H-1B Memo lists factors to be considered in determining whether a right to control exists. The H-1B Memo directs petitioners to establish the employeremployee relationship by submitting sufficiently detailed evidence that demonstrates a right to control. The H-1B petitioner will need to show that it has the right to control over when, where and how the H-1B employee performs the job and that it will be a totality of the circumstances analysis, rather than one factor being decisive.

The H-1B Memo also provides a list of documentation that can be submitted as evidence of the employer-employee relationship. The H-1B Memo also examines different employment scenarios with conclusions about whether the requisite right to control and, therefore, an employer-employee relationship exist in each.

Staffing Companies

The staffing business model, referred to as “Third-Party Placement/’Job Shop,’” is among the employment scenarios examined in the H-1B Memo. In the example, an H- 1B employee of a computer consulting company is working at a client site on a project to maintain the client’s payroll. The H-1B employee is supervised and all work assignments are determined by the client. The analysis finds that the computer consulting company has no right to control the H-1B employee and therefore lacks a valid employer-employee relationship with the H-1B employee. From this analysis, it appears that a staffing company will fail to satisfy the “right to control” test set out in the H-1B Memo.

Third-Party Site Placements

The H-1B Memo also highlights and expands on the itinerary requirement. The regulations require that, when an H-1B employee will provide services in more than one location, the H-1B employer must submit “an itinerary with the dates and locations” of when and where those services will be performed.2 The H-1B Memo says that the itinerary must include the names and addresses of the establishments, venues or locations and of the “actual employers.”3

H-1B Cap and Extension Cases Affected

The memo states that H-1B petitioners are required to demonstrate the existence of the employer-employee relationship for the duration of the H-1B validity period. The H-1B Memo has already resulted in Requests for Evidence (RFEs) and denials for those employers who utilize third-party placement. Medical and IT staffing companies are concerned about whether they can continue to hire foreign workers or whether their current H-1B employees’ status will be extended. H-1B visa holders who work at client sites are anxious in that their status in the U.S. is in jeopardy.

To address growing concern regarding the H-1B Memo, USCIS held a Collaboration Session on February 18, 2010 in Washington, DC. The two-hour session was attended by nearly 500 people, over 400 of whom attended via teleconference. USCIS responded that it appreciated the opportunity to learn about “unintended consequences” resulting from the H-1B Memo. The participants, including the American Immigration Lawyers Association (AILA), told the USCIS representatives that the H-1B Memo should be withdrawn.

Where Did This Come From?

As GT has reported, USCIS has been cracking down on H-1B fraud over the last two years. With the H-1B Memo, USCIS has taken another shot at reducing fraud in the H-1B visa program. Even though USCIS says the H-1B Memo is intended to memorialize existing policy, until very recently, USCIS has always recognized staffing companies as H-1B petitioners. During the February 18, 2010 Collaboration Session, USCIS explained that its stakeholders included members of Congress and mentioned Senator Chuck Grassley (R-IA), who has contacted USCIS regarding H-1B fraud. USCIS’ reference to congressional influence clarifies that the H-1B Memo is an attempt to police bad actors within the H-1B program. Unfortunately, in its effort to respond quickly to pressure from Capitol Hill, USCIS has managed effectively to eliminate the staffing industry, which includes federal contractors, from the H- 1B program. Perhaps this is an “unintended consequence” of the H-1B Memo, but the effect on established and reputable staffing industry companies is real.

Conclusion

At this time, unfortunately, it does not appear that USCIS plans to withdraw the H-1B Memo. If your company uses third-party placement for potential or existing H-1B workers, it is critical that you contact your GT attorney as soon as possible to develop a strategy to comply with the new USCIS guidance.