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A Problematic Memorandum On Third-Party Placements

by Sherry L. Neal

USCIS issued a memorandum titled, Determining Employer-Employee Relationship for Adjudication of H-1b Petitions, including Third-Party Site Placements. This memo is especially important to petitioners who place H-1b workers at third-party sites, such as information technology staffing companies and healthcare staffing companies.

The USCIS Regulations at 8 C.F.R. 214.2(h)(4)(ii) define an employer as a person, firm, corporation, contractor or other organization in the United States which meets three criteria: (1) Engages a person to work in the United States; (2) Has 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.

While two of the criteria - engaging a person to work and having an internal revenue service tax identification number - are rarely in dispute, it's the third criterion (an employer-employee relationship) that is often the area of contention. The regulations say an employer-employee relationship is "indicated by the fact it may hire, pay, fire, supervise or otherwise control the work of any such employee". The recent memorandum by USCIS expands on the phrase "supervise or otherwise control the work".

This memo specifies some factors that USCIS will look at to determine whether the petitioner has the right to control the H-1b beneficiary: (1) Whether the petitioner supervises the beneficiary (off-site or on-site); (2) How supervision is maintained (i.e. weekly calls, reporting back to main office, etc.); (3) Whether the right to control is on a day-to-day basis; (4) Whether the petitioner provides tools or equipment needed to perform the duties; (5) Whether petitioner has the authority to hire, fire, and pay; (6) Whether the petitioner evaluates work-product of the beneficiary; (7) Whether the petitioner provides employee benefits; (8) Whether the petitioner claims the beneficiary for tax purposes; (9) Whether the beneficiary uses any proprietary information of the petitioner; (10) Whether the work-product is directly linked to the petitioner's line of business.

The memorandum is problematic for several reasons. The verbiage is likely to be misleading to adjudicators. Specifically, the memorandum lists "third-party placement/body-shop" as a scenario "that would not present a valid employer-employee relationship". Whether that particular scenario may or may not result in an employer-employee relationship, there are certainly many third-party placement scenarios that do qualify as "employer-employee" relationships. There is serious concern that adjudicators will rely heavily on the memorandum and adjudicate all "third-party placement/body shop" arrangements as not acceptable for H-1b purposes.

Second, the USCIS memorandum creates a standard for "employer-employee relationship in the context of H-1b petitions that is more onerous than other nonimmigrant (or even immigrant) visa petitions. For example, a Canadian citizen or Mexican citizen can enter the U.S. in TN status to work as a "Computer Systems Analyst" for a company in the same third-party placement arrangement may not acceptable for H-1b purposes under the terms of the USCIS memorandum.

Third, the USCIS memorandum is far-reaching and inconsistent with other provisions of the law. An employment relationship must exist for any of the employment laws to apply, including but not limited to the Fair Labor Standards Act, Age Discrimination Act, and the Immigration Reform and Control Act. Business could use the memorandum to their benefit and assert that they do not have to verify employment eligibility (I-9 verification) because the person is not an "employee". Simply put, USCIS cannot have it both ways: claiming there is not an "employer-employee" relationship in the H-1b context while simultaneously expecting the employer to comply with the employment verification laws in the same scenario.

Fourth, the USCIS memorandum is a violation of the Administrative Procedures Act. If adjudicators follow this memorandum, then it is creating new law without the required notice-and-comment rulemaking process.

On the bright side, the USCIS memorandum is not binding. The U.S. Courts have said, "Agency interpretations that are not arrived at through precedent decision or notice-and-comment rulemaking - such as those in opinion letters, policy statements, agency manuals, and enforcement guidelines - lack the force of law. See AAO Decision, In Re: Technical Services, Inc., (July 22, 2008) citing Christensen v. Harris County, 529 U.S. 576 (2000).

About The Author

Sherry L. Neal is a Partner at Hammond Law Group, LLC in Cincinnati, Ohio. She advises employers and foreign nationals on employment immigration issues. She can be reached at

The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.