NEW USCIS MEMO REDEFINES EMPLOYER-EMPLOYEE DEFINITIONS IN THE H-1B CONTEXT

On January 8, 2010, Donald Neufeld, Associate Director of Service Center Operations at USCIS issued a memo titled "Determining Employer-Employee Relationship for Adjudication of H-1B Petitions, Including Third-Party Site Placements". This memo contains additions to the Officer's Field Manual and completely reverses multiple AAO decisions (although unpublished) and employment law provisions in various states.
The memo specifically goes after IT Consulting firms or placement firms where the individual is placed at a third party worksite and does not implement the Petitioner's proprietary software. IT implementation firms appear to be protected by this memo but they are not completely out of the woods.
The memo also goes after small business owners that are sole owners of the company sponsoring them for H-1B visas, or majority shareholders in the same. The USCIS memo states that since the beneficiary has direct control over the corporation, the corporation does not control the employment of the beneficiary.
In both cases, the USCIS memo states that there is no employer-employee relationship and therefore H-1B sponsorship is not permitted. In both cases USCIS states that there is no right to control the employee on a daily basis.
USCIS will consider the following in determining whether there is an employer-employee relationship, notwithstanding the fact that the IT consulting firm hired the individual and is on its payroll:
1) Does the petitioner supervise the beneficiary and is such supervision off-site or on-site?
2) If the supervision is off-site, how does the petitioner maintain such supervision, i.e. weekly calls, reporting back to main office routinely, or site visits by the petitioner?
3) Does the petitioner have the right to control the work of the beneficiary on a day-to-day basis if such control is required?
4) Does the petitioner provide the tools or instrumentalities needed for the beneficiary to perform the duties of employment?
5) Does the petitioner hire, pay, and have the ability to fire the beneficiary?
6) Does the petitioner evaluate the work-product of the beneficiary, i.e. progress/performance reviews?
7) Does the petitioner claim the beneficiary for tax purposes?
8) Does the petitioner provide the beneficiary any employee benefits?
9) Does the beneficiary use proprietary information of the petitioner in order to perform the duties of employment?
10) Does the beneficiary produce an end-product that is directly linked to the petitioner’s line of business?
11) Does the petitioner have the ability to control the manner and means in which the work product of the beneficiary is accomplished?
This Memo cites the example of a third party placement where "the beneficiary reports to a manager who works for the third-party company. The beneficiary does not report to the petitioner for work assignments, and all work assignments are determined by the third-party company. The petitioner does not control how the beneficiary will complete daily tasks, and no proprietary information of the petitioner is used by the beneficiary to complete any work assignments.” Such an H-1B will fail since the petitioner, according to the Memo, has no right of control over the beneficiary. And even when such an IT company can demonstrate a right of control over its employee, and the USCIS will deny such an H-1B petition. In the recent past, USCIS allowed such H-1B petitions as long as a letter from the end client was provided to confirm the job duties. Now the Neufeld Memo adds these draconian requirements – this right of control, which will be impossible to prove by an IT consulting firm that does not have its own proprietary product or methodology.
This memo brings a sharp departure from prior USCIS policies and AAO decisions, and directly contradicts many Federal and state laws relating to employment, including discrimination laws, equal pay and the Fair Labor Standard Act.
It is almost certain that litigation will follow by someone, as this industry will be out of business if this is allowed to continue.