For nearly 10 years, employers, primarily in the technology sector, have had to navigate a complex maze of document requirements to comply with U.S. Citizenship and Immigration Services (USCIS) policy under what is known as the “Neufeld” memo, which was issued on January 8, 2010. In that memo, USCIS asserted the authority to deny H-1B petitions based on a potentially restrictive understanding of what constituted an “employer-employee” relationship, including when an H-1B visa holder performed work at a client’s location (third-party placement).

On May 20, 2020, USCIS settled a long-pending lawsuit regarding its “itinerary” requirement for offsite H-1B workers – ITServe Alliance, Inc. v. Cissna. This settlement, which overturns 10 years of policies limiting employers of certain H-1B visa holders, came after a pivotal March 10, 2020 District Court opinion that rejected USCIS’s interpretation of the employer-employee relationship for H-1B workers and its stringent itinerary rule for offsite employment. USCIS’s restrictive position has been a long-standing issue for consulting and staffing companies that employ H-1B workers.

Background

H-1B visa sponsorship requires the existence of a valid employer-employee relationship between the sponsoring employer and the H-1B employee. USCIS regulations define an employer-employee relationship as the ability of a company to “hire, pay, fire, supervise, or otherwise control the work of any such employee.…” As with the majority of changes to our current immigration system, USCIS has added its own restrictions to this definition without a corresponding change in the regulations, which has led to both denials of H-1B petitions, as well as to shortened approvals of H-1B petitions. In one noteworthy example, USCIS approved an H-1B petition for a single day of validity.

This more restrictive policy regulating offsite H-1B employment came to light in a January 8, 2010 memorandum (“Neufeld” memo) where USCIS asserted the authority to deny H-1B petitions based on a restrictive reading of the definition of an “employer-employee relationship,” especially when an H-1B visa holder performed work at an off-site location. USCIS’s interpretation of “employer-employee relationship” has become even narrower under the Trump administration, with substantive changes in a February 2018 memo titled, “Contracts and Itineraries Requirements for H-1B Petitions Involving Third-Party Worksites.” This memo required a specific itinerary of the dates and locations of employment, as well as proof that the employment relationship will continue to exist for the entire requested H-1B validity period.

The challenges for IT employers have increasingly grown more severe in recent years. According to the National Foundation for American Policy (NFAP), “Denial rates for new H-1B petitions for initial employment rose from 6% in FY 2015 to 30% in the first quarter of FY 2020.” According to NFAP, “As in earlier fiscal years, the highest denials rates are for companies that provide information technology or other business services to American companies.” While all 25 companies with the most approved new H-1B petitions saw their H-1B denial rates for initial employment increase, the denial rate for 12 major companies that provide IT services or other business consulting services increased by 20 percentage points or more compared to FY 2015.

The Court Cases

The narrowing of the regulatory adjudication standard leading to an increase in H-1B denials and truncated approvals, without any change in law or USCIS regulations, resulted in two recent court decisions ruling against USCIS’s position leading to the settlement agreement on May 20.

• ITServe Alliance, Inc. v. Cissna (March 10, 2020). Here, plaintiffs argued that USCIS’s narrow interpretation of “employer-employee relationship” was unsupported by law or regulation. Established law allows an employer to retain an H-1B employee during “nonproductive” periods as long as the company continued to pay the required wage to the H-1B visa holder. The court dismissed USCIS’s interpretation and ruled, “[t]he current CIS interpretation of the employer-employee relationship requirement is inconsistent with its regulation, was announced and applied without rulemaking, and cannot be enforced.” The court further noted that the USCIS interpretation was inconsistent with the relevant USCIS regulation because, as plaintiff’s attorneys pointed out, in the regulation USCIS used the Department of Labor’s definition of an employer, which reads: “Has 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…” (Emphasis added.) The “or” proved pivotal.

Judge Collyer ruled, “The USCIS requirements that employers (1) provide proof of non-speculative work assignments (2) for the duration of the visa period is not supported by the statute or regulation and is arbitrary and capricious as applied to Plaintiffs’ visa petitions.”

• Serenity Info Tech et al. v. Kenneth T. Cuccinelli (May 20, 2020). Under the Trump administration, USCIS also began denying H-1B petitions unless an employer could list every contract or other work to be performed while in H-1B status. It also approved H-1B petitions for periods as short as a single day. Those denials and short-term approvals were largely the result of a February 2018 USCIS memo on “Contracts and Itineraries Requirements for H-1B Petitions Involving Third-Party Worksites.”

Issued on the same day as the settlement in the above case, the Serenity Info Tech decision closely followed the opinion and holding of the ITServe Alliance decision. The judge concluded that “there is no basis in the INA [Immigration and Nationality Act] or the Agency’s regulations for requiring a petitioner to submit evidence of specific, qualifying work requirements and micro-location information for every single day of the visa period,” and, “the Agency’s 2018 interpretation of the statute and regulations, as applied in the instant case, is owed no deference.”

The Settlement

The USCIS-ITServe settlement will immediately affect current and prior H-1B filings with regard to the standard of adjudication of the employer-employee relationship, and the validity period of H-1B approvals for employment at third party locations.

Most notably for all employers, USCIS agreed to rescind “in its entirety within 90 days” the 2018 Contract and Itinerary Memorandum.

Second, USCIS will reopen and adjudicate decisions on H-1B adjudications that were the subject of the ITServe Alliance lawsuit against USCIS, and during re-adjudication will not apply the interpretation of the current regulatory language, but comply with the March 10, 2020 decision in ITServe Alliance, Inc. v. Cissna.

Although a significant win for H-1B employers with third-party placements, it is important to note that the settlement does not prevent the Department of Homeland Security (DHS) or USCIS from issuing new regulatory guidance or sub-regulatory guidance regarding H-1B eligibility. So the saga continues!

Because of the highly fluid and rapidly changing nature of the current immigration environment, the information provided here may quickly become out of date.