Neufeld Memo on Employer-Employee Relationship

On January 8, 2010, Donald Neufeld, Associate Director of the USCIS Service Center Operations, issued a memorandum that intended to provide guidance, in the context of H-1B petitions, on the requirement that a petitioner establish that an employer-employee relationship exists and will continue to exist with the beneficiary
throughout the duration of the requested H-1B validity period. The Neufeld memo explains that the USCIS has
relied on common law principles and two leading Supreme Court cases in determining what constitutes an employer-employee relationships and the lack of guidance clearly defining what constitutes a valid employer-employee relationship has raised problems, in particular, with independent contractors, self-employed beneficiaries, and beneficiaries placed at third-party worksites.

In considering whether or not there is a valid "employer-employee relationship," the Neufeld memo cited the Supreme Court case Darden, the right to control the manner and means by which the product is accomplished and proposed 11 questions to be considered:

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 type of 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?

The memo provides four scenarios where a valid employer-employee relationship exists:

1. traditional employer [exercise of actual control];
2. temporary/occasional off-site employer [right to control];
3. long-term/permanent off-site employment [right to control specified and actual control exercised]; and
4. long term placement at a third-party work site [right to control specified and actual control is exercised].

The following scenarios presented in the memo would not present a valid employer-employee relationship:

1. self-employed beneficiaries [no separation between individual and employing entity; no independent control exercised and no right to control exists];
2. independent contractors [petitioner has no right to control; no exercise of control]; and
3. third-party placement/"job shop" [petitioner has no right to control; no exercise control].

Following this memo, practitioners are reporting an increase in Requests for Evidence and denials from the USCIS
Vermont and California Service Centers. Given the implications of the memo and USCIS' extensive requests for
evidence there have been vigorous complaints, a lengthy (24 pages) and compelling request to USCIS requesting
that the entire memo be set aside, and contemplation of lawsuits for clients.

There is some light at the end of the tunnel following a recent lawsuit filed on behalf of GT clients with the U.S.
District Court for the District of Columbia, Broadgate v. USCIS. In Broadgate, the Court held that the USCIS memo is not legally binding. In particular, the Court found that the USCIS memo "was intended to provide only guidance for application of the Regulation, not to establish independent binding rules." Broadgate v. USCIS, No. 10-00941 (D.D.C. dismissed Aug. 13, 2010) at 10. The Court continued to note that the USCIS memo "establishes interpretive guidelines for implementation of the Regulation and does not bind adjudicators" in their adjudication of H-1B petitions. Id. at 14. As discussions with USCIS officials continue, we hope to see a more practical and business friendly interpretation and application of these standards.

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