The USCIS memo on the issue of H1B employer-employee relationships is clearly and demonstrably wrong on the law. Imagine what would happen if they were right. “Job shops” would be able to assert, as an absolute affirmative defense in LCA enforcement actions, that they are not “employers” as that term is defined for H1B purposes. As such, the Department of Labor (DOL) regulations do not apply to them. By their own terms, those regulations only apply to H1B “employers.” If a “job shop” is not an employer for H1B purposes, then the LCA provisions do not apply to them.

The odds of that kind of defense surviving federal court litigation are about as close to zero as you can get. The DOL will never accept the CIS definition of “employer” as it would deprive them of jurisdiction to enforce LCAs.

In Part Two of this article, we observed that the CIS began their memo with a tacit acknowledgement that the governing statute requires the Secretary of Labor to make the first determination as to whether the petitioner qualifies as an employer. The CIS memo also relied upon the Supreme Court’s decisions in National Mutual Ins. Co. v. Darden, (Darden) and Clackamas Gastroenterology Assoc. v. Wells (Clackamas) as authority for the interpretation they have adopted.

Their reliance is misplaced.

The CIS, and its predecessor the INS, have both had ample opportunity to go through the public notice and comment rulemaking procedure to define the term “employer” beyond that contained in the existing regulations. The current regulations were promulgated more than fifteen years ago. Interestingly, an early interpretation of these same regulations, dated November 13, 1995 by Louis D. Crocetti, Jr. at then-INS Headquarters, cautioned field adjudicators against excessive inquiries concerning H1B petitions filed by contracting companies:

“Officers are again reminded that not every case relating to a specific occupation should be returned to the petitioner for additional information unless it is for a specific time period, with a particular objective in mind. In such "blitz" projects, advanced notice of Headquarters and, if practical, affected organizations such as AILA should be advised. It appears that a large number of cases are being returned to employment contractors for the submission of contracts between the employer and the alien work site. The submission of such contracts should not be a normal requirement for the approval of an H-1B petition filed by an employment contractor. Requests for contracts should be made only in those cases where the officer can articulate a specific need for such documentation. The mere fact that a petitioner is an employment contractor is not a reason to request such contracts.” [Emphasis added]

The new CIS memo fails to explain why they changed their interpretation of the same regulations that were in place when the above guidance was issued. We are not dealing with new regulations. The same regulations have been in place since before the Crocetti memo was issued in 1995. It is incumbent upon the CIS to explain what has changed since 1995 to require such a radical departure from their previous interpretation. It is particularly noteworthy that this CIS interpretation is not the product of public notice and comment rulemaking and, as such, is not a “rule.” That is, it is a statement of opinion and does not carry any legal weight as a regulation.

In 2000, following extensive public notice and comment, the DOL promulgated new H1B rules. The DOL provided the following definitions at 20 CFR 655.715:

“Employed, employed by the employer, or employment relationship means the employment relationship as determined under the common law, under which the key determinant is the putative employer's right to control the means and manner in which the work is performed. Under the common law, "no shorthand formula or magic phrase * * * can be applied to find the answer * * *. [A]ll of the incidents of the relationship must be assessed and weighed with no one factor being decisive." NLRB v. United Ins. Co. of America, 390 U.S. 254, 258 (1968).


Employer means a person, firm, corporation, contractor, or other association or organization in the United States that has an employment relationship with H-1B, H-1B1, or E-3 nonimmigrants and/or U.S. worker(s). In the case of an H-1B nonimmigrant (not including E-3 and H-1B1 nonimmigrants), the person, firm, contractor, or other association or organization in the United States that files a petition with the United States Citizenship and Immigration Services (USCIS) of the Department of Homeland Security (DHS) on behalf of the nonimmigrant is deemed to be the employer of that nonimmigrant. In the case of an E-3 and H-1B1 nonimmigrant, the person, firm, contractor, or other association or organization in the United States that files an LCA with the Department of Labor on behalf of the nonimmigrant is deemed to be the employer of that nonimmigrant.”

In their notice of final rule, the DOL explained:

“The Department stated its view in the NPRM that where Congress has not specified a legal standard for identifying the existence of an employment relationship, the Supreme Court requires the application of "common law" standards, as held in Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992); Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989). Noting the Supreme Court's teaching that the common-law test contains "no shorthand formula or magic phrase that can be applied to find the answer, * * * [and requiring that] all of the incidents of the relationship must be assessed and weighed with no one factor being decisive" (NLRB v. United Ins. Co. of America, 390 U.S. 254, 258 (1968)), the Department proposed regulatory language setting out 16 factors (adapted from EEOC Policy Guidance on Contingent Workers, Notice No. 915.002 (Dec. 3, 1997)) that would indicate the existence of an employment relationship under the common law test. The NPRM sought comments regarding the proposed test and alternative formulations of the common law or other tests for determining whether an employment relationship exists, such as the test under the FLSA and the test used in the federal tax context.

. . .

In the Department's view, the EEOC's approach (in EEOC Policy Guidance on Contingent Workers, Notice No. 915.002, Dec. 3, 1997) provides an especially useful model for identifying particular factors that can be applied in the context of H-1B employment, particularly where workers are placed at third-party employer worksites. The EEOC established the list as guidance for ascertaining an individual's employment status in the analogous context of staffing firm workers, i.e., workers who are "placed in job assignments by temporary employment agencies, contract firms, and other firms that hire workers and place them in job assignments with the firms' clients." As such, the list is oriented towards individuals providing services, and it provides a focus that facilitates a differentiation among individuals who may possess attributes of both employees and independent contractors. This focus, the Department believes, makes the EEOC formulation useful for resolving employee status questions in the H-1B environment, with its mix of individuals working at a facility operated by one employer, but who may be self-employed or employees of another employer(s). Employers may wish to consider other sources in determining employee status, including IRS materials. The IRS, for instance, has identified the following factors that may be helpful in determining employee status in the H-1B context: the firm or the client provides training to the worker so that the worker may perform services in a particular manner or method; the worker performs services for only one firm at a time; and the worker has been personally selected to perform the job by the client or firm. See IRS Rev. Rul. 87-41, 1987- Cum. Bull. 296, 298-99.”

Both the DOL notice of final rulemaking and the CIS H1B memo cite the Darden case as authority for their interpretations. Darden was decided in 1992. Subsequently, the U.S. Supreme Court decided the Clackamas case in 2003. Clackamas built upon the Darden holding. In Clackamas, the Court cited with approval the same Equal Employment Opportunity Commission (EEOC) analysis (EEOC Policy Guidance on Contingent Workers, Notice No. 915.002, Dec. 3, 1997) earlier employed by the DOL in its December 2000 notice of final rulemaking. The Court held:

“The Court is persuaded by the EEOC’s focus on the common-law touchstone of control . . . “

In that analysis, the EEOC explicitly dealt with the issue of “employees” at “staffing companies.” The EEOC first defined the term “staffing company” very broadly, including situations ranging from taking on the payroll of another company and then leasing back the employees, to temporary placement of their own employees at third party sites to work under the direction of third party supervisors. Specifically, the EEOC held:

“This list is not exhaustive. Other aspects of the relationship between the parties may affect the determination of whether an employer-employee relationship exists. Furthermore, not all or even a majority of the listed criteria need be met. Rather, the fact-finder must make an assessment based on all of the circumstances in the relationship between the parties.

Example 1: A temporary employment agency hires a worker and assigns him to serve as a computer programmer for one of the agency's clients. The agency pays the worker a salary based on the number of hours worked as reported by the client. The agency also withholds social security and taxes and provides workers' compensation coverage. The client establishes the hours of work and oversees the individual's work. The individual uses the client's equipment and supplies and works on the client's premises. The agency reviews the individual's work based on reports by the client. The agency can terminate the worker if his or her services are unacceptable to the client. Moreover, the worker can terminate the relationship without incurring a penalty. In these circumstances, the worker is an "employee." “

Now, this conclusion, the same one referenced with approval by the DOL in its notice of final rulemaking for its H1B regulations, and also referenced with approval by the United States Supreme Court, in the very case the CIS cites as its authority (Chickamas), draws the precisely opposite conclusion that the CIS reached in their memo. The clear weight of legal authority is on the side of consulting companies (i.e., “job shops”) being regarded as employers for all legal purposes.

This conclusion makes sense. Were it otherwise, as we observed at the start of this article, the DOL would be powerless to enforce LCA violations against offending H1B employers if they are job shops. They could assert the CIS interpretation of the term “employer” to defeat the DOL action. That, obviously, is not going to happen.

The CIS is attempting to promulgate a rule unlawfully. Rather than go through the public notice and comment procedure that they abhor, the are trying to slip in this new legal standard through the back door. It is illegal and flies in the face of existing law. When this issue is litigated, we have no doubt that the CIS will lose.