DHS And DOL Team Up On H-1B Visas Against IT Services Companies

The Trump administration released a midnight regulation and memo designed to end information technology (IT) and professional companies’ ability to provide services with H-1B visa holders. The administration’s actions would force the customers of IT services companies to file H-1B petitions and labor condition applications on behalf of H-1B visa holders if they perform work on a customer’s site, even though the customer does not employ or set the pay of the H-1B professional. The far-reaching actions may be unlawful.

What Did DHS and DOL Do? On January 15, 2021, the Department of Homeland Security (DHS) released the text of a final H-1B rule. This is the same regulation a federal judge in the Northern District of California invalidated on December 1, 2020, except this version of the rule focuses only on the “employer-employee relationship.”

The Trump administration understood it was on tenuous legal grounds and decided to narrow the rule, apparently believing this would have better chance in court and would inflict the most damage on IT services companies, the administration’s favorite H-1B target over the past four years. U.S. Citizenship and Immigration Services (USCIS) policies under Trump increased the H-1B denial rates dramatically for companies, particularly among IT services companies. However, a judge ruled the policies to be unlawful. As a result, in June 2020, USCIS withdrew two memos and issued a new policy memo as part of a settlement with the business group ITServe Alliance. The DHS rule and DOL memo are attempts to give permanence to policies ruled unlawful.

The new DHS rule significantly changes the definition of an employer to allow DHS to require the customers of information technology and professional services companies to submit labor condition applications and H-1B petitions as if they were employers of the H-1B professionals, which they are not. These additional requirements would likely drive customers away from any IT services companies that send H-1B visa holders to a customer’s location, since few customers want to (or can) take on legal obligations for individuals for whom they do not possess the ability to hire, fire or compensate. (The DHS rule goes into effect 180 days after publication.)

The Trump administration made a critical change to the current DHS regulation. The current regulation defining what an “employer means” reads: “(2) 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.” That matches the Department of Labor’s regulation and contains a reasonably clear, common-sense definition of an employer.

Now look at the new rule: DHS removed the phrase “as indicated by the fact that it may hire, pay, fire, supervise, or otherwise control the work of any such employee.” DHS added the phrase “the factors that USCIS may consider to determine if a valid employment relationship will exist or continue to exist include, but are not limited to…” and goes on to list 11 factors. DHS includes unclear phrases among the factors, such as “Where the supervision is not at the petitioner’s worksite, how the petitioner maintains such supervision.” Which type of supervision would mean USCIS considers a company to be an employer, which would require the company to file an H-1B petition? USCIS does not say.

None of this is by accident. Among the reasons the Trump administration lost the ITServe Alliance case is USCIS adjudicators kept denying H-1B petitions in contractor situations involving off-site work. The denials came when USCIS adjudicators asserted if the contractor that filed the H-1B petition did not always supervise (or control) the visa holder because the worker was off-site, the contractor was not the actual employer of the H-1B visa holder.

“DHS asserts that it is ‘making clear’ that all factors must be taken into consideration to the extent applicable and appropriate to the facts of the specific case,” according to comments to the October 2020 interim final rule by the American Immigration Lawyers Association (AILA) and American Immigration Council (AIC). “Rather than providing clarity, DHS has created an impossibly complex rubric of factors that adjudicators ‘may consider’ to determine the existence of an employer-employee relationship.”

AILA and AIC call out DHS for engaging in what amounts to a giant fib when DHS writes it “believes that this new regulation is not necessarily inconsistent with the DOL definition of ‘[e]mployed, employed by the employer, or employment relationship.’” In reality, the new DHS regulation removes the crucial defining phrase “as indicated by the fact that it may hire, pay, fire, supervise, or otherwise control.”

Why the DHS Rule and DOL Memo May Be Unlawful: Several aspects of the Department of Homeland Security rule and Department of Labor memo appear to violate the Administrative Procedure Act (APA).

The Department of Labor chose to issue a memo, rather than publish a new regulation, to make its significant change in policy. DOL claimed reinterpreting its regulation in a new memo was not only legal but “necessary” because USCIS (DHS) had reinterpreted its own regulations. A judge may wish to scrutinize that logic.

“With USCIS now interpreting its regulations as requiring H-1B workers’ secondary but common-law employers to file nonimmigrant visa petitions, OFLC [Office of Foreign Labor Certification] will interpret its own regulations as requiring those employers to file LCAs [labor condition applications] as well. . . . This interpretation is a necessary consequence of how the H-1B program functions across OFLC and USCIS. Since USCIS will now require secondary but common-law employers to file petitions, and since these employers will be unable to proceed to the petition stage without an approved LCA from OFLC, OFLC must begin both requiring LCAs from these employers and adjudicating them.”

Attorney Cyrus Mehta believes both the DOL memo and the DHS rule could be legally vulnerable due to the Supreme Court’s opinion in Kisor v. Wilkie. In a March 5, 2020, opinion, U.S. Magistrate Judge L. Patrick Auld ruled against USCIS in its interpretation of its rule (on the definition of specialty occupation) to deny an H-1B petition for a Quality Engineer position for InspectionXpert Corporation. Judge Auld wrote that for USCIS “to receive Auer deference, the regulatory interpretation must be one actually made by the agency. In other words, it must be the agency’s ‘authoritative’ or ‘official position,’ rather than any more ad hoc statement not reflecting the agency’s views.’ . . . ‘And a court may not defer to a new interpretation, whether or not introduced in litigation, that creates ‘unfair surprise’ to regulated parties.’” (Emphasis added.)

Bradley Banias, a partner with Wasden Banias, LLC who argued the case for the plaintiff InspectionXpert, said in an interview, “USCIS uses a convoluted, nearly indecipherable rationale to define the word ‘degree’ to mean ‘not just a degree,’ but a degree in a specific specialty.”

The relevance to the DHS rule and DOL memo is clear. “While the need for a ‘secondary employer’ to file an H-1B petition was suggested in the preamble to the DHS rule, it is not stated in the actual rule, which essentially defines the employer but does not include any definition of ‘secondary employer’ and the need to file an H-1B petition,” said Mehta in an interview. “DOL’s interpretation of its rule can also be similarly challenged under Kisor. Agencies no longer have unbridled discretion to interpret their own regulations under Auer v. Robbins. If the new interpretation of the ambiguous rule has never been the authoritative position of the DHS and DOL, and it has taken stakeholders by unfair surprise, it should be held to be an unreasonable interpretation under Kisor.”

There are also questions about the term “secondary employer.” While the term has appeared in a DOL H-1B regulation issued in December 2000, it does not appear in the law passed by Congress on which the regulation is based. Lawrence Lorber, who specializes in labor law at Seyfarth Shaw LLP, said, “Calling someone a secondary employer is nonsense.” If Apple contracts with a company to provide landscaping services on a property, is Apple an “employer” of the individual who cuts the lawn and trims the hedges?

AILA and AIC point out the relevant H-1B statute specifies an “importing employer,” not multiple or secondary employers. “The question of importing any [foreign national] as a nonimmigrant under subparagraph (H) . . . of this title . . . in any specific case or specific cases shall be determined by the Attorney General, after consultation with appropriate agencies of the Government, upon petition of the importing employer,” according to the law.  

DHS claimed in its rule a “good cause” exception to the requirement to allow for notice and comment from the public: “This final rule merely alters the definition of the employer-employee to provide additional clarity to participants in the H-1B program and better align the program with Congressional intent. This alternation will have a de minimus impact on the program as a whole and therefore it is unnecessary to engage in notice and comment and the good cause exception properly applies.”

This statement appears to be another fib on the part of DHS. First, the final rule takes a clear definition of an employer-employee relationship that matches the one used by the Department of Labor and obscures it by replacing the definition with 11 factors that adjudicators will “consider”—and no company could be certain of the meaning of these factors. Second, it is inconceivable the “alteration will have a de minimus impact on the program as a whole.” The definition of de minimus is “pertaining to minimal or trivial things; small, minor, or insignificant; negligible.” IT services companies are prominent among the top 25 employers of H-1B visa holders, and the change in the regulation, experts believe, would have a potentially devastating impact on their ability to employ H-1B professionals.

“The regulation is also vulnerable because this is not a de minimus change at all,” said Cyrus Mehta. “Through sleight of hand, both DHS and DOL have used the expanded definition, which they term innocuous, to deem client companies as employers and force them to file LCAs and H-1B petitions when they do not pay the wages or have no direct knowledge of the wages paid or other details required under the LCA. This would also interfere in contractual relations and force the vendor to divulge confidential data.”

AILA and AIC wrote, “In their totality, these changes to the definition of the employer-employee relationship are unquestionably designed to completely prevent consulting and professional services firms from accessing the H-1B visa program.”

William Stock of Klasko Immigration Law Partners called it “astounding chutzpah” for DHS to claim a “good cause” exception to the normal rulemaking process and to argue its rule won’t be of any consequence. “It is likely the rule will be struck on both grounds,” said Stock.

Stock also believes it is a “stretch” for DHS to argue that it can accept comments to its invalidly-promulgated interim rule from October 2020 and go directly to a final rule, particularly because when the rule was issued in October, Chad Wolf was serving as acting secretary of DHS. Several courts have ruled his appointment to be unlawful.

For the past four years, the Trump administration has attempted to make it as difficult as possible for companies, particularly IT services companies, to employ H-1B visa holders. Arguments about how such policies make U.S. companies less competitive and drive more work out of the United States fell on deaf ears.

It is unsurprising that just before Donald Trump’s term finished, Trump political appointees would make a final attempt to cement in place policies that have exerted significant harm on high-skilled foreign nationals and businesses. It remains to be seen whether the Biden administration would want to keep this set of anti-immigration policies and whether courts will allow to remain in place what appear to be legally dubious actions.