DHS issues Final Rule requiring both the Primary employer and the Secondary employer (end -client) to file an H-1B petition

January 19, 2021
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The DHS has sent a Final Rule to the Federal Register for publication, which will amend its regulation to clarify how USCIS will determine whether there is an ‘employee-employer relationship’ between the petitioner and the beneficiary for the purpose of qualifying as a “United States employer.’ Previously, the term “U.S employer” was defined as a ‘person, firm, corporation, contractor, or other association, or organization in the United States,’ which among other things, 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 others control the work of any such employee. As per the current rule, the employer is required to prove only one of the above factors. The DHS will remove the phrase “as indicated by the fact that it may hire, pay, fire, or supervise, or otherwise control the work of any such employee’ from the current definition of the ‘U.S employer’ and replace that phrase with a more extensive definition of employer-employee relationship based on USCIS interpretation of existing common law.   Both the H-1B employer (primary employer) and the third-party client (secondary employer) required to file H-1B petition  DHS is adopting the common-law test for determining which entities have an employment relationship with an H-1B worker. Under the common law, multiple entities can have an employment relationship with a worker simultaneously. Also, under the existing DHS regulations, if an H-1B beneficiary will perform nonagricultural services for, or receiving training from, more than one employer, each employer must file a separate petition with USCIS. Hence it is possible that under the third party placement agreements, where a primary employer contracts out an H-1B worker to a third party entity, the third party will also be considered an employer of the H-1B worker under the common-law test adopted int his rule. In such a case, the third-party entity would also be required to file a petition for the H-1B worker. Under the new definition of the employment relationship, in case where both the primary employer and a third-party employer have an employment relationship with an H-1B worker performing work at a third-party employer’s Jobsite, both employers will be required to file a petition for the worker. As per the DHS, it is amending the regulation to restore the long-standing USCIS policy that had been since 2010 and that was rescinded due to the judicial ruling on the procedural ground in ITServe Alliance v. USCIS. The new regulation is bringing back the 11-factor test to determine the employee-employer relationship that was in existence since the 2010 Neufeld Memo until it was rescinded in 2020. The new rule is issued without prior notice and opportunity to comment under the Administrative Procedure Act.  The APA authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for a good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” The DHS is invoking the exception mentioning that the alteration will have very minimal impact on the H-1B and hence unnecessary to engage in notice and comment. The final rule only affects one discrete aspect of the H-1B program, and the necessity of pubic comment is required only if the regulatory reach of these rules is expansive.  As an alternative, DHS has taken the defense that even if the good cause exemption does not apply, the IFR was published on October 8, 2020, and delayed its effective date to December 7, 202 to allow the public to comment on its provisions prior to its effect and to allow DHS to consider such comments prior to issuing a final rule.   The rule is set to take effect 180 days from the date the Final Rule is published in the Federal Register. As of 01/19/2020, the rule has not been published in the Federal Register.

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