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G&A Client Alert:  IT Firms Win Major Victory in U.S. District Court 

March 11, 2020

Yesterday, the United States District Court for the District of Columbia issued a significant decision in a case involving H-1B visa petitions filed for workers who will be stationed at a third-party work location (such as a client's worksite).  The ruling is a substantial victory for IT services firms as it invalidates certain USCIS policies that have increased H-1B denial rates and inflicted increased costs on consulting and staffing firms for the past decade.  The outcome of the case, ITServe Alliance v. L. Francis Cissna, should significantly change how USCIS adjudicates H-1B cases for IT services and consulting firms. 

Additional details about the ruling, what it changes, and its expected impact follow below:

What are the key aspects of the court's ruling and what will change?

The District Court's ruling invalidates (1) USCIS's definition of “Employer-Employee Relationship,” and (2) USCIS's H-1B itinerary requirement and policy of shortening H-1B approvals based on contract documents and statements of work.  Each change is discussed below:

1. Employer-Employee Relationship:

Current State:  In 2010, USCIS issued a policy memorandum (“Determining Employer-Employee Relationship for Adjudication of H-1B Petitions, Including Third-Party Site Placements”) that mandated a complex test to determine if a company and the H-1B worker it was petitioning for had a valid employer-employee relationship.  For H-1B workers who will be stationed at a third-party work location, USCIS has since required the H-1B employer to prove, through documentary evidence, that it has the right to control the day-to-day aspects of the employment.  Later, in 2018, USCIS issued a new policy memorandum (“Contracts and Itineraries Requirements for H-1B Petitions Involving Third-Party Worksites”) further tightening this requirement by requiring H-1B employers to prove that they will maintain actual control over the day-to-day work that the H-1B worker would perform.  Based on these policies, USCIS began denying many H-1B petitions filed by companies when the H-1B worker was to be placed at a third-party site to perform work. Citing its revised definition of “Employer-Employee Relationship,” USCIS has been denying H-1B petitions by determining that the petitioning employer (typically an IT services or consulting firm) did not meet its definition of “employer” and therefore, there was no valid employer-employee relationship and no specialty occupation position that could be approved.

What should change:  Pursuant to the U.S. District Court's decision, the current USCIS interpretation of the employer-employee relationship contradicts USCIS's own published regulation, and as such, it cannot be enforced.  In practice, this now means that if an employer can establish that it has a Federal Employer Identification Number and that it will hire, fire, and pay the H-1B worker, or that it will otherwise control their work, it will qualify as an employer for H-1B purposes.  This should dramatically reduce the number and frequency of H-1B denials that USCIS issues to IT services/consulting firms.

2. Itinerary Rule and Shortened USCIS Approvals:

Current State:  Through the policy memorandum (“Contracts and Itineraries Requirements for H-1B Petitions Involving Third-Party Worksites”) issued in 2018, USCIS has been limiting the approval period of H-1B petitions involving third-party worksites (typically filed by IT services and consulting companies) to the period of time for which the employer can prove—through documentary evidence—that it already has a valid end-client contract or agreement in place for the specific H-1B worker to provide services at the third-party worksite.  USCIS's approach, bolstered by the 2018 policy, requires an employer to provide an itinerary, supported by contract documents with the end-client, to establish that it has definite, non-speculative employment for the entire employment period available at the time it files an H-1B petition. 

This has resulted in USCIS approving many H-1B visas for much less time than requested by the employer.  In fact, in the IT services and consulting field, where Statements of Work (SOW) are commonly issued for 3 to 6 months but renewed regularly, this policy has empowered USCIS to issue approval notices that are valid for only a few days or months even though the H-1B employer has indicated that it needs the H-1B worker for up to three years.  Employers subject to this policy have thereby been required to engage in an ongoing and near constant process of renewing an H-1B worker's petition with USCIS several times a year.

What should change:  The U.S. District Court has indicated that USCIS can no longer enforce this policy.  The court determined that the 2018 USCIS policy is “arbitrary and capricious” as it is not supported either by statute or regulation and was announced by USCIS without going through the proper notice and comment rulemaking process to change a regulation.  The judge in the case also determined that USCIS's itinerary requirement was not enforceable because it was superseded by a law (the American Competitiveness and Workforce Improvement Act of 1998) that permits employers to place H-1B visa holders in paid, nonproductive status when they are between work assignments.  In effect, the judge determined that USCIS may not require employers to specifically list all work locations and dates or provide contracts to prove the existence of all work that an H-1B worker may perform during the next three years in order to receive an H-1B petition approval for that period of time.  As such, it should become much more likely that an employer's request for a three-year H-1B validity period will be honored provided it can establish that it will employ the worker in a specialty occupation and meet other legal requirements.  Now, in instances where USCIS approves an H-1B petition for less than the time requested by the employer, the agency will have to provide a reason for doing so—and the judge has largely invalidated the reasons USCIS has previously relied on for this purpose.

When will the change take effect and what is its expected impact?

Because USCIS can still appeal this decision, it is still a bit early to definitely say what the long-term impact of this court victory will be.  Nonetheless, even if USCIS opts to mount an appeal, it will have difficulty overturning this decision as it is well reasoned, thorough, and supported by sound legal principles.  Unless the U.S. Court of Appeals finds that the District Court interpreted the law incorrectly or abused its discretion in arriving at this decision, it is likely to stand.  In fact, if USCIS wishes to attack this decision, it is more likely that it will try to do so by going through the required notice and comment rulemaking process—although this will not be quick or easy for the agency to do since the existing statute and regulation are clearly at odds with the interpretation that USCIS prefers.  On this point, it is important to note that USCIS has previously indicated its intention to substantially revise how it interprets the laws affecting the H-1B visa classification through proposed updated regulations in 2020.

Thus, assuming the decision stands, USCIS must soon change how it adjudicates H-1B cases filed by consulting firms.  Moreover, whenever an H-1B petition is denied in ways that were invalidated by the court's opinion, the employer can more easily challenge that denial in Federal Court in the District of Columbia, where USCIS is headquartered.  Most importantly, however, the likely outcome of this ruling is that it will (1) bring increased predictability to the H-1B process and reduce the massive amount of evidence that IT services and consulting firms have been required to submit with each petition, and (2) collectively save companies millions of dollars in USCIS filing fees as they will no longer be saddled with shortened approval periods that force them to engage in a constant cycle of filing and renewing each worker's H-1B petition due to an itinerary or contract's limited validity period.

If you have any questions about this G&A Immigration Alert, please contact a G&A attorney.