As many of you know DHS published an interim final rule to strengthen H1B Program that changed the definition of specialty occupation, gave 1-year approvals, and others. It was cancelled by court order. Today, DHS is taking a small part of the same rule and publishing the final rule. In this article, we will look at those details, including background, what it means and how it will impact, next steps, lawsuit potential, what can Biden administration do.
Background – Interim Final Rule, Court Cancelling, DHS Stance
Interim Final Rule : DHS published an interim final rule on October 8th, 2020 that was termed as “Strengthen H1B Program” with below listed changes.
- Revised definition for H1B Specialty Occupation
- Specialty occupation requirements, Evidence like Contracts
- Changes to Employer-Employee Relationship requirements
- Eliminating Itinerary requirements for H1B positions
- Limiting maximum H1B time to 1 year for third party placements
- Written explanation for H1B short term decisions
- Additional rules for verification, Site visits. H1B Revocations, if no cooperation.
Courts Cancelling Rule : On Dec 1st, 2020 a Court in California cancelled the above stated “Strengthen H1B Program” rule saying that, USCIS did not follow proper process of notice and rulemaking. Today, Jan 15th, 2020, DHS is again taking a part of the interim final rule that is related to definition of “US employer” and “Employer-Employee” relationship and publishing it as a final rule.
DHS Stance : DHS is again using the same logic stating that they are doing this as final rule as it is needed to protect US workers and they gave some time for comments with Interim Final Rule back in October 2020 and received comments.
DHS Final Rule – Definition Change – Employer- Employee Relationship
DHS is primarily focusing on changing the definition of US employer and the add new interpretation of employer-employee relationship. As the interpretation is changing, new conditions kick-in and one of the impact is that end clients would also have to file H1B petition on behalf of H1B worker as well. Let us look at each of them in detail.
Change in Definition of US Employer, Adding new clauses
The current definition of US employer in the regulation only has clauses like “hire, pay, fire, supervise or otherwise control the work of any such employee”. DHS is removing that and adding a new big paragraph that adds details on “Employer-Employee relationship”
As per the new definition of US employer and interpretation of Employer-Employee relationship, they are going to using the concept of “conventional master-servant relationship consistent with the common law”. They give a lot of details on the same like control of work, supervision, day to day activities, using the person for taxation purpose, etc.
Also, they say that they will assess and weigh in all of these based on overall factors and not just one or two factors. See below screenshots of the actual definition. With this new interpretation of common-law for employer-employee relationship, it changes the requirements for H1B filings in context of work and adds need to do new filings…
End Clients need to file H1B Petition with USCIS
As per existing DHS regulation, if an H1B worker performs any non-agricultural work or services from more than one employer, then then they need to file a separate H1B petition with USCIS. Now, with the change in interpretation of employer-employee relationship under common law test, the third-party entity, who is nothing but the end client, would be required to file separate H1B petition with USCIS on behalf of H1B worker.
DHS says that historically the third-party entities, who are nothing but end clients, were not required to file separate petition. But, with the change in definition and practice with adoption of “common law” definition, both the employer and end client( third party entity) need to file separate petition for the H1B worker. See below screenshot of the actual regulation text.
Rule Effective Date, Actual Implementation Date, Who All impacted ?
Rule Effective Date : The final rule will be effective 60 days from the date of publication in federal register. It is yet to published. So, very likely it will be published on Monday, Jan18th, 2021 and be effective on paper from March 18th, 2021.
Actual Implementation date : The actual implementation date is 180 days from the date of publication. So, if they rule is published on March 18th, 2021, it would be actually effective and applicable from July 16th, 2021. The reason for the delay is that it would have a lot of impact for employers with third party placements and many have to adjust the business practices.
Who All impacted : The rule is applicable to all petitions, who have third party placement situation and will file on or after the effective date of the rule. It will include new H1B filings, amendments, extensions and transfers. So, technically anyone who file the H1B, with third party placement option, on or after July 16th, 2021 would be subject to this rule.
The end clients in that situation have to file a separate H1B for the H1B workers working as third party consultant. Also, the rule does not apply any H1B petitions that were previously approved or pending as of the date of the implementation. See below screenshot.
Impact of the Final Rule – End Clients H1B filings, Lawsuit ?
The final rule states that all the end clients where the H1B workers currently work based on an H1B LCA , where they are listed as working at third party worksite would be impacted. This is going to have a huge impact on most of the IT Consulting companies, both big and small. Also, the third-party placement situations with Doctors, including many big business consulting firms would be impacted.
You can see the article Top 20 Clients by IT Outsourcing Companies, to get an idea of the clients for Infosys, Cognizant, Accenture, etc. You will get an idea of who all end clients now need to file them. Also, you can check List of Federal Agencies Using H1B workers 2019, 2020
The regulation documents says that they are bringing back some of the aspects of the 2010 Neufeld memo, that was removed based on Court Case lost by USCIS and had a Settlement with IT Serve and adding things from that what employers are already familiar and it would not be big change. This is their justification for adding the final rule.
It is going to be practically impossible for many of these end clients to take up this extra burden of filing H1B for a contractor that would maybe work for 6 months or a year. So, it is very likely going to be challenged in court. It will have a big impact for US Businesses that rely on H1B workers working under third party workers.
Lawsuit Options: There are likely going to be few lawsuits that are going to be filed in the upcoming days by many firms, IT services groups. Some of the areas, they could consider lawsuit are in the areas such as below
- No proper comment period and notice
- New interpretation of the regulation not backed by congress.
- Good cause exception for pushing this without proper comments period.
- Impact to small business & burden for end clients.
- Skipping of the OMB review without proper good cause and waiving it.
- No proper economic impact analysis of the impact due to this change.
What can Biden Administration do ?
As the rule is going to be effective only after 60 days after publication, Biden administration can delay the implementation and then review the same. They can also choose not to fight it in the court and let it slide, if there is a lawsuit on this. They may also file another regulation, changing the last-minute regulation that was pushed by Trump. We need to wait and see, what will happen.
What do you think of the new final rule by DHS ? Share your thoughts in comments.