End Clients Have to File LCA Now?

The Office of Foreign Labor Certification (OFLC), Employment and Training Administration, revised its interpretation of its regulations concerning which employers must file a Labor Condition Application (LCA) under 20 C.F.R. §§ 655.715 and 655.730(a) on January 15th, 2021.

OFLC now interprets the regulations to require secondary common-law employers of H-1B workers to file an LCA.

According to the US Department of Labor:

“H-1B employment frequently involves staffing agencies (primary employers) that petition to hire H-1B workers, as well as staffing agencies’ clients (secondary employers) where the H-1B workers are assigned to work. While the primary employer typically serves as the H-1B worker’s employer for payroll and tax purposes, the secondary employer often exercises considerable control over the worker’s day-to-day work. However, secondary employers, even those who are employers under the common law, have not previously been held responsible for complying with the statutory and regulatory requirements of the H-1B program set forth at 8 U.S.C. § 1182(n)”

It also modified the salaries, benefits requirements that have to follow by end clients to be compliant.

What is the Difference Between a Primary Employer and a Secondary Employer aka End Client?

  • The H-1B worker is typically employed by a primary employer
  • The primary employer sponsors the H1B
  • The LCA is filed by the primary employer to place the employer at a third party location, which is also referred to as client site
  • The end client is also called a secondary employer
  • The end client or secondary employer, are both the same
  • The H-1B worker might have multiple end clients over a time period, but have one primary employer
  • The primary employer is the employer who runs the payroll and the one who filed the H-1B for the worker

Background Of this Change in Interpretation of “Employer-employee Relationship”

  • DHS published an interim final rule on October 8th, 2020 that was termed as “Strengthening the H-1B Nonimmigrant Visa Classification Program
  • The rule aimed to change the following
    • Definition for H1B Specialty Occupation
    • Specialty occupation requirements
    • 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
  • That Interim rule was overturned by District Courts on December 1, 2020

What is the New Update on Employer-Employee Relationship?

Despite the court ruling, DHS singled out “Employer-employee relationship” related changes from the interim final rule and published a final rule with more changes on Jan 15th, 2021. As per this DHS final rule, they changed the definition of “US employer” and the interpretation of “employer-employee relationship” for H1B workers & end clients.

Summary of Changes from The Interim Final Rule

  • DHS is only finalizing the change to the regulatory definition of “employer-employee relationship” at new 8 CFR 214.2(h)(4)(ii), and the portion of the definition of “United States employer” that refers to the “employer-employee relationship”
  • DHS will not finalize the changes to any other provisions implemented by the interim final rule (IFR), as DHS plans to pursue future rulemaking for those provisions
  • While those other provisions remain in the Code of Federal Regulations, they do not currently have a legal effect given that the IFR was vacated by the U.S. District Court for the Northern District of California on December 1, 2020

New Definition of Employer-Employee Relationship Explained:

Employer-employee relationship means the conventional master-servant relationship consistent with the common law.

“The petitioner must establish that its offer of employment as stated in the petition is based on a valid employer-employee relationship that exists or will exist. In considering whether the petitioner has established that a valid “employer-employee relationship” exists or will exist, USCIS will assess and weigh all relevant aspects of the relationship with no one factor being determinative.”

There Could be Two Possible Scenarios:

I. In cases where the H-1B beneficiary does not possess an ownership interest in the petitioning organization or entity, the factors that USCIS may consider determining if a valid employment relationship will exist or continue to exist include, but are not limited to: 

  1. Whether the petitioner supervises the beneficiary and, if so, where such supervision takes place
  2. Where the supervision is not at the petitioner’s worksite, how the petitioner maintains such supervision
  3. Whether the petitioner has the right to control the work of the beneficiary on a day-to-day basis and to assign projects
  4. Whether the petitioner provides the tools or instrumentalities needed for the beneficiary to perform the duties of employment
  5. Whether the petitioner hires, pays, and has the ability to fire the beneficiary
  6. Whether the petitioner evaluates the work-product of the beneficiary
  7. Whether the petitioner claims the beneficiary as an employee for tax purposes
  8. Whether the petitioner provides the beneficiary any type of employee benefits
  9. Whether the beneficiary uses proprietary information of the petitioner in order to perform the duties of employment
  10. Whether the beneficiary produces an end-product that is directly linked to the petitioner’s line of business
  11. Whether the petitioner has the ability to control the manner and means in which the work product of the beneficiary is accomplished

II. In cases where the H-1B beneficiary possesses an ownership interest in the petitioning organization or entity, additional factors that USCIS may consider determining if a valid employment relationship will exist or continue to exist include, but are not limited to: 

  1. Whether the petitioning entity can hire or fire the beneficiary or set the rules and parameters of the beneficiary’s work
  2. Whether and, if so, to what extent the petitioner supervises the beneficiary’s work
  3. Whether the beneficiary reports to someone higher in the petitioning entity
  4. Whether and, if so, to what extent the beneficiary is able to influence the petitioning entity
  5. Whether the parties intended that the beneficiary be an employee, as expressed in written agreements or contracts
  6. Whether the beneficiary shares in the profits, losses, and liabilities of the organization or entity

Who is Considered as an “Employer” in the USA?

United States employer means a person, firm, corporation, contractor, or other association, or organization in the United States which:

  1. Engages a person to work within the United States
  2. Has an employer-employee relationship with respect to employees under this part
  3. Has an Internal Revenue Service Tax identification number

Impact of the Final Rule

  • 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
  • IT Consulting companies, big, medium, and small
  • It will also affect the third-party placement situations with Doctors
  • Big business consulting firms who place clients in client locations would be impacted
  • It will have a big impact on US Businesses that rely on H1B workers working under third party workers
  • It will also include new H1B filings, amendments, extensions, and transfers
  • Hence, technically anyone who file the H1B, with a third party placement option, on or after July 16th, 2021 would be subject to this rule

Is There a Possibility of Lawsuit?

  • It is going to cause a lot of inconvenience for many of these end clients to take up this extra burden of filing H1B for a contractor who might work for 6 months or a year
  • Hence, it is very likely going to be challenged in court

Possible Grounds for Lawsuit:

  • There was no definite comment period and notice
  • A new interpretation of the regulation not backed by congress
  • Good cause exception for pushing this without proper comments period
  • Immense Impact on small businesses and extra burden for end clients
  • Skipping of the OMB review without proper good cause and waiving it
  • No economic impact analysis was conducted for this change of rule

How Can Biden Administration Help?

  • 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 court if there is a lawsuit on this
  • They may also file another regulation, that might nullify the last-minute regulation pushed by Trump

We are closely monitoring this rule change, we will post an update on this policy soon.

If you have any question or comments about this new rule, H-1B registration, eligibility, or have questions about the Green Card procedure in general, you can schedule a consultation with us:

Schedule a call at 469-994-9407  or contact us using the form.