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H-1B Series: The H-1B "Cap"
by George N. Lester IV

George N. Lester IV

For a few years in the not too distant past, one of the hottest immigration topics in the media and in the business community was the annual numerical limit on usage of the H-1B category, dubbed the "H-1B cap." As the U.S. economy grew rapidly during 1998-2000, employers increasingly turned to the H-1B program to fill short-term needs for qualified professional staff. This growth in demand caused the program to reach the applicable annual quota at various points before the end of the fiscal year in 2000 and each of the preceding three years, leading to widely publicized difficulties for employers who were forced to leave professional positions unfilled until the next yearly H-1B cycle.

As amended by AC 21, the statutory provision establishing the H-1B limit provides that the "total number of foreign nationals who may be issued visas or otherwise provided nonimmigrant status during any fiscal year" under the H-1B program may not exceed 195,000 for fiscal years 2001, 2002, and 2003, and 65,000 for each succeeding year. The limit was 65,000 for all fiscal years prior to 1999, and was increased to 115,000 for 1999 and 2000, by ACWIA. The limit applies only to new issuance of H-1B visas or grants of H-1B status, meaning it applies to H-1B petitions for beneficiaries out of the country seeking a visa at a U.S. consulate, or in the U.S. in another status and needing change of status to H-1B who have not held H-1B status in the U.S. within the prior year. It does not apply to renewal or amended petitions for beneficiaries already in the U.S. in valid H-1B status, seeking to transfer H-1B authorization to a new employer or to change or extend H-1B status with their existing employer, or to anyone who has held H-1B status in the U.S. within one year prior to the filing of the petition. Spouses and children of principal H-1B foreign nationals, who are accorded H-4 status to accompany the principal, are not counted in the numerical limit. The federal fiscal year runs from October 1 through September 30.

Warning signs that the H-1B program was reaching its capacity under the original IMMACT 1990 limit of 65,000 first surfaced in 1996. In that year the INS halted processing of new H-1B petitions for a time as of August 20, near the end of the fiscal year, on the basis of a preliminary count indicating that it had reached the cap. A more accurate count showed that it had not, and processing resumed as of September 6, 1996 and continued on to the end of the fiscal year on September 30.

The next year INS did indeed reach the cap for the year on new petition approvals, as of approximately August 15, 1997. Rather than halting processing, however, the INS dealt with the problem by continuing to process petitions but assigning approval dates of no earlier than October 1, 1997, so as to defer counting the approvals to the fiscal year 1998 limitation. Because the cap was reached with only six weeks to go until the start of the next fiscal year and the availability of the new year's quota, the effect of this advance approval was not considered overly disruptive.

Real problems with the cap began in 1998 when growth in the H1B program accelerated sharply. In that year INS announced on May 11 that it had reached the annual 65,000 cap in petition approvals and would stop processing new petitions and reject further filings for the year unless a petitioner requested a start date of October 1, 1998 or later so that the petition would be counted against the fiscal year 1999 quota. Petitions filed through mid-April of the year generally were processed, with procedural differences among the various INS service centers. Other petitions filed before the May 11 announcement remained suspended as "pipeline" cases. Ultimately the INS gave petitioners an option to change the requested start date on the "pipeline" cases to October 1, 1998, and then processed them under the 1999 count.

Thus, employers in 1998 were forced to wait with no new H-1B approvals available for approximately half the year. This generated pressure on Congress to pass legislation to raise the annual limit. Over the summer and fall of 1998 Congress considered several bills in a context of controversial public debate over the H-1B program. High technology employers in particular complained of a dire shortage of qualified professional workers, and relayed to Congress how the H-1B program helps them and the overall U.S. economy grow. Labor advocates described the alleged worker shortage as inflated and argued that the H-1B program unfairly keeps professional wages down and hurts U.S. workers. Ultimately, Congress passed the ACWIA legislation with its temporary increases in the annual limit and its new restrictions on the program as a compromise.

To widespread surprise, the near doubling of the limit for fiscal year 1999 turned out to be wholly inadequate to meet the continued growth in petition filings, a problem that was exacerbated by the fact that even before the start of the 1999 fiscal year on October l, 1998, INS had already approved approximately 19,500 petitions chargeable to the year's quota that had been filed during May through September 1998. Thus, by April 1999, petition processing slowed considerably at the service centers as the INS became concerned it was close to the total and attempted to monitor the count carefully. Finally, on June 15, 1999, at a point when the service centers were processing cases filed in early April, the INS published a notice announcing that based on the number of petitions approved for the year and the number on file and pending, the statutory cap had effectively been reached for fiscal 1999, and further filings would be rejected except those requesting an October 1, 1999 or later start date. The INS service centers continued to process pending cases in the "pipeline" slowly, under tight scrutiny from headquarters to equalize the rate of processing at each of the four centers so that no advantage could be gained in obtaining approval because any petition was filed at a particular service center. The INS finally completed processing of the number of cases it believed would fill the quota in August 1999. It ultimately processed petitions filed through April 22, 1999, a cut-off date almost exactly the same as in the prior fiscal year.

The INS did take steps in its 1999 announcement to address one of the more problematic consequences of the cap: students and exchange visitors in the U.S. who are completing their programs and then must change status to H-1B, but whose initial status expires because of the unavailability of H-1B approval. In many cases these persons already work for the petitioning employer under a "practical training" component of their programs that expires in the spring or summer. When the practical training employment authorization runs out these individuals may no longer work until a change of status to H-1B is approved, which would be delayed until October. Of greater concern is whether such persons would have to leave the U.S. after expiration of the applicable grace period in their status (sixty days for F-1 students and thirty days for J-1 exchange visitors) and wait abroad for approval of the H-1B petitions on their behalf, rather than remain in the U.S. In recognition of this problem the INS published a rule allowing such persons to remain in the U.S. to wait for the October 1 H-1B start date even if status would expire prior to that date, provided the individuals do not work without authorization during the waiting period. In the June 15, 1999 Notice and in an Interim Rule published simultaneously the INS formally announced that persons changing from student or exchange visitor status facing this "gap" would be automatically granted extension of F-1 or J-1 status to allow them to remain in the U.S. pending a decision on their change of status petitions or pending an October 1 H-1B start date.

For fiscal year 2000, beginning October 1, 1999, processing of H1B petitions proceeded quickly until December 1999, when the INS began imposing periodic "pauses" to obtain an accurate count and keep all four service centers processing cap petitions at the same rate. After that date processing progressed slowly through the beginning of 2000, and employers hurried to file as many cases as possible while the INS would still accept them. On March 21, 2000, at a time when it was processing cases filed in late January 2000, the INS made an announcement projecting that sufficient petitions had been filed to reach the cap and therefore that no further petitions seeking start dates before the beginning of fiscal year 2001 on October 1, 2000 would be accepted. Like the previous year's notice, this was based on the number of petitions approved for the year combined with the number on file awaiting decision, so actual processing of pending cases towards the year's quota continued, albeit quite slowly. Finally, on July 20, 2000, the INS issued a statement that it had officially reached a total of 115,000 approvals as of that date. (It actually processed petitions filed through March 17, 2000.) In August 2000, the INS began processing petitions requesting effective dates of October 1, 2000, the start of the new fiscal year.

Thus, for the third year in a row, the availability of new H-1B petition approvals "ran out" for approximately half the year, and prior to the cutoff employers had to plan their H-1B needs for the year far in advance, and then deal with the expense and hassle of a mad scramble to get as many petitions as possible filed before the cutoff, hoping to "beat" all the other employers doing the same thing.

One interesting dispute arose over a report the INS submitted to Congress in September 1999 that estimated it had actually approved between 4,500 and 20,000 petitions too many for fiscal year 1999, due to inaccuracies in its counting methodology. It eventually hired an auditing firm to review its methodology and help determine the amount of any discrepancy. Based on that firm's report, issued in April 2000, INS concluded that it approved 21,888 H-1B petitions in excess of the fiscal year 1999 cap. The question then was what, if anything, the INS or Congress would do about the overage. This problem was resolved by the AC 21 legislation which, in addition to its prospective raising of the H-1B cap, implemented a retroactive increase for 1999 to cover all petitions approved by the INS.

AC 21 also retroactively allocated petitions filed after the March 21, 2000 cutoff, but before September 1, 2000, to be counted in fiscal year 2000, and raised that year's quota accordingly. The fiscal year 2001 count therefore began from a clean slate with petitions filed only after September 1, 2000, intended for approval on or after October 1.

AC 21 further exempted certain new petitions from being counted in the cap at all. These include petitions filed

  1. by an institution of higher education or a related or affiliated nonprofit entity,
  2. by a nonprofit research organization,
  3. by a governmental research organization, or
  4. for certain physicians formerly holding "J-1" status in the U.S. who have received state sponsorship to waive the requirement that they return to their home country in exchange for participating in a program to practice in a medically underserved area in the U.S.
This freed up an additional number of petitions from the cap, estimated to be approximately 6,000 to 10,000 in a typical year.

As it turned out, the 195,000 cap for Fiscal Year 2001 was sufficient to fully cover demand for new H-1B approvals. In November 2001, after the September 30, 2001 end to the fiscal year, INS reported that it had approved 163,200 H-1B petitions against the 195,000 cap for the year. And, for the 2002 fiscal year, running to September 30, it appears new H-1B filings have declined and INS is again on track to finish the year within the 195,000 limit. In the most recent release of figures, INS reported that during the first quarter of the current fiscal year, from October 1, 2001, to December 31, 2001, approximately 28,000 H-1B petitions were approved against the 195,000 limit, and an estimated 18,000 petitions that may count against the cap were pending.

Assuming H-1B filings do not significantly increase, it is likely that for FY 2003, beginning this October 1, the 195,000 limit will again be sufficient to meet demand throughout the year. However, for FY 2004, beginning October 1, 2003, the limit reverts to 65,000, just one third the current number. Already, the debate over whether Congress should extend the higher limit is shaping up to be highly contentious, and immigration advocates are uncertain at best over the prospects of passing favorable legislation. Labor groups and others are arguing that with the weakened US economy, particularly in IT and other technology sectors, the H-1B program hurts laid-off U.S. workers and therefore Congress should let it revert to pre-1998 levels. Employers and other advocates of business immigration will need to organize and make their case well to counter these arguments. At a recent Washington D.C. meeting of AILA (American Immigration Lawyers Association) advocacy personnel from around the country, a legislative counsel from the staff of Sen. Edward Kennedy (D-Mass.), who is Chair of the Senate Immigration Committee, said that the H-1B debate next year "will be a difficult issue."

What will happen? My prediction is that Congress will take no action, if any, unless and until the 65,000 cap is exhausted early in the fiscal year and then employers raise an outcry over being cut off from the program for several months, analogous to the "crisis" level of the situations in 1998 and 2000 which resulted in ACWIA and AC 21.

Employers looking ahead will thus have to engage in strategic planning for filing of H-1B petitions early in the 2004 fiscal year. One benefit for H-1B filers of this Congressional inaction, though, will be the petition filing fee reverting to $130, as authority for the $1,000 education and training component of the fee expires along with the additional cap numbers.

About The Author

George N. Lester IV is of the Immigration Practice Group (the "Group") of the law firm of Foley, Hoag & Eliot LLP. Foley, Hoag & Eliot LLP is a full-service law firm of 200 lawyers in Boston and Washington, D.C. It was the first large law firm in Boston to develop an expertise in business immigration law, and for over thirty years its Group has represented employers in a full range of procedures to obtain temporary or permanent authorization to employ foreign professionals. Mr. Lester has practiced immigration law for ten years, and regularly speaks to business, academic, and professional groups on immigration topics. As part of his regular AILA activities, Mr. Lester meets with officials of the INS Vermont Service Center to discuss H-1B and other liaison topics. He also serves as Treasurer and a Board Member of the Political Asylum/Immigration Representation Project (PAIR) in Boston, and received that organization's Pro Bono Attorney Award for Dedication and Commitment to Human Rights in May 1996. Mr. Lester is a 1989 graduate of Northeastern University School of Law.

This article is the fourth in a series by George N. Lester of Foley Hoag LLP based on a chapter he authored titled "Specialty Occupation Professionals," in the treatise Business Immigration Law: Strategies for Employing Foreign Nationals, edited by Rodney A. Malpert and Amanda Petersen, and appears here with the permission of the publisher. Published by Law Journal Press. Copyrighted by NLP IP Company. All rights reserved. Copies of the complete work may be ordered from Law Journal Press, Book Fulfillment Department, 105 Madison Avenue, New York, New York 10016 or at or by calling 800-537-2128, ext. 9300.

The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.