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The H-1B Series: Part 1 of 6 (Encore)

by George N. Lester IV

George N. Lester IV A. Introduction - The H-1B "Specialty Occupation" Program - Good for Employers, Good for the U.S.

The H-1B nonimmigrant category allows qualified foreign workers to engage in temporary professional employment in the United States, sponsored by a U.S. employer. By using the H-1B program, U.S. employers can recruit and hire foreign workers with appropriate professional credentials to perform services in a "specialty occupation." H-1B classification can be obtained for an initial period of three years, and is renewable usually up to a total of six years, and beyond six years where certain steps have been taken towards acquiring permanent residence for the applicant in question.

The H-1B program is useful to U.S. employers of all forms and sizes. It is most known for helping high-technology employers deal with the acute shortage of skilled workers in the domestic labor market. However, it is also widely used by employers in other fields to hire professionals with particular qualifications or skills. The program provides access to an expanded pool of professional workers from which to recruit, including professionals located outside the U.S., located in the U.S. in a temporary status, or graduating from U.S. universities.

The H-1B program provides significant flexibility in meeting requirements that (1) the position offered be professional and (2) the foreign national beneficiary have certain qualifications. There is no strict list of specific occupations or required qualifications, for example, such as NAFTA contains for the TN category. Thus, although the H-1B program is most commonly associated with technical fields, employers can use the category for a broad variety of nontechnical positions, and foreign nationals may meet the relevant criteria through a variety of academic or nonacademic backgrounds.

The H-1B program also provides economic benefits to U.S. employers and to the U.S. economy. Because the program provides worldwide recruitment of skilled personnel, it helps U.S. employers maintain growth despite today's worker shortages. It also helps companies compete effectively in global markets by assisting them in attracting the best and brightest people in the world. A U.S. business that wants to be a world-class leader in its economic sector must be able to hire world-class talent. If it cannot, individuals with such talent will work for, or themselves start, competing businesses in other countries.

For these reasons, businesses, institutions, government agencies, and nonprofit organizations of all sizes regularly use the H-1B program as part of their overall human resources strategy. Some employers actively recruit H-1B workers in foreign countries, whereas others simply use the H?1B program to hire foreign nationals identified through traditional recruitment channels. Many employers recruit internationally merely by posting job openings on the Internet and are then approached directly from the foreign countries.

Before setting out to recruit or hire an H-1B foreign worker, however, employers should be aware of the legal requirements and procedural challenges involved in the program. Without adequate planning and attention to detail, the H-1B process can be difficult and frustrating. The substantive requirements to obtain H-1B classification for a foreign national and to secure the foreign national's actual status in the U.S. can present traps for the unwary. The actual petition process requires completion of a variety of forms and submission of several categories of supporting documentation, and delay will result if they are not in order. INS processing times for the petition are unpredictable and can be quite long, preventing the employer from making concrete plans for the foreign worker's arrival, unless the employer pays an extra $1000 fee to INS for "premium processing" within a set time frame. A number of record-keeping obligations as well as substantive legal obligations are imposed on the employer, many of which are on on-going during the time that the foreign worker is employed. At certain times of the year the program may not even be available due to exhaustion of the annual quota for new H-1B workers.

B. General Requirements Of H-1B Program

The H-1B program requires that a specific job offer in the United States be made by a U.S. employer, and that the sponsoring employer file an petition with the INS for authorization to employ the foreign worker. This article contains a summary of the basic substantive requirements and procedural steps involved in preparing the H-1B "specialty occupation" petition and actually hiring the H-1B worker. This summary may serve as a general checklist prior to offering a job to a foreign professional for whom H-1B work authorization is necessary. The requirements will be discussed in more detail in subsequent articles.

1. Status of Petitioner
The Petitioner must be a "United States Employer" or its agent. The U.S. employer is a "person, firm, corporation, contractor, or other association, or organization" in the U.S. which (1) engages a person to work in the U.S., as specified in the petition process, (2) has or will have an employer-employee relationship with the person or persons for whom it files H-1B petitions, as indicated by the fact that it may hire, pay, fire, supervise, or otherwise control the employee's work, and (3) has a U.S. Internal Revenue Service tax identification number. A foreign entity may file a petition to employ an H-1B worker in the U.S., but only if it first establishes at least a U.S. "branch office" and obtains the requisite tax identification number.

2. Specialty Occupation Defined
The petitioner must make a bona fide job offer in a "specialty occupation" position. A specialty occupation is an occupation that "requires theoretical and practical application of a body of highly specialized knowledge in fields of human endeavor," and which ordinarily "requires the attainment of a bachelor's degree or higher in the specific specialty, or its equivalent, as a minimum for entry into the occupation in the United States." The job offer must be a real, nonspeculative offer of employment based on the employer's actual need for the foreign national's services in the specialty occupation.

3. Foreign Worker's Qualifications
The foreign national who is the subject of the H-1B petition must be "qualified to perform services in the specialty occupation because he or she has attained a baccalaureate or higher degree or its equivalent in the specialty occupation." To meet this criterion, the foreign national may

  1. hold a baccalaureate or higher degree "required by the specialty occupation" from an accredited U.S. college or university,
  2. hold a foreign degree determined to be the academic equivalent of such a U.S. degree,
  3. hold an unrestricted state license, registration, or certification to practice the specialty occupation in the state of intended employment, or
  4. "have education, specialized training, and/or progressively responsible experience that is equivalent to completion of a U.S. baccalaureate or higher degree in the specialty occupation," "recognition of expertise in the specialty through progressively responsible positions directly related to the specialty."
The latter provision permits H-1B status to be approved for a foreign national who has not earned a baccalaureate degree when his or her experience combined with any education is equivalent to the statutory qualification for the occupation.

4. Labor Condition Application as Prerequisite
No H-1B petition can be granted unless the U.S. Department of Labor ("DOL") first certifies that the employer has properly filed a "Labor Condition Application" ("LCA") with the DOL. The LCA contains a set of attestations relating to conditions of employment in the offered position. This process imposes a set of further specific substantive and record-keeping requirements on the petitioning employer which have as their main purpose to guarantee that employment of H-1B workers will not adversely affect U.S. workers in the same occupation. These requirements are as follows:

  • The employer must pay at least the greater of (1) the "actual wage level" paid by the employer to other individuals with similar experience and qualifications for the employment or (2) the "prevailing wage level" for the occupational classification in the area of employment, and must offer benefits or eligibility for benefits (such as insurance, retirement and savings plans, bonuses and noncash compensation such as stock options) on the same basis and in accordance with the same criteria as the employer offers to U.S. workers. It is a violation of this requirement for the employer to place an H-1B worker in "non-productive status" (commonly known as "benching") without paying the specified wage.
  • The employer must certify that "employment of H-1B nonimmigrants will not adversely affect the working conditions of workers similarly employed in the area of intended employment." This is also referred to as the "prevailing working conditions" statement, and means that working conditions for similarly employed U.S. workers should remain similar to conditions that preceded employment of the H-1B foreign national. "Working conditions" encompass such matters as benefits, vacation periods, hours, and shifts.
  • The employer must certify that there is "not a strike or lockout in the course of a labor dispute in the occupational classification at the place of employment."
  • The employer must provide notice to employees of the filing of the LCA through (1) notification to a bargaining representative in the occupational classification or, (2) if there is no bargaining representative, use of other methods such as physical posting in conspicuous locations at the place of employment or "electronic notification" to employees in the occupational classification.
  • The employer must keep certain records pertaining to the LCA available for examination upon request by the public or by the DOL. These records include:
    1. a copy of the LCA,
    2. documentation of the wage rate paid to the H-1B worker,
    3. documentation of the system used to set the "actual wage" the employer has paid or will pay to workers in the occupation such as a memorandum summarizing the system or a copy of the employer's pay system or scale,
    4. documentation used to establish the "prevailing wage" rate for the occupation, and
    5. documentation that the requirement of notice to employees, by means of a bargaining representative or posting, has been met.
    These records must be retained throughout the period of the LCA and for one year thereafter.
  • If the employer is an "H-1B Dependent Employer" or a "Willful Violator," then it must make additional attestations, subject to certain exemptions. An "H-1B Dependent Employer" is one with a particular proportion of H-lB nonimmigrants in the total "full time equivalent" workforce, as follows:
    1. an employer having twenty-five or fewer full-time equivalent employees with more than seven H-1B nonimmigrant employees,
    2. an employer having at least twenty-six but not more than fifty full-time equivalent employees with more than twelve H1B nonimmigrant employees, or
    3. an employer having at least fifty-one full-time equivalent employees, of whom at least 15% of the number of such fulltime equivalent employees are H-1B employees.
A "Willful Violator" is an employer against whom the Department of Labor or Department of Justice had entered a finding of violation in proceedings related to a prior Labor Condition Application, on or after October 21, 1998, and found that the employer committed a "willful failure" or a misrepresentation of a material fact, during the five-year period preceding the filing of the new LCA. The special additional attestations these employer must make are:
  1. The employer will not displace (i.e., lay off) any "similarly employed" U.S. worker within ninety days before and ninety days after the date of filing an H-1B petition supported by the LCA. A "similarly employed" worker is one who is employed in an "essentially equivalent" job in the same geographic area of employment.
  2. The employer will not place an H-1B nonimmigrant employed under the LCA with any other employer or at any other employer's worksite unless it inquires of the other employer whether that employer has displaced or intends to displace a similarly employed U.S. worker within ninety days before or after the placement, and the other employer replies in the negative, and
  3. Prior to filing any petition for an H-1B nonimmigrant supported by the LCA, the employer took or will take good faith steps, using industry-wide standards, to recruit U.S. workers for the job, and the employer has affirmatively offered the job to any U.S. worker who has applied and who is equally or better qualified than the H-1B worker.
These additional obligations do not apply, however, to an LCA filed for the employment of "exempt" H-1B nonimmigrants, who are H-1B workers receiving wages at an annual rate of at least $60,000, or who have attained a master's or higher degree (or its equivalent) in a specialty related to the intended employment.

5. Filing the H-1B Petition
The petition is filed with one of four Immigration Naturalization Service ("INS") regional service centers in Vermont, Nebraska, Texas, or California. It must usually be filed with the service center with jurisdiction over the intended location of employment. The petition package must include INS Form 1-129 and its H Supplement, the INS Form 1-129W the certified LCA, various categories of supporting documentation to establish the substantive requirements outlined above, and certain documents relating to the foreign national's status if he or she is already located in the U.S.

6. Receipt of H-1B Status
The petition approval is not a visa, nor does it automatically grant authorization for a foreign national to begin work. If the foreign national is outside the U.S., then he or she must be inspected and admitted to the U.S. in H-1B status, which for all but Canadians requires an H-1B visa to be issued from a U.S. consulate abroad. If the foreign national is already in the U.S. in a different nonimmigrant status or in H-1B status with another employer, then he or she must be specifically granted a change to H-1B status or an extension or amendment of any existing H-1B status in order to hold the employment. Under the concept of "H-1B portability," though, if the foreign national is in the U.S. and holds or has previously held H-1B status and meets certain other conditions, then he or she may begin working for the new employer upon the filing of a new H petition, pending its outcome.

C. H-1B Statutes and Regulations Practitioners Should Know

The following sections will discuss the legal background of the H-1B "Specialty Occupation" Program.

1. Relevant Acts of Congress and Statutory Provisions
The Immigration and Nationality Act of 1952 (the "Immigration and Nationality Act" or "INA") first established an H-1 nonimmigrant visa classification for temporary workers "of distinguished merit and ability." The relevant provisions of the INA have since been amended several times, leading to the H-1B program as we know it today, most significantly by the Immigration Act of 1990 ("IMMACT 90"), with further modification by the Miscellaneous and Technical Immigration and Naturalization Amendments Act of 1991, the American Competitiveness and Workforce Improvement Act of 1998 ("ACWIA"), and The American Competitiveness in the Twenty-First Century Act ("AC 21").

In its current form the H-1B program was defined chiefly by the Immigration Act of 1990. Most significantly, IMMACT 90 replaced the "distinguished merit and ability" standard with today's concept of "specialty occupation" professionals, and it added the requirement that prospective employers of H-1B foreign nationals file a "labor condition application" with the U.S. Department of Labor, making certain attestations intended to protect the wages and working conditions of U.S. workers. It also created for the first time an annual numerical limit on issuance of new H-1B visas or grants of H-1B status of 65,000, and it imposed a maximum length of stay in the U.S. for H-1B nonimmigrants of six years.

ACWIA was enacted in 1998 in response to sharp increases in usage of the H-1B program and evidence of a growing shortage in the U.S. of skilled workers. It authorized a temporary increase in the annual numerical limitation on H-1B nonimmigrants to 115,000 for federal fiscal years 1999 and 2000 and to 107,500 for 2001. The limit was to revert to 65,000 for fiscal year 2002. The federal fiscal year runs from October 1 of the prior calendar year through September 30. Between 1998 and 2000, however, demand for the H-1B program continued to skyrocket on the strength of the U.S. economy. In response to calls for further increase in the authorized total of H-1B workers, Congress enacted AC 21 in October 2000. AC 21 raised the annual cap to 195,000 for fiscal years 2001, 2002, and 2003, and exempted certain categories of H-1B petitions from being counted against the cap. The increase is only temporary, with reversion to a 65,000 limit to occur in fiscal year 2004.

Legislative debate over both ACWIA and AC 21 was contentious, with critics arguing that the H-1B program hurts U.S. workers in specialty occupation areas by allowing foreign professionals willing to work for lower pay to compete for their jobs and that the labor condition application protections are ineffective to prevent this. As a trade-off, the two bills included new provisions designed to increase protections for U.S. workers and create opportunities for training and education to improve the U.S. workforce. One concept, introduced by ACWIA and extended by AC 21, defines a class of so-called "H-1B dependent employers" and placed additional labor condition application obligations and other restrictions on their use of the H-1B program. In addition, a special "education and training" fee was added to the filing fee for H-1B petitions, of $500 under ACWIA, then raised to $1,000 under AC 21, with the money to be used for scholarships in math and science and grants for education and training in technical areas. The total filing fee for H-1B petitions in most cases is now $1,130. Certain types of petitioners are exempt from the fee, however, and only need to pay the $130 base processing fee. Still other provisions significantly increased penalties for employers found to have made a "willful failure or misrepresentation" with respect to labor condition application obligations.

The fee increase and "H-1B dependent" rules are intended to be temporary, for a period commensurate with the increases in annual limit above 65,000. Barring further Congressional action, these provisions will "sunset" on October 1, 2003, when the limit reverts to 65,000.

AC 21 made two other important changes that are very helpful to H-1B employers. First, it introduced the concept of "H-1B portability," to allow employers petitioning for foreign nationals already in the U.S. in H-1B status with another employer to have the beneficiary begin work immediately upon the filing of the petition with INS. Formerly, the beneficiary was not allowed to begin work for the new petitioning employer until the petition was approved, which could take several months. Second, AC 21 created an exemption from the normal six-year limit on total stay in H-1B status for H-1B nonimmigrants who are the beneficiaries of a permanent residence process which has reached certain stages in the approval process.

Following are general citations to the current statutory provisions governing the H-1B program, which all practitioners should know:

  1. INA 101(a)(15)(H)(i)(b), 8 U.S.C. 1101(a)(15)(H)(i)(b) (establishing basic definition of H-1B nonimmigrant category).
  2. INA 214, 8 U.S.C. 1184 (overall section relates to Admission of Nonimmigrants; various specific subsections relate to petition process for and admission of H-1B nonimmigrants).
  3. INA 212(n), (p); 8 U.S.C. 1182(n), (p) (relating to the Labor Condition Application and prevailing wage computations).
2. Regulations
Under the statutory scheme, two separate U.S. administrative agencies have responsibility for the H-1B program, the INS and the Department of Labor ("DOL"). The INS authorizes actual H-1B classification for a particular foreign national beneficiary, based on a petition submitted by the employer describing the job to be performed and the person's qualifications. The DOL reviews and certifies the employer's labor condition application, a prerequisite to the INS petition, and retains jurisdiction to enforce the employer's obligations regarding wages and working conditions. Each of these agencies has promulgated detailed regulations related to its respective function, providing further legal criteria and procedural instructions.

The most significant recent regulatory development came in December 2000, with DOL publication of a long-anticipated Interim Final Rule to implement the "H-1B dependent employer" and other provisions of ACWIA that required final DOL regulations to become effective. The rule-making also republished and finalized certain prior DOL regulatory proposals relating to the H-1B program which had never been finalized, including several provisions which had been invalidated by a 1996 federal Court decision in a lawsuit filed by the National Association of Manufacturers, and added other entirely new concepts.

There were several major changes that employers must heed in these regulations, which became effective January 19, 2001. Some of the changes have general applicability to all H-1B petitioners, whereas others are applicable to "H-1B dependent" and "willful violator" employers. The most significant of the generally applicable provisions define when the employer must file a new LCA to cover an employee who is traveling to a new location. The rules define when the location is a considered a new "place of employment" for purposes of the LCA requirement, and if so, when the employer must submit a new LCA. The rules also changed the LCA form and filing procedures so that employers cannot list more than two locations on the LCA. Formerly, employers could list any number of locations, utilizing an addendum to the form.

A related change requires posting of the LCA notice, or the alternative form of electronic notice, to affected employees, to be provided at any new "place of employment" where the H- 1B nonimmigrant is assigned, including third-party client work sites. These two changes make the LCA process much more burdensome and complex for employers of "roving" H-1B workers such as IT consultants, who frequently move from one client location to another.

The other major changes affect the "H-1B dependent" and "willful violator" employers. As described above, the "H-1B dependent employer" concept impacts employers who have certain proportions of H-1B nonimmigrants in their workforces. Under the ACWIA scheme, "H-1B dependent" employers are (1) companies with twenty-five or fewer full-time equivalent employees who employ seven or more H-1B workers, (2) companies with twenty-six to fifty full-time equivalent employees who employ twelve or more H-1B workers, and (3) companies with fifty-one or more full-time equivalent employees who employ H-1B workers as 15% or more of their workforce. These employers are then required to make additional attestations on an LCA related to "non-displacement" of U.S. workers in "essentially equivalent" jobs in the specific area of employment and related to recruitment of U.S. workers for the job(s). An "aggrieved" U.S. worker who has submitted a resume or otherwise applied for the job that was offered to the H-1B nonimmigrant may file a Complaint with DOL, in response to which the DOL will conduct an investigation.

These provisions represent a major change in the H-1B program because, for the first time, an employer can be required to affirmatively show that it has attempted to recruit U.S. workers prior to filing an H-1B petition-a requirement analogous to the labor certification process for sponsoring foreign nationals for permanent residence. This goes beyond the original focus of the LCA, dating to IMMACT 90, that required the employer simply to offer equal pay and working conditions between U.S. and H-1B workers, but which did not regulate actual recruitment or hiring. Further, the employer runs the risk of being prevented from using the H-1B program at all or facing intense DOL scrutiny if it must subsequently lay off workers.

Two other recent regulatory changes have had significant impact on H-1B petition practice of a more helpful nature. In June 2001, INS published a regulation implementing a "premium processing" program whereby a petitioner may pay an extra $1,000 "premium process" fee and receive a guaranteed response to an H-1B petition filing within 15 days, beginning July 30, 2001. Such a concept had been authorized in budget legislation passed by Congress in December 2000. In December 2001, DOL published a rule amending the Labor Condition Application regulations to provide for electronic filing and processing of LCAs utilizing a web based system of forms and instructions. Under this system, DOL has for the first time consistently been able to meet an obligation to process LCAs within seven days.

Following are general citations to the current INS and DOL Code of Federal Regulations provisions governing the H-1B program:

  1. 8 C.F.R. 214.1 (INS regulations with basic provisions governing requirements for admission, extension and maintenance of various nonimmigrant statuses, including H-1B and H-4)
  2. 8 C.F.R. 214.2(h) (INS regulations with detailed provisions governing H-1B program, as well as other H categories)
  3. 20 C.F.R. 655.700 et seq. (DOL regulations governing Labor Condition Application process for H-1B program)
  4. 20 C.F.R. 655.800 et seq. (DOL regulations governing enforcement of Labor Condition Application attestations)

D. The H-1B "Cap"

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.

E. The Petitioner And Its Job Offer

The basic premise of the H-1B category is that there is (1) a "United States Employer" (2) making a bona fide, nonspeculative job offer (3) for temporary employment (4) in a qualifying occupation (5) to a qualified foreign professional.

1. The "United States Employer"
A "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) [Will have] an employer-employee relationship [with the H-1B employee] as indicated by the fact that it may hire, pay, fire, supervise, or otherwise control the work of any such employee;
"(3) And has an Internal Revenue Service tax identification number."
This definition offers wide latitude regarding the form of business organization that may file an H-1B petition. In a majority of cases the petitioner is a U.S. based business corporation. However, it may also be any other form of firm or association, a nonprofit organization or government agency, a partnership, or even a sole proprietorship or individual person. The common requirement is simply that the entity have a U.S. Internal Revenue Service ("IRS") tax identification number. Business organizations of all forms obtain such numbers from the IRS to prepare business tax returns. Sole proprietorships or individuals may use personal Social Security numbers if they do not qualify for a business tax identification number.

A foreign business entity may, similarly, wish to file an H-1B petition and directly employ a person in the U.S. in H-1B status without going through the expense and trouble of incorporating a U.S. subsidiary corporation. Such employment is permissible under two scenarios. First, the foreign business may establish a simple "branch office" business presence in the U.S. and obtain an IRS tax identification number for the branch office. A tax or accounting professional can help with that process and provide advice as to the ramifications of then establishing a regular U.S. subsidiary corporation. Or the foreign business may authorize a U.S. "agent" to file the petition on its behalf. Among other considerations, a petition filed by a U.S. agent is subject to the condition that the agent "must guarantee the wages and other terms and conditions of employment" of the beneficiary.

The "employer-employee relationship" requirement raises questions in situations where the H-1B nonimmigrant owns a significant interest in the petitioning entity, or is one of its partners, proprietors, or founders. In today's economy, foreign professionals are often involved in founding start-up technology companies that then sponsor them for H-1B status in the U.S. In such circumstances it may appear that the employer/employee distinction between the petitioner and beneficiary is blurred. In the most extreme example, a foreign national may incorporate a company on his or her own, and be the sole founder, shareholder, officer, and employee. The putative H-1B petition could then be viewed as simply a vehicle for the foreign national to engage in self-employment.

In such cases care must be taken to examine the foreign national's role in the enterprise, and the petitioner must be prepared to explain how it retains the ability to "hire, pay, fire, supervise, or otherwise control" the work of the employee named in the petition. So long as that test can be met there is no prohibition on the foreign national beneficiary of an H-1B petition being an owner, founder, partner, or other major stakeholder. Where the foreign national is a co-founder and owner of a start-up company, for example, it is recommended that he or she hold less than a majority stock interest so that he or she is theoretically subject to the "control" of the corporate entity.

The "employer-employee relationship" requirement thus prohibits a foreign national from filing a petition as a sole proprietor on his or her own behalf, arranging for self-employment. Nevertheless, in a result that appears inconsistent with the regulatory requirement, the INS Administrative Appeals Office ("AAO") has overturned a service center's denial of an H-1B petition filed by an incorporated mathematical research firm whose sole owner and employee was the H-1B beneficiary. The decision was based on the petitioner's corporate status, holding that the "sole proprietor of a corporation" may be "employed by that corporation as the corporation has a separate legal entity from its owners." Therefore, the AAO held, a "bona fide employer-employee relationship did exist and the petitioner qualified as a U.S. employer." The decision was not designated as precedent, so it remains to be seen if the INS adopt this approach.

2. The Bona Fide, Nonspeculative Job Offer
The petitioner must be able to demonstrate that it is making a bona fide, nonspeculative job offer in the requested H-1B occupation. This derives from the general premise that "H-1B classification may be granted to an foreign national who . . . will perform services in a specialty occupation. . . ." The petitioner must establish to the satisfaction of the INS that if the petition is approved, the beneficiary "will" perform services in the specialty occupation position described. If despite its representations the petition only establishes, in the opinion of the INS, that at best the foreign national "may" perform such services, then it will be denied. This requirement, general in nature, tends to be a factor in several more specific concepts applied by INS in assessing the credibility and viability of the stated facts about the petitioner and the offered position and salary. The concepts do not represent express regulatory requirements in the H-1B program, but do borrow from principles that are express requirements in other immigration contexts.

First and fundamental, the employer must establish that it comprises a real, viable, fully operational business enterprise, capable of making a good-faith job offer and actually hiring the H-1B foreign national in the specialty occupation. For large companies this will not be a problem, but they must still remember to submit supporting documentation, which would generally include an annual report and a selection of promotional literature showing who or what the company is, what it does, when it was founded, and the level of annual income. Even large, well-established employers have had difficulty with the INS because they neglected to include basic supporting documentation.

For small companies or start-up enterprises, it is crucial to submit sufficient documentation to show, at a minimum, that the business has been legally established, has a business premises, and has begun full operations. This documentation would include articles of incorporation, an office lease, photographs of the office location, a detailed business/financial plan, tax returns, promotional literature or product documentation, an organizational chart, and any other evidence of business activity such as contracts or partnerships.

It is also important to demonstrate that the employer has the financial ability to pay the salary offered over the period designated on the petition, or the realistic promise of generating such resources. For large, well-established companies this is, again, something that will usually be easily proved through an annual report showing gross earnings and capitalization or a similar document. For small companies, noncorporate individual proprietorship or partnership employers, or start-up enterprises this needs careful attention. Supporting statements and documentation should be organized around two themes: (1) establishing the level of liquid resources and cash flow the petitioner has on hand at the time of filing the petition and (2) establishing the level of cash flow and income that is anticipated over the petition period. Either of these approaches may be the stronger argument. A start-up technology company in the product development phase, for example, may have a generous level of assets provided by venture capital financing, but no projected income for the foreseeable future. A start-up consulting company, however, may have limited current assets but also possess client contracts that guarantee an income stream once the company can place consultants at the client sites.

Supporting documentation to demonstrate current assets or level of resources and cash flow include financial statements, bank statements, a deed for any real property, payroll records showing the current level of payroll, tax returns, and term sheets or other documentation of angel or venture financing. Documentation of expected future income would include a business plan, projected financial statements, contracts to provide services or sell the company's products, or other evidence of the business' planned growth and revenue projections.

Note that an express "ability to pay" requirement is not part of the H-1B regulations the way it is a requirement in employment based permanent resident petitions. However, as a practical matter the Service Centers conflate "ability to pay" with the more general question of viability of the job offer, so it can be very important to present credible financial information as part of the supporting documentation. Further, it has become common in recent years that U.S. consulates overseas will strictly scrutinize the employer's financial viability and ability to pay the salary offered even if the INS had been satisfied and approved the petition. It can be a rude surprise for the beneficiary of an approved H-1B petition to be required to submit the employer's tax returns or other more extensive financial documentation at the consulate. It does happen that even after the INS has approved the H-1B petition, a consulate may refuse the H-1B visa on grounds that the employer has insufficient income or assets to show a bona fide ability to pay the wage stated in the petition.

Separate from the questions of whether the company is established and has sufficient resources to pay the worker is the question of whether it has "sufficient work" or a bona fide need for the beneficiary's services, in the specialty occupation. If it does not, the petition is viewed as offering only "speculative employment "and will be denied. The INS will raise this issue if the job is described in vague, nonspecific terms or where a company, particularly a small one, has simultaneously filed several substantially identical petitions without an explanation of the need for the overall group of H-1B workers.

This becomes a problem most often for small consulting companies who simultaneously file several H-1B petitions for workers in a foreign country. Typically, the company has not arranged client sites for the beneficiaries at the time of the petitions but plans to do so after they enter the U.S. and can meet clients face to face. This creates a Catch 22-the INS will not approve an H-1B petition if it does not appear there is sufficient work or a bona fide need for the person, but the employer cannot confirm that the person's services will be desired by a client until he or she is in the country.

It is in fact not ordinary INS policy to require the petitioner to submit specific contracts between the petitioner and proposed work site or to otherwise demonstrate that one particular client site has work for the beneficiary. However, the petitioner should be able to show from a totality of the circumstances that it has a bona fide need and ability to employ the person, and as such it will be able to place the person at a client site very soon after entry, or place the person on its own payroll without a client placement and use the person directly for in-house or similar projects. (Under all circumstances the employer will be required to place the beneficiary on its payroll within thirty days of his or her entering the country.) The employer should therefore include documentation of the nature and scope of its client base and open client project needs, and as much specific information as it can about the beneficiary's skills and how it envisions those skills meeting particular client needs or fitting into on-going projects. If the employer is in fact already contracted to place the foreign national at a client location, then the contract or a confirming letter from the client should be included with the petition. Obviously, large consulting companies with broad client bases are at a distinct advantage.

The "ability to pay" and "speculative employment" concepts have historically been a regular part of H-1B adjudication at the four service centers. A recent decision of the INS Office of Administrative Appeals, however, criticized these concepts and overturned a service center decision that used them as a basis to deny a consulting company's H-1B petition. "There is no support," the decision states, "for the exploration of this concept [of speculative employment] per se in either statutes or regulations." The "ability to pay" concept was held not to be under the province of the INS, but of the DOL. "Wage determinations and the enforcement of their payment with respect to the H-1B classification are the sole responsibility of the Department of Labor," the decision states. The decision has not been designated as a binding precedent. It remains to be seen what impact, if any, the decision will have, but it might presage relaxation of the standards.

Finally, in still another variation of INS concern over whether an H-1B beneficiary "will" be employed in a specialty occupation, the INS questions petitions where the petitioner is a small enterprise that would not usually need the services, full-time, of a person in the specialty occupation. The INS might suspect, instead, that the person will perform nonspecialized duties, or at best have a hybrid of specialized and nonspecialized duties, and that the petitioner is "inflating" the professional nature of the job description. An example would be a small retail business enterprise of five or fewer employees filing an H-1B petition for an accountant. The INS would question whether that size business needs a professionally trained accountant and, rather, suspect that the person will primarily perform nonprofessional bookkeeping duties. A low salary level would also support such a suspicion.

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 a series of articles by George N. Lester IV of the Foley Hoag LLP Immigration Practice Group 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. This article is a consolidated reprint of Articles 1-5 which originally appeared in each Monday's issue beginning in the July 22, 2002 issue of Immigration Daily.

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