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Small Businesses Are Impacted Under PERM

by Cyrus D. Mehta and Elizabeth T. Reichard

Although small businesses are considered to be the engines of economic growth in the American economy, the new PERM rule authorizes the Department of Labor (DOL) to closely scrutinize labor certification applications filed by small businesses to determine whether the job has been clearly open to US workers. Thus, small businesses may find it harder to employ and sponsor foreign national workers, as opposed to large corporations, for their continued growth and viability.1

I. Questions On PERM Form Pertaining To Small Businesses

The new form, ETA 9089, under C5 asks: “Number of employees in area of intended employment.” Under C9, the form further asks for a “Yes” or “No” to the following question: “Is the employer a closely held corporation, partnership, or sole proprietorship in which the alien has an ownership interest, or is there a familial relationship between the owners, stockholders, partners, corporate officers, incorporators, and the alien?”

If the employer indicates that it has less than ten employees or if the employer states “Yes” to C9, the application is likely to trigger an audit.

II. The New PERM Rule On Small Businesses, Investors And Relatives

The new PERM rule at 20 C.F.R. § 656.17(l) imposes three conditions under which an employer’s labor certification will be given more scrutiny: 1) the employer is a closely held corporation or partnership in which the alien has an ownership interest, 2) there exists a familial relationship 2 between the stockholders, corporate officers, incorporators, or partners and the alien, or 3) the alien is one of a small number of employees.

In the event of an audit, the employer must be able to demonstrate the existence of a bona fide job opportunity, i.e. the job is available to all US workers, and must provide the following supporting documentation:

1) A copy of the articles of incorporation, partnership agreement, business license or similar documents that establish the business necessity;

2) A list of all corporate/company officers and shareholders/partners of the corporation/firm/business, their titles and positions in the business’ structure, and a description of the relationship to each other and to the alien beneficiary;

3) The financial history of the corporation/company/partnership, including the total investment in the business entity and the amount of investment of each officer, incorporator/partner and the alien beneficiary; and

4) The name of the business official with primary responsibility for interviewing and hiring applicants for positions within the organization and the name(s) of the business’ official(s) having control or influence over hiring decisions involving the position for which labor certification is sought.

5) If the alien is one of 10 of fewer employees, the employer must document any family relationship between the employees and the alien.3

Elsewhere too in the PERM rule, there is a prohibition on an investor being the subject of a labor certification. The rule defines “Employment” to mean:

“Permanent, full-time work by an employee for an employer other than oneself. For purpose of this definition, an investor is not an employee. In the event of an audit, the employer must be prepared to document the permanent and full-time nature of the position by furnishing position descriptions and payroll records for the job opportunity involved in the Application for Permanent Employment Certification.4

Thus, under PERM, if the alien is either an investor in the corporation that is sponsoring him or her, or has a close familial relationship to the employer, the application is likely to be closely scrutinized. This was the case even under the old system, although the Form ETA 750 did not require the employer to disclose whether the alien was an investor or had a close familial relationship. If the DOL asked for this information, the employer had to provide it and be able to establish that there was in fact a bona fide job offer and the position was still open to US workers. PERM, however, has gone further in subjecting closely held corporations, with 10 or less employees, to the same kind of scrutiny as it previously did with respect to alien investors or aliens with close family relationships to the employer.

III. DOL’s Scrutiny Under The Prior Labor Certification System

The DOL has historically scrutinized alien investors and aliens with close family relationships because their relationships with their employers raise questions about the bona fides of the job opportunity for US workers.5 Furthermore, there has always been a ban on self-employment.6 Is Closely Held Corp actually opening up the position of president to US workers if the current alien president has 55% interest in the business? Is Family Business Inc. providing a bona fide job offer by sponsoring an alien family member? Both Closely Held Corp and Family Business Inc. are not per se barred from having labor certifications approved in these situations; however, they both have a weighty burden in establishing that a bona fide job opportunity is available for US workers.

BALCA has grappled over the years to create a standard by which certifying officers can determine whether a valid employment relationship exists and whether there was a bona fide job opportunity for US workers. An early standard used was established in Hall v. McLaughlin,7 and later affirmed by BALCA in Matter of Lignomat USA, Ltd., 88-INA-276 (BALCA 1989). In Lignomat, the employer submitted a labor certification application on behalf of its president, Mr. Heimerdinger. Mr. Heimerdinger and his wife served on the company’s Board of Directors and each owned 24.5% interest in the company. The Certifying Officer (CO) denied labor certification because it was unlikely that as President, Mr. Heimerdinger would support the hiring of someone other than himself for the position. BALCA affirmed the CO’s position and adopted the following two-pronged standard to determine whether a job opportunity is bona fide. First, a CO should consider “whether, in light of the alien’s part-ownership, the corporation is a sham and a scheme for obtaining the Alien’s labor certification (sham test).”8 Second, the CO should look to “whether the corporation has come to rely heavily on the alien’s skills and contacts so that, were it not for the alien, the corporation would probably cease to exist (inseparability test).”9In its decision, BALCA indicated that the company failed the inseparability test because Mr. Heimerdinger and his wife not only own collectively own 49% of the shares, but also are two of three shareholders. Also, he was one of a few employees and was responsible for the growth and the development of the business.

Although the Lignomat standard created a high burden for employers, it was not so restrictive as to make it impossible to establish that a bona fide job opportunity exists. For example, if Family Business Inc. had been in existence for fifteen years and if it employed other family members who perhaps were more integral to the functioning of the business than the alien in question, then Family Business Inc. could perhaps pass the Lignomat test and have the labor certification application approved.

Unfortunately, the Lignomat standard was short lived. In 1991, BALCA adopted a much broader standard in Matter of Modular Container Systems, Inc., 89-INA-288 (BALCA 1991). In Modular Container, the employer filed a labor certification application on behalf of the alien General Manager, Mr. Beretta. Labor certification was denied for a number of reasons, one of which was that the Mr. Beretta was an investor in the employer company. Mr. Beretta owned 55% of Container Ventures, which owned 100% of Modular Container Systems, the petitioning employer. In its decision, BALCA indicated that being an investor or having some sort of relationship with the employer does not create a per se bar against establishing a bona fide job opportunity for US employers.10 Nevertheless, being an investor does give rise to greater scrutiny and therefore, COs should look to the “totality of the circumstances” when determining the bona fides of the job opportunity. BALCA listed a non-exclusive list of factors to be considered by the CO. The CO should consider whether the alien:

- is in the position to control or influence hiring decisions regarding the job for which labor certification is sought;
- is related to the corporate directors, officers, or employees;
- was an incorporator or founder of the company;
- has an ownership interest in the company;
- is involved in the management of the company;
- is on the board of directors;
- is one of a small number of employees;
- has qualifications for the job that are identical to specialized or unusual job duties and requirements stated in the application; and
- is so inseparable from the sponsoring employer because of his or her pervasive presence and personal attributes that the employer would be unlikely to continue in operation without the alien.11

BALCA also suggested that CO’s consider whether the employer complies with the DOL’s inquiries and whether it appears as if the corporation was established as a sham.12 BALCA remanded Modular Container, giving the employer an opportunity to counter the factors listed above.

Also note that a federal court challenge to the DOL regulation precluding labor certification through self-employment failed. Bulk Farms, Inc. v. Martin, 963 F.2d 1286 (9th Cir. 1992). In Bulk Farms, the President, sole shareholder and chief cheesemaker was denied labor certification even though the two other US applicants who applied for the position did not know anything about cheese making. The Ninth Circuit held that 20 C.F.R. §650.50, precluding labor certification through self-employment, was a reasonable construction of § 212(a) of the Immigration & Nationality Act (INA), which requires an employer to conduct a good faith search of US workers.13 The court further stated, “The two independent safeguards challenged by Bulk Farms - the ban on alien self-employment and the bona fide job requirements – make a good faith search process self-enforcing.” Id. at 1288.


BALCA’s analysis in Modular Container has been adopted under PERM.14 As indicated above, investor aliens and aliens with family relationships have historically been scrutinized in the labor certification process. Under PERM, now closely held businesses will be subject to the same such scrutiny. The major difference between the applications filed pre-PERM and those filed under the new system is that it is more likely that an audit will be triggered due to the nature of the questions on FORM ETA 9089. Therefore, the authors suggest that employers conduct Modular Container analysis prior to submitting a labor certification application for alien investors, aliens with family relationships, or aliens working for a corporation with fewer than ten employees. If Modular Container factors weigh heavily against the particular labor certification application, then perhaps it is not in the best interest of the employer to put its time and money into the labor certification process. If the employer determines that the factors do not negatively impact the application in question, then the employer should include detailed information in its labor certification report, establishing that the Modular Factors are not relevant in this case.

This article originally appeared on

1 This is not to say that large companies will not also have difficulties under PERM. For example, large companies with expensive and complex e-recruiting systems designed to collect thousands of e-mail resumes and scan them for keywords, have the increased burden of maintaining these resumes for five years and reviewing them in person. The authors acknowledge the difficulties faced by large employers; however, this article focuses solely on issues facing small businesses.
2 PERM does not define familial relationship. However, a relationship invalidating a bona fide job offer may occur where the alien is related by “blood” or it may “be financial, by marriage, or through friendship.” Matter of Summart 374, 00-INA-93(BALCA May 15, 2000). This provision could conceivably affect any employer who is filing a labor certification under PERM. Indeed, it could put tremendous burdens on large corporations to determine whether the sponsored alien is in a familial relationship with the corporation’s constituents.
3 20 CFR § 656.17(l)(1)-(5).
4 20 CFR § 656.3.
5 Old 20 C.F.R. § 656.21.
6 Old 20 C.F.R. § 656.50.
7 Hall v. McLaughlin,864 F.2d 868 (D.C. Cir. 1989).
8 Id. at 3.
9 Id.
10 Id. at 7
11 8
12 Id.
13 Interestingly, Bulk Farms was decided before Congress in 1996 enacted the Affidavit of Support requirement for sponsored aliens under §213A of the INA. Section 213A(f)(4) clearly contemplates a situation where a sponsor needs to submit such an Affidavit of Support for a relative being petitioned under § 203(b) or who has a significant ownership interest in the entity that filed such a petition.
14 69 Fed. Reg. 77,326-77,352 (Dec. 27, 2004).

About The Author

Cyrus D. Mehta, a graduate of Cambridge University and Columbia Law School, practices immigration law in New York City. He is the Chair of the Board of Trustees of the American Immigration Law Foundation (AILF) and recipient of the 1997 Joseph Minsky Young Lawyers Award. He is also Secretary of the Association of the Bar of the City of New York (ABCNY) and former Chair of the Committee on Immigration and Nationality Law of the same Association. The views expressed in this article do not necessarily represent the views of ABCNY or AILF. He frequently lectures on various immigration subjects at legal seminars, workshops and universities and may be contacted in New York at 212-425-0555.

Elizabeth T. Reichard is an Associate at Cyrus D. Mehta and Associates, P.L.L.C, where she practices primarily in the area of immigration law. She is a graduate of the College of the Holy Cross and Case Western Reserve School of Law, where she was the Editor-in-Chief of the Journal of International Law. Ms. Reichard is the Secretary of the Board of Trustees of International Partners in Mission, an international non-profit organization working to empower women, children, and youth. She is admitted to the bar of the State of New York.

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

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