Rami Fakhoury and Mark Levey
Copyright@2010 Fakhoury Law Group/ Rami Fakhoury
DOCTRINE OF AGENCY
What the USCIS implies when it asserts that the petitioner has ceded “control” over the work of the petitioner to a third-party is that the employer has, legally and in fact, entered into a commercial relationship with the beneficiary as an agent with the employee the principal.
Agency is the relationship that arises when one person (the principal) appoints
another person (the agent) to act on his or her behalf. The test of an agency relationship
is whether the principal has the right to control the manner and method with which work
is carried out by the agent, and whether the agent can affect the legal relationships of
the principal. Kirckruff v. Wisegarver, 297 Ill. App. 3d 826 (1998).
If what USCIS alleges were true, that would mean the beneficiary granted the petitioner the right to effect enforceable contracts with third-parties that are legally binding upon the beneficiary. The test for this proposition, of course, would be enforceability of such a contract. However, given that no such written contract for agency exists, that would require a circumstantial showing. If there is nothing substantial in the factual record to support a conclusion that the beneficiary is not, in fact, anything other than an employee of the petitioner, and has a valid and normal contract for employment, one suspects that any third-party who attempted to enforce such an imputed contract would likely fail to make a convincing case based upon the record in such a matter. Unless there is a record of serious fraud by the parties, the employment contract will be presumed to be valid.
1. USCIS ASSUMPTION OF AGENCY UNFOUNDED: Enforcement of Implied Contract Discouraged
Enforcement of implied (or imputed) contracts is discouraged. In most U.S. jurisdictions, a contract is unenforceable if it violates the common law statute of frauds or equivalent state statutes which require certain contracts to be in writing. Under common law, the Statute of Frauds also applies to contract modification. Where there is an original written contract, the terms may not be altered to admit for the interests of a third-party without written modification duly signed and agreed to by both original parties. Unless USCIS produces evidence of a contract for agency or can point to such a contract modification, such an agency arrangement would not be assumed to exist and would not be found enforceable by a court. Written contracts may not be modified by implied consent – that is axiomatic. Therefore, the employment of the beneficiary, having concluded a binding written employment contract with the petitioner, continues to be “controlled” by the petitioner as control cannot be ceded to a third-party without modification through the express written consent of the beneficiary.
Inasmuch as third-party contracts are not binding on the beneficiary, review of third-party documents does not answer the question of who legally controls the work and the work product of the H-1B employee. The sole legally controlling document is the original, unmodified employment contract. Without a separate agreement between the employee and the third-party about workplace issues of control over means and manner of work, management of that worker would present significant practical difficulties. If the H-1B worker were truly out of the control of the petitioner at the third-party site, then he would be effectively unmanaged. An unmanaged worker presents enormous liability issues both direct and vicarious for the employer and the third-party company, alike, and this liability would soon be reflected in torts action brought for negligence by various parties, such as customers, counter-parties, and others who would see an opportunity for vicarious enrichment in such a vulnerability. Yet, there have not been many successful civil suits brought on this basis, because H-1B workers by and large remain well-managed by their petitioning employers.
The position taken by USCIS, therefore, is that the agency can deny the Form I-129 petition because it merely assumes the existence of an implied agent’s contract between the petitioner and beneficiary and that a third-party would hire the beneficiary under those circumstances of an unenforceable contract. Without any substantiating evidence, such as a successful action for negligent management brought against the petitioner to point to in any specific case, such an allegation of lost control over H-1B workers is legally unsupportable.
2. Employee or Independent Contractor - The 10-part Test in the Restatement (Second) of Agency, Section 220
Following are the factors affecting employee versus independent contractor status, found in Section 220 of the Restatement (Second) of Agency. When one reviews this list, it is apparent that by the preponderance of the evidence in the most H-1B matters that the beneficiary is the employee of the petitioner. While it is usually not specifically alleged by USCIS that the beneficiary is an independent contractor, and the petitioner is his agent, proof of such an accusation would involve substantial and probative evidence, related to the following elements:
(1) the extent of control which, by the agreement, the master may exercise over the details of the work;
(2) whether or not the one employed is engaged in a distinct occupation or business;
(3) the kind of occupation, with reference to whether in the locality, the work is usually done under the direction of the employee or by a specialist without supervision;
(4) the skill required in the particular occupation;
(5) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
(6) the length of time for which the person is employed;
(7) the method of payment, whether by the time or by the job;
(8) whether or not the work is a part of the regular business of the employer;
(9) whether or not the parties believe they are creating the relation of master and servant; and
(10) whether the principal is or is not in business.
The record in any particular matter should establish under that test that the petitioner is NOT acting as an agent for the beneficiary:
(1) The employment agreement cedes the petitioner complete and exclusive control over the work of the beneficiary, explicitly forbidding any outside employment by clients of the company or competing third parties.
(2) There is no evidence the beneficiary is engaged in a business other than as an employee in the software development field.
(3) The occupation of the beneficiary is one normally performed by software engineers working for consulting firms on third-party projects.
(4) The work of the beneficiary can be characterized as highly-skilled.
(5) The bulk of the specialized instrumentalities and tools used are provided by the employing company. The beneficiary does not have to purchase most of these himself.
(6) The beneficiary may have been previously employed by the petitioner in professional capacity.
(7) That H-1B employment has been with full salary and customary company benefits. The beneficiary is by this measure clearly not a casual contract worker.
(8) The work performed is the customary line of business of the employer.
(9) By all evidence on the record, the beneficiary is treated as and operates as a full-time, long-term employee.
(10) The principal (this referencing the beneficiary), is by all available evidence an employee not in business for himself.
3. Actual History of H-1B or L-1B Specialty Work Performed Supports Conclusion that Nature of H-1B Employment By the Same Firm Will Continue to be in a Specialty Occupation
Thirdly, the Service Center Director may deny the petition on the stated ground that the petitioner has not provided third-party contracts with detailed Scope of Work statements and full itineraries going forward, asserting that it cannot rely upon the beneficiary’s statements or own requirements for the job. However, this ignores the fact that the petitioner likely has actually been carrying out work at various client locations at a sufficiently high level to qualify other beneficiaries for H-1B or L-1B status, which demands a knowledge base and skill level that has been construed by USCIS to be more complex, specialized and exclusive than for qualification under H-1B. There is no reason for USCIS to conclude that the nature of the employment offered is likely to substantially change.
4. Preponderance of the Evidence Supports Approval of the Petition – Mere Fact that Petitioner Places H-1B Workers at Client Sites is No Reason to Doubt Veracity and Accuracy of Petitioner’s Representations.
The "preponderance of the evidence" standard requires that the evidence demonstrate that the applicant's claim is "probably true," where the determination of "truth" is made based on the factual circumstances of each individual case. Matter of E-M-, 20 I&N Dec. 77, 79-80 (Comm. 1989). In evaluating the evidence, Matter of E-M- also stated that "[t]ruth is to be determined not by the quantity of evidence alone but by its quality." Id. Thus, in adjudicating the application pursuant to the preponderance of the evidence standard, the director must examine each piece of evidence for relevance, probative value, and credibility, both individually and within the context of the totality of the evidence, to determine whether the fact to be proven is probably true.
Even if the director has some doubt as to the truth, if the petitioner submits relevant, probative, and credible evidence that leads the director to believe that the claim is "probably true" or "more likely than not," the applicant or petitioner has satisfied the standard of proof. See US. v. Cardozo-Fonseca, 480 U.S. 421 (1987) (defining "more likely than not" as a greater than 50 percent probability of something occurring). If the director can articulate a material doubt, it is appropriate for the director to either request additional evidence or, if that doubt leads the director to believe that the claim is probably not true, deny the application or petition.
5. Reviewing Court Would Owe No Particular Deference to USCIS Definitions and Standards of Evidence Not Based in Published Regulations
As applied by the courts, the common law application of the terms, “employment”, “agency”, and “independent contractor”, a federal judge would likely find that the beneficiary is indeed by every measure the employee of the petitioner, and the reasoning of the Service is irrational as well as unfounded in statute and regulation.
USCIS is on further shaky grounds on this issue because it has failed to publish regulations specific to the issue at hand. If USCIS wishes that its interpretation to be given Chevron-style deference – and to be legally enforceable on petitioners -- it must publish the rules it applies as regulations. Until it meets its “publication and comment” under the APA, a reviewing court is not bound to give it Chevron-style deference. As applied in this and similar cases involving firms that attempt to place H-1B workers at third-party client sites, USCIS de facto policies and binding norms for H-1B are in contravention of existing regulations, and cannot be given deference.
D.USCIS TEST FOR “CONTROL” DOES NOT DISTINGUISH EMPLOYEE FROM INDEPENDENT CONTRACTOR:
No Single Factor is “Decisive” in Definition
1. Alternative Multi-Factor Legal Standard Should Apply
The Defensor decision does not even broach the legal distinction that must be made between an employee and independent contractor. Similarly, the concept of co-employment is altogether absent in that decision and in the USCIS “control” dicta expressed in Neufeld. The agency’s concept of “control” remains inadequate to reasonably encompass the real range of employment and other contractual relationships, including agency. . [NOTE: The Neufeld Memo deals at length with this issue. While it provides a better rationale for policy pronouncement than Defensor, it nonetheless maintains the error of asserting that third-party documentation is relevant and determinative. The fact of a valid employer-employee relationship, however, can only be dispositively established from the circumstances of the relationship between the petitioner and beneficiary. Third party arrangements are largely irrelevant to the maintenance of that contractual relationship, unless there is evidence of violation of the terms of the original contract. Therefore, it is improper to impose a burden of evidence of third-party documentation that exceeds that in the actual regulation with impermissible discriminatory effect on petitioners which place employees at third-party sites.]
The Defensor decision had to be displaced because it does not admit for any possibility that the H-1B worker may be something other than either the employee of the agency or the employee of the third-party site where she is assigned. In the either-or logic of Defensor, there are no independent contractors. But, in Neufeld, there are no co-employment situations. That is also unrealistic and not very helpful to agency applicants and adjudicators. The lack of rigor and realism in USCIS determination of employee status remains a serious defect.
In fact, in circumstances where an H-1B employee is placed at a worksite by an agency, she may not actually an employee of the agency or the third-party client, but instead would be legally classified as an independent contractor working through an agent. In the instance of the nurses in the Defensor case, a more rigorous analysis would likely concluded that the nurses were co-employees, and a further step in the test would have to be carried out to determine which “employer” actually controls the employee. One has to look to the definitions and interpretations of the Internal Revenue Service and U.S. Department of Labor for sound definitions and a realistic body of precedent for determinations of such complex issues. The Neufeld memo and amendments to the Examiner’s Handbook do not begin to encompass the actual range of possible relationships, and as has already been shown, where there is a valid employment contract, the issue is legally moot.
By raising the issue of control with no statutory basis, USCIS is entering into a wilderness without a map. No consistent, uniform definition distinguishes an employee from an independent contractor in the Act. Outside of the H-1B definition of “employer” (referencing the “employer-employee relationship” at 8 C.F.R. § 214.2(h)(4)(ii)), the I.N.A. does not otherwise contain a definition of “employee”. As USCIS acknowledges, the U.S. Supreme Court holds that when a statute contains the term employee but fails to define it adequately, the traditional agency-law criteria for identifying master-servant relationships is presumed to apply. Nationwide Mutual Insurance Company v. T Darden, 503 US 318, 112 S. Ct. 1244, 111 L. Ed. 2d 581 (1992) Furthermore, the court instructs that where there are several factors enumerated in an agency-law definition, no one factor is to dominate the others. That is fine, as far as it goes, but USCIS is not free to devise its own test that departs meaningfully in method or results from that used by other agencies without a clearly stated rational purpose. With reference to ERISA, the Darden decision states that principle:
[T]he Act contains no other provision that either gives specific guidance on the term's meaning or suggests that construing it to incorporate traditional agency law principles would thwart the congressional design or lead to absurd results. Since the multifactor common-law test here adopted, see, e.g., id., at 751-752, 109 S.Ct., at 2178-2179, contains no shorthand formula for determining who is an "employee," all of the incidents of the employment relationship must be assessed and weighed with no one factor being decisive. NLRB v. Hearst Publications, Inc., 322 U.S. 111, 64 S.Ct. 851, 88 L.Ed. 1170; United States v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757; Rutherford Food Corp. v. McComb, 331 U.S. 722, 67 S.Ct. 1473, 91 L.Ed. 1772, distinguished. Pp. 322-327.
The multi-factor common law test identified in Nationwide is that previously enunciated by the Court in Community for Creative Non-Violence v. Reid, 490 U.S. 730, is in turn a restatement of Section 220 of the Restatement (Second) of Agency (see, above):
"In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party's right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party's discretion over when and how long to work; the method of payment; the hired party's role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party." 490 U.S., at 751-752, 109 S.Ct., at 2178-2179 (footnotes omitted).
E. USCIS STILL LACKS AN ACCURATE, RIGOROUS, AND USABLE DEFINITION OF OPERATIVE TERMS: “Control”, “Employer”, “Employee”, “Independent Contractor”, and “Agent”, and Fails to Distinguish Between Them
1. Defensor does not Apply a Rational Definition of Control – No Distinction Drawn Between “Supervision” and “Control” of H-1B Worker
The Defensor decision fails to discuss what the factors are that constitute an employer-employee relationship, and neglects to explain what the distinctions are between employment and an independent contractor relationship. Similarly, the decision neglects to distinguish the three basic categories of relationships identified in commercial law: employer-employee; employer-independent contractor; employer-agent. There is no discussion of how the relationship between the petitioner and the beneficiary fits into this legal and regulatory framework, even though the distinction between employer and agent is essential to the determination of the proper evidentiary burden that may be placed on the applicant for an H-1B visa petition.
Furthermore, the Defensor decision does not render a reasoned analysis about what are the circumstances under which an employee of an independent contractor may enter into co-employee relationship, which party actually controls the work of a co-employee, and whether co-employment is permissible. There is no discussion of agency, and whether Vintage was acting as an agent of the nurses or as their employer. The decision does not even touch on these essential and relevant questions of commercial law. Without such a reasoned analysis of the realistic range of circumstances that impact the “employer-employee” relationship, and the issue of agency, this decision is not appropriate for adoption as agency precedent or citation as authority.
USCIS attempted to establish a better-reasoned basis for making such determinations in Neufeld. But, that also fails, at minimum, to considers the following factors and standards.
F. IRS DEFINITIONS
IRS definitions and categories have long been recognized as being either persuasive or controlling for interpretation of terms under the I.N.A., and having an IRS tax number is, indeed, an inherent part of the definition of “United States employer” at 8 C.F.R. § 214.2(h)(4)(ii).
The IRS test to distinguish employer from independent contractor would have relevance here to demonstrating to a court that the beneficiary indeed qualifies as the employee of the petitioner by appropriate legal standards. [NOTE: The Neufeld memo does reference tax treatment of the beneficiary as a factor that may be considered in determining the exercise of “control” by the employer, but does not assess its relevance]
1. IRS Twenty-factor Test
The most rigorous demonstration of this is the Internal Revenue Service “Twenty-factor test,” a comprehensive test that takes into account agency-law criteria and numerous other factors courts have created to define independent contractor status. The IRS criteria generally fall into three categories: control (whether the employer or the worker has control over the work performed), organization (whether the worker is integrated into the business), and economic realities (whether the worker directly benefits from his or her labor). The twenty factors are not a complete bright-line test, but serve rather as a guideline in case-by-case determination. Each factor's degree of importance varies depending on the occupation and the facts involved in a particular case. The IRS 20 Factor Test – Independent Contractor or Employee?:
1. A worker who is required to comply with instructions about when, where, and how he or she must work is usually an employee.
2. If an employer trains a worker — requires an experienced employee to work with the worker, educates the worker through correspondence, requires the worker to attend meetings, or uses other methods — this normally indicates that the worker is an employee.
3. If a worker's services are integrated into business operations, this tends to show that the worker is subject to direction and control and is thus an employee. This is the case particularly when a business's success or continuation depends to a large extent on the performance of certain services.
4. If a worker's services must be rendered personally, there is a presumption that the employer is interested in the methods by which the services are accomplished as well as in the result, making the worker an employee.
5. If an employer hires, supervises, and pays assistants for a worker, this indicates control over the worker on the job, making the worker an employee.
6. A continuing relationship between a worker and an employer, even at irregular intervals, tends to show an employer-employee relationship.
7. An employer who sets specific hours of work for a worker exhibits control over the worker, indicating that the worker is an employee.
8. If a worker is working substantially full-time for an employer, the worker is presumably not free to do work for other employers and is therefore an employee.
9. Work performed on an employer's premises suggests the employer's control over a worker, making the worker an employee. This is especially true when work could be done elsewhere. However, the mere fact that work is done off the employer's premises does not necessarily make the worker an independent contractor.
10. If a worker is required to perform services in an order or sequence set by an employer, the employer has control over the worker that demonstrates an employer-employee relationship.
11. A worker who is required to submit regular oral or written reports to an employer is likely an employee.
12 Payment by the hour, week, or month tends to indicate that a worker is an employee; payment made by the job or on a straight commission points to an independent contractor.
13. A worker is ordinarily an employee if an employer pays for the worker's business or travel expenses.
14. An employer who furnishes a worker with significant tools, materials, or other equipment tends to show that the worker is an employee.
15. A worker who significantly invests in facilities used to perform services and not typically maintained by employees (such as office space) is generally an independent contractor.
16. A worker who can realize a profit or loss resulting from her or his services is generally an independent contractor.
17. A worker who performs for more than one firm at a time is generally an independent contractor.
18. If a worker makes his or her services available to the general public on a regular and consistent basis, that worker is generally an independent contractor.
19. An employer's right to discharge a worker tends to show that the worker is an employee. An employee must obey an employer's instructions in order to stay employed; an independent contractor can be fired only if the work result fails to meet the agreed-upon specifications.
20. If a worker has the right to terminate her or his relationship with an employer at any time without incurring liability, such as breach of contract, that worker is likely an employee.
2. IRS Abbreviated Test of Independent Contractor vs. Employee.
IRS also provides a shorter definition for “employee” as follows:
In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
i. Common Law Rules
Facts that provide evidence of the degree of control and independence fall into three categories:
1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination.
3.IRS Status Reporting Definition
This method of tax reporting distinguishes employees from persons and entities that act as contractors. Reports of payments to persons considered legal employees for taxation purposes are made on Form Internal Revenue Service Form W-2. Some company officers or employees may elect to take payment through non-monetary instruments, such as stock options, royalties, or warrants, or to defer payment. Dividends or distributions from restricted stock should be reported by the employer on Form W-2. Rights conveyed by non-monetary instruments or agreements to be exercised during that particular tax year must also be reported by the employer on the W-2 or Form 1099-DIV, as are such transfers of dividends to investors. Any U.S. company or organization engaged in a trade or business that pays more than $600 to an independent contractor in one year is required to report this to the IRS as well as to the contractor, using Form 1099-MISC. Independent contractors may also receive restricted stock or non-monetary payment for services, but these should be reported by the issuer to IRS on Form 1099-DIV. The receipt of dividend income is not determinative of whether the recipient is an investor or an employee, as employees with stock options often receive dividend income in lieu of some or all other compensation.
There are several monetary incentives attendant to the standard benefits packages guaranteed to employees, but not independent contractors. Examples include worker’s compensation and unemployment insurance, as well as guaranteed time off and overtime for non-exempt hourly workers.
 See, Internal Revenue Service publication, Independent Contractor (Self-Employed) or Employee?,
See, IRS Publication 550 – Investment and Expenses – How to Report Dividend Income; also, see, Publication 550 - Investment Income and Expenses - How To Report ...,