IT staffing firms lose H-1B lawsuit

But the case may have clarified the limits of a controversial USCIS memo

WASHINGTON - IT staffing firms that hire H-1B workers and make them available to customers are located in office parks and buildings around the U.S. But the U.S. Citizenship and Immigration Services (USCIS), under pressure by Congress to improve enforcement of the H-1B program, issued a memo last January that said that these IT staffing firms weren't the real employers of foreign workers and, thus, couldn't use this visa.

The so-called Neufeld Memo riled the IT staffing industry and in June three small firms that rely on H-1B visa holders for up to 90% of their employees sought a preliminary injunction to stop the USCIS from enforcing it. Those firms were joined in the suit by industry groups.

In August, U.S. District Judge Gladys Kessler dismissed their case.

Although the matter is unlikely to be appealed, it did clarify the limits of the controversial memo, according to the TechServe Alliance, an services industry group in Alexandria, Va. that took part in the legal fight.

The memo, written by USCIS Associate Director Donald Neufeld, said that IT staffing firms that place H-1B workers at third-party sites didn't control the workers or have a true employer-employee relationship. That, he wrote, is why they weren't eligible for the visas. The staffing firms, in turn, argued that they maintained the authority to hire, pay, fire and supervise the workers and were very much in control of their employment.

Mark Roberts, CEO of TechServe Alliance, said the USCIS made some concessions during the case, namely that joint employment, or staffing, is permissible under the H-1B program, and that the memo was not binding on adjudicators.

"Our basic argument in the lawsuit was that this memo was tantamount of a regulation, and you are not allowed to basically change the rules and modify an existing regulation by memo," said Roberts.

But even if the memo is considered only as guidance and not an iron-clad rule, Roberts said staffing companies still have to ensure that the message out of the courtroom is heard in the field. As a result, they are putting together a "toolkit" for H-1B hiring firms to use. The toolkit will cite court transcripts and other materials from the case.

Kessler said there is no evidence that the memo is binding. She said USCIS adjudicators can consider a number of factors when weighing an H-1B application.

"The memorandum instructs USCIS adjudicators to look to the totality of the circumstances in each case to determine whether there is an employer-employee relationship," Kessler wrote.

The judge said that adjudicators have "considerable discretion" in interpreting the H-1B rules.

The lawsuit argued that the IT staffing industry could lose some $100 million in business a year because of the memo. The firms that joined TechServe in filing the lawsuit were: Broadgate Inc. in Troy, Michigan, which counts 21 H-1B visa holders among its 46 IT workers; Logic Planet Inc., in Edison, N.J., which employees 95 IT workers, including 89 on H-1B visas; and DVR Softek Inc., also in Edison, N.J., which says that 45 of its 50 tech workers hold H-1B visas.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com.

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