Before You File Your H-1B Make Sure you are an "Employee"

The first day to submit H-1B applications for the 2010-2011 fiscal year is next Thursday, April 1st. Here in Silicon Valley, I've been getting calls from entrepreneurial foreign nationals wanting to know if they can start their own business and get an H-1B for themselves. Up until January of this year, I've always explained that "yes", if you set up a corporation, the corporation can sponsor you as its employee. This is based upon established tenets of corporate law, as well as case law, that a corporation is a separate legal entity from its owner. As an immigration lawyer, I've successfully represented H-1B applicants who have done just this.

But this past January, the USCIS took it upon themselves to redefine what constitutes an "employer-employee" relationship for purposes of obtaining an H-1B visa. The USCIS acted like they were Congress, and essentially created a new immigration law modifying the meaning of "employer". They did this via internal USCIS Memorandum, and by adding sections to their Adjudicator's Field Manual.

The USCIS' new meaning of an "employer-employee" relationship eliminates the possibility of the majority shareholder of a corporation from sponsoring themselves. This is a dramatic change. The new meaning focuses primarily upon whether an employer has the right to control an employee's employment. In a footnote within the Memorandum (footnote 9), the USCIS acknowledges an older immigration case that held that a sole stockholder of a corporation can be employed by that corporation, since the corporation is a separate legal entity from its owners. But the next sentence of that same footnote goes on to argue that an H-1B employee who owns a majority of the sponsoring company, and who reports to no one but him or herself may not be able to establish an "employer-employee" relationship because the required "control" could not be established.

The Memorandum goes on to list eleven specific factors to consider whether there is an employer-employee relationship. Those factors include: (1) Does the petitioner (employer) supervise the beneficiary (employee), and is such supervision off-site or on-site; (2) Does the petitioner evaluate the work-product of the beneficiary; (3) Does the petitioner hire, pay, and have the ability to fire the beneficiary. According to the USCIS, a majority stockholder beneficiary would not be able to fire, evaluate, or supervise the work of themselves. Even more damaging to the sole corporate stockholder, the Memorandum specifically lists "Self-employed Beneficiaries" as a scenario that would NOT present a valid employer-employee relationship.

Just because the USCIS decided upon their own to eliminate the majority corporate stockholder from qualifying for an H-1B, this does not mean that they are correct. The USCIS is incorrect by: (1) their manner of implementing this major change (by acting like they were Congress when they are not); (2) ignoring prior agency interpretation of finding a proper "employer-employee" relationship when the corporation is the petitioner; and by (3) failing to follow applicable case law to define an "employer-employee" relationship beyond the criteria of degree of "control". However, in all likelihood, a majority corporate stockholder who submits an H-1B for themselves next week will get their application denied. Appealing a denial is always an option, and these issues will surely be appealed within the next several months. But appeals take a long time, and it does not help the entrepreneur who wants legal immigration status ASAP to begin their business venture.

Even if the entrepreneurial foreign national starts a business that creates jobs and spurs economic growth, if the foreign national is a majority shareholder they would not be able to qualify for an H-1B under the USCIS' new interpretation/law. The USCIS has essentially cut off the long-standing H-1B option for business owners. So if you're not an "employee" as defined by USCIS Memorandum, what are the other options? The E-2, investor visa, could be an option as long as the foreign national is from a qualifying country. Other than that, continue to push Congress to create the Start-Up Visa.

H-1B Visas, Work Visas / by Michelle Gee