IT Consulting Firms Lose Neufeld Memo Lawsuit

We have previously written extensively about the January 2010 Neufeld Memorandum and the lawsuit filed earlier this year challenging its validity.   This lawsuit has been of great interest to most of our clients as the Neufeld memorandum created some new requirements applicable not only to IT consulting companies but to most, if not all, H-1B employers.

After an exchange of arguments about dismissal of the suit in July, the District Court for the District of Columbia sided with the government and dismissed the lawsuit.   The court ruled that the Neufeld Memo did not constitute “final agency action” that might be subject to judicial review.

Background of the Neufeld Memo Lawsuit

The complaint was filed earlier this year by a coalition of staffing companies and representative trade associations. USCIS was asked to stop temporarily and permanently from applying the Neufeld Memo in H-1B adjudications.

The complaint alleged that the Neufeld Memo abruptly altered long-standing agency policy which has permitted companies from placing H-1B workers at third-party job sites.  The plaintiffs claimed that the Neufeld Memo constitutes a legislative regulation because it sets forth new binding standards that prevent employers that place employees at third-party worksites, but which otherwise meet the regulatory definition, from sponsoring H-1B nonimmigrants.

Specifically, the complaint alleged that the new policy (i) is contrary to existing law and regulations, (ii) is arbitrary and capricious because the government failed to articulate a policy justification, (iii) violates the Administrative Procedure Act notice-and-comment requirements, and (iv) should have been issued following a certification under the Regulatory Flexibility Act (which requires regulators to consider the potential impact of regulations on small business).

The Federal District Court Dismissal of the Broadgate Case

Judge Kessler dismissed the case because the Neufeld Memo is not legislative rule.  The court ruled that the Memo merely provides “interpretive guidelines” for the implementation of the relevant regulations and does not providing binding instructions to USCIS adjudicators in their review of H-1B petitions.

Judge Kessler determined that “the evidence demonstrates that the Memorandum is intended to provide only guidance for application of the Regulation”, somewhat based on the fact that four petitions submitted by the plaintiffs had been approved while the lawsuit was pending.    By failing to show immediate harm, the plaintiffs could not show harm in an injunction case.

Additionally, Judge Kessler found that the Administrative Procedures Act does not apply in this case.

Additional Notes from the Dismissal of the Neufeld Memo Lawsuit

There is some silver lining for consulting companies.  In the proceedings, USCIS has acknowledged that that joint employment, or staffing, is permissible under the H-1B program and that the Neufeld Memo is not binding to adjudicators.  Judge Kessler agreed and wrote that 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.

However, Kessler added, they have “considerable discretion”  in interpreting H-1B rules.

Conclusion

Seems like this may be the end of the Neufeld Memo lawsuit as the plaintiffs do not seem likely to appeal Judge Kessler’s decision.   The Neufeld Memo lawsuit failed to accomplish its mail goal — the repeal of the Neufeld Memo; however, as a result of the lawsuit, there may be a little bit more clarity that the adjudicators are not required to follow the Neufeld Memo regulations.  Consulting companies should continue to follow the guidelines set forth by the Neufeld Memo with respect to proving employer-employee relationship.

Our office has received a number of “Neufeld Memo” requests for evidence (RFEs) and we have been able to successfully respond and address USCIS’ concerns.   Our expectation is that such RFEs will continue (if not intensify now that the Neufeld Memo lawsuit has been dismissed).   We have also shifted our filing practice towards filing upfront more evidence showing the employer-employee relationship to try and avoid RFEs.  Please feel free to contact us if we can help you respond to a Neufeld Memo RFE (on existing case) or prepare a new filing.