H1B Visa Attorney – Right of Control for Sole Business Owners

Can you own your company as an H1B Holder? Attorney Ekaterina Powell from our office has prepared the summary of the updates regarding establishing employer-employee relationship for H-1B purposes in cases where the beneficiary owns 100% of the petitioning company.

Since the issuance of Neufeld Memorandum “Determining Employer-Employee Relationship for Adjudication of H-1B Petitions, Including Third-Party Placements” in January 2010, USCIS has issued Requests for Evidence (RFEs) for many companies where the beneficiary is also a stockholder of the petitioning company. Often times, the RFEs are issued even if the beneficiary owns a minimal percentage of shares in the petitioning company.

In the situations where the beneficiary has an ownership interest in the petitioning company, it has to be established that the petitioner can be classified as the employer pursuant to 8 C.F.R. § 214.2(h) (4) (ii) (2). In other words, it has to be established that there will be an “employer-employee relationship”, as indicated by the fact that the petitioner may hire, pay, fire, supervise, or otherwise exercise the right to control over any such employee.

Establishing the Right to Control

The Neufeld memo provides an example of a situation where the right to control will not be found. The example includes a petitioner, a fashion merchandising company, that is owned by the beneficiary. The beneficiary is the sole operator, manager, and employee of the petitioning company. The beneficiary cannot be fired. There is no outside entity which can exercise control over the beneficiary. USCIS provides this scenario as an example where there is no right to control over the beneficiary.

However, this example in the memorandum does not preclude the finding of right to control in the situations where the beneficiary owns shares of the petitioning company or is the sole owner of the company and there is an outside control over the beneficiary.

USCIS acknowledges that a sole stockholder of a corporation can be employed by that corporation as the corporation is a separate legal entity from its owners and even its sole owner. However, an H-1B beneficiary who owns a majority of the sponsoring entity and who reports to no one but him or herself may not be able to establish that a valid employment relationship exists in that the beneficiary, who is also the petitioner, cannot establish the requisite “control”. USCIS stresses in the Memorandum that “[w]hile it is correct that a petitioner may employ and seek H-1B classification for a beneficiary who happens to have a significant ownership interest in a petitioner, this does not automatically mean that the beneficiary is a bona fide employee.”
Neither the Memo nor the regulations bar approval of the H-1B petitions where the beneficiary has the ownership interest. The Neufeld Memorandum merely stresses the fact that the petitioner has to show the right to control the beneficiary.

Even though the Memorandum clearly states that there can be situations where the corporation can establish the right to control its sole owner, adjudications of H-1B petitions where the beneficiary had an ownership interest in the sponsoring entity have been inconsistent. Often times, USCIS plainly concludes that since the beneficiary owns a part of the petitioning entity, it has not established the employer-employee relationship.

Despite the fact that the Neufeld memorandum was issued almost two years ago, USCIS has released its clarifications of the memorandum in the Q&A session only in August 2011. See Questions & Answers: USCIS Issues Guidance Memorandum on Establishing the “Employee-Employer Relationship” in H-1B Petitions posted on 08/02/2011 on USCIS website.

The Q&A clarifies when a beneficiary, who is the sole owner of the petitioner, may be able to establish a valid employer-employee relationship. Specifically, if the facts show that there is a right to control by the petitioner over the employment of the beneficiary, then a valid employer-employee relationship may be established.

Q&A gives an example that a petitioner that provides evidence that there is a separate Board of Directors which has the ability to hire, fire, pay, supervise or otherwise control the beneficiary may be able to establish an employer-employee relationship with the beneficiary.

There is a widespread misconception about the scope of the clarifications given by USCIS. Many individuals think that now any beneficiary who is the sole owner of the petitioner will be able to establish employer-employee relationship.

However, this is a misinterpretation of the Q&A. In any H-1B case filed on behalf of the beneficiary who has an ownership interest in the sponsoring organization, the petitioner has to provide documentary evidence proving its right to control the H-1B worker.

Documentation Required

The Frequently Asked Questions issued by USCIS suggest that the petitioner may submit a combination of any documents that sufficiently establish that the required relationship between the petitioner and the beneficiary exists and may submit any other similar probative evidence.

Such documentary evidence may include the following:
• Corporate documents, including bylaws, showing the board of directors and its authorities to exercise outside control over the beneficiary;
• Copy of signed Employment Agreement between the petitioner and beneficiary detailing
the terms and conditions of employment;
• Copy of an employment offer letter that clearly describes the nature of the employer-employee
relationship and the services to be performed by the beneficiary, the ability of the employer to fire the employee, the explanation of how the employer will exercise its right to control the employee, and the explanation how the employee will be supervised throughout the H-1B employment;
• Copy of position description or any other documentation that describes the skills required to perform the job offered, the source of the instrumentalities and tools needed to perform the job, the product to be developed or the service to be provided, the duration of the relationship between the petitioner and beneficiary, whether the petitioner has the right to assign additional duties, the extent of petitioner’s discretion over when and how long the beneficiary will work, the method of payment, the petitioner’s role in paying and hiring assistants to be utilized by the beneficiary, whether the work to be performed is part of the regular business of the petitioner, the provision of employee benefits, and the tax treatment of the beneficiary in relation to the petitioner;
• A description of the performance review process along with progress and performance evaluations;
• Letters from the other directors explaining how the right to control the work of the beneficiary will be exercised on a day-to-day basis, who will supervise the beneficiary and evaluate the work-product of the beneficiary, and explaining the management structure of the company;
• Copy of petitioner’s organizational chart, demonstrating beneficiary’s supervisory chain;
• Other relevant documents.

It remains to be seen if USCIS will be consistent in its adjudication of H-1B petitions where the beneficiary is the sole owner of the sponsoring entity. Therefore, when filing the H-1B petition, do not assume that the petition should be approved for a sole owner of the sponsoring entity in light of the new guidance. It is recommended to include as much evidence as possible showing the outside control over the beneficiary to prove a valid employment relationship between the petitioning entity and the H-1B worker. Please contact us with any other questions.