Due Diligence Considerations for Companies Contracting With Vendor Service Providers

by Cyrus D. Mehta

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any corporations in need of specialized skilled workers who are in short supply do not sponsor foreign nationals for their work permits. Instead, these companies contract with other entities that employ

commercial or professional nature;” but not “local employment or labor for hire,” (i.e., gainful employment in the United States).4 The Foreign Affairs Manual (FAM), published by the DOS, further provides that a B-1 visa holder must not receive a salary from a U.S. source, but can be reimbursed for expenses in the U.S.5 The FAM sets forth the following examples of permissible B-1 activities: engaging in commercial transactions, which do not involve gainful employment in the U.S.; negotiating contracts; consulting with business associates; litigating; participating in scientific, educational, professional or business conventions, conferences or seminars; or undertaking independent research.6 It is often difficult to distinguish between genuine business activities permissible under the B-1 visa and activities that constitute skilled or unskilled labor that are not appropriate under the B-1 visa. The most well known decision interpreting permissible B-1 activities is the Board of Immigration Appeal’s decision in Matter of Hira,7 involving a tailor who took measurements of customers in the U.S. on behalf of his business in Hong Kong, where the suits would be manufactured and shipped back to the customers in the U.S. This was considered an appropriate B-1 activity, because the principal place of business and the actual place of accrual of profits, if any, were in the foreign country. Given the close scrutiny the B-1 is receiving these days, especially after a lawsuit by a whistleblower employee of one of India’s largest IT outsourcing company, it is incumbent upon in-house counsel to ensure that his or her company is

skilled workers, who in turn are then assigned to the contracting company for a specific project. This is especially true with information technology (IT) services, where foreign nationals on temporary visas predominate. Some typical visa categories companies may seek to utilize for employment purposes include: H-1B (professional skilled worker), L-1 (intra-company transferee) and B-1 (business visitor) nonimmigrant visas. While the obligations for a sponsor are onerous, this article highlights what in-house counsel needs to know when utilizing the indirect services of foreign nationals, particularly those who are employees of vendor service providers. For example, it is important to be vigilant to ensure that foreign national workers assigned to a company are working under the appropriate visa categories. In the event that in-house counsel has knowledge or encourages activities not authorized under these visa categories, there is potential for counsel and the company to be ensnared in criminal liability.1 Even

short of criminal liability, it is important to make sure due diligence has been done to avoid being caught up in an embarrassing investigation against a partner company.

Business Visas: When Does a Business Activity Become Employment in the U.S.?
The B-1 visa, which allows business trips to the U.S., has recently come under fire over allegations of its misuse.3 B-1 entrants have been accused of actually working rather than engaging in business-related activities. Although the term “business” is not defined in the statute or regulations, the Department of State (DOS) defines business as “conventions, conferences, consultations and other legitimate activities of a
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not participating in activities that may be perceived as fraudulent.8 A B-1 visa applicant must submit evidence to the U.S. consulate overseas when applying for a visa to justify the purpose of his or her visit. This evidence may also be required to be submitted to a customs and border protection official at the airport when the foreign national arrives in the U.S. If the company urgently needs software engineers through
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NEW JERSEY LAWYER | October 2011

its IT contracting company for a project, counsel may be requested to write a letter as a client of the contracting company to justify the need for its employee overseas to visit the U.S. on a B-1 visa. If this letter indicates that the software engineer is required for meetings, or to conduct an analysis of the project to be subsequently worked on overseas (a permissible B-1 activity), but the actual purpose is for the engineer to actually participate in programming and working on the solution in the U.S., it may come back to haunt counsel and the corporation if there is a criminal investigation against the IT contracting company. Therefore, when drafting such a letter, it is important to ensure that the proposed activities discussed in the letter are permissible B-1 activities, and when the foreign national arrives, he or she engages in activities that are consistent with the listed activities. Admittedly, the scope of the B-1 visa remains ambiguous, and there also exists the “B-1 in lieu of the H-1B,” visa, which has rigid requirements.9 First, qualified individuals must otherwise qualify for an H-1B visa, meaning they must be working in a specialty occupation and qualify for the position by means of a bachelor’s degree in a specific field required for the occupation. In addition, they must show nonimmigrant intent (established by showing significant ties to their home country, including establishing they have a residence abroad they have no intent to abandon), must be regularly employed abroad, and their salary must be paid by their employer abroad. They may perform work in the U.S. only for a limited time, and only if they continue to be paid abroad, and not by the U.S. entity for which they are performing services. If the scope of the activities falls under the B-1 in lieu of H-1B, counsel should ensure that the IT contracting company has made full disclosure of the foreign national’s eligibility under the
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B-1 in lieu of H-1B visa. It is also important to ensure that the B-1 national continues to remain an employee of the overseas entity. Remember that the B-1 in lieu of H-1B is not granted very readily by U.S. consuls, and the norm is for the foreign national to enter the U.S. on an H-1B visa. Finally, in the wake of accusations against the inappropriate use of the B-1 in lieu of an H-1B, the State Department is considering modifications to this category.10 7. 6. 5. 4.

ary on a day-to-day basis if such control is required? Does the petitioner provide the tools or instrumentalities needed for the beneficiary to perform the duties of employment? Does the petitioner hire, pay, and have the ability to fire the beneficiary? Does the petitioner evaluate the work product of the beneficiary (i.e., progress/performance reviews)? Does the petitioner claim the beneficiary for tax purposes? 8. 9. Does the petitioner provide the beneficiary any employee benefits? Does the beneficiary use proprietary information of the petitioner in order to perform the duties of employment? 10. Does the beneficiary produce an end product that is directly linked to the petitioner’s line of business? 11. Does the petitioner have the ability to control the manner and means in which the work product of the beneficiary is accomplished? In order to win an H-1B approval, the petitioning employer generally requests confirmation from its client company about the H-1B worker’s assignment, and that it is the employer who actually exercises control over the employment. In-house counsel, as the contractor of the H-1B employee, often through layers of middlemen vendors, must take care that the letter accurately describes the arrangement. On the one hand, the issuance of such a letter confirms that the company is not the employer, thus eliminating a situation where it may be held liable as an employer for wages and benefits. On the other hand, there may be situations where the petitioning entity exercises no control over the H-1B worker’s employment, and the person reports directly to a manager with the client rather than the petitioner. Indeed, the Neufeld memo contemNEW JERSEY LAWYER | October 2011

H-1B Visa: Is There an EmployerEmployee Relationship?
The H-1B visa is the workhorse of all nonimmigrant visas, and imposes onerous obligations on the employer who employs a foreign national in this nonimmigrant visa category. The employer must establish that a bachelor’s or higher degree in the specific specialty, or its equivalent, is the minimum requirement for entry into the occupation.11 Recently, the United States Citizenship and Immigration Service (USCIS) has insisted that the employer establish a valid employer-employee relationship, especially with respect to H-1B employees assigned to third-party worksites. In a memo by Donald Neufeld, associate director of service center operations, dated Jan. 8, 2010,12 the employer must demonstrate the right of control over the employee through the following criteria, even though the employee is on its payroll and the employer withholds taxes on his or her behalf: 1. Does the petitioner supervise the beneficiary, and is such supervision off site or on site? 2. If the supervision is off site, how does the petitioner maintain such supervision, (i.e., weekly calls, reporting back to main office routinely, or site visits by the petitioner)? 3. Does the petitioner have the right to control the work of the benefici-

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plates a scenario where the petitioner is a staffing computer consulting company, and once the H-1B worker is placed at the client site, it no longer reports to the petitioner for assignments and all assignments are determined by a manager at the third-party company. Care should, therefore, be taken not to misrepresent the nature of the assignment at the company. Moreover, the petitioner must demonstrate that the position being filled by the H-1B worker at the company requires a bachelor’s degree or higher in a specialty. Here too, counsel must take the utmost precautions to not misrepresent the minimum requirements of the position. The USCIS’s fraud detection national security division may also pay a visit to ensure that the worksites have been accurately identified, and these site visits may lead to the company. Moreover, the letter counsel provided may also be verified with a surprise call from the State Department when the H-1B worker applies for a visa at the U.S. consulate. The petitioner must also separately attest to the Department of Labor, inter alia, on the labor condition application (LCA) that it is paying at least the prevailing wage, and that it has posted notice in two conspicuous places at the physical location for 10 days where the work is actually performed. The notice must note that H-1B workers are sought, the occupational classification, the wages offered, the period of employment and the work location. The notice must also invite complaints for misrepresentation in the LCA or for other violations.13 While the petitioner is solely responsible for posting the notice at the physical location, it would behoove counsel to cooperate with the posting at the company’s site to ensure the contractor is fully compliant with the attestation requirements. Finally, certain employers who have a large percentage of H-1B workers in

the workforce, known as dependent employers, must make an additional attestation that a U.S. worker has not been displaced, or there is no intention to displace one, if the H-1B worker is placed at a client’s site within 90 days before and 90 days after the placement of the worker at the other employer.14 Here too, while the petitioning employer is solely responsible for this ‘secondary’ displacement attestation, counsel at the client company must ensure that he or she has provided accurate information about any displacement of U.S. workers to the contracting company. If there has been a displacement, the contractor, if H-1B dependent, and if the worker is not exempt,
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company, or deploying a methodology that is unique to that company, the individual may be involved in appropriate activities consistent with the L-1B visa. If, on the other hand, this so-called specialized knowledge employee is involved in routine coding or software development not pertinent to the product or processes of the contracting company, this should be sounding alarm bells for counsel. Moreover, if the L-1B employee is placed at a third-party worksite, he or she must be under the “control and supervision” of the petitioning entity and not the contracting company.18

cannot

Conclusion: The Wal-Mart Example of Independent Contractor Liability
The author is cognizant of the fact that an independent contractor should not be liable for the civil or criminal wrongdoing of an independent contractor. At the same time, if counsel attempts to be willfully ignorant, or worse still, encourages inappropriate or fraudulent activities, it will not be a shield if the contractor breaks the law. The enforcement action against WalMart, albeit in a different context, provides a sobering example of independent contractor liability. The Form I-9 employment verification requirement applies to direct employees of an employer.19 On the other hand, an employer cannot circumvent its obligations by classifying an employee as an independent contractor. Moreover, even if an individual is truly an independent contractor, INA Section 274A(a)(4) provides that a person or other entity who uses a contract, subcontract or similar arrangement to obtain the labor of an alien in the U.S. knowing that this person is unauthorized to work, can be sanctioned. Wal-Mart received substantial government scrutiny because of janitorial subcontractor employees working at its locations, although the enforcement action culminated in a consent decree and order in 2005.20 Based on the conWWW.NJSBA.COM

assign the H-1B worker to the project.

Is the Worker Specialized Under the L-1B Visa?
The L-1 visa, which allows foreign national intracompany transferees to work in the U.S. as managers or executives under the L-1A visa, or as specialized knowledge employees under the L1B visa, is also worth a passing mention.16 L-1B “specialized knowledge” employees have also come under close scrutiny in recent times for alleged misrepresentations of whether they are truly engaging in specialized knowledge activities. If a specialized knowledge employee is placed at a client company, care should be taken that the individual is continuing to serve is such a capacity. Specialized knowledge includes a person who has special knowledge of the company product, service, research, equipment, techniques, management or other interests and its application in international markets, or has an advanced level of knowledge of processes and procedures of the company.17 While the definition of the term has gone through varying interpretations over many years, the rule of thumb is that if the person is implementing a product or application of the contracting

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sent decree, Wal-Mart has adopted a very conservative approach in dealing with indirect employees, which ensures the verification of the employment authorization of employees of subcontractors at any tier. Wal-Mart passes this liability on to its general contractors, who must then impose additional requirements on their subcontractors. The same approach should be taken when contracting with another entity that provides the expertise of foreign nationals; they must certify that they have been compliant. In-house counsel must have the ability to terminate a contract if the contracting company has not been compliant. Contracting companies may also be required to seek certification from independent counsel that they are compliant before entering into a contract with in-house counsel’s company. By exercising due diligence, in-house counsel and its company can avoid an investigation, which even if not targeted against counsel or the company can still generate bad publicity, as well as potential liability.

5. 9 FAM § 41.31 Note 3.4. 6. 9 FAM § 41.31 Note 5.
7. 11 I. & N. Dec. 824 (BIA 1966). B-1 in lieu of the H-1B controversy in the context of the lawsuit against Infosys, see Cyrus D. Mehta and Myriam Jaidi, B-1 in Lieu of H-1B in Jeopardy: Don’t Throw the Baby Out With The Bathwater, The Insightful Immigration Blog, http://cyrusme-

employs more than seven H-1B workers is considered an H-1B dependent employer. Likewise, an employer who has between 26 employees and 50 employees, and who employs more than 12 H-1B workers is also considered H-1B dependent.

8. For a commentary surrounding the

15. An exempt employee is one who is
paid $60,000 or over or has an advanced 212(n)(3)(B). degree. See INA

hta.blogspot.com/2011/05/b-1-inlieu-of-h-1b-visa-in-jeopardy.html. 9. 9 FAM §14.31 N. 8. The criteria are
also set forth on the website of the US Consulate in Mumbai, India, available at http://mumbai.uscon-

16. INA § 101(a)(15)(L); 8 C.F.R. §
214.2(l)(1)(ii).

17. 8 C.F.R. § 214.2(l)(1)(ii)(D). 18. INA § 214(c)(2)(F). 19. All new employees need to complete Form I-9 within three days of their hire. INA § 274A(a)(1); INA § 274A(b). The USCIS Handbook for Employers instructing on how to complete the Form I-9 is available at

sulate.gov/b1_in_lieu_of_h1b.html. 10. See Letter, Joseph E. Macmanus, Acting Assistant Secretary, Legislative Affairs to Senator Grassley (R-IA), May 13, 2001, available at http://grassley.senate.gov/judiciary/upload/Immigration-05-24-11response-from-State-using-B-1-tocircumvent-H-1B-doc.pdf. 11. INA § 214(i)(l); 8 C.F.R. §214.2(h) (4)(iii)(A).

www.uscis.gov/files/form/m-274.pdf. 20. The consent decree is available at www.walmartjanitors.com/staticdata/Consent_Decree_and_Order.pdf ;
See also = Gary Endelman and Cyrus D. Mehta, Keeping Track: Select Issues in Employer Sanctions and Immigration Compliance, 16 Bender’s Immig. Bull. 200, Feb. 1, 2011. Cyrus D. Mehta is the managing member of Cyrus D. Mehta & Associates, PLLC, in New York, and vice chair of the American Immigration Lawyer’s ethics committee, chair of the service level standards committee of the Alliance of Business Immigration Lawyers and former chair of the American Immigration Council.

Endnotes 1. Persons who engage in visa fraud or
making false statements to the U.S. government can be potentially prosecuted under 18 U.S.C. §1546 or 18 U.S.C. §1001, along with conspiracy under 18 U.S.C. 371.

12. The Neufeld Memo can be found at www.uscis.gov/USCIS/Laws/Memoranda/2010/H1B%20EmployerEmployee%20Memo010810.pdf 13. INA § 212(n); 20 C.F.R. §§
655.730(d)(4); 655.734(a)(1). You can review here a sample Labor Condition Application, which if posted in its entirety, can meet the 10 day notification requirement, http://icert.dole-

2. INA § 101(a)(15)(B). 3. See e.g. Infosys of India Under
Scrutiny Over U.S. Visas, New York

www. nytimes.com/2011/06/22/us/22infosys.html?scp=1&sq=infosys&st=cse;
Times, June 21, 2011, Misue of Visas May be Widespread, www.livemint.com, June 23, 2011. The Infosys employee also testified before the Senate, but Infosys has strongly denied the allegations; See e.g. Infosys Employee Testifies on Alleged Visa Fraud, The Wall Street Journal, July 28, 2011 .

ta.gov/library/ETA_Form_9035_2009 _Revised_03.18.09.pdf. 14. INA § 212(n)(2)(E); 20 C.F.R.
§655.738(d). Pursuant to INA § 212(n)(3)(A), an H-1B employer is considered an H-1B dependent employer if it has 51 employees and has at least 15 percent of its workforce on H-1B visas. This formula varies if the employer has less than 51 employees. An employer who has 25 or fewer employees and who

4. 22 C.F.R. Section 41.31(b)(1).
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