Employee and Employer Relationship Details

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Because the language and reasoning of the January 8, 2010 USCIS memorandum on the subject of H1b employer-employee relationships is so convoluted, it is necessary to engage in a detailed analysis to demonstrate, conclusively, the legal and factual errors it contains. Because that memorandum is fatally flawed, it must be disregarded. It is not, after all, a regulation nor does it carry the weight of legal authority. By its own terms its use is limited:
"This memorandum is intended solely for the training and guidance of USCIS personnel in performing their duties relative to the adjudication of applications. It is not intended to, does not, and may not be relied upon to create any right or benefit, substantive or procedural, enforceable at law or by any individual or other party in removal proceedings, in litigation with the United States, or in any other form or manner."
In other words, it is the opinion of one or more individuals at USCIS Headquarters. It is not a regulation and it carries no more authority than the persuasiveness derived from its reasoning and citation of proper legal authorities. As will be demonstrated conclusively immediately below, the legal authorities cited are inapposite and the reasoning is deeply flawed.

Turing now to the memorandum, we see that footnote one contains the following acknowledgement:
"USCIS has also relied on the Department of Labor definition found at 20 C.F.R. 655.715 which states: Employed, employed by the employer, or employment relationship means the employment relationship as determined under the common law, under which the key determinant is the putative employer's right to control the means and manner in which the work is performed. Under the common law, "no shorthand formula or magic phrase * * * can be applied to find the answer * * *. [A]ll of the incidents of the relationship must be assessed and weighed with no one factor being decisive." NLRB v. United Ins. Co. of America, 390 U.S. 254,258 (1968)."
Unfortunately, the USCIS either misunderstood what the Department of Labor wrote, or simply did not fully research this issue. In fact, the U.S. Department of Labor (DOL) Notice of Final Rulemaking: "Labor Condition Applications and Requirements for Employers Using Nonimmigrants on H-1B Visas in Specialty Occupations and as Fashion Models; Labor Certification Process for Permanent Employment of Aliens in the United States (December 20, 2000)" 65 Fed. Reg. 245, pages 80109-80158, Supplementary Information explained that while the DOL initially proposed a multi-part test to determine whether an employer-employee relationship exists for H1b purposes, in the end, they decided that:
"Upon reflection, however, the Department has concluded that the regulation should not include a detailed list of prescribed factors. The Department believes that the factors identified in the NPRM provide a useful framework, based on the common law, for distinguishing between employees and independent contractors. Nevertheless, to avoid any potential misunderstanding that the factors on the list are exclusive or that factors not listed are less deserving of consideration, the Department has decided that no list of factors should be included in the Interim Final Rule. The Interim Final Rule reiterates that the common-law test requires an assessment of all the factors bearing on the employment relationship, with the right to control the means and manner of work being the key determinant but with no one factor controlling."
The initial DOL list of factors reflected the analysis originally developed by the Equal Employment Opportunity Commission, cited with favor by the U.S. Supreme Court:
"As noted in the NPRM, the proposed list of factors for determining whether an employment relationship exists was drawn from a framework developed by the EEOC for its policies on contingent workers. And as the EEOC recognized, its framework was derived from non-exclusive lists of factors in Darden and the other sources for the common law test cited by the Supreme Court in Darden: Reid, the IRS ruling, and the Restatement (Second) of Agency 220(2) (1958).

Each of these sources for the common law test recognizes "the right to control" as the key determinant in ascertaining the existence of an employment relationship. As stated by the EEOC: "The worker is a covered employee * * * if the right to control the means and manner of her work performance rests with the firm and/or its client rather than with the worker herself." Similarly, the IRS Revenue Ruling states: "[G]enerally the relationship of employer and employee exists when the person or persons for whom the services are performed have the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work, but also as to the details and means by which that result is to be accomplished. * * * It is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if the employer has the right to do so." See also the Supreme Court in the Darden and Reid and Section 220(1) Restatement (Second) of Agency. Thus, an employer that properly applies any formulation of the common law test, grounded upon the cited authorities, should obtain the same conclusion regarding an individual's employment status"
In the Clackamas Gastroenterology Assoc. v. Wells, 538 U.S.A40 (2003) (Clackamas) decision, the United States Supreme Court also deferred to the EEOC analysis as to what constitutes an "employer-employee" relationship. In that case, the Court was faced with the issue of "whether four physicians actively engaged in medical practice as shareholders and directors of a professional corporation should be counted as 'employees.'" This is a very different question than the one presented by this petition. Nonetheless, the reasoning of the United States Supreme Court as to the correct decisional methodology is equally valid in determining whether an employer-employee relationship exists in this case.

In Clackamas, the court was presented with the issue of whether shareholder-directors of a corporation qualified as employees. To resolve the issue, the Court turned to the Equal Employment Opportunity Commission analysis of that specific question. Following the EEOC guidelines, the Court employed a six question test to resolve the "shareholder-director as employee" question:
"This is the position that is advocated by the Equal Employment Opportunity Commission (EEOC), the agency that has special enforcement responsibilities under the ADA and other federal statutes containing similar threshold issues for determining coverage. It argues that a court should examine "whether shareholder-directors operate independently and manage the business or instead are subject to the firm's control." Brief for United States et al. as Amici Curiae 8. According to the EEOC's view, "[i]f the shareholder-directors operate independently and manage the business, they are proprietors and not employees; if they are subject to the firm's control, they are employees." Ibid. Specific EEOC guidelines discuss both the broad question of who is an "employee" and the narrower question of when partners, officers, members of boards of directors, and major shareholders qualify as employees. See 2 Equal Employment Opportunity Commission, Compliance Manual [449] §§ 605:0008–605:00010 (2000) (hereinafter EEOC Compliance Manual).7 With respect to the broad question, the guidelines list 16 factors—taken from Darden, 503 U. S., at 323–324—that may be relevant to "whether the employer controls the means and manner of the worker's work performance." EEOC Compliance Manual § 605:0008, and n. 71.8 The guidelines list six factors to be considered in answering the narrower question, which they frame as "whether the individual acts independently and participates in managing the organization, or whether the individual is subject to the organization's control." Id., § 605:0009. We are persuaded by the EEOC's focus on the common law touchstone of control, see Skidmore v. Swift & Co., 323 U. S. 134, 140 (1944),9 and specifically by its submission that each of the following six factors is relevant to the inquiry whether a shareholder-director is an employee:" (Clackamas, at 448, 449)
Here, we are not dealing with shareholder-directors; we are dealing with an employee that has been placed at a third party site. Just as the EEOC provided an analysis of the six factors that should be employed to determine whether a shareholder-director is an employee, the EEOC has provided a number of factors to determine whether someone placed at a third part job site by a consulting company qualifies as an "employee" of the consulting company.

In the EEOC Compliance Manual, cited with approval by the Supreme Court in Clackamas as the correct analytical framework, we find the following:
1. Are staffing firm workers "employees" within the meaning of the federal employment discrimination laws?

Yes, in the great majority of circumstances.7 The threshold question is whether a staffing firm worker is an "employee" or an "independent contractor." The worker is a covered employee under the anti-discrimination statutes if the right to control the means and manner of her work performance rests with the firm and/or its client rather than with the worker herself. The label used to describe the worker in the employment contract is not determinative. One must consider all aspects of the worker's relationship with the firm and the firm's client.8 As the Supreme Court has emphasized, there is " no shorthand formula or magic phrase that can be applied to find the answer, . . . all incidents of the relationship must be assessed with no one factor being decisive.'"9 Factors that indicate that the worker is a covered employee include: 10
a)the firm or the client has the right to control when, where, and how the worker performs the job;

b) the work does not require a high level of skill or expertise;

c) the firm or the client rather than the worker furnishes the tools, materials, and equipment;

d) the work is performed on the premises of the firm or the client;

e) there is a continuing relationship between the worker and the firm or the client;

f) the firm or the client has the right to assign additional projects to the worker;

g) the firm or the client sets the hours of work and the duration of the job;

h) the worker is paid by the hour, week, or month rather than for the agreed cost of performing a particular job;

I) the worker has no role in hiring and paying assistants;

j) the work performed by the worker is part of the regular business of the firm or the client;

k) the firm or the client is itself in business;

l) the worker is not engaged in his or her own distinct occupation or business;

m) the firm or the client provides the worker with benefits such as insurance, leave, or workers' compensation;

n) the worker is considered an employee of the firm or the client for tax purposes (i.e., the entity withholds federal, state, and Social Security taxes);

o) the firm or the client can discharge the worker; and

p) the worker and the firm or client believe that they are creating an employer-employee relationship.
This list is not exhaustive. Other aspects of the relationship between the parties may affect the determination of whether an employer-employee relationship exists. Furthermore, not all or even a majority of the listed criteria need be met. Rather, the fact-finder must make an assessment based on all of the circumstances in the relationship between the parties.
Example 1: A temporary employment agency hires a worker and assigns him to serve as a computer programmer for one of the agency's clients. The agency pays the worker a salary based on the number of hours worked as reported by the client. The agency also withholds social security and taxes and provides workers' compensation coverage. The client establishes the hours of work and oversees the individual's work. The individual uses the client's equipment and supplies and works on the client's premises. The agency reviews the individual's work based on reports by the client. The agency can terminate the worker if his or her services are unacceptable to the client. Moreover, the worker can terminate the relationship without incurring a penalty. In these circumstances, the worker is an "employee." [Emphasis added]
Here we see, clearly and conclusively, that the EEOC finds that staffing company workers are "employees" – even in situations where they are placed at third party sites and work under the specific direction of the third party client.

This conclusion by the EEOC is clearly opposite the conclusion reached in the January 8, 2010 USCIS memo. Unlike the USCIS memo, however, the EEOC Compliance Manual has been hailed by both the United States Supreme Court and the U.S. Department of Labor (in its NFRM for the H1b regulations at 20 CFR. 655) as an outstanding analysis of the question of employer-employee relationships.

The USCIS memo purports to cite the authorities relied upon by the Supreme Court and the EEOC as authority for the conclusions reached by the USCIS. There is no showing in that memo, however, that links specific legal holdings to the conclusions reached. They simply cite authority and ask the reader to accept it blindly. Unless you are willing to ignore the specific findings of the Supreme Court, the Department of Labor, and the Equal Employment Opportunities Commission, it is impossible to accept the conclusions of the USCIS memo as having any legitimacy.


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