The USCIS ITServe Settlement, and What It Means for Employers of H-1B Workers

On Wednesday, May 20th, the U.S. Citizenship & Immigration Services (USCIS) settled a lawsuit with ITServe Alliance, which will impact many H-1B workers, and their employers. ITServe is an industry group representing over 1,000 consulting firms. These firms assign software developers and other professional workers to other third-party companies to perform onsite services. Most of the largest companies in the US routinely use the services of these firms for their software development and other engineering operations.

The lawsuit challenges a USCIS policy which derives from the so-called “Neufeld Memo” policy memorandum issued in 2009. The Neufeld Memo makes it extremely difficult, and in many cases impossible, to sponsor H-1B workers where the workers will be assigned to work at third-party companies. The rationale of the memo is premised on the notion that a sponsor of an H-1B must have an “employer-employee” relationship with the workers that it sponsors, and that most third-party assignment arrangements do not meet this requirement. Over the past 10 years, the Neufeld Memo has led to thousands of denials for consulting companies, and the rate of denial has increased dramatically since Trump took office. Based on the USCIS’ own statistics, the rate of denial for the largest consulting companies increased by 36% on average, from 2014 to 2019.

On March 10th, a Federal District Court ruled that the Neufeld Memo violates the Administrative Procedures Act, by contradicting the standard for H-1B determinations found in the published regulations. Last Wednesday, another District Court also ruled against the USCIS’ Neufeld Memo policy on a similar basis. Following the latest court decision, the USCIS agreed to settle the lawsuit by rescinding the Neufeld Memo within 90 days.

While the ITServe Settlement is undoubtedly good news for consulting companies, it will not likely restrain the USCIS from continuing to issue Requests for Evidence (RFEs) and denials on other bases. The increase in H-1B denials for non-consulting companies over the last few years has been based primarily on a finding that the job offered to the H-1B worker does not qualify as a “specialty occupation,” i.e. a position requiring at least a Bachelor’s degree in a specific field. This type of denial was not at issue in the ITServe litigation, and the settlement will not help most traditional employers. The settlement also does not appear to preclude the USCIS from revising its regulations through the formalized rule-making process so as to avoid the specific reason for the court decisions. If so, the policy embodied in the Neufeld Memo could reappear in the Federal Registrar several months from now.