24 NEW JERSEY LAWYER | October 2011 WWW.NJSBA.COM

Due Diligence Considerations for CompaniesContracting With Vendor Service Providersby Cyrus D. Mehta

Many corporations in need of special-

ized 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

skilled workers, who in turn are then assigned to the contract-

ing 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-compa-

ny transferee) and B-1 (business visitor) nonimmigrant visas.

While the obligations for a sponsor are onerous, this arti-

cle highlights what in-house counsel needs to know when uti-

lizing 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 author-

ized 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.,2 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

commercial or professional nature;” but not “local employ-

ment or labor for hire,” (i.e., gainful employment in the Unit-

ed 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 per-

missible B-1 activities: engaging in commercial transactions,

which do not involve gainful employment in the U.S.; nego-

tiating contracts; consulting with business associates; litigat-

ing; participating in scientific, educational, professional or

business conventions, conferences or seminars; or undertak-

ing 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 interpret-

ing 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 manufac-

tured 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

not participating in activities that may be perceived as fraud-

ulent.8 A B-1 visa applicant must submit evidence to the U.S.

consulate overseas when applying for a visa to justify the pur-

pose 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

its IT contracting company for a project,

counsel may be requested to write a let-

ter as a client of the contracting compa-

ny 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 per-

missible B-1 activity), but the actual pur-

pose is for the engineer to actually par-

ticipate in programming and working

on the solution in the U.S., it may come

back to haunt counsel and the corpora-

tion 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 per-

missible 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 occupa-

tion and qualify for the position by

means of a bachelor’s degree in a specif-

ic field required for the occupation. In

addition, they must show nonimmi-

grant intent (established by showing

significant ties to their home country,

including establishing they have a resi-

dence abroad they have no intent to

abandon), must be regularly employed

abroad, and their salary must be paid by

their employer abroad. They may per-

form 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

B-1 in lieu of H-1B visa. It is also impor-

tant to ensure that the B-1 national con-

tinues to remain an employee of the

overseas entity. Remember that the B-1

in lieu of H-1B is not granted very read-

ily 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 modifi-

cations to this category.10

H-1B Visa: Is There an Employer-Employee Relationship?The H-1B visa is the workhorse of all

nonimmigrant visas, and imposes oner-

ous obligations on the employer who

employs a foreign national in this non-

immigrant visa category. The employer

must establish that a bachelor’s or high-

er degree in the specific specialty, or its

equivalent, is the minimum require-

ment 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 employ-

ees 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 cri-

teria, 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 rou-

tinely, or site visits by the petition-

er)?

3. Does the petitioner have the right

to control the work of the benefici-

ary on a day-to-day basis if such

control is required?

4. Does the petitioner provide the

tools or instrumentalities needed

for the beneficiary to perform the

duties of employment?

5. Does the petitioner hire, pay, and

have the ability to fire the benefici-

ary?

6. Does the petitioner evaluate the

work product of the beneficiary (i.e.,

progress/performance reviews)?

7. Does the petitioner claim the bene-

ficiary for tax purposes?

8. Does the petitioner provide the ben-

eficiary any employee benefits?

9. 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 ben-

eficiary 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 lay-

ers 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 enti-

ty 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 contem-

WWW.NJSBA.COM NEW JERSEY LAWYER | October 2011 25

plates a scenario where the petitioner is

a staffing computer consulting compa-

ny, 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 man-

ager at the third-party company. Care

should, therefore, be taken not to mis-

represent the nature of the assignment

at the company. Moreover, the petition-

er 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 require-

ments 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 vis-

its 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 work-

er 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 pre-

vailing 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 respon-

sible for posting the notice at the physi-

cal 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 employ-

er is solely responsible for this ‘sec-

ondary’ displacement attestation, coun-

sel at the client company must ensure

that he or she has provided accurate

information about any displacement of

U.S. workers to the contracting compa-

ny. If there has been a displacement, the

contractor, if H-1B dependent, and if

the worker is not exempt,15 cannot

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 execu-

tives under the L-1A visa, or as special-

ized knowledge employees under the L-

1B visa, is also worth a passing mention.16

L-1B “specialized knowledge” employees

have also come under close scrutiny in

recent times for alleged misrepresenta-

tions 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 com-

pany product, service, research, equip-

ment, techniques, management or

other interests and its application in

international markets, or has an

advanced level of knowledge of process-

es 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

company, or deploying a methodology

that is unique to that company, the indi-

vidual may be involved in appropriate

activities consistent with the L-1B visa. If,

on the other hand, this so-called special-

ized 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 con-

tracting company.18

Conclusion: The Wal-Mart Example ofIndependent Contractor LiabilityThe author is cognizant of the fact

that an independent contractor should

not be liable for the civil or criminal

wrongdoing of an independent contrac-

tor. 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 Wal-

Mart, albeit in a different context, pro-

vides a sobering example of independent

contractor liability. The Form I-9 employ-

ment verification requirement applies to

direct employees of an employer.19 On

the other hand, an employer cannot cir-

cumvent 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, subcon-

tract 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 gov-

ernment 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 con-

26 NEW JERSEY LAWYER | October 2011 WWW.NJSBA.COM

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 subcon-

tractors 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 com-

panies may also be required to seek cer-

tification 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 com-

pany can still generate bad publicity, as

well as potential liability. �

Endnotes1. Persons who engage in visa fraud or

making false statements to the U.S.

government can be potentially pros-

ecuted under 18 U.S.C. §1546 or 18

U.S.C. §1001, along with conspiracy

under 18 U.S.C. 371.

2. INA § 101(a)(15)(B).

3. See e.g. Infosys of India Under

Scrutiny Over U.S. Visas, New York

Times, June 21, 2011, www.

nytimes.com/2011/06/22/us/22infos-

ys.html?scp=1&sq=infosys&st=cse;

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 .

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

5. 9 FAM § 41.31 Note 3.4.

6. 9 FAM § 41.31 Note 5.

7. 11 I. & N. Dec. 824 (BIA 1966).

8. For a commentary surrounding the

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-

hta.blogspot.com/2011/05/b-1-in-

lieu-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-

sulate.gov/b1_in_lieu_of_h1b.html.

10. See Letter, Joseph E. Macmanus, Act-

ing Assistant Secretary, Legislative

Affairs to Senator Grassley (R-IA),

May 13, 2001, available at

http://grassley.senate.gov/judicia-

ry/upload/Immigration-05-24-11-

response-from-State-using-B-1-to-

circumvent-H-1B-doc.pdf.

11. INA § 214(i)(l); 8 C.F.R. §214.2(h)

(4)(iii)(A).

12. The Neufeld Memo can be found at

www.uscis.gov/USCIS/Laws/Memo-

randa/2010/H1B%20Employer-

Employee%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 Condi-

tion Application, which if posted in

its entirety, can meet the 10 day noti-

fication requirement, http://icert.dole-

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 work-

force 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

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.

15. An exempt employee is one who is

paid $60,000 or over or has an

advanced degree. See INA

212(n)(3)(B).

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 com-

plete 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

www.uscis.gov/files/form/m-274.pdf.

20. The consent decree is available at

www.walmartjanitors.com/staticda-

ta/Consent_Decree_and_Order.pdf;

See also = Gary Endelman and Cyrus

D. Mehta, Keeping Track: Select

Issues in Employer Sanctions and

Immigration Compliance, 16 Ben-

der’s Immig. Bull. 200, Feb. 1, 2011.

Cyrus D. Mehta is the managing mem-

ber 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 commit-

tee of the Alliance of Business Immigration

Lawyers and former chair of the American

Immigration Council.

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