The Sweet Smell Of Success: H-1B Visas For Entrepreneurs

by

Gary Endelman and Cyrus D. Mehta







The title of this blog
may seem odd as the H-1B visa is usually associated with an employee who earns
a regular wage at the prevailing rate. Yet, entrepreneurs may benefit from the
H-1B. Since the USCIS recently set up an Entrepreneur
Pathways Portal
inviting entrepreneurs to use existing nonimmigrant
visas, including the H-1B visa, an analysis on how the H-1B visa can be legitimately
exploited by entrepreneurs is worthy of further  exploration.



At the outset, it is
worth noting that law is neither applied nor interpreted in a vacuum but is
suffused with the attitudes and assumptions of the adjudicator. The same is
true here. What does the USCIS want to achieve through its new embrace of
foreign entrepreneurs? What is its end goal? Does it accept the legitimacy of
the H-1B and does it believe that its proper application or deployment will be
in the national interest? Unless we know these things first, no formula or set
of legal guidelines can result in a proper, informed decision.  In the
end, unless and until the moral and ethical legitimacy of employment based
immigration is both embraced and appreciated, there will not be the
intellectual flexibility necessary to help entrepreneurs reach their dreams.



Last week’s blog summarized the nonimmigrant options
for entrepreneurs suggested in Entrepreneur Pathways, and it also speculated
whether this new welcoming embrace of foreign entrepreneurs may possibly change
the “Culture of No” within USCIS, whose officials generally places a small
business under a fraud profile. A startup may be even more rudimentary than an
established small business and thus more susceptible to being viewed as a
fraudulent artifice. Startups may not yet be generating a revenue stream as
they are developing new technologies that may lead to products and services
later on. Many have received financing through venture capital, angel investors
or through “Series A and B” rounds of shares. Startups may also operate in more
informal spaces, such as the residences of the founders (with regular meetings
at Starbucks) instead of a commercial premise. Some are also operating in
“stealth mode” so as not to attract the attention of competitors and may not
display the usual bells and whistles such as a website or other marketing
material. Startups may also not have payroll records since founders may be
compensated in stock options. Still, such startups are legitimate companies
that should be able to support H-1B, L, O or other visa statuses. While, in the
past, USCIS has often been accused by critics of harboring a systemic bias
against small business, Entrepreneur Pathways holds out the promise of a new
and more welcoming attitude. The degree to which this flexibility will operate
in practice will depend, in large measure, on the extent to which emerging
companies and inventive business strategists press their case for immigration
benefits.



Regarding the H-1B
visa, it is true that 8 CFR § 214.2(h)(4)(ii) requires the existence of an
employer-employee relationship, which includes the employer’s ability to “hire,
pay, fire, supervise, or otherwise control the work of such employee.” Can the
startup owner be able to sponsor himself or herself on an H-1B through the
startup? The USCIS portal is surprisingly receptive, but still limited by the
rigid methodology and narrow assumptions of the Neufeld Memo that elevates the right of
control over all the other factors set forth in the regulation, such as the
right to hire, pay, fire or supervise the employee. Still, the USCIS suggests
that a startup may be able to demonstrate this if the ownership and control of the
company are different
. This can be shown through a “board of
directors, preferred shareholders, investors, or other factors that the
organization has the right to control the terms and conditions of the
beneficiary’s employment (such as the right to hire, fire, pay, supervise or
otherwise control the terms and conditions of employment).” Some of the
suggested evidence could include a term sheet, capitalization table, stock
purchase agreement, investor rights agreement, voting agreement or organization
documents and operating agreements. Not only can observance of corporate
formalities serve legitimate business interests and avoid the “piercing of the corporate
veil”, by providing the patina of control over individual initiative they may
also serve to convey immigration benefits.



The ethos of any new
business idea is change, an unwillingness to sacrifice creativity and growth on
the alter of certainty.  It is the
preference for certainty, however, most notably reflected in the Neufeld Memo
that  may make it difficult for the 100%
owner of a startup to successfully obtain an H-1B visa. If the beneficiary has
not only conceptualized the business, but also invested only her own capital,
it will be difficult for her to have a board of directors that can have the
ability to discipline or fire her. Indeed, noted attorney David Ware asks a good question: “What
entrepreneur in his or her right mind is going to invest blood, sweat and
tears, not to mention money, in an entity holding this power?”  If we expect the entrepreneur to take a
chance, must not the USCIS itself accept some measure of risk?  Concern over fraud, while totally legitimate,
must be balanced against no less compelling concerns for allowing the honest
expression of commercial imagination.



Although Mr. Ware’s
point is well taken, we caution against being completely dismissive of the
USCIS effort to welcome entrepreneurs, especially the H-1B visa, which one can
have more access to over other visas such as the O-1, E-2 or L-1A. The agile
practitioner should invoke old decisions that recognize the separate existence of the corporate
entity
. It is well established that a corporation is a separate and
distinct legal entity from its owners and stockholders. See Matter
of M,
8 I&N Dec. 24, 50 (BIA 1958, AG 1958); Matter of Aphrodite
Investments Limited
, 17 I&N Dec. 530 (Comm.1980); and Matter of
Tessel,
17 I&N Dec. 631 (Act. Assoc. Comm. 1980).  As such, a
corporation, even if it is owned and operated by a single person, may hire that
person, and the parties will be in an employer-employee relationship. This
point needs to be brought out when advancing an H-1B for an entrepreneur.
Still, we acknowledge that the H-1B petition may have more success when there
is another investor or shareholder, and the beneficiary is not the sole owner
of the entity. That person may be able to exercise control over the H-1B
beneficiary, even if he or she has a minority interest. It may not be necessary
to show that the other individual or entity has the power to discipline the
beneficiary, but only that this person can exercise negative control over the
beneficiary’s decisions. There is nothing preventing the other individual from
being a family member, and the shareholder or director also need not be
residing in the US.  



There are other
difficulties for an H-1B entrepreneur that may be beyond the USCIS’s control.
Every H-1B petition must be accompanied by a certified Labor Condition
Application from the DOL. Under an LCA, the employer attests that it must pay
the beneficiary the higher of the prevailing or actual wage, and must also do
so on a regular prorated basis. In a startup, there may be no revenue stream to
pay the entrepreneur initially. Thus, unless the startup is sufficiently
capitalized through venture capital or other forms of financing that can ensure
a steady stream of income to the H-1B beneficiary at the required wage, the
petitioning entity may be in violation of the DOL rules if it cannot guarantee
a regular prevailing wage.



Also, a DOL rule at 20
CFR § 655.731(c)(9)(iii)(C) states that any attorney fees paid by the H-1B
beneficiary will be viewed as a lowering of the required wage that the employer
is required to pay the beneficiary. There is also a prohibition of the employee
paying the training fee of $750 or $1,500. In the case of a startup, where the
H-1B beneficiary has invested his own money into the enterprise, the fact that
the petitioning entity makes these payments ought not to be viewed as a
violation of the DOL rules regarding impermissible payments. Since it is the
entity that is making these payments, which is considered separate from the
beneficiary, and which also controls the beneficiary, it should not be viewed
as impermissible. Otherwise, there is no way that the USCIS can promote the
H-1B to entrepreneurs.



Even if an H-1B founder
of a company successfully establishes that the entity can control her
employment through a board of directors or through preferred shareholders, the
USCIS could likely challenge whether a position in a startup, where the
beneficiary may be wearing many hats, can support a specialized position. The
H-1B visa law requires the petitioner to demonstrate that a bachelor’s degree
in a specialized field is the minimum qualification for entry into that
occupation. Also, positions in innovative startups may not necessarily fit
under the occupations listed in the Department of Labor’s Occupational Outlook Handbook
but may yet require at least a bachelor’s degree. It is hoped that USCIS
examiners are trained to be receptive to other evidence to demonstrate that the
position requires a bachelor’s degree. Furthermore, an MBA degree should be
considered a specialized degree in itself since many MBA programs at top business schools focus on
entrepreneurship
and other fields, such as technology or web
analytics, which equip one to be a successful entrepreneur. The very notion of
specialized occupations has and will continue to change as the pervasive impact
of technology in the Internet Age makes itself felt at all levels of economic
activity.



While there are
insurmountable hurdles for H-1B entrepreneurs, it is hoped that the USCIS will
make every effort for the program to work for them. The H-1B is the most
accessible visa to a foreign student as the E-2 visa only applies to nationals of limited countries
that have a treaty with the US, and none of the BRIC countries have such
treaties. Very few entrepreneurs can qualify as extraordinary under the O-1 and
the L-1A visa would only apply to an individual who has been employed overseas
for one year in the past three years in an entity that has a parent,
subsidiary, affiliate or branch in the US. It also raises a larger question:
How can we use US immigration policy not merely to preserve the status quo but
actually create wealth and jobs? For it to work successful, USCIS officials
have to examine and approve cases consistent with this objective. The problem
goes beyond the “Culture of No.” The USCIS should think of immigration in a
strategic sense as a mechanism to create wealth and expand the economy.
Presently, USCIS thinks in static terms so naturally the focus is on protecting
what now is and judging people not by their potential but by their documented
accomplishments. USCIS, on the other hand, should think like an entrepreneur so
as to avoid a dissonance or disconnect between the regulators and those whom
they regulate. The USCIS Entrepreneur in Residence program, from
which the Entrepreneur Pathways portal has ensued, appears to be a step in the
right direction. Only time will tell whether it will truly serve the needs of
entrepreneurs. The willingness of the entrepreneur to take risks must be
matched in full measure by an immigration system that also embraces the value
of innovation. As T.S Elliot famously reminded us: “Only those who risk going
too far can possibly find out how far it is possible to go.”











This post originally appeared on The Insightful Immigration Blog on December 9, 2012.





About The Authors







Gary Endelman is a Senior Counsel at FosterQuan, Houston, TX. His practice includes I-9 compliance and audits, E-Verify compliance, immigration issues related to mergers and acquisitions, employment-based nonimmigrant visas, B-1 OCS, permanent residence petitions for ability, outstanding researchers, PERM labor certification; naturalization, derivation and transmission of U.S. citizenship. Mr. Endelman graduated with a B.A. in History from the University of Virginia, a Ph.D. in United States History from the University of Delaware, and a J.D. from the University of Houston. From 1985 to 1995, he worked at one of the largest immigration firms in the country. From 1995 to 2011, he worked as the in-house immigration counsel for BP America Inc., a multinational energy company ranked as one of the top 5 largest companies in the world. Mr. Endelman is board certified in Immigration and Nationality Law by the State Bar of Texas, Board of Legal Specialization and Chair of the Examinations Committee in Immigration and Nationality Law for the Texas Board of Legal Specialization. He is a frequent national speaker and writer on immigration related topics including several columns and blogs on immigration law. He served as a senior editor of the national conference handbook published by AILA for ten years. In July 2005, Mr. Endelman testified before the United States Senate Judiciary Committee on comprehensive immigration reform. Please contact Gary Endelman at gendelman@fosterquan.com. The views expressed by Mr. Endelman in this article are his personally and not those of FosterQuan



Cyrus D.Mehta, a graduate of Cambridge University and Columbia Law School, is the Managing Member of Cyrus D. Mehta & Associates, PLLC in New York City. He is the current Chair of AILA's Ethics Committee and former Chair of AILA's Pro Bono Committee. He is also the former Chair of the Board of Trustees of the American Immigration Council (2004-06) and Chair of the Committee on Immigration and Nationality Law (2000-03) of the New York City Bar Association. He is a frequent speaker and writer on various immigration-related issues, including on administrative remedies and ethics, and is also an adjunct associate professor of Law at Brooklyn Law School, where he teaches a course entitled "Immigration and Work." Mr. Mehta received the AILA 2011 Michael Maggio Memorial Award for his outstanding efforts in providing pro bono representation in the immigration field.













The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.