Updated With Nov. 18, 2016 Rules: H1B Cap-Exempt Employment

H-1B Cap-Exemption

 

Introduction

The H1B nonimmigrant visa category is subject to an annual cap. Because there is more demand for H1B visas than supply, having an H1B visa for a foreign worker is in part a game of chance. However, there is a limited exemption from the general H1B cap and the Master's cap in the form of the H1B cap exemption, which was added to the Immigration and Nationality Act (INA) as part of the American Competitiveness in the Twenty First Century (AC21) Act [see category]. Section 214(g)(5) of the Immigration and Nationality Act (INA) exempts nonimmigrant beneficiaries of H1B petitions filed by an “institution of higher education,” a related or affiliated nonprofit entity of an institution of higher education, or a nonprofit research organization or governmental research organization from the H1B cap.

In this article, we will examine the applicable statutes, regulations, and other rules regarding the H1B cap exemption. This article is updated to include the November 18, 2016 Final Rule titled “Retention of EB-1, EB-2 and EB-3 Immigrant Workers and Program Improvements Affecting High-Skilled Nonimmigrant Workers,” (“AC21 rule”) at 81 FR 82388 [PDF version]. Please see our full article for an overview of the entire rule [see article].

Applicable Statutes

Section 103 of AC21 amended the INA to create the H1B cap exemption.

Section 204(g)(5)(A) and (B) provide that the H1B cap shall not apply to foreign nationals who are employed at, or who have received an offer of employment from, one of the following entities:

A. An “institution of higher education” or a related or affiliated nonprofit entity of an institution of higher education; or
B. A nonprofit research organization or a governmental research organization.

Regarding section 204(g)(5)(A), the term “institution of higher education” is defined by statute at 20 U.S.C. 1001(a). Please see our full article for a discussion of the definition of “U.S. institution of higher education” as found in 20 U.S.C. 1001(a) [see article].

Section 214(c)(9) also exempts the same selection of H1B petitioners from fees associated with petitions for cap exempt H1B status, to extend the stay of the alien (unless the employer previously obtained an extension for the alien), and for authorization for the alien to change status to work for the employer.

In the foregoing sections, we will examine regulations and agency guidance developing the H1B cap exemption statute.

Rules and Regulations

The Code of Federal Regulations (CFR) contains rules implementing the H1B cap exemption statute. Many of the regulations were recently overhauled by the AC21 rule, which codified much of the existing United States Citizenship and Immigration Services (USCIS) guidance on the issue. In this section, we will examine the rules in detail for each important issue involving H1B cap exempt employers.

In general, regulations relating to cap-exempt organizations are found in 8 C.F.R. 214.2(h)(8)(F), whereas regulations regarding fee exemptions are found in 8 C.F.R. 214.2(h)(19).

Definition of “Non-Profit” Organization

As we noted in the section on the H1B cap exemption statute, the term “institution of higher education” is defined in 20 U.S.C. 1001(a), which we have a full article dedicated to [see article]. However, section 214(g)(5) of the INA does not include a definition of “nonprofit entity.” Accordingly, the USCIS has developed rules and regulations for the term over time.

For purpose of H1B petitioners that are both cap and fee exempt, the definition of “non-profit or tax exempt organization” is found at 8 C.F.R. 214.2(h)(19)(iv). Under the regulation, “a nonprofit organization or entity is”:

A. Defined as a tax exempt organization under the Internal Revenue Code of 1986, section 501(c)(3), (c)(4), or (c)(6) (see 26 U.S.C. 501(c)(3), (c)(4), or (c)(6)), and
B. Has been approved as a tax exempt organization for research or educational services by the Internal Revenue Service (IRS).

It is important to note that the relevant organization must both be defined as a tax exempt organization under 26 U.S.C. 501(c)(3), (c)(4), or (c)(6), and have been approved as such for research or educational services by the IRS. We have uploaded the most up-to-date version of 26 U.S.C. 501(c)(3), (c)(4), and (c)(6) for your convenience [PDF version].

8 C.F.R. 214.2(h)(19)(iv) is found in the portion of the H visa regulations dealing with fees and fee exemptions. 8 C.F.R. 214.2(h)(8)(F)(3), from the part of the H visa regulations dealing with the H1B cap, incorporates the definition in 8 C.F.R. 214.2(h)(19)(iv) into the cap exemption provisions.

Under 8 C.F.R. 214.2(h)(19)(vi)(A), a non-profit research organization is required to submit evidence that it has tax exempt status under 26 U.S.C. 501(c)(3), (c)(4), or (c)(6) in order to qualify for fee exemptions.

Determining When a Non-Profit Entity is “Related to or Affiliated With” an Institution of Higher Education

Under section 214(g)(5)(A) of the INA, a non-profit entity that is related to or affiliated with an “institution of higher education” is eligible to file cap-exempt and fee-exempt H1B petitions. However, the terms “affiliated with” and “related to” are not defined in statute. Accordingly, we must look to the regulations.

Under 8 C.F.R. 214.2(h)(8)(F)(2), the non-profit entity (as defined in 8 C.F.R. 214.2(h)(19)(iv)) must satisfy any one of the following conditions (quoting the regulations):

i. The nonprofit entity is connected to or associated with an institution of higher education through shared ownership or control by the same board or federation;
ii. The nonprofit entity is operated by an institution of higher education;
iii. The nonprofit entity is attached to an institution of higher education as a member, branch, cooperative, or subsidiary; or
iv. The nonprofit entity has entered into a formal written affiliation agreement with an institution of higher education that establishes an active working relationship between the nonprofit entity and the institution of higher education for the purposes of research or education, and a fundamental activity of the nonprofit entity is to directly contribute to the research or education mission of the institution of higher education.

The same language is found in the fee waiver section of the regulations at 8 C.F.R. 214.2(h)(19)(iii)(B)(1)-(4).

The petitioner is only required to establish that it satisfies one of the four conditions.

A June 6, 2006 USCIS Memorandum from Michael Aytes (see USCIS Memorandum from Michael Aytes, “Guidance Regarding Eligibility for Exemption from the H-1B Cap Based on § 103 of the American Competitiveness in the Twenty-First Century Act of 2000 (AC21) (Public Law 106-313)” (June 6, 2006) (“Aytes Memo”) [PDF version] noted that the term “affiliated or related nonprofit entity” that is connected or associated with an institution of higher education “includ[es] but [is] not limited to hospitals and medical research institutions.”

At 82 FR 82444, the DHS explained that it declined to include “government entities” in the definition of “related or affiliated” because government entities are not included in the statute. However, the DHS stated that it will continue to consider requests from government entities that are also organized as non-profit entities related to or affiliated with an institution of higher education. Such assessments for eligibility to file cap-exempt and fee-exempt H1B petitions will be made on a case-by-case basis.

The fourth and final point providing for “formal written affiliation agreements” to satisfy the requirements was added in AC21 rule. Interestingly, at 81 FR 82444, the Department of Homeland Security (DHS) explained that it substituted the phrase “fundamental activity” for “primary purpose,” which had been the language in the Notice of Proposed Rulemaking. The DHS stated that this change was to “avoid potential confusion.” Accordingly, the DHS made “clearer” that a non-profit entity may qualify for an H1B cap exemption even if it is engaged in more than one fundamental activity, provided that at least one of the fundamental activities directly contributes to the research or educational mission of a qualifying college or university. At 81 FR 82445, the DHS explained that a non-profit entity relying upon a formal written agreement as evidence need not demonstrate the lack of ownership or control by the institution of higher education.

Defining Non-Profit Research Organization and Government Research Organization

Under section 214(g)(5)(B) of the INA, a non-profit research organization or a government research organization may qualify for the H1B cap exemption as well as the fee exemptions in section 214(c)(9).

The definitions for non-profit research organization and government research organization are found in 8 C.F.R. 214.2(h)(19)(iii)(C). 8 C.F.R. 214.2(h)(8)(F)(3) incorporates the definition in the cap-exemption context.

First, the regulation defines a “non-profit research organization” as an organization that is “primarily engaged in basic research and/or applied research.”

Second, the regulation defines a “government research organization” as a “federal, state, or local entity whose primary mission is the performance or promotion of basic research and/or applied research.” With regard to government research organizations, it is worth noting that the AC21 rule added “state” and “local” entities to the regulations for the first time (see 81 FR 82444).

There are subtle but significant differences between the requirements for non-profit research organizations and governmental research organizations. A non-profit research organization must be primarily engaged in basic and/or applied research. However, a government entity must have the primary mission of performing or promoting basic and/or applied research. Accordingly, the ways in which a government entity may qualify for the H1B cap exemption are broader than the ways in which a non-profit research organization may qualify. At 81 FR 82446 of the AC21 rule, the DHS explained that it opted to retain the “primary” and “primarily” requirements, which have been in effect in the fee waiver context since 1998 and the AC21 context since 2006.

The regulation then moves to define “basic research.” The term “basic research” is defined as “general research to gain more comprehensive knowledge of the subject under study, without specific applications [of the research] in mind.” The definition also includes research engaged in to “advance scientific knowledge” that is done “without specific immediate commercial objectives.” In the latter case, research may qualify as “basic research” if it is done in “fields of present or potential commercial interests.” Basic research may include research and investigation in the sciences, social sciences, or humanities.

Unlike basic research, “applied research” is engaged in “to gain knowledge or understanding to determine the means by which a specific, recognized need may be met.” This includes “investigations oriented to discovering new scientific knowledge that has specific commercial objectives with respect to products, processes, or services.” Applied research may include research and investigation in the sciences, social sciences, or humanities.

Third Party Petitioners

A key point in section 214(g)(5) of the INA is that the statute specifies an alien employed at or who has received an offer of employment at a qualifying institution, organization, or entity. The statute permits an alien who is employed by (or receives an offer of employment from) a qualifying institution, organization, or entity to be exempt from the H1B cap. However, the USCIS has applied the statute further, also permitting aliens who are not directly employed by (or who do not have an offer of direct employment from) a qualifying institution to also be exempted from the H1B cap under certain circumstances.

The pertinent regulation is found in 8 C.F.R. 214.2(h)(8)(F)(4). Under this regulation, an alien who is not directly employed by a qualifying institution will be qualified for an exemption from the H1B cap under the following circumstances:

The beneficiary will spend the majority of his or her work time performing job duties at a qualifying institution, organization, or entity; and
Those job duties directly and predominately further the essential purpose, mission, objectives[,] or functions of the qualifying institution, organization, or entity…

The regulation makes clear that the burden is on the petitioner “to establish that there is a nexus between the duties to be performed by the H1B beneficiary and the essential purpose, mission, objectives[,] or functions of the qualifying institution, organization, or entity.”

The DHS explained its decision to keep this expanded reading of at in 81 FR 82447 of the AC21 rule.

The most comprehensive guidance on third party petitioners in the H1B cap exemption context is found in the Aytes Memo. The Aytes Memo provided four example cases regarding prospective third party petitioners. We will examine how each example elucidate how the USCIS considers third party petitioners in the H1B cap exemption context. Please note that the examples are not exhaustive, and that the USCIS assesses each case in accord with its general adjudicative principles but with respect to the specific facts of the case in question.

Example 1:

A for-profit consulting firm that would not otherwise be a qualifying institution for purpose of the H1B cap exemption files an H1B petition for an employee working directly at the firm;
The H1B petition shows that the beneficiary's job duties would be performed on-site at a qualifying governmental research institution in accord with a joint-agreement between the petitioner and the governmental research institution; and
The petitioner submits evidence demonstrating that the beneficiary would be working on a research project at the governmental research institution performing job duties similar to those performed by those employed directly by the governmental institution in furtherance of the mission of the governmental research organization.

Based on these facts, the alien beneficiary would be exempt from the H1B cap. This is because the beneficiary would be performing duties that would or could otherwise be performed by employees of the qualifying institution in furtherance of the qualifying institution's primary mission.

Example 2:

A for-profit hospital and research center that would not otherwise be a qualifying institution files an H1B petition on behalf of an oncologist who would be a direct employee of the hospital;
The petitioner submits evidence showing that the beneficiary's job duties would consist of clinical treatment of cancer patients and laboratory research on a new medication to treat liver cancer;
The petitioner maintains a relationship with a qualifying non-profit research organization dedicated to finding a cure for liver cancer and, under an agreement, occasionally provides resources and data in exchange for the non-profit research organization's national database on protocols for treating liver cancer;
The petition demonstrates that the beneficiary would spend 55-percent of her time working at the non-profit organization conducting research and laboratory experiments on the new medication to treat liver cancer and accessing the national database;
The beneficiary would be performing sophisticated research and laboratory experiments not normally conducted by employees of the non-profit organization, but that would directly and predominantly further the normal, primary, or essential purpose, mission, objectives, or function of the non-profit organization;
The petitioner and the non-profit entity would collaborate on a joint paper publishing the research.

In this case, the beneficiary would also be qualified for the cap exemption. Aytes explained that the beneficiary's work would clearly further the overall mission of the qualifying non-profit research organization. The cooperative relationship between the third party petitioner and the qualifying entity would support the sufficient nexus between the beneficiary's work and the normal, primary, or essential purpose, mission, objections, or function of the qualifying organization. Finally, Aytes noted the significance of the fact that the beneficiary would spend more than half of her time (55-percent) working physically on-site at the qualifying entity.

Example 3:

A medical fellow in pediatrics who has been employed at a qualifying non-profit university medical center for two years in H1B status would, at the end of the two-year fellowship, become a member of a non-qualifying private pediatrics practice group which has its primary offices within the university medical center and predominantly trains medical students and treats patients in the medical center;
The doctor would be doing exactly the same work that he did during the fellowship, including remaining on the university medical center's faculty; and
The petition shows that the reason for the change in employer are related to hospital billing practices and medical malpractice insurance requirements.

Aytes explained that the doctor in this case would qualify for the H1B cap exemption. The reason for this is that the conditions of employment demonstrate that he would be performing the same work that he performed while employed directly by the qualifying university medical center. Accordingly, the petition would demonstrate that, although the doctor would be technically employed by a non-qualifying entity, his employment would directly further the primary mission of the qualifying entity.

Example 4:

A for-profit market research firm that would not otherwise be a qualifying institution files an H1B petition on behalf of a direct employee;
The petition states that the beneficiary would be conducting a specific kind of market research on-site at a qualifying university;
The petition states that the university has a specialized research tool that could only be accessed from its facilities, and that the petitioner's research would be conducted for the benefit of the petitioner's clients and business, not for the university.

In this case, the beneficiary would not qualify for a cap-exemption. Although he or she would be physically located at a qualifying entity, the hypothetical petition does not establish a nexus between the beneficiary's work and the normal purpose of the qualifying entity. The key point here is that the beneficiary's work would not be in furtherance of the essential purpose, mission, objectives, or functions of the university.

Concurrent Employment in Cap-Subject Position While Engaged in Cap-Exempt Employment

Under 8 C.F.R. 214.2(h)(8)(F)(6), a cap-exempt H1B beneficiary may engage in concurrent employment for a cap-subject position. In order for the beneficiary to engage in concurrent employment, the petitioner must demonstrate:

That the beneficiary is employed in valid H1B status under an H1B cap exemption under section 214(g)(5)(A) or (B) of the INA;
That the beneficiary's employment with the cap-exempt employer is expected to continue subsequent to the approval of the new petition; and
That the beneficiary can reasonably and concurrently perform the work described in each employer's respective positions.

This regulation allows a cap-exempt H1B beneficiary to work concurrently in a cap-subject position without being counted toward the H1B cap under limited circumstances. Specifically, the beneficiary must continue to perform the work described in the cap-exempt petition concurrently with the work described in the petition for the cap-subject position.

Because of this requirement that the cap-exempt employment continue, 8 C.F.R. 214.2(h)(8)(F)(6)(i) makes clear that the validity of the employment in the cap-subject petition cannot be extended beyond that of the cap-exempt employment.

Under 8 C.F.R. 214.2(h)(8)(F)(6)(ii), if the cap-exempt employment is terminated or otherwise ends before the end of the validity period listed on the H1B petition, the alien's concurrent cap-exempt employment becomes subject to the H1B cap, unless he or she was previously counted toward the H1B cap for the petition for the cap-subject position or another cap exemption applies. This is based on section 214(g)(6) of the INA. Accordingly, if the alien becomes subject to the cap due to the cessation of the cap-exempt employment and there are no H1B numbers available, the USCIS may revoke the cap-subject petition. At 81 FR 82448, the DHS put it succinctly when it stated that “the concurrent employment at a cap-subject employer is considered cap-exempt solely because the H1B nonimmigrant worker's concurrent cap-exempt employment is continuing.”

H1B Portability and the Cap Exemption

An H1B cap-exempt beneficiary may exercise H1B portability [see article] to move from one cap-exempt position to another cap-exempt position. Similarly, an H1B beneficiary who has been counted against the H1B cap may port to a position that would be cap-exempt.

However, the rules are more complicated when porting from a cap-exempt position to a cap-subject position (note that this is a distinct issue from concurrent employment). The USCIS clarified its position in the AC21 rule, stating that an H1B employee not counted against the H1B cap would not be able to immediately begin employment with a cap-subject employer, instead having to wait until October 1 of the fiscal year for which the petition was approved [see section].

Special Case: Compelling Circumstances

The AC21 rule includes a new provision for special employment authorization in “compelling circumstances” for a principal H1B beneficiary [see article]. One way in which employment authorization may be granted in “compelling circumstances” is if not granting authorization would cause “significant disruption to the employer.” At 81 FR 82429, the DHS noted that one situation that may meet the standard would be if a non-profit entity employing a cap-exempt employee suddenly becomes a for-profit entity ineligible to employ a cap-exempt H1B employee [see section]. However, whether the situation would satisfy the “compelling circumstances” requirement would depend on the facts of the case. Please see our full article on the special employment authorization provision for more information.

Conclusion

The H1B cap exemption provisions are a powerful tool for qualifying employers, making it possible to employ foreign workers where the H1B cap may otherwise make it impossible in a given year. A petitioning employer should consult with an experienced immigration attorney prior to filing a petition for guidance on the cap exemption provisions. A cap-exempt beneficiary should consult with an attorney for guidance on issues that may arise for cap-exempt H1B employees, especially those involving concurrent employment or H1B portability.

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