H-1B Modernization—Beneficiary-Owners

H-1Bs are in the news, with disinformation and misinformation galore, but rather than providing a dissertation on what an H-1B actually is and what it does, given some upcoming changes to the H-1B program through what is called the H-1B Modernization rule, I wanted to briefly touch on a potentially new option available to foreign national investors: self-sponsored H-1Bs.

Initially, let’s start with where we are and why this is an exciting change.  Currently, and up until this rule goes into effect January 17^th, there is an explicit requirement in the H-1B program for a common law “employer employee” relationship between the petitioning entity and the beneficiary of the petition, who will be holding the H-1B.  Since this is not a statutorily defined term, when determining whether someone meets the requirements of having an “employer-employee” relationship, we really look to indicia of control.  Does the employer have the ability to terminate the employee?  Does the employer have the ability to control the work of the employee?  Does the employer have the ability to determine where and how the employee will be working?  In a normal employer-employee relationship, those answers are almost always av very clear “yes.”  Where the employee owns the business, even partially, those answers become more murky, and so eligibility for an H-1B becomes more murky.  After all, who could terminate the employment of someone who owns 100% of the business?  Arrangements were possible, but typically involved complicated corporate structures—not exactly a convenient solution for most individuals trying to start a business in the U.S.

Queue the H-1B modernization rule.  While not everything in it is positive, this is a change that I think is an unequivocal good.  The new rule, creating a new section of the regulation, is explicitly permitting what DHS is calling “Beneficiary-Owners” to qualify for H-1Bs.  For these beneficiary-owners, it appears that DHS will be permitting a certain amount of “non-qualifying” duties as well, which further allows, say, an engineer to open a tech start up, work on building cool new technology, but also run their business.  DHS has stated that this change is specifically to “promote access to H-1Bs for entrepreneurs, start-up entities, and other beneficiary-owned businesses.”  With existing investment pathways into the United States limited and cumbersome, a new method for foreign investors and businesses to enter the United States, create jobs, and create new innovations is undoubtedly a net positive.

That’s not to say that there aren’t what DHS are calling “guardrails.”  Initial approvals are limited to 18 months instead of the typical 3 years.  The first extension will similarly be limited.  DHS seems to already be keying in on the fact that there may be bad actors abusing the program, and that may mean a higher level of scrutiny associated with these petitions.  I would expect visits from Fraud Detection and National Security to be high as this program is rolled out.

Overall, a very neat new opportunity for certain investors and entrepreneurs to enter the United States and run their businesses.  We’ll need to see how things play out in practice, as the rule will not be effective until January 17^th, but it is a change I am excited about.  Now we just need to increase the number of H-1B visas available to reflect the increased (and existing) demand!