PERM Safeguards against Improper Employee Influence
Posted Jan 09, 2009
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Under the law, an employer's recruitment efforts in an employment-based labor certification (LC) case must be made in good faith and without undue influence by the sponsored foreign national. There are protections within the PERM labor certification process intended to identify whether the foreign national has any undue influence or control over the required recruitment process, based upon ownership and/or familial relationships to owners and founders. These protections are described here for the benefit of both employers and their potential foreign national employees, who read MurthyDotCom and the MurthyBulletin.
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Background on the LC System
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The starting point for most employment-based green card cases is the labor certification. The labor certification is filed by the sponsoring employer and the final approval or certification is issued by the U.S. Department of Labor (DOL), after determining that there are not sufficient U.S. workers who are able, willing, and qualified for the offered position. This determination is made after the employer engages in recruitment efforts to locate qualified U.S. workers for the job. The employer is required to make the determination without the influence of the foreign national, since the foreign national is simply the beneficiary of the process and, by law, is not allowed to engage in the LC recruitment process.  
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PERM Asks if Sponsored Employee Has Ownership Interest
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The PERM labor certification application, form ETA 9089, addresses the issue of undue influence by the foreign national with a single yes or no question. This question asks whether the employer is a closely-held corporation, partnership, or sole proprietorship, in which the alien has an ownership interest, or whether there a familial relationship between the owners, stockholders, partners, corporate officers, or incorporators, and the foreign national. We at the Murthy Law Firm have taken this multi-part question and broken it down into its components to analyze each issue for our readers.
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Higher Scrutiny for Closely-Held Corporation, Partnership, or Sole Proprietorship
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One must first analyze the nature of the company to determine if it is a closely-held corporation, partnership, or sole proprietorship. It is usually clear if the company is a sole proprietorship or partnership. The question that most commonly arises is whether the employer qualifies as a "closely-held corporation." The PERM regulations define a closely-held corporation as "a corporation that typically has relatively few shareholders and whose shares are not generally traded in the securities market." However, the regulations do not set a number for "relatively few shareholders." IRS guidance suggests that a closely-held corporation exists if at least half of the stock is owned by no more than five individuals.
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If the sponsoring employer is a publicly-traded company, or otherwise does not fit within the definitions of closely-held corporation, partnership, or sole proprietorship, then the question on the PERM application can be answered with "no." One need not be concerned with whether the foreign national has an ownership interest or familial relationship with the owner/s, officers, or founders. The question on the PERM application must be read as a whole. Generally, if the answer to the first part about the nature of the company is "no," then the part of the question about the ownership or relationship to the owners, officers, and founders does not matter.
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Ownership Interest Makes Sponsorship Risky
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If the answer to the first part of the question is "yes," one must then look to see whether the foreign national has an ownership interest in the company. This is clear when the foreign national clearly owns all or part of the company in any form. Confusion often arises where the employer offers stock options as part of the overall compensation. Stock conveys an ownership interest in the company. Stock options alone do not convey an ownership interest. From a legal perspective and for analysis in responding to issues, one could point out that stock options must be vested and the foreign national must have exercised the option to purchase the stock in order to have an ownership interest.
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Certain Familial Relationships Could Result in PERM Audit
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The issue of family relationship must be addressed, if the answer to the first part of the question about the nature of the company is "yes." The question asked is whether the foreign national has a familial relationship with the owners, stockholders, partners, corporate officers, and/or incorporators. This is simple if the foreign national is not related in any degree to the listed categories of individuals. It is more difficult when there is some degree of family relationship, as the PERM regulations do not define the term "familial."
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Without a definition specifying which family relationships are close enough to trigger a positive answer, there is uncertainty with regard to more attenuated relationships. The Board of Alien Labor Certification Appeals (BALCA) case law addressing the matter of bona fide job opportunity in pre-PERM cases has looked at both blood and marital relationships, going so far as to include spouse, sibling, and even nephew. We at the Murthy Law Firm previously have suggested that the DOL define familial as "parents, spouse, children, siblings," consistent with the relationships that can provide family sponsorship and derivative immigration benefits, pursuant to the Immigration and Nationality Act (INA). This would be consistent with the situations in which an I-864 Affidavit of Support is required in employment-based cases, due to the family member's having an ownership interest in the petitioning business.
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As long as the term remains undefined, this is an area in which lawyers may differ in practice and approach. In general, if there is a potential familial relationship that is not greatly attenuated, that information should be disclosed and the necessary documentation prepared in anticipation of an audit. Simply checking "yes" does not mean, in all instances, that the case will not be approved.
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"Yes" Should Not Result in Automatic PERM Denial
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The DOL's purpose in asking the question discussed in this article is to determine whether the foreign national / sponsored employee is unfairly influencing the hiring decision in the PERM process. Thus, there are situations in which the answer to the question is "yes," but it is still possible to establish that the recruitment was conducted in good faith, without any improper influence.
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When Considering Ownership Interest and Familial Relationship
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If there is an ownership interest or a familial relationship, the DOL looks at several factors. These include whether the foreign national has the ability to control or influence hiring decisions; whether the foreign national is related to a director, officer, or board member; and whether the foreign national is a founder or incorporator. Whether the foreign national is involved in management of the company, whether the company has a small number of employees, and how vital the foreign national is to the overall company operations will also be examined.
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Documentation Required to Help Company and Sponsored Employee
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The DOL commonly requests documentation to assess these factors, including: Articles of Incorporation / Organization; names of all company officers and shareholders, as well as the titles and positions of officers and shareholders and their relationship/s to each other and to the sponsored worker. They may also request a statement about the financial history of the company, including the total investment in the business by each officer, incorporator and/or organizer, and the sponsored worker, as applicable; copies of tax returns or audited financial statements for the company; and documentation that the foreign national was not involved in the interviewing, hiring, or firing of employees.
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Conclusion
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When a labor certification is filed by a closely-held corporation, partnership, or sole proprietorship for a foreign national who either owns part of the company or is related to an owner, partner, officer, or incorporator, the case is going to be closely scrutinized for undue influence. This issue should be considered prior to the filing of the case. If it appears that the DOL standards can be met, then the matter needs to be well documented in anticipation of an audit. It is important to obtain proper legal advice in advance.