AC21 Series: New Ways for Nonprofits to Claim Exemption from Annual H-1B Quota

When Congress passed the American Competitiveness in the Twenty-First Century Act (AC21), which took effect in October 2000, it carved out important exemptions from the annual H-1B quota for U.S. institutions of higher education (i.e., universities) and certain other nonprofit entities. The exemptions were created to ensure eligible organizations have reliable and uninterrupted access to international professionals who support their research or educational missions.

AC21 generally exempts two types of U.S. nonprofit organizations from the annual H-1B quota: research nonprofits and nonprofits related to, or affiliated with, U.S. universities. An earlier USCIS regulation defines what a "research" nonprofit is but does not clarify the types of university relationships nonprofits can show to qualify for the quota exemption. USCIS did, however, publish policy guidance in 2006 requiring an exempt nonprofit to be "connected to or associated with an institution of higher education, through shared ownership or control by the same board or federation, operated by an institution of higher education, or attached to an institution of higher education as a member, branch, cooperative or subsidiary."

This definition precluded many independently governed and operating nonprofits from qualifying for the H-1B quota exemption. It also resulted in inconsistent adjudications, making it difficult for nonprofits to gauge whether their university "attachments" were sufficient under the law. In many instances, this led organizations to hire candidates with inferior experience and qualifications simply because they didn't require H-1B sponsorship. This not only prevented the nonprofit from obtaining the most qualified employees, but it also diminished the value the nonprofit was able to provide to the affiliated universities it sought to support.

USCIS, in recognizing this limitation, promulgated the new regulation to clarify and expand the ways nonprofits can demonstrate their relationship to, or affiliation with, U.S. universities and request an exemption from the annual H-1B quota.

Under the new regulation, a nonprofit is now considered to have the requisite relationship or affiliation with a university, and will be exempt from the annual H-1B visa quota, if it meets any one of the following four conditions:

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

The first three of the above criteria are consistent with USCIS' prior guidance. By adding the fourth criterion, USCIS has meaningfully expanded the pool of university-affiliated nonprofits that are eligible to apply for an exemption from the H-1B quota. This fourth criterion has two key elements:

• A written affiliation agreement: USCIS requires that there be a formal, written understanding between the nonprofit and the university, allowing USCIS to ensure that the institutions are adequately affiliated in a meaningful way and that the nonprofit will directly further the educational or research mission of the university. Such formal written affiliation agreements might include memorandums of understanding, formalized contracts or intern placement agreements, among other evidence of a mutually beneficial working relationship.
  
• A fundamental activity of the nonprofit: As a result of the new regulation, a nonprofit need only show that one of its essential activities is the affiliation it has with a university in supporting its research or educational mission.
  

Although many nonprofits engaged in basic or applied research are already exempt from the H-1B quota regardless of their affiliation with universities, the new regulation is most likely to have an impact on nonprofits that partner with universities to provide educational opportunities to students. For example, many nonprofits are engaged in work/study relationships with universities where college students pursue practicums, often for credit, that further their course of study and also provide the nonprofit with access to students and scholars who have international perspectives.

Nonprofit public elementary and high school systems may also benefit from a quota exemption. These school systems often have formal agreements with local universities, allowing college students enrolled in teaching, social work and related programs to gain hands-on experience with younger students. Many university programs in education also require collaboration with public school teachers on curriculum development, school administration and longitudinal studies related to student achievement. As these types of programs are often an essential component of the commitment that public school systems make to their students, such school systems may demonstrate that their affiliation with local universities warrants USCIS deeming them quota-exempt when they sponsor foreign teachers and other professionals for H-1B visas.

In addition to broadening the scope of eligibility for nonprofits to be cap-exempt, the new regulation clarifies that there may be circumstances where a petition on behalf of an H-1B worker is exempt from the annual quota even if the individual won't be employed directly by a qualifying cap-exempt entity. This can occur when the employer filing the petition is normally subject to the annual quota but can demonstrate that the H-1B foreign professional will spend most of his or her time at a cap-exempt organization and will perform duties that "directly and predominantly further the essential purpose, mission, objectives or functions" of the cap-exempt employer.

The boundaries of the new regulation will be tested over time as more organizations file H-1B petitions and argue the merits of their requests for quota exemptions. It seems clear, however, that the narrowly drawn requirements of the prior policy guidance have given way to a more reasonable interpretation of Congress' intent that institutions of higher education and those that serve them benefit from a steady stream of international talent.

Andrew Greenfield is the managing partner of the Washington, D.C., office of global immigration law firm Fragomen.

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