Given the increased enforcement aimed at employers’ immigration-related responsibilities, companies involved in various corporate changes should ensure that they include immigration compliance on their due diligence checklist. Waiting until the deal has closed to focus on immigration compliance can put the surviving entity at risk for substantial penalties. Not only can inherited immigration violations put the company at risk for enforcement actions at the federal level, they can also cost the company its business licenses at the state level, jeopardize the company’s ability to do business with other companies who look to immigration compliance when choosing their vendors, and leave the company facing lawsuits from its new employees for negligence in handling their immigration matters.
There are several immigration issues that can arise during a corporate change. The risks will vary depending on the type of deal, the companies involved, and the employees at issue. Corporate changes that may have immigration consequences can include stock or asset acquisitions, mergers, consolidations, spin-offs, corporate name changes, changes in payroll source, and the relocation of an employer or its employees.
While it is best to seek assistance from experienced counsel, the following general guidelines provide a helpful roadmap to get you started.
What is the state of the existing Form I-9s?
Employers who acquire or merge with another company and retain some or all of the acquired company’s employees have the choice of two options for fulfilling their Form I-9 obligations for the new employees:
- Treat all newly acquired employees as new hires and complete a new Form I-9 (even if the individual’s original hire date was on or prior to November 6, 1986); or
- Adopt the Form I-9 created by the prior employer (so long as the employee will be continuing his or her employment).
Each option carries its own pros and cons and the best option depends on a number of factors including the employer’s size, industry, prior ICE enforcement activity, type of deal and, most importantly, the state of the existing Form I-9s.
Regardless of which option the employer elects, it is a good idea to conduct a Form I-9 audit during the due diligence period of the deal. Taking time to evaluate the predecessor’s Form I-9s will not only reduce the risk of assuming immigration compliance liabilities, but will also provide valuable insight on the potential costs and time that post-merger compliance will require.
If the employer elects Option 1, the employer must complete a new Form I-9 for all employees. Obviously, this process may take considerable time and effort and the employer will want to ensure that personnel completing the Form I-9s have received recent Form I-9 training. The employer will also want to ensure that it gives the new employees plenty of notice to bring in the requisite documents for the Form I-9 process.
If the employer elects Option 2, it needs to make itself comfortable with the state of the existing Form I-9s as the employer will be liable for any errors or omissions on the inherited Form I-9s.
Does the predecessor entity have any employees with employer-sponsored work authorization?
Employers who sponsor employees for work authorization have obligations to report various employment changes that may result from a corporate change. Further, because most work visas are employer specific, a corporate change could risk a foreign employee’s visa eligibility if not handled correctly. Whether and how the corporate change impacts an employee’s visa status depends on the type of corporate change and the type of visa the employee holds. While the requisite process is fact sensitive, a few examples highlight the various issues that can arise during a corporate change:
- If the predecessor entity employs an H-1B visa holder, a merger or relocation may require the employer to file an amended H-1B petition and complete a new Labor Certification Application with USCIS.
- If any of the entities involved are H-1B dependent, they are subject to additional USCIS requirements and scrutiny, and will require additional analysis during any corporate change.
- If any of the entities have cap-exempt status, that status may be affected by a corporate change. For example, if an employee’s original sponsor was a non-profit entity, the employee may have been exempt from the H-1B annual cap. A merger that results in a for-profit entity could risk this exemption and the employee’s H-1B eligibility.
Reducing the Risk
All companies considering a corporate change should add immigration compliance to their due diligence checklist. Taking the time to investigate the predecessor’s immigration compliance prior to closing the deal will greatly reduce the risks and ensure a smooth transition for all employees involved.
I’d like to thank Emilie McNally, Summer Associate, for her contribution to this blog entry.