Immigration Consequences Of Mergers, Acquisitions And Other Corporate Changes
I. Introduction
A corporate lawyer usually greets the closing of a deal with a sense of relief.
Unfortunately, the ink on the signatures on a corporate transaction usually has
dried before a company realizes that something terrible may have occurred. More
than just changing the ownership of a business, the closing of a merger,
acquisition, IPO or other corporate transaction can single-handedly render all
of a company’s immigrant workers illegal and subject an employer to serious
exposure for I-9 immigrant verification violations.
In October 2000, Congress passed legislation that seeks to reduce the likelihood
of the kind of surprise scenario noted above. But even with Congress’
intervention (and an additional regulation issued by the Department of Labor
(“DOL”) on December 22, 2000), the risks of a merger or acquisition becoming
an immigration “train wreck” remain substantial. The new law only covers one
visa category – the H-1B visa – and only a subset of cases within this
category.
The solution to the problem begins with the due diligence process. As part of
their due diligence, lawyers examine the legal and financial structure of a
company in detail to find potential risks. It is a very careful process
covering “almost” everything. Almost, because, rarely the visa status
of a company’s immigrant employees’ or the company’s I-9 compliance is
checked. It is also equally rare to see representations and warranties
covering immigration matters in a closing document.
This really is not surprising. Corporate attorneys seem to know very
little about immigration law and lack an understanding of the immigration
consequences of the deals about which they are advising.
Unfortunately, this single short-coming or oversight of the transition team may
not only render all of a company’s immigrant employees out of status, hence
terminating their work eligibility for several months, but may also force them
to travel outside the country, to a US Consulate, since out-of-status aliens
cannot change their visas in the US.
Employers on the other hand, may not only be subject to fines up to 00 per
employee for not having a valid I-9 on file, but may also be subject to lawsuits
from employees terminated and rendered illegal as a result of the company’s
failure to keep their work eligibility valid. This is a serious threat,
considering the fact that falling out-of-status significantly diminishes an
alien’s chance of gaining lawful permanent residence in the US.
Finally, corporate attorneys who fail to warn clients of the immigration
consequences of their transactions may face malpractice liability themselves.
Therefore, prudent corporate practitioners should integrate immigration issues
into the due diligence process and identify the potential risks at the outset.
The consequences of a corporate change differ depending on the visa category of
an affected worker and the type of corporate transaction involved.
Therefore, a transition team should first “map” the immigration structure of
the corporation. This map will provide a blueprint for handling potential
immigration problems and risks. Also, they should test the I-9 compliance
of the target corporation by conducting a sample audit, if feasible, or at least
a review of the immigrant employees’ I-9 forms.
II. Basic Concepts
The law divides the alien workers into two separate groups: non-immigrant
and immigrant. Non-immigrant workers usually fall under the H-1B, L, E and
TN visa categories, while immigrant workers are those who have obtained or in
the process of obtaining lawful permanent residency. Also, employers are
federally mandated to verify the employment eligibility of their entire
workforce via the I-9 Employment Eligibility Verification Form.
The most common employment visa, H-1B, is used for an “alien who is coming to
perform services in a specialty occupation” in the United States. L
visas are used for intracompany transferees that enter the US to render services
“in a capacity that is managerial, executive, or involves specialized
knowledge”, while E visas are used for “treaty traders and investors”.
Finally, the TN category includes “Canadian and Mexican citizens seeking
temporary entry to engage in business activities at a professional level” as
listed in the North American Free Trade Agreement.
Corporate changes that typically have immigration consequences are stock or
asset acquisitions, mergers, consolidations, initial public offerings,
spin-offs, corporate name changes, changes in payroll source, and the relocation
of an employer or its employees.
Acquisitions involve the purchase of assets or stock. In an asset acquisition,
the purchaser may not accept the liabilities of the seller. In a merger, two or
more legal entities combine all their assets in what is called the “surviving
entity”. Other entities, which are called the “merged entities”,
cease to exist. The surviving entity assumes all of their liabilities.
In a consolidation, however, two or more legal entities combine all their assets
to form a new entity. The new entity assumes their liabilities, and they
seize to exist. An IPO changes the ownership structure of a corporation,
similar to an acquisition.
III. Spotting
the Issues: Different Visa Types, Different Implications
In an H-1B visa case, the questions to analyze are whether a corporate change
results in a new employer and, if so, to what extent are the interests of the
target corporation being assumed.
An H-1B visa requires separate applications to the DOL and the U.S. Citizenship
and Naturalization Services (“USCIS”). A petitioner should first
obtain an approved Labor Condition Application from the DOL, and then should get
its I-129 Petition for a Nonimmigrant Worker approved by the USCIS.
Prior to December 2000, the DOL considered a change in an employer’s Federal
Employer Identification Number enough to trigger a need to file a new LCA.
Under the rules adopted December 22, 2000, a new LCA will not be required merely
because a corporate reorganization results in a change of corporate identity,
regardless of whether there is a change in EIN, provided that the successor
entity, prior to the continued employment of the H-1B worker, agrees to assume
the predecessor's obligations and liabilities under the LCA with a memorandum to
the “public access file” kept for LCA purposes.
Material changes in the employee’s duties and job requirements and the
relocation of the employee may also require a new LCA. Therefore, if
employees are relocated due to a merger or sale, new LCAs will be required for
H-1B workers (DOL uses the Standard Metropolitan Statistical Area, SMSA, as
criteria in determining the need for a new LCA or Labor Certification. If
the employee is relocated outside the SMSA, then new filing is required).
However, a simple name change will not trigger the need for a new LCA.
The rules governing when a new I-129 petition must be filed are similar to the
LCA, but not identical. The need to file a new I-129 can be a fairly expensive
requirement. For each new employment petition, the employer must pay the
American Competitiveness and Workforce Improvement Act fee, which was recently
increased to 500 dollars.
The new law creates an exemption from filing a new I-129 in cases of corporate
structuring where the new employer is a successor in interest that assumes the
interests and the obligations of the prior employer. This is a restatement
of the existing USCIS policy stating that if an employer, for H-1B purposes,
“assumes the previous owner’s liabilities which include the assertions the
prior owner made on the labor condition application” then there is no need for
a new or amended petition. However, because an implementing regulation is
not yet published and the law not yet tested, there is room for a variety of
interpretations. If a new or amended petition is not needed, then the
employer may wait until filing an extension petition for the employee to notify
the USCIS.
Since LCAs are not required for obtaining a TN visa or status for a citizen of
Canada or Mexico, a basic successor in interest analysis is required to
determine how to proceed here.
For an L-1 visa, the law requires a qualifying relationship between the US
entity and the foreign entity from which the employee will be transferring.
This relationship must be within the definitions of a “parent, branch,
affiliate or subsidiary” as defined by the USCIS. Obviously, changes in
the ownership structure of either one of the entities, through a corporate
change may terminate the qualifying relationship and, consequently, invalidate
the underlying L visas. However, if the petitioner, after a corporate
change, can document that the qualifying relationship survives, then, only an
amended petition will be necessary.
Under the E-1 and E-2 visas, certain investors and traders may be admitted to
the United States and be employed therein, if a “treaty-qualifying” company
petitions and obtains status for them. A company is qualified based on its
nationality. A corporate change may change a corporation’s nationality,
and, therefore, result in the termination of the qualification.
A lawful permanent residency (“LPR”) application consists of three steps.
First, the employer usually must prove that despite reasonable recruitment
efforts, it has not been able to find a domestic employee to fill the alien’s
position. This is called the labor certification, and is handled through
the DOL. Second, it files a Form I-140, Immigrant Petition for Alien
Worker, with the USCIS. After the I-140 petition is approved, the employee
files a petition for the adjustment of her immigration status to the status of a
lawful permanent resident with the USCIS.
The Department of Labor takes a liberal view of when a new labor certification
petition must be re-filed. If after an acquisition, a new owner remains the
worker’s employer, and has assumed all of the past owner’s obligations, the
new owner should qualify as a “successor-in-interest” and a labor
certification will survive.
In LPR cases, USCIS traditionally used a stricter version of the successor in
interest theory, and permitted an employer to continue with the prior
employer’s petition, only if the new employer assumed “all” of the prior
employer’s liabilities. Without successorship, a new I-140 petition may
be necessary even when an adjustment of status application is already pending.
The LPR process may take several years, and until recently, unless the case did
fit under certain exceptions, beneficiaries of immigrant petitions were not able
to change employers until the completion of the entire process. Therefore,
corporate changes that created a new employer were potentially causing further
delays. Another new law Congress recently passed, however, makes it
possible in many instances to change employers while an adjustment application
is pending, so this may be a moot issue.
Finally, a successor also assumes the I-9 liabilities of a corporation.
Failure to comply with I-9 requirements may result in serious sanctions, up to
00 dollars per employee. Therefore, before a corporate re-structuring, the
transition team should examine the I-9 compliance of the entity by either a
sample I-9 audit or a review of the alien employees’ I-9s. Especially
for I-9 issues, representations and warranties should be required at the
closing.
IV. Conclusion
In conclusion, given the potential risks, transition teams and corporate counsel
should integrate immigration issues to the due diligence process, and should
require warranties at the closing.
About The Author
Gregory Siskind is a partner in Siskind Susser's Memphis, Tennessee, office. After graduating magna cum laude from Vanderbilt University, he received his Juris Doctorate from the University of Chicago. Mr. Siskind is a member of AILA, a board member of the Hebrew Immigrant Aid Society, and a member of the ABA, where he serves on the LPM Publishing Board as Marketing Vice Chairman. He is the author of several books, including the J Visa Guidebook and The Lawyer's Guide to Marketing on the Internet. Mr. Siskind practices all areas of immigration law, specializing in immigration matters of the health care and technology industries. He can be reached by email at gsiskind@visalaw.com.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.
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