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Special Problems and Advanced Strategies Part 3

by George N. Lester IV

George N. Lester IV A. Mergers, Acquisitions, Relocations, and Other Corporate Changes

Corporate acquisitions, mergers, and other forms of corporate restructuring are increasingly common. It is important for an employer to know when, and to what extent, such a change in corporate ownership or structure requires any employer to take action with respect to employees in H-1B status. Such actions might include filing a new Labor Condition Application with the DOL. Recent changes in the law have clarified the employer's obligations following a corporate reorganization. New LCA and H-1B petition filings are not required if (1) the new employing entity is prepared to assume all the obligations, liabilities, and undertakings of the prior entity, including obligations arising in connection with existing LCA and H-1B filings, and (2) there are no material changes in the H-1B nonimmigrant's job.

For example, if an employer undergoes a "change in corporate structure" as the result of an "acquisition, merger, 'spin-off,' or other such action, the new employing entity need not file new LCAs for H-1B nonimmigrants transferring to it, regardless of whether there is a change in the federal Employer Identification Number (EIN), provided certain conditions are met:

(1) the new employing entity must maintain a list of the transferring H-1B personnel,

(2) the new employing entity must keep in a "public access file" a list of affected LCAs of the prior employer, a description of the new entity's "actual wage" system applicable to the H-1B workers, and the EIN of the new entity, and

(3) before employing any of the predecessor's H-1B personnel, the new employing entity must execute and place in the public access file a sworn statement by an authorized representative expressly acknowledging "assumption of all obligations, liabilities and undertakings arising from or under attestations made in each certified and still effective LCA filed by the predecessor entity." The statement must also contain an explicit agreement to abide by LCA regulations, maintain the statement in the public access file, and make it available to the public or DOL upon request.[1]

Next, an amended H-1B petition is not required if the employer is "involved in a corporate restructuring, including but not limited to, a merger, acquisition, or consolidation, where a new corporate entity succeeds to the interests and obligations of the original petitioning employer and where the terms and conditions of employment remain the same but for the identity of the petitioner." The provision does not define what is needed to show that the new entity "succeeds to the interests and obligations of the original petitioning employer." Corporate restructurings can take many forms, ranging from straightforward stock transactions or divisional realignments to complex asset deals where the new entity may purchase only a limited bundle of goods, intellectual property, contractual rights, and other tangible or intangible property associated with a specific product line or business unit, and the prior entity continues in existence with its other operations. Pending further guidance from the INS, a reasonable interpretation is that the "interests and obligations" to which the new entity must succeed are simply those associated with actual employment of the H-1B nonimmigrant. Thus, where the new entity (1) will assume employment of the H-1B nonimmigrant and enjoy the benefit of his or her work and, (2) correspondingly, is prepared to assume liability for the salary and other obligations associated with the prior entity's LCA and H-1B petition, executing the necessary statement for the public file, the new entity may qualify as a successor and avoid filing new LCA and H-1B petitions.

Some corporate changes are not reorganizations -- the entity in existence after the changes occurs is the same entity as existed before the change. In such circumstances, "successor" action is not needed. An example is a corporate stock acquisition where one entity acquires all the stock of the H-1B employer without any change in its operations, structure, or EIN. In this situation there has not been a restructuring of the employing entity but merely a change in ownership. Another example is when a company changes its name. The INS does not consider a name change to be a material change that must be reported; the new name must simply be included in H-1B petitions filed for extension or amendment of status. To avoid confusion, however, a commonly recommended strategy is for future H-1B and other petition filings by the company to identify the employer as "[new name], formerly known as [old name]."

If, after a corporate restructuring, the employer need not file a new or amended LCA and H-1B petition, it is still sometimes advisable to do so. First, the new entity may be uncomfortable signing a legal document that assumes the potential liabilities of the predecessor under the H-1B program. Under the statement described above, which must be placed in the public access file, the successor is liable for any violation of LCA obligations committed by the prior entity, including, for example, the failure to pay the required wage. The employer must decide whether it is willing to assume all such potential liabilities. The use of representation and warranty and/or indemnification provisions relating to LCA compliance in the acquisition agreement or related contract may be useful in this regard. If the new employer does not wish to assume liability for the predecessor, then it must file a new LCA.

Second, consider the following situation: The name of the employing entity has changed as a result of some corporate event and an H-1B employee thereafter travels outside the U.S. Upon applying for readmission to the U.S., that H-1B employee may well be asked questions by an INS officer at the port of entry designed to determine whether the H-1B beneficiary is still employed by the employer that filed the H-1B petition on his/her behalf. If there has been a change in the name of the employer, it could create an awkward situation for the H-1B employee, who might have to convince the INS officer that a "successor employer" exists.

Even if the H-1B employee is provided with appropriate documentation of the "successor employer" relationship, this is a potentially dangerous situation because it leaves the "successor employer" determination to the INS officer at the port of entry, and he or she has broad discretion over re-admission of the H-1B employee. It is therefore advisable to file an amended H-1B petition to reflect most corporate changes, even if such a petition may not be legally required, to avoid potential travel-related problems for the H-1B employee.

Current INS rules require an "amended" petition to reference any new Labor Condition Application that is applicable to the person's employment. As a result, if the employer elects to file a new LCA, it will also trigger the need for an INS petition to be filed. This is potentially quite burdensome to employers. Thus, for example, if an employer files a new LCA for numerous H-1B nonimmigrants, it must also prepare corresponding amended petitions. When situations like this arise it may be possible to work out a flexible arrangement with the relevant INS service center.[2]

If a corporate change results in a material change in the H-1B employment, rendering information on the original LCA inapplicable (such as reassignment to a new area of employment or a change in duties sufficient to place the job in a new occupational classification), the employer of course must file a new LCA and an H-1B petition. Employers must always file LCAs and petitions reflecting material changes in H-1B employment, regardless of whether the material change is the result of corporate restructuring.

Finally, the employer should remember that when it files an "amended" petition that does not seek any extension of the validity period of H-1B classification beyond what was granted in the original petition, it will not have to pay the $1,000 education and training component of the petition filing fee.

B. Termination or Resignation of an H-1B Employee

A variety of issues arise when an employer elects to terminate the employment of an H-1B employee, or the employee resigns, before the end of the petition period. Concerns about the consequences of terminating H-1B employees have become common with the downturn in the economy. There are two issues to consider: the employer's duties in the termination, and the effect on the foreign national's legal status in the U.S.

Employers have three duties following the termination of an H-1B employee. First, the employer should notify the INS when it terminates an H-1B worker. The INS requires petitioners to notify the INS "immediately . . . of any changes in the terms and conditions of employment of a beneficiary which may affect eligibility under [the H-1B program]. . . . If the petitioner no longer employs the beneficiary, the petitioner shall send a letter explaining the change(s)" to the INS.

Second, if the H-1B employee is dismissed by the employer for any reason prior to the end of the authorized H-1B stay, the employer is liable for "the reasonable costs of the return transportation of the foreign national abroad." "Abroad" means to the foreign national's last place of foreign residence. The obligation does not include H-4 family members. This is a specific commitment which the INS requires the employer to make in signing the H Classification Supplement to the Form 1-129. However, as a practical matter, the obligation to pay return transportation costs for foreign nationals does not arise frequently because many foreign nationals do not wish to return home and instead seek other H-1B employment. The obligation also does not extend to paying the foreign national the cash equivalent of an airplane ticket home if the foreign national elects to stay in the U.S.

Third, unless the employer takes certain steps to evidence the termination, the DOL might determine that it placed the H-1B foreign national in "nonproductive" status in violation of the employer's required wage obligations, with attendant back pay liability. The regulations specify that the required wage obligation continues until there has been a "bona fide termination of the employment relationship." The nature of "bona fide termination" depends on the circumstances. One important factor is the presence of a clear, unequivocal statement in writing to the employee that the relationship has been terminated. Two other factors listed in the regulations are whether the employer has taken the steps described above to notify the INS and to offer return transportation.

Therefore, when it terminates an H-1B employee, the employer should, for its own protection, (1) confirm the termination in writing to the employee, (2) notify INS in writing of the termination, (3) offer to tender an airplane ticket, or otherwise provide for transportation to the person's home country, and (4) keep documentation that it has taken these steps. The notice letter to INS need only reference the INS file number of the approved H-1B petition and report that the foreign national is no longer employed by the petitioner. The INS will then issue a letter acknowledging the withdrawal and stating that approval is "automatically revoked" pursuant to regulatory procedure.

Of separate significance is the impact of the termination of employment on the foreign national's ability to maintain H-1B or other temporary status and stay in the U.S. The foreign national's H-1B status is dependent upon continued employment in the position that was the basis for the H-1B classification. Therefore, once the employment ends, the individual can no longer maintain H-1B status. Once a foreign national loses nonimmigrant status, there is no "grace period" in the law enabling the person to remain in the U.S. Thus, the foreign national will likely be unable to "transfer" the H-1B status to a new employer in an amendment or extension of status petition or apply for change to another nonimmigrant status because such a petition or application requires proof of lawful maintenance of status under the prior petition until the new petition is filed. The INS requires evidence of continuing employment in the prior H-1B job, such as copies of recent paychecks, as part of such a petition or application. If the beneficiary cannot demonstrate continued H-1B status, then the request to transfer the H-1B to a new employer or change status will likely be denied. The foreign national then must leave the U.S. and obtain a new visa abroad before returning to the U.S.

If employers want to assist terminated H-1B nonimmigrants to transition to other U.S. employment or otherwise manage to stay in the U.S. legally, they must ensure that a foreign national's employment is not terminated until he or she has a new employer and the new employer has filed an H-1B petition on behalf of the employee or the employee has properly applied to change status. The termination of the old employment will not affect the validity of a new H-1B petition once it is filed.

Sometimes the H-1B nonimmigrant may not secure new employment before termination is effective. If the foreign national remains in the U.S. following the termination, he or she is not in valid H-1B status and consequently is subject to removal. Depending on the circumstances, it still might be possible for a new employer to submit a petition requesting extension of H-1B status using the "extraordinary circumstances" discretionary relief provision. Typically, the H-1B beneficiary describes in an affidavit the circumstances of the termination that were beyond his or her control, and how he or she diligently pursued a new job offer immediately upon learning of the termination. In the past, INS has been reasonably flexible in approving petitions requesting "retroactive" extensions of status for beneficiaries who suffered sudden layoffs in a prior position for short periods after the termination. In a June 2001 memorandum, INS indicated that it expected to propose a rule to afford H-1B beneficiaries no longer working for the initial H-1B employer "some reasonable period of time such as 60 days" after leaving the employer to begin working for a new employer and have an H-1B transfer petition filed under AC 21 portability. Pending such a proposal, adjudicators were to consider H-1B transfer petitions with issues about maintenance of status on a "case by case" basis, and were reminded of the regulatory provisions permitting discretionary relief under certain circumstances. However, in the wake of September 11 the INS never proposed this 60 day grace period rule, and now states that the policy is "zero tolerance" for status violations. "Extraordinary circumstances" relief can still be requested but it will likely be much less freely given.

The return transportation obligation does not apply when the H-1B foreign national voluntarily terminates his or her employment. Similarly, the employer is excused from the "required wage" obligation because the absence from work would be at the employee's voluntary request, rather than due to employer-imposed nonproductive time. If the foreign national resigns, the employer should therefore obtain a written resignation letter for its file as evidence of the voluntary leaving.

When an H-1B employee resigns it is still advisable to notify INS and withdraw the petition to terminate any obligation to the person. However, if the employee might return at a later time, the employer can take no action and leave the petition approval "open." The employee may then return to work any time during the approval's validity period. Again, the employer should obtain a written resignation statement or request for extended leave from the foreign national for its file which indicates that the foreign national voluntarily left employment. This safeguard should obviate the "nonproductive" time required wage and return transportation obligations.

Finally, the employer should be aware of one other obligation which arises when an H-1B employee resigns. Under another statutory change added by ACWIA, it is a violation of law for the employer to "require an H-1B nonimmigrant to pay a penalty for ceasing employment with the employer prior to a date agreed to by the nonimmigrant and the employer." This statute does not prohibit the employer from recovering liquidated damages. Whether a particular payment constitutes a penalty and or liquidated damages is determined by state law. Under no circumstances may liquidated damages recoup the $1,000 education and training portion of the filing fee.

[1]Note that although employment of an existing H-1B nonimmigrant worker may continue under the LCA with the appropriate statement placed in the file, the LCA may not be used to support any new or extension petitions which are prepared after the corporate change in structure. A new LCA bearing the correct new information must be filed at that time.
[2]The author encountered a situation where, under this scenario, a simple tax identification number change resulting from an employer's tax-related consolidation of business units (under the former scheme where a change in EIN did require a new LCA) would have required the employer to file 600 amended H-1B petitions for workers whose jobs were wholly unaffected by the change. Due to the unusual circumstances and potential burden this would have imposed on the employer and the INS, the latter agreed to waive the new petitions. The employer was obligated instead to report the change when it petitioned for routine extensions for individual workers.

About The Author

George N. Lester IV is of the Immigration Practice Group (the "Group") of the law firm of Foley, Hoag & Eliot LLP. Foley, Hoag & Eliot LLP is a full-service law firm of 200 lawyers in Boston and Washington, D.C. It was the first large law firm in Boston to develop an expertise in business immigration law, and for over thirty years its Group has represented employers in a full range of procedures to obtain temporary or permanent authorization to employ foreign professionals. Mr. Lester has practiced immigration law for ten years, and regularly speaks to business, academic, and professional groups on immigration topics. As part of his regular AILA activities, Mr. Lester meets with officials of the INS Vermont Service Center to discuss H-1B and other liaison topics. He also serves as Treasurer and a Board Member of the Political Asylum/Immigration Representation Project (PAIR) in Boston, and received that organization's Pro Bono Attorney Award for Dedication and Commitment to Human Rights in May 1996. Mr. Lester is a 1989 graduate of Northeastern University School of Law.

This article is the twenty-sixth and final article in a weekly series by George N. Lester IV of the Foley Hoag LLP Immigration Practice Group based on a chapter he authored titled "Specialty Occupation Professionals," in the treatise Business Immigration Law: Strategies for Employing Foreign Nationals, edited by Rodney A. Malpert and Amanda Petersen, and appears here with the permission of the publisher. Published by Law Journal Press. Copyrighted by NLP IP Company. All rights reserved. Copies of the complete work may be ordered from Law Journal Press, Book Fulfillment Department, 105 Madison Avenue, New York, New York 10016 or at or by calling 800-537-2128, ext. 9300.

For the latest updates from the Foley Hoag Immigration Practice Group, including weekly Process Time Updates from the Vermont Service Center, click here.

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