US Immigration Consequences of Mergers & Acquisitions
When businesses are merged or acquired, or undergo any other form of restructuring, it is not uncommon for the immigration implications of mergers and acquisitions to be overlooked until after a deal has closed or restructuring is complete, even by seasoned attorneys. Below we highlight some key immigration implications of mergers and acquisitions, from the potential impact on individual employees to the potential impact on the new employing entity.
How can mergers and acquisitions impact individual migrant workers?
Mergers and acquisitions, without advance planning and careful consideration, can give rise to serious risks when it comes to the rights of foreign nationals to continue to work for a company, some of whom may be key to the daily and strategic operations of the business.
For those working in the States under nonimmigrant classification, any form of corporate restructuring or new ownership can adversely impact their lawful status. Nonimmigrant visas are often company-specific, where an employer is required to file a petition that identifies the sponsored employee, providing specific information about the job role, title, worksite location, salary and requirements. A corporate restructure or change of ownership can also impact the validity or, at the very least, the procedural requirements for any member of staff of the previous employer applying for permanent resident status, commonly known as a green card.
When the corporate structure or ownership of the petitioning company changes, the new employing entity may need to take additional compliance actions for an employee to retain their nonimmigrant work status or to progress their application for immigrant status. In some cases, the company may no longer be allowed to continue sponsoring certain employees, or an employee’s application for a green card could be put in jeopardy, potentially resulting in the loss of valuable members of staff and the potential deportation of the individuals involved.
Below we look at some of the risks involved for specific categories of visa:
L-1 visas for intracompany transferees
For employees working under L-1 classification, working for a US branch of their overseas employer, often in high-level managerial or executive roles, or as employees with specialised knowledge, they can be adversely affected by a corporate restructuring. This is because employees in L-1 nonimmigrant status rely entirely upon a qualifying relationship between their previous foreign employer and their US employer. Following a corporate restructuring, US immigration law only allows an employee to continue to maintain L-1 status if the successor company is part of a multinational group and maintains a related company, for example, a subsidiary, parent, affiliate or branch, outside the United States.
Where a corporate restructuring will impact L-1 visa holders, this means that a pre-close detailed analysis of the transaction is usually required to determine whether the restructure will terminate the qualifying relationship. Even when L-1 status is not terminated, an amended petition may still need to be filed with US Citizenship and Immigration Services (USCIS) to alert the US government of the change in corporate structure but, at the same time, to reaffirm that an ongoing qualifying relationship exists. If the succeeding company does not maintain a qualifying related company outside of the United States, it may no longer be possible to continue sponsoring the L-1 visa-holder, leaving certain executive, managerial and essential employees without lawful visa status and work authorisation.
H-1B visas for specialty occupation workers
US immigration regulations provide that when a company changes its corporate structure as the result of an acquisition or merger, if the new employing entity qualifies as a ‘successor in interest’ to the predecessor company, it will not be required to file new labor condition applications and H-1B petitions on behalf of transferred H-1B nonimmigrants.
This is permissible, but only if the newly formed company agrees to take on the responsibilities arising from the applications originally filed ‘and’ if it completes the appropriate documentation prior to close. This would permit transferred employees to continue employment without interruption as per the existing H-1B approval, provided there are no other material changes to their employment, such as a change in location or job duties.
If the successor company fails to update the H-1B public access file documents prior to the close of the deal, it will be required to file new H-1B amendment petitions with USCIS in respect of the relevant changes in corporate structure. Timing is therefore important here. If the new employing entity is not a successor-in-interest, the H-1B employee may rely on the “portability” provisions that allow them to start work for the newly formed or restructured entity, although these can be difficult to navigate, and employees may be treated by the authorities as having violated their status if the proper procedures are not followed.
E-1 and E-2 visas for treaty traders and investors
As with other nonimmigrant classifications, these visas can be dependent upon the nationality of a foreign entity, where E-1 and E-2 visa holders include executives, managers and essential skills employees who come to the States under a treaty of commerce and navigation between the US and the country of which the visa-holder is a citizen or national.
Although issues relating to E-1 and E-2 visa recipients do not often arise often during mergers and acquisitions, restructuring and new ownership can occasionally impact the nationality of a successor company. This will then sever the ability for an E-1 or E-2 visa holder to maintain their lawful nonimmigrant status. A key due diligence consideration in respect of E-1 and E-2 visa-holders is therefore whether ownership of the succeeding company will change because of a restructure or acquisition. For example, if an E-1 visa-holder is a Spanish national working in the United States for a Spanish-owned company, and a US company purchases the Spanish-owned employing entity, the nationality of the successor company will have changed, and will no longer be Spanish, severing the ability for that individual to continue in E-1 visa status.
Employment-based immigrant visas for lawful permanent residents
A merger, acquisition or corporate restructuring can affect an employee’s permanent residency or green card application, depending on the stage at which that application has reached and whether the newly formed entity is considered a ‘successor-in-interest.
If a Form I-140 petition is either pending or approved, but an adjustment of status (Form I-485) has not been filed at the time of the merger or acquisition, then the new employing entity must file a Form I-140 petition with USCIS and prove that it is a successor-in-interest to the former employer. Also, where an adjustment of status application is pending, “portability” laws permit the employee to transition to a new employer, provided Form I-485 application has been pending at the time of a merger or acquisition for more than 180 days and the employee’s function and duties are the same or similar to those with the previous employer. However, if Form I-485 has been pending for less than 180 days, then the new entity will need to file an amended Form I-140 petition with USCIS.
How can mergers and acquisitions impact the incoming employer?
Mergers and acquisitions not only give rise to immigration status risks in relation to individual migrant workers, but also immigration compliance risks for the incoming employer in the context of employment verification checks for the workers that they have acquired.
The requirement to conduct employment verification checks
By law, all employers are required to verify the identity and employment eligibility of everyone they hire, and to complete and retain for inspection an Employment Eligibility Verification form (Form I-9) for each employee on the payroll, and for a certain amount of time after their employment ends. Employers who have acquired or merged with another company are not required to conduct another employment verification check. This is because, for these purposes, a merger or acquisition constitutes continuing employment, where the new employer is entitled to treat all acquired employees as continuing in their uninterrupted employment status and retain the existing Form I-9 for each acquired employee.
However, following a merger or acquisition, a newly formed or acquiring business will typically assume the liabilities of the previous entity, including any omissions or errors arising from employment authorisation checks and maintaining for inspection original Form I-9 records. As Form I-9 can be retained on either paper, microfilm or microfiche, and/or electronically, due diligence may not been thorough enough to provide the new employer with a clear picture as to the accuracy of these employment authorisation records.
While a company’s personnel files and document processes may appear complete and compliant upon initial review, damaging non-compliance issues can often be lurking. Incomplete or insufficient documentation is a violation of US immigration laws. This means that unless any errors or omissions in record-keeping have been highlighted during due diligence, the new employer may not be aware of any mistakes or oversights, yet still be liable.
The consequences for the new employer when it comes to non-compliance
By law, US employers are required to verify the identity and employment eligibility of all individuals that they hire, and maintain for inspection original Form I-9 records for all current employees, where any failure to properly conduct these checks or properly maintain these records can result in significant civil fines following a Form I-9 compliance review.
US immigration laws specifically authorises DHS, and other officials, to inspect Forms I-9, including any copies of employees’ documents retained with the corresponding Form I-9. Officers only need to provide a business a minimum of 3 working days’ notice before commencing an inspection. The employer will also be required to make Forms I-9 available upon request at the location where the officers request to see them.
If a US employer fails to comply with the employment eligibility verification requirements — for example, by failing to properly complete, retain, and/or make Forms I-9 available for inspection as required by law — they may face civil financial penalties for each violation. In determining the amount of any penalty, the DHS will consider the size of the business, the employer’s good faith, the seriousness of the violation in question, whether the individual was an unauthorised migrant and the history of any previous violations.
What steps can be taken to ensure compliance post-completion
It is still possible to address the potential immigration implications of mergers and acquisitions post-completion when it comes to employment verification checks. This can be done by treating all acquired employees as new hires and completing a new Form I-9 for every individual, entering the effective date of the acquisition or merger as the employee’s first day of employment. In this way, provided the paperwork is completed correctly, and complete records retained, even if the DHS discover that an employee is not actually authorised to work, the employer cannot be charged with a verification violation.
However, to re-verify the employment authorisation of the entire workforce is potentially a huge undertaking, involving time and expense that the new employer may not have. It is not even possible to narrow the process down. To avoid discrimination, every employee, without regard to actual/perceived citizenship status or national origin, would need to be re-checked.
How can immigration implications of mergers and acquisitions be avoided?
Any failure to ensure that the previous employer has followed the correct employment verification checks, and that clear and complete records have been retained, can lead to significant financial penalties. Equally, any failure to complete a pre-close assessment of impacted foreign national workers, including work visa statuses and lawful permanent resident processes, can have serious consequences for both the business and its workforce.
In some cases, there may be ways of addressing these issue post-completion, but when it comes to avoiding the immigration implications of mergers and acquisitions, the best way to minimise any risk is to carefully identify and address any risks in advance. With proper planning and immigration-focussed due diligence, the incoming employer can ascertain where any risk lies — from impacted foreign workers to the accuracy of verification checks. In this way, the impact on the business can be adequately assessed, without surprises at a later date.
NNU Immigration are dedicated US immigration attorneys based in London. We provide specialist advice and guidance on all aspects of US immigration including guidance on the immigration implications of mergers & acquisitions on compliance and also advising on the immigration status and maintaining lawful status of foreign workers based in the US. For expert advice and support for your organisation, contact us.
US Immigration Consequences of M&A FAQs
Does a merger affect L1 visas?
As L-1 status relies entirely upon a qualifying relationship between the visa-holder’s previous foreign employer and their US employer, a merger or any form of corporate restructure can affect their ability to continue in L-1 status.
How does a company merger affect H1B visa?
A H1B visa-holder can continue employment without interruption following a company merger, but only if the new employing entity qualifies as a ‘successor in interest’ and agrees to take on certain responsibilities and follow specific steps prior to close.
What are US immigration penalties for employers?
Immigration penalties are financial penalties for employers for knowingly hiring illegal workers, or for failing to conduct employment eligibility verification checks for all employees, either correctly or at all, and to maintain records of these checks.
This post does not constitute direct legal advice and is for informational purposes only.