M&A deals must weigh stricter immigration environment

Mark T. Yelich
Mark T. Yelich 14 Sep, 2020

As markets bounce back from the economic disruption caused by Covid-19, activity in the area of corporate mergers and acquisitions is on the rise at a time when immigration policies under the Trump administration are increasingly hostile toward foreign workers.

The current environment mandates that companies pay even closer attention than usual to the immigration obligations and consequences of corporation transactions. Companies seeking to acquire or merge with other entities may not be aware of complex immigration requirements and restrictive measures under the current administration when it comes to the acquired entity’s foreign national employees.

The acquiring company should conduct due diligence — preferably before the purchase — to assess compliance obligations and any potential negative consequences with respect to both the company and immigration-supported employees. Human resources teams should understand the confidentiality protocols surrounding the deal and how best to engage with the target company’s visa holders, since direct communication may be limited during the due diligence phase.

The business immigration strategy will turn on the nature of the acquisition, visa category of the target company’s affected employees, and timing of the deal’s signing and closing. Depending on how a sale is structured — stock versus asset, for example — the new employer who acquires employees on temporary work visas, such as H-1Bs, may be required to file new petitions with U.S. Citizenship and Immigration Services and new Labor Condition Applications with the Department of Labor, which set the employee’s wage and hours.

Employers are subject to audits by the Department of Homeland Security and the Labor Department. H-1B workers who begin working for a new employer that is not a successor-in-interest run the risk of violating their immigration status unless certain H-1B “portability” regulations apply allowing them to begin working for the new entity as soon as a new petition is filed. Depending on the number of foreign employees, the new employer may fall under the definition of an “H-1B dependent” employer, and therefore subject to heightened compliance measures and hefty additional government fees.

While certain visa types — Australians (E-3), Singaporeans (H-1B1), Chileans (H-1B1), Canadians (TN) and Mexicans (TN) — have historically allowed workers from specific countries to apply for new visas at the U.S. consulate or port-of-entry to mitigate against changes resulting from a corporate acquisition or reorganization, the current landscape practically removes these options from the table. With U.S. consulates worldwide still largely closed for routine visa issuance, various travel bans still in effect, and other company guidance related to Covid still in place, filing petitions in the U.S. for these nationals may be the most viable option.

The L-1 category, a common visa type for multinational companies sending foreign workers to the U.S. from an overseas office, requires that the new employer maintain a qualifying relationship with the U.S. entity for the duration of the visa sponsorship. A change in corporate structure could impact whether L-1 visa holders remain eligible. Moreover, an international deal that does not include the L-1 visa holder’s foreign office precludes the multinational manager green card path and requires U.S. employers to pursue costly labor market tests.

If the new employer terminates employees on work visas, such as H-1B, L-1, TN, H-1B1, E-3, or O-1 nonimmigrants, those workers will have 60 days or until their authorized stay expires, whichever is shorter, to find a new employer that is willing to file an extension or change of their immigration status. Companies should also assess the immigration consequences for employees who are in the green card process, as different obligations are triggered depending on what stage of the process an individual is in, and the consequence can be severe for those who have been waiting years, sometimes more than a decade, in the green card backlog. If U.S. workers are laid off, this also may affect the employer’s ability to file labor certifications for at least six months.

The Trump administration signaled early on that it will enforce I-9 violations strictly against employers, imposing a record $95 million in fines on a company in 2017 for improper procedures in verifying whether employees are authorized to work legally in the U.S. Fines are imposed per violation and can add up quickly if the employer’s I-9 practices are faulty. Companies acquiring an entity are well-advised to ensure that the acquired entity’s I-9 procedures and E-Verify are fully compliant before taking on liability.

Mark T. Yelich is a Senior Associate in the McLean, Va., office of Berry Appleman & Leiden LLP.

This article was originally published in the Washington Business Journal.

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