Mergers and acquisitions (M&A) have become common strategies for companies seeking growth, market expansion, or increased competitiveness. However, M&A activity is typically complex, high value and long-term in nature. It is therefore vital that both buyer and seller understand the full range of obligations, liabilities, risks and opportunities inherent in any M&A activity –including the complex web of immigration considerations that arise during M&A activities. From I-9 issues to ensuring authorized employment of foreign employees, failure to adequately address immigration-related matters can lead to legal complications, employee dissatisfaction, and potential disruptions to business operations. In this blog post, we will explore some key immigration considerations that companies should keep in mind when engaging in M&A activities.
During the due diligence phase of an M&A deal, it is essential to evaluate the immigration status of employees from both the acquiring and target companies. Certain visas are employer specific and may not be eligible for transfer to the new employing entity potentially resulting in the loss of key employees. Even if the visa is transferable, the buyer may need to assume immigration processes to keep the visa valid such as filing for the visa, filing amendments, or filing visa extensions to be able to retain the foreign employee. This assessment also helps identify any potential risks, such as expired work permits or visa violations, which could impact the post-merger integration process. Understanding the immigration status of employees upfront prevents any hardships in maintaining employees’ authorization to work in the United States.
Each visa comes with its own set of requirements regarding mergers and acquisitions which may impact the employee’s ability to continue working for the company and, in some instances, the ability for the individual to remain in the states. Below we cover four of the most common visas and the immigration considerations for companies to consider:
1. H-1B Visa.
The H-1B visa is for foreign nationals in specialty occupations. Engineers, IT specialists, accountants, and market research analysts are a few examples of specialty occupations covered by an H-1B. If the new employing entity is deemed a “successor in interest” to a corporate restructure, it is not required to file a new H-1B petition. To be a “successor in interest”, the succeeding company must be able to show that it is assuming the rights and obligations of the original petitioning employer and the terms and conditions of the employment remain the same. The new entity must prove that it will be able to assume the responsibilities and must complete the required documentation evidencing such prior to closing. If the new entity does not complete the necessary documentation prior to the close of the deal, a new H-1B petition must be filed, which can be a complicated, time-consuming, and expensive process for an employer. If the new company does not qualify as a successor in interest, it will need to file a change of employer application with the U.S. Citizenship and Immigration Services before the employee is allowed to being working for the new entity. Employers must be mindful of the timing complications associated with the immigration process. Any delay in the process may deem the foreign employee to be in violation of its immigration status and render them ineligible to work or reside in the U.S.
2. L-1 Visa.
An L-1 Visa applies to intracompany transferees. In short, it allows a U.S. employer to transfer an executive from an affiliated foreign office to one of its offices in the United States. The key to the L-1 is the qualifying relationship between companies. If a merger or acquisition occurs between qualifying companies, an amended petition is required to notify the government of the change. An L-1 visa holder may run into trouble if an acquisition occurs outside of the collection of related companies. In that scenario, the L-1 employee can no longer be sponsored, and the employee will lose work authorization.
3. TN Visa.
The TN Visa is narrow in its coverage and only applies to citizens of Canada and Mexico who come to the United States to work for an American employer for three-year increments. For mergers and acquisitions, it is best practice for the new company to file an amended petition following the close of the sale.
4. Green Card Applications and Employment Based Sponsorship.
Companies that have petitioned a foreign worker for permanent residence in the U.S. must go through a three-part process, each step of which presents its own unique issues and considerations when dealing with changes in corporate structure. Employment-based sponsorship visas are perhaps some of the most vulnerable if a merger or acquisition takes place due to the complex process known as the Permanent Alien Labor Certification (“PERM”). This months-long process administered by the Department of Labor can be invalidated if the legal entity of the employer changes while the PERM application is pending, resulting in the loss of time and money for the employer and potentially loss of status for the foreign employee.
In addition to the visa considerations and because an acquisition can result in assuming all of the seller’s liabilities, buyers must conduct comprehensive due diligence with respect to I-9 compliance. When acquiring new employees through a merger or acquisition, the entity has two options for employees: treat the employees as “new hires” or treat the employees as “continuing their employment”. If the employer opts for the new hire route, the company must complete a new I-9. If continuing employment, the buyer becomes responsible for all existing I-9s thus the must be sure to review the seller’s I-9 records to determine potential exposure and take appropriate corrective steps. Such a review may be achieved through an I-9 audit. Although an I-9 audit may come with additional costs, the potential alternative is substantive and uncorrectable technical violations that result in substantial monetary fines for the buyer. Additionally, proactive efforts to identify and address I-9 issues at the time of the transaction may be treated as a mitigating factor in the event the buyer is audited by Immigration and Customs Enforcement (“ICE”).
Mergers and acquisitions can be transformative for businesses, but they also bring a host of immigration considerations that must be carefully managed. By proactively addressing these considerations, companies can ensure compliance with immigration laws, retain key employees, and facilitate a seamless integration process. Engaging immigration legal counsel early in the M&A process is crucial to navigate the complexities and mitigate any potential risks associated with immigration matters. Ultimately, a well-executed immigration strategy will contribute to the overall success of the M&A transaction and set the stage for a prosperous future. Reach out to Julie Solis-Alvarado or your BrownWinick attorney with any questions you may have.
