Employment Authorization Issues Arising From Corporate Restructuring

by Foley & Lardner LLP

American business experienced a near record number of mergers and acquisitions in 2016, and this trend is likely to continue in 2017. Such corporate transactions raise a number of legal issues, including employment issues. During its due diligence review, the buyer considers whether the seller’s workforce is covered by collective bargaining agreements, what benefits are offered, what policies are in place, and related matters. The buyer, however, often fails to consider the immigration issues that may arise as a result of an acquisition, merger, or other corporate restructuring. The Form I-9 compliance is always a key concern in such corporate transactions, but there also are other significant immigration law concerns. For example, the transaction may cause some of the seller’s employees to lose the ability to work in the United States because their employer is changing. Many temporary immigration classifications are specific to the employer, the worksite, and the job. A sudden change in the identity of the employer or material changes in the job may lead to the loss of employment authorization. Another consideration is whether the buyer is purchasing the stock of the target company (becoming the new owner through the purchase) or buying only the assets of the seller. An asset purchase is more likely to trigger a loss of employment authorization among the foreign nationals following the corporate restructuring.

These issues must be identified prior to the closing. Waiting until after the deal is final may result in periods of unauthorized employment or the loss of skilled employees, which lowers the value of the corporate transaction. Either outcome is bad for the buyer. Thus, the buyer’s due diligence must include a review of employment authorization issues.

During this review, the buyer should gather information such as the following:

  • A list of individuals currently employed by the seller who are dependent upon the seller for the authorization to work legally in the United States and who may lose that work authorization if no longer employed by the seller (e.g., employees in any type of “employer-sponsored” immigration status).
  • A list of any immigration cases currently in process in which the seller is seeking temporary or permanent (indefinite) employment authorization from the Department of Homeland Security, Department of Labor, and Department of State.
  • A copy of the public inspection file and a copy of the case submission for each foreign national who the seller employs in H-1B status.

After gathering and analyzing this information, the buyer should develop a plan for how to maintain authorization to employ the foreign nationals after the corporate transaction is completed. This plan may include a period during which the seller will continue to employ the foreign nationals to allow the buyer time to commence new immigration cases.

Below is a list of the most likely temporary classifications that the buyer will encounter in a corporate restructuring.

  • E-1 and E-2 – Treaty Trader and Treaty Investor: This classification is based upon a treaty between the United States and the foreign national’s home country. The American company must be at least fifty percent owned by citizens of the foreign country. Thus, a corporate restructuring could make the E-1 or E-2 classification unavailable to the buyer.
  • L-1 Intracompany Transfer: This classification is based upon a qualifying corporate relationship between the American employer and the foreign company for which the foreign national worked prior to his or her transfer to the United States. If the corporate acquisition does not include the foreign company that employed the foreign national or another affiliated company, employment authorization will be lost. If there remains a qualifying corporate relationship, the buyer still may be required to file a case to amend the employment authorization.
  • TN Professional: This classification is based upon the North American Free Trade Agreement (NAFTA). A change of employer usually will result in the loss of employment authorization. The buyer may be able to complete a new case under NAFTA.
  • H-1B Specialty Occupation: This classification is the most widely used basis to gain temporary employment authorization. In some corporate transactions, the buyer may step into the shoes of the seller with regard to the H-1B employment authorization. To do so, buyer must sign a sworn declaration accepting the immigration obligations and liabilities of the seller as to the H-1B employment. This is so even in an asset acquisition where the buyer otherwise disavows the obligations and liabilities of the seller. This declaration must be completed before the closing. The buyer also must take other steps before the closing in order to rely on the seller’s H-1B case. If the seller has not maintained compliance, including the public inspection file, the buyer may be better served by commencing a new H-1B case. Additionally, the buyer may not rely on the seller’s H-1B authorization if the buyer will make material changes in the H-1B job, including the location of the worksite.

These are just a few of the immigration issues that arise in corporate restructuring. Will your company soon be involved in an acquisition, merger, or similar corporate transaction? If so, before the transaction closes, identify and develop a solution to the immigration issues. With enforcement of the immigration laws now a top government priority, expanding the due diligence review to include immigration concerns will serve the company well.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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