by Mitchell L. Wexler and Jenna J. Robinson

In 2017, more than $3.7 trillion in deal volume was reported globally, making it the fourth busiest year ever on record for mergers and acquisitions. The great business remix over the past few years shows no sign of fading and the extreme changes in technology and globalization continue to change how we live and work. These changes have forced companies to reshuffle the cards they hold and continually mix up the ownership of assets in the economy. Often times when companies are merged or acquired, the major focus is on the financial impact and new market opportunities that will result. Many companies fail to consider any immigration-related consequences to their newly acquired, highly skilled, foreign employees until after the deal has closed and the damage is already done.

Corporate restructuring can take many forms, and with each form comes specific immigration consequences of which a company needs to be fully informed. During a merger, acquisition, or entity change, employers must act with due diligence to determine a comprehensive strategy to ensure that the former entity’s foreign employees do not fall out of their current immigration status. Immigration status alone adds a level of complexity, given each visa category holds its own separate restrictions, work eligibility rules, and validity dates. Thus, the type of deal involved is of paramount importance and depending on the size of the business, the character of the workforce (highly-skilled workers vs. low-skilled, hourly employees), and the industry in which the company operates, a purchasing entity should be well-informed and consider any immigration repercussions that may result from the deal.

There are three main immigration-related issues that may arise in a corporate restructuring, namely I-9 compliance, non-immigrant visa compliance, and immigrant visa/green card compliance. Each brings its own set of issues and governing rules, all of which may ultimately affect the bottom line of any business in the United States.

I-9 Compliance

All U.S. employers must ensure proper completion and maintenance of Form I-9 for everyone they hire for employment; this includes U.S. citizens and noncitizens. With the new administration’s strict stance on immigration, I-9 compliance has become more important than ever. Between October 2017 and May 2018, Immigration and Customs Enforcement (ICE) opened more than 3,500 worksite investigations and more than 2,200 I-9 audits—nearly doubling the amount of ongoing cases this fiscal year compared to last. Although it seems like an extremely straightforward form to complete, employers regularly forget signatures on sections of the I-9, improperly complete the required information, or fail to enforce use of the form entirely. Failure to comply with I-9 policy can result in hefty fines for employers and even criminal prosecution in more severe cases.

Due to the serious associated consequences of I-9 violations, the most conservative approach during a corporate restructuring is for the purchasing entity to either review all of the acquired company’s I-9 records to determine potential exposure and take any necessary corrective measures or require all employees of the acquired or merged entity to complete a new I-9 prior to the date of closing. Either of these strategies can be a very time-consuming and expensive task for large companies with thousands of workers. Alternatively, a spot audit of select I-9s along with a thorough review of the selling entity’s I-9 practices may be more realistic and financially viable. A review of this nature is generally informative enough to decide if any further action needs to be taken if a violation is found. Conducting an I-9 compliance audit or taking steps to reconcile any compliance issues prior to the close of the transaction is a critical component of the merger and acquisition due-diligence process.

Non-Immigrant Visas

There are more than twenty major categories of non-immigrant visas, many of which serve as vehicles for highly skilled and talented foreign workers to join the U.S. workforce. In July 2018, more than 884,000 U.S. non-immigrant visas were issued to individuals from all over the globe. A newly formed company should understand its obligations as the sponsoring entity of all foreign national employees holding non-immigrant visas. The following is a discussion on the most common visa categories that often are affected.

L-1 Intracompany Transferees

The L-1 visa category is reserved for intracompany transferees fulfilling managerial/executive or specialized knowledge positions, which by necessity, are integral to the company’s operations. In order to be eligible for an L-1 visa, a foreign national must have been employed abroad for one year by a company that has a qualifying corporate relationship (i.e., parent, branch, affiliate or subsidiary) to the U.S. employing entity. An employee holding L-1 status may be seriously impacted by a merger or acquisition depending on the structure of the transaction. In determining the impact of a purchase, the key factor to consider is whether the U.S. entity will maintain a qualifying relationship with at least one active and operating entity abroad. For corporate changes where overseas offices continue to be operational, L-1 amendments may be filed so long as the U.S. employer is considered a “successor-in-interest” to the old U.S. entity. A successor-in-interest relationship is established when the purchasing entity explicitly agrees to assume all immigration-related liability of the purchased entity.

Additional considerations should also be made when a larger multinational company uses an expedited form of processing qualified L-1 workers abroad at U.S. Consulates, formally known as a Blanket petition. If changes in ownership take place and entities change, a new Blanket petition must be filed and approved before any workers benefitting from those entities may continue to apply under this process.

E-1/E-2 Treaty Trader or Investors

E-1 and E-2 classification is available to investors, traders and essential/critical employees from qualifying treaty countries who will work for a U.S. company majority owned by a foreign national from the E-1/E-2 national’s treaty country. For example, if the nationality of a U.S. company changed during a corporate restructuring (e.g., 75% Canadian-owned to 30% Canadian-owned), the necessary Canadian “nationality” may no longer exist. A change in ownership can quickly place a foreign worker out of status, requiring them to imminently depart the U.S. or explore additional visa category eligibility.

H-1B Specialty Occupation Workers

The most prevalent of work visa classifications that require U.S. employer sponsorship is the H-1B. The information technology sector relies heavily on this visa to fill many of their advanced technology and engineering positions, but nearly all fields of specialization can benefit from the use of an H-1B, as it allows a platform for individuals with the education equivalency of at least a relevant bachelor’s degree to fill roles that require advanced knowledge in a specific specialty. Before an H-1B visa petition can be filed, two separate steps are required; the first is a Labor Condition Application (LCA), which must be filed with the U.S. Department of Labor (DOL). The LCA requires the U.S. employer to agree to several attestations, including paying the foreign worker at least the prevailing wage for the specific occupation within a geographic region. Once certified, the employer is responsible for creating and maintaining a public access file for public inspection. In the event of a merger or acquisition, it is important to note that the purchasing entity will be responsible for and assume all immigration-related liability for any LCA violations, including wage and hour violations, as well as improper record-keeping.

The second step involves the actual petition being mailed into the United States Citizenship and Immigration Service (USCIS). Given these petitions are employer-specific, a change in the corporate structure may signal a material change in employment, requiring an amendment to be filed. As discussed above, one of the most important factors to consider in a corporate restructuring is whether the purchasing entity is a “successor-in-interest.” Establishing a successor-in-interest relationship will allow employees to seamlessly maintain their H-1B status and transition onto the new company’s payroll without interruption. If the new entity is not a successor-in-interest, they will need to file an amendment for every affected H-1B employee. This can be costly for employers, so understanding when this is appropriate is key to avoiding any exposure or interrupting the work of highly-valued professionals. Even if no amendment is needed, a successor-in-interest should always ensure new public access files are maintained with the appropriate documentation.

Immigrant Visas—Also Known as “Green Cards”

Like non-immigrant visas, a merger or acquisition may also significantly affect an employee’s permanent residency application. The impact and obligations of the new employers will largely depend on the stage of the green-card application and whether a successor-in-interest relationship is demonstrated. For most applicants, applying for permanent residency involves three steps: (1) PERM (Program Electronic Review Management) labor certification from the U.S. DOL, which requires a comprehensive test of the U.S. labor market; (2) an I-140 immigrant visa petition filed with USCIS qualifying the individual for the proposed position; and (3) a green card application submitted on behalf of the applicant to USCIS. Advancing through the various stages of a green-card application can take several years for some, especially for individuals who are from backlogged countries like India or China.

Documenting and meeting the burden of providing a valid successor-in-interest connection is critical in determining whether any of the green card process can be salvaged or whether a completely new filing is needed. Without a successor-in-interest relationship, a new PERM and immigrant visa petition may be required, potentially adding years onto an already extremely long process. For example, if the PERM Labor Certification is pending at the time of the acquisition, it may remain valid assuming a successor-in-interest relationship has been identified and the job offered remains unchanged with the new company. If the I-140 immigrant visa petition is pending or approved, but the green-card application has not yet been submitted, the new company may have to file a new I-140 petition to demonstrate its successor-in-interest relationship. Lastly, for employees who have already filed their green-card applications, it may be a race against the clock. If their applications have been pending for at least 180 days, they may benefit from “portability” rules allowing employees to change employers so long as the job remains the “same or similar.”

The immigrant visa petition can be an extremely costly and long process for the companies and individuals involved. Given the significant impact a corporate restructuring may have on both a foreign worker and the employer, it is imperative for any company involved with a merger or acquisition to not overlook these issues.

Conclusion

Employers who fail to properly assess immigration consequences of mergers and acquisitions risk business disruption and the loss of valuable employees due to potential status violations and/or additional scrutiny from immigration authorities and agencies. With numerous other factors influencing business operations, major decision-makers often overlook these issues. Thoughtful and methodical planning is absolutely essential for a smooth transition to minimize the detrimental impact on business and to avoid unintended violations of immigration laws and regulations.

Mitchell L. Wexler is a Partner with Fragomen Worldwide, and manages the firm’s Los Angeles, Irvine, and San Diego offices. Mitch’s practice includes representing individuals, families, and employers consisting of start-ups through Fortune 500 companies. Mitch has been practicing immigration law for over thirty years and is a certified specialist in Immigration & Nationality law. He can be reached at MWexler@fragomen.com. Jenna J. Robinson is an Associate with Fragomen Worldwide’s Irvine office and is an active member of the American Immigration Lawyer’s Association, currently serving as a Liaison for the Southern California Chapter. She can be reached at JRobinson@fragomen.com.