United States: Buyer Beware: I-9 Compliance In Mergers And Acquisitions

Last Updated: January 30 2018
Article by Anita Sorensen

With a new tax law and a booming American economy, mergers and acquisitions will occur at a busy pace in 2018. In a prior post, we explained some of the employment authorization issues that may arise in such corporate transactions. Here, we discuss another important issue that arises in mergers and acquisitions: Form I-9 compliance. Immigration and Customs Enforcement (ICE) has recently announced that it will quadruple worksite enforcement. Some of ICE's key tools for worksite enforcement are I-9 inspections and investigations. With the many issues whirling in complex corporate transactions, buyers are tempted to overlook I-9 issues until after the deal is done. Doing so increases the risk of I-9 liability. The very nature of the acquisition may require the buyer to complete a high number of I-9 Forms in a short period of time or take the risk of accepting I-9 Forms from the seller. To determine the best approach for a particular corporate transaction, the buyer must assess the seller's I-9 compliance and consider the buyer's ability to complete new, timely, and compliant I-9 Forms.

A new Form I-9 Employment Eligibility Verification is required when there is a hire. Thus, in corporate transactions, when the buyer employs most or all of the seller's employees, the issue is whether the employees are "new hires."

Asset Acquisition: For I-9 purposes, the buyer in a corporate asset acquisition is given the choice of whether it is (1) newly hiring the seller's employees (new I-9 Forms required) or (2) continuing their employment (no new I-9 Forms).

  • New Hires: The buyer must complete the new I-9 Forms within the normal periods for I-9 compliance: day of hire for section 1 (employee's section) and three business days after hire for section 2 (employer's section). The day of hire is often the day on which the corporate transaction closes, which can place time pressures on the buyer. To help manage the volume of the new I-9 Forms and the short time period for completion, the buyer may complete the I-9 Form early. More specifically, the buyer, as the new employer, may begin the I-9 process any time after it receives an accepted offer from the new hires as long as the buyer acts consistently.
  • Continuing Employment: If the buyer chooses to treat the seller's employees as continuing their employment, the buyer must accept and retain the seller's I-9 Forms as the buyer's own records. The buyer will be held liable for any deficiencies in these records should ICE audit and issue I-9 fines or other sanctions.
  • Assessing the Options to Minimize I-9 Liabilities: To determine which option is best, the buyer must review the seller's I-9 compliance as part of its overall due diligence review in the corporate deal. When possible, the buyer (as the potential new employer) should conduct a thorough I-9 audit of the seller's records and gather information about the seller's prior enforcement history with ICE. If there is not sufficient time before the closing, the buyer should conduct at least a random audit of a substantial number of the seller's I-9 Forms. The buyer should require the seller to correct the errors and omissions that are detected prior to the closing and acceptance of those I-9 forms. If the buyer accepts the seller's I-9 Forms and does not complete a full I-9 audit prior to closing, the buyer should do so soon thereafter. The buyer should take appropriate steps to correct deficiencies to the extent possible.

In many circumstances, it will be best for the buyer to complete new I-9 Forms and not to accept the seller's I-9 Forms. This is often the best approach for I-9 compliance, and it can be the best approach for other reasons. Indeed, there can be various legal considerations that impact whether to treat the seller's employees as new hires, with new terms and conditions of employment, or as continuing their employment. Counsel should be consulted in any decisions on whether to accept existing Form I-9s or to complete new I-9 Forms. This is particularly important in an asset transaction.

Stock Acquisition: If the corporate transaction involves a stock purchase, the identity of the corporate employer will be the same. Only the owner of the corporate employer will change. Under these circumstances, the buyer may rely on the existing I-9 Forms. Due diligence requires that the buyer carefully audit the seller's I-9 Forms and gather information about the seller's enforcement history with ICE. The buyer should insist that the seller bring the I-9 Forms into compliance as much as possible prior to the closing.

I-9 Fine Schedule: Employers also will face slightly higher fines in 2018 for I-9 violations and unfair immigration-related employment practices. The following new I-9 fine schedule will apply for fines assessed on or after January 30, 2018:

  • I-9 Paperwork Violations: $224 to $2,236 per Form I-9.
  • Knowingly Employing Unauthorized Alien (First Order): $559 to $4,473 per violation.
  • Knowingly Employing Unauthorized Alien (Second Order): $4,473 to $11,181 per violation.
  • Knowingly Employing Unauthorized Alien (Third or More Order): $6,709 to $2,363 per violation.
  • Failure to Inform Government of Continuing Employment Following E-Verify Final Nonconfirmation: $779 to $1,558 per violation.
  • Document Abuse in I-9 process: $185 to $1,848 per violation.
  • Unfair Immigration-Related Employment Practices (First Order): $461 to $3,695 per violation.
  • Unfair Immigration-Related Employment Practices (Second Order): $3,695 to $9,239 per violation.
  • Unfair Immigration-Related Employment Practices (Third or More Order): $5,543 to $18,477 per violation.

Best Practice: With the increase in both I-9 enforcement and the pace of corporate mergers and acquisitions, buyers should beware of potential I-9 liabilities before closing the deal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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