(October 11, 2024) - Grace Shie and Morgan Bailey of Mayer Brown discuss best practices for companies that have acquired or merged with a company with foreign workers.
At a glance
- When an organization undergoes a major corporate change, such as a merger or acquisition, there may be immigration consequences for both the organization and foreign workers, depending on the nature of the corporate transaction and the type of visa or immigration status the foreign worker holds.
- Organizations must address various requirements before the deal closes and the transaction takes effect, including how changes in the corporate structure may affect employment authorization, visa and green card eligibility, and pending immigration applications.
- With careful planning, organizations can take steps to mitigate the immigration challenges involved in major corporate change and minimize the disruption to the business and impacted workforce.
When an organization undergoes major corporate change, such as a merger or acquisition, employees with US visas may face immigration consequences as their sponsorships for employment are often tied to the specific employer.
In many cases, the US government must be notified to reflect the employee's new company ownership and structure. The impact of an M&A transaction will depend on multiple factors, including the nature of the corporate transaction and the type of visa or immigration status the foreign worker holds.
Before the deal closes and the transaction takes effect, employers must address how changes in corporate name, ownership, structure, and location may affect the workforce's employment authorization, visa and green card eligibility, and pending immigration applications. Failure to address pre-close requirements may result in the employer and in-scope employees falling out of compliance.1
Employment eligibility verification (I-9) for employee population
When a corporate transaction results in the acquisition of new employees, the new corporate entity must choose either to consider these employees as "new" or "continuing." This applies to all employees, irrespective of citizenship or visa status.
New employees require a new Form I-9 (Employment Eligibility Verification) from the new corporate entity, whereas continuing employees will require the new corporate entity to review and assume responsibility for any corrections and errors in existing Form I-9 records.
Before assuming the risk of another entity's Form I-9 records, employers should conduct a full review or a sample audit of the Form I-9s in advance of the acquisition to make a more informed choice.
When substantive and technical issues are identified, which may include missing Form I-9s or errors, it may be preferable to treat the acquired employees as new hires and complete new Form I-9s. This decision requires consideration of the associated risks of treating the employees as "new" or "continuing," and any Form I-9 process requires significant pre-planning when I-9 activities coincide with transaction closing dates.
Maintaining work authorization for visa-sponsored employees
The three most critical questions in a corporate transaction with regard to the immigration consequences for employment-based sponsored employees are:
(1) Is the closing of the transaction pending or has the new corporate entity already been created?
(2) Will the employee's roles and responsibilities, job location, or payment compensation change materially after the transaction closes?
(3) Is the new corporate entity a successor-in-interest? That is, has the acquiring (succeeding) entity demonstrated that it will assume the legal obligations, including the rights and obligations, of the original sponsoring entity?
Below, we explore the impact these answers have on two commonly utilized work visa categories — the H-1B and the L-1 — as well as those employees in the US green card process.
H-1B specialty occupation
Employer obligations for H-1B specialty occupation workers before the transaction has closed include the following:
- Successor-in-interest and no material changes in the H-1B position: Under these circumstances, a new H-1B petition typically is not required. Before the M&A transaction closes, a new employer prepares a memorandum assuming the H-1B obligations of the Labor Condition Application, which is executed on the day of closing. The memorandum is placed in each H-1B employee's Public Access File.
- Successor-in-interest with material changes in H-1B job: In this scenario, a new Labor Condition Application must be completed and submitted to the Department of Labor.
- Not a successor-in-interest (either the employer cannot establish, or it cannot qualify): In this situation, an H-1B employee can begin working for the newly created entity only after the new entity has filed a change of employer H-1B petition with US Citizenship and Immigration Services (the agency responsible for overseeing immigration matters in the United States).
One outcome exists after the M&A Transaction Closes:
- If the M&A transaction has already closed, resulting in a new corporate entity, that entity will need to file a new H-1B petition for each of the H-1B employees.
If an H-1B worker's job is eliminated as part of a layoff during or after the transaction closes, the employee may have a grace period up to 60 days to find a new sponsoring employer or to leave the United States.
L-1 intracompany transferees
L-1 visa holders, who are intracompany transferees, may also be impacted by corporate changes. For an L-1 visa to remain valid, there typically must be a qualifying relationship between the US employer and the foreign entity; this could be a parent, subsidiary, branch, or affiliate.
In the event of a merger or acquisition, this relationship could be disrupted if the new organization does not maintain a qualifying connection with the foreign entity. For instance, if a foreign company's US subsidiary is acquired by a company that has no foreign operations, the L-1 worker may no longer be eligible for the visa.
In some instances, M&A transactions may require an amended petition to notify USCIS of the corporate entity change. As with the H-1B classification, if there are significant changes to the L-1 employee's role or responsibilities, an amended petition may be required.
L-1 employees who entered on blanket petitions may not need an amended petition if the succeeding corporate entity updates its blanket petition to include the merged or acquired entities. If the M&A transaction affects only the US entity, and not the entity abroad, the qualifying corporate relationship may be lost for L-1 purposes.
L-1 workers who are affected by a layoff during the corporate transition may be eligible for a 60-day grace period to remain in the United States if their employment is terminated to apply for a change of status or depart the United States.
Green cards (adjustment of status applications)
If the new entity is not a successor-in-interest of the prior employer, then employees with employment-based pending green card applications may need to begin the process anew. However, an exception exists for those whose adjustment of status applications have been pending for 180 days or more. In such cases, the employee can transfer (or "port") to another employer, regardless of its successor-in-interest status. For job "portability," the employer and green card applicant must inform USCIS of the changes and provide appropriate documentation as evidence.
Tips for employers engaged in major corporate change
To successfully execute an M&A transaction that involves the transfer or acquisition of employees, prevent the loss of foreign national talent, and maintain business continuity, employers should incorporate the following considerations into the transaction plan:
(1) As part of the diligence phase, conduct a visa audit of all foreign workers and their immigration statuses.
(2) Evaluate the impact of corporate changes and associated immigration risks. Review the structure of the transaction and evaluate how it will affect the legal obligations tied to visa sponsorship both pre- and post-closing.
(3) Assess whether there will be changes in the job duties or terms of employment of in-scope employees that trigger government notifications.
(4) Develop a communications plan for both the transition team and the owners of the impacted function — such as HR and global mobility — on how the transaction will affect their work, as well as the in-scope employees of the possible immigration consequences and strategies to be deployed as part of the transaction.
(5) Strategically plan the timing for filing any amendments or other government notifications.
(6) Engage employment-based immigration counsel throughout the process, in order to provide guidance and troubleshoot potential immigration challenges that arise.
With sound planning during the diligence phase and prior to closing, immigration matters need not present a risk in the success of a corporate transaction. Careful planning can minimize disruptions for the entities involved and the impacted workforce during critical transitions.
Footnote
1. While there are other types of corporate transactions (e.g., spinoffs or demergers) that carry immigration consequences, this article focuses on the impact when there is a combination of entities through an M&A.
Originally Published by Westlaw Today
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