Too often, corporate lawyers and their clients have viewed immigration law issues as merely peripheral to merger and acquisition transactions. A new federal policy memorandum, however, issued by U.S. Citizenship and Immigration Services (USCIS), a unit of the Department of Homeland Security, will bring immigration concerns front and center. The memorandum both adds to and subtracts from the problems faced by deal makers and their counsel in assuring that critical human assets remain available to the acquiring entity after the transaction closes.
We're from the Government and We're Here to Help
On August 6, 2009, USCIS issued new guidance to its officers with the stated purpose of allowing greater flexibility in evaluating the immigration consequences of corporate restructurings. The memorandum provides a roadmap to help immigration officers decide whether a particular merger, acquisition, spin-off, or other restructuring will preserve or destroy employment-based immigrant visa benefits previously sought or secured for the seller's employees. In agency parlance, USCIS officers must follow the new instructions in deciding the issue of "immigration successorship in interest."
Simply put, if successor-in-interest designation is granted, immigration benefits are maintained without a hiccup. These include eligibility for green-card status (the right to remain permanently in the United States and pursue citizenship) as well as pipeline benefits for foreign employees and their families. If the designation is denied, however, terrible outcomes may ensue: foreign workers could lose employment authorization and be required to find a different immigration-authorized job or employer, and then start all over in the years-long path to U.S. permanent residence and citizenship. Otherwise, the workers, along with their families, must leave the country or face removal (a legal form of banishment from the United States previously known formally as deportation).
Worse yet to deal makers and their lawyers, an actual or feared refusal by USCIS to recognize immigration successorship, and the resulting separation of key foreign workers from their U.S. counterparts, may cause the deal to lose value and fail.
The August 6 memorandum, issued under the name of Donald Neufeld, USCIS's Acting Associate Director for Domestic Operations, begins by purporting to distinguish (but effectively overruling) a precedent decision that had created a barrier for asset acquisitions. Matter of Dial Auto Repair Shop, Inc., 19 I & N Dec. 481 (Comm'r 1986) (Dial Auto), required that if employment-based immigrant visa eligibility is to continue (without the need to restart the green-card process), an acquiring company must assume all assets and all liabilities of the acquired business.
Although a succession of informal letters from agency officials gradually relaxed the Dial Auto requirement that the buyer assume all of the acquired company's assets and liabilities, these informal letters had no precedential effect. Some immigration officers adhered to Dial Auto and others applied a relaxed (albeit unofficial) successorship standard, granting continuity of immigration benefits on the mere assumption of substantially all assets and liabilities of a business division rather than the entire entity. More recently, the range of immigration successorship possibilities has vacillated between two extreme positions: the strict Dial Auto "all-assets/all-liabilities" standard and a very lenient criterion, namely, the assumption of only immigration-related assets and liabilities (presumably including Form I-9 [Employment Eligibility Verification] recordkeeping and the representations made by the seller in pending and approved work-visa and green-card petitions).
To the delight of deal makers whose acquisitions had crashed into Dial Auto,the August 6 memorandum acknowledged that deals do not always occur as previous government bureaucrats had envisioned:
USCIS recognizes that business practices change over time, particularly in the areas of acquisitions, mergers, and transfers of assets and liabilities between entities . . . [Business] entities do not always wholly assume the assets and liabilities of entities they acquire or merge with and that businesses may choose not to assume certain assets or liabilities in connection with a perfectly legitimate transaction.
New Federal Test for Successorship
USCIS now recognizes that "a valid successor-in-interest relationship may still be established in certain instances where liabilities unrelated to the original job opportunity [of the sponsored foreign worker] are not assumed by the successor; e.g., where the successor does not assume the liability of pending or potential sexual harassment litigation, or other tort obligations unrelated to the job opportunity" extended to the foreign worker.
Unlike the informal agency guidance recognizing a successor's right to step into the predecessor's immigration-successorship shoes if only the "immigration-related" assets and liabilities are assumed, USCIS has now formally adopted a different test. The August 6 memorandum focuses not on immigration-related liabilities in general but rather on legal liabilities related to the particular job opportunity offered to the foreign worker.
Under the new USCIS interpretation, actual or potential pre-closing liabilities related to the predecessor's foreign-worker job opportunities such as claims of sexual harassment, discrimination, torts, or union grievances, if not assumed by the acquirer, could cause USCIS to deny successor-in-interest designation. This standard could spell trouble for deal makers if the seller employed legions of workers in the same occupation, say, software engineer, that also included foreign workers, and that position had become the subject of dispute, whether by a single plaintiff or in a class action suit. Buyers should be cautious in planning for acquisitions involving occupations in dispute that may require immigration successorship.
New Items for the M&A Checklist
The August 6 memorandum adds a variety of new paperwork requirements. To qualify as an immigration successor, the acquiring enterprise must be prepared to file an immigrant visa petition (on Form I-140) and submit a variety of documentary evidence, some of which may be unavailable. The petition must include proof that:
1. The job opportunity offered by the successor is the same as the job opportunity originally offered by the seller. The evidence must show that the job location, duties, and requirements are identical, although given the passage of time, USCIS will allow a higher rate of pay. The August 6 memorandum states that "[a] successor in interest claim will fail if the successor is requesting that USCIS accept any changes to the items specified on the labor certification that related to the labor market test." (A labor certification is issued by the secretary of labor upon the submission of proof by the employer, following a good faith recruitment effort, that no U.S. workers are qualified, willing, and available to fill the job offered at the locally prevailing wage to the foreign employee.) Rare is the deal, however, where after the dust settles the job duties of the seller's employees who continue working for the acquirer remain identical. Regrettably, the memorandum prevents any change related to the labor market test; substantial similarity of duties is insufficient.
2. The job opportunity previously offered by the seller to the foreign worker in the labor certification application is continuously "valid" before and after the transaction closes. This means that immigration successorship will fail if (a) the job at any time ceases to exist within either the selling or buying entity, (b) the seller ceases business operations before the closing, or (c) the seller (pre-closing) or buyer (post-closing) lacks the continuous ability to pay the wage offered in the labor certification. Since the seller's continuity of business operations and ability to pay the proffered wage must persist until closing, the acquirer's counsel should make sure that due-diligence efforts include the collection of evidence establishing uninterrupted business activities and financial viability. If either of these items of evidence cannot be established, then perhaps the buyer should walk away or pay less, since immigration successorship may be at risk.
3. The acquirer has "fully describe[d] and document[ed] the transfer and assumption of the ownership of the predecessor by the successor." USCIS suggests that the evidence required to document the transfer and assumption of ownership may include agreements of sale and acquisition, mortgage closing statements, SEC Form 10-K, audited financial statements of the acquired and acquiring firms for the year of transfer, business licenses, legal instruments used to "execute the transfer of ownership," and press releases or published reports describing the transaction. The evidence also should show that the acquiring entity has assumed liabilities associated with the jobs offered to foreign workers who seek to preserve immigration benefits through the acquirer's status as a successor in interest.
Differing USCIS Interpretations
The memorandum offers good news beyond its elimination of the Dial Auto test. The agency recognizes an informal practice that had saved many a small forest by eliminating multiple copies of identical documentation required to "prove up" the details of a large acquisition. Now, with the prior permission of the director of the particular USCIS Regional Service Center in the job location, a successor may submit one set of "consolidated evidence" even if the request for successor-in-interest designation covers multiple foreign workers (as long as a separate Form I-140 employment-based immigrant visa petition, along with evidence of the particular job opportunity, is submitted for each employee).
USCIS also accepts situations in which the acquirer may dispense with the filing of a new or amended Form I-140 immigrant visa petition:
- If the original petition was approved under the first preference "extraordinary ability" category or the second preference national-interest waiver procedure (other than for physicians in medically underserved areas), a new Form I-140 is not required. These categories permit self-petitioning by the foreign worker. Thus, because a sponsoring U.S. employer is not necessary to gain original approval, a change in corporate structure is thought irrelevant to eligibility.
- In a labor certification case, where the changed circumstances relate to matters that would not have affected the outcome of the employer's test of the labor market, then there is no need to request successor-in-interest designation. USCIS cites two examples: (1) the choice of a new entity name or the adoption of a new fictitious business name ("so long as the ownership and legal business structure of the petitioning employer remains the same") and (2) a change in the location of the foreign worker's job, as long as the new place of work is within normal commuting distance.
- The passage of time coupled with agency inaction may resolve some successor-in-interest cases without the filing of burdensome evidence of ability to pay or submission of voluminous deal documents, but merely with the successor's filing of a letter explaining the new job requirements and duties and demonstrating why the new position is in the same or a similar occupational classification. This dispensation arises in situations where the job flexibility ("portability") provisions apply, Immigration and Nationality Act § 204(j); 8 U.S.C. § 1154(j). Under this provision, a foreign worker may still be eligible for green-card status even if he or she changes jobs or employers by satisfying four conditions: (1) 180 days have elapsed from the submission of the green-card (adjustment of status) application, (2) the initial employer's Form I-140 petition has been or will be approved, (3) the adjustment of status application remains unadjudicated, and (4) the new job is in the same or a similar "occupational classification" as the originally sponsored position.
The good news in the August 6 memorandum is overshadowed, however, by two USCIS bombshells:
- Although the new instructions allow immigration successorship with "transfers in whole or in part" (thus allowing the spin-off of merely a business division), transactions that do not involve "a clearly defined business unit" are disqualified. USCIS offers the example of the sale of a patented chemical formula between two entities where the seller ceases production of the chemical and then fills its requirements by purchasing the product from the buyer. Successor-in-interest designation for immigration purposes is not allowed, according to USCIS, because the seller "merely sold the manufacturing rights for a given product to [the buyer] without the transfer of the other related assets located within its business unit." Time will tell whether USCIS will limit this interpretation to wholly unrelated entities. While the agency's view may be appropriate in "naked" sales of intellectual property rights between unrelated parties, there is no apparent justification for prohibiting related entities within a multinational family of companies from enjoying the benefit of immigration successorship in a business restructuring that involves an intra-family transfer of IP rights without necessarily effecting a spin-off of a particular business unit.
- The August 6 memorandum asserts (incorrectly, in the author's view) that "[s]uccessor-in-interest determinations are principally relevant to the continuing validity of a labor certification." USCIS then proceeds to repudiate 25 years of agency practice by denying successor-in-interest designation to two classes of "priority workers" under the employment-based first preference immigrant visa category for which it had been routinely available:
An employer seeking to classify the alien as an EB1 Multi-National Executive of EB1 Outstanding Professor or Researcher . . . must file a new I-140 petition and establish the alien's eligibility under the requested category's specific eligibility requirements.
USCIS has not explained why it views immigration successorship "principally" through the lens of the labor certification procedure. The agency and its predecessor, the Immigration and Naturalization Service, have long accorded successor-in-interest designation to a host of nonimmigrant work visa categories that are exempt from the labor certification requirement. Similarly, both agencies have historically granted the designation to the EB1 Multi-National Executive or Manager immigrant visa classification, a kissing cousin of the L-1 nonimmigrant visa (available to key workers who hail from a foreign affiliate) and often a second cousin to the E-1 and E-2 nonimmigrant visas (for managers, executives, and personnel with essential skills coming to serve treaty-protected enterprises).
The wholesale elimination of eligibility for immigration successorship under the EB1 Multi-National Executive or Manager and the EB1 Outstanding Professor or Researcher immigrant visa categories should deeply concern deal makers and their corporate counsel once its significance becomes apparent. What this means is that—without explanation—USCIS will likely deprive immigration transfer status to many of the highest of high achievers who make the deals worth doing.
When key intracompany managers and executives reapply for green-card benefits (because they are viewed by USCIS as ineligible for successorship), they may no longer be allowed to invoke the same legal basis for eligibility as they enjoyed with the acquired company. Their former eligibility rested on the predicate that they brought invaluable expertise and knowledge from an affiliated entity abroad (which they gained in one of the last three years before entry to the United States as a nonimmigrant worker). After a restructuring, even if the former employer abroad and the U.S. employer are both acquired by the buyer, these key employees may be disqualified from EB1 eligibility if they are precluded from qualifying for successor-in-interest benefits. As a result, these workers may be required to find an alternative green-card category, if one is available (e.g., the labor certification approach could take more years than the manager or executive may be allowed to remain in the United States). Otherwise, these uniquely valuable employees may be required to leave the United States and take their experience and talents with them.
The situation for EB1 Outstanding Professors and Researchers swept up in a corporate restructuring may not be much better. If denied eligibility for immigration successorship, they will be required to assemble fresh evidence to demonstrate "sustained" outstanding achievement, something that may be impossible if their work is subject to trade-secret and nondisclosure restrictions. They also will likely face the subjectivity in decision making that arises when a different immigration officer makes a qualitative assessment of the individual's accomplishments. Since there is no res judicata effect accorded to a prior officer's determination of "outstanding" achievement, a new Form I-140 petition under this category could conceivably be denied. The daunting challenge, then, might be the same as for the Multi-National Executive or Manager: find another suitable employment-based green-card category, if one is available, or leave the country with your brains and talent.
USCIS is wrong to proclaim in a memorandum drafted without stakeholder consultation that only certain foreign workers whose employers are involved in new business combinations (those holding labor certifications) are allowed to continue their pursuit of permanent residence in the United States while other noncitizen employees (likewise affected by corporate restructurings, but in different immigrant visa categories) are precluded.
USCIS should not limit eligibility by a wooden view of immigration successorship while proclaiming an intention to adjust to changing business practices. The memorandum speaks a good game, but the agency's newfound flexibility is difficult to discern. If the transfer of vital human assets in a corporate restructuring is to continue, the business community and the corporate and immigration bars must advocate for a commonsense and workable regulation of successorship. They can do this in one of three ways: legislative advocacy in Congress and the White House, a request for rule making, or litigation against USCIS.