We are only one quarter into 2013, but this year has already seen a flurry of multi-billion-dollar mergers and acquisitions from some of corporate America's most recognizable names. In the past few months, airline giants American Airlines and US Airways announced they would be merging in an $11 billion deal, while Warren Buffett's Berkshire Hathaway and global investment firm 3G Capital announced the acquisition of the H.J. Heinz Company for $28 billion. Those deals came just a week after Dell Inc. announced that company founder Michael Dell had partnered with global technology investment firm Silver Lake Partners to acquire and privatize the company in a transaction valued at $24.4 billion.
Managing the legal aspects of corporate restructuring is a difficult task. For companies that employ foreign nationals, that task is even more complicated as there are significant immigration-related consequences that must be addressed prior to sealing the deal on a merger or acquisition. Because most work visas are employer-specific, changes in a company's structure could affect the validity of a foreign national employee's nonimmigrant visa status or pending green card application. In addition, a company's failure to recognize the immigration issues arising as a result of its restructuring activities can not only seriously impact its foreign national employees, but also have serious consequences for the company. Employers who fail to take the proper measures may find themselves being sued by foreign national employees for negligence in handling their immigration matters. For example, when a company's actions cause the foreign national employees to fall out of legal status, have problems pursuing permanent residency, or even potentially face bars on reentering the United States after travel abroad, those employees may seek action against the employer. Additionally, employers with immigration violations potentially face:
- Worksite raids and loss of business during the raid;
- Compliance audits;
- Significant fines;
- Criminal sanctions;
- Revocation of state business licenses and government contracts; and
- Negative publicity.
Worksite enforcement has become increasingly aggressive over the past few years and there has been a noticeable shift from monetary fines to criminal prosecution of employers with unlawful hires and paperwork violations.
In view of the recent crackdowns by federal and state governments on immigration compliance, the steady stream of lawsuits being filed by affected employees, and the media hype surrounding immigration reform, it is critical for companies that hire foreign nationals to include potential immigration consequences of a corporate restructuring as part of the due diligence process.
Issues Affecting Nonimmigrant Visa Holders
In these situations it is important to determine whether the employer after a corporate restructuring is the same employer that filed the approved visa petition with the U.S. Citizenship and Immigration Services (USCIS) or Department of State (DOS). The consequences of a merger or acquisition depend upon the type of nonimmigrant visas that the company's employees hold.
The most common temporary work visa is the H-1B visa, which is used by U.S. companies to temporarily hire foreign national workers for specialty occupations that require at least a bachelor's degree or its equivalent to perform the job duties. H-1B workers are authorized to work for a specific company in a specific geographic location in a specific position and for a specific salary. Companies that hire an H-1B worker are required to make an attestation to the U.S. Department of Labor (DOL) that they will pay the worker a salary that meets or exceeds the prevailing wage for the listed occupation in the geographic area of intended employment for the duration of the employee's status. This attestation is made in what is called a Labor Condition Application (LCA).
If an H-1B worker changes employers, the new employer must generally file a new H-1B petition with USCIS. However, if the new employer is a "successor-in-interest" to the previous employer, an amended petition may not be needed. USCIS requires an amended H-1B visa petition to be filed if there are any "material changes" in the terms and conditions of an H-1B worker's employment or eligibility (for example, a major change in the employee's job duties). However, USCIS does not automatically require the filing of a new LCA and amended H-1B petition where a new corporate entity succeeds to the interests and obligations of the original petitioning employer and where the terms and conditions of the employment remain the same but for the identity of the petitioner. In this situation, the new employer, called a successor-in-interest, must make available for public inspection a sworn statement that it accepts all the obligations and liabilities of the LCAs filed by the predecessor entity, a list of affected LCAs and their dates of certification by DOL, a description of the new entity's actual wage system, and the federal employer identification number (EIN). The new entity must provide this sworn statement before the H-1B employees are transferred to the new employer. If, however, there is a material change in the terms of an H-1B worker's employment as a result of a merger or acquisition, then a new LCA or amended H-1B petition may need to be filed. For example, if the new employer transfers an H-1B employee to another location, a new LCA may be required. In this case, the new LCA must be filed with DOL prior to the relocation of the employee in order to avoid filing an amended H-1B visa petition. Otherwise, if this issue is overlooked, an amended H-1B petition will need to be filed with USCIS, potentially costing the company thousands of dollars per employee.
One issue that often comes up in the situation of a successor-in-interest is when an H-1B employee needs to travel abroad. Generally, in order to reenter the United States, the employee must have a valid H-1B visa annotated with the petitioning employer's name. However, in this case, the visa annotation would list the predecessor employer, which could cause the employee difficulty when trying to reenter the United States. In addition, a new visa may only be obtained when the successor employer files an extension or amended H-1B visa petition with USCIS, and that petition is subsequently approved on behalf of the employee. Collaboration with an experienced immigration attorney prior to finalizing the corporate reorganization can help prevent these issues from occurring, thereby minimizing the stress to employees and human resource specialists.
Another potential issue with regard to H-1B visas is whether a merger or acquisition results in the new entity becoming H-1B dependent. An employer is considered to be H-1B dependent if it has fewer than 25 full-time employees, more than 7 of whom are on H-1B visas; 26-50 full-time employees with more than 12 on H-1B visas; or more than 50 full-time employees where more than 15 percent are on H-1B visas. This is a critical determination to make because H-1B dependent employers are subject to additional compliance and attestation requirements. For example, prior to hiring an H-1B worker, an H-1B dependent employer must make a good faith effort to recruit U.S. workers for the offered position through advertising, job fairs, and other forms of industry-wide recruitment. Furthermore, the employer must offer the job to any equally or better qualified U.S. worker who applies for the position and must not favor current nonimmigrant employees who have not yet obtained H-1B status (such as students currently working pursuant to Optional Practical Training). Because of the arduous process that H-1B dependent employers have to go through prior to hiring a foreign national, most companies try to avoid becoming H-1B dependent at all costs.
Another visa category commonly affected by a corporate transaction is the L-1 temporary work visa. The L-1 visa is useful for multinational companies that wish to transfer managers, executives, and specialized knowledge employees to serve in similar positions at a qualifying organization in the United States. In order to qualify for an L-1 visa, the employee must have been employed for at least one year in the past three years by a foreign parent, subsidiary, affiliate, or branch of the U.S. company. Therefore, if the merger or acquisition of a company alters the organizational structure so that there is no longer a qualifying corporate relationship between the U.S. employer and the foreign entity, L-1 employees in the United States may lose their eligibility. It is important to note, however, that the foreign entity that actually employed the L-1 transferee does not have to remain in existence as long as there is another foreign entity that has a qualifying relationship with the U.S. employer. A merger or acquisition that does not destroy the qualifying relationship merely imposes an obligation upon the employer to notify USCIS of the change in the organizational structure at the time of filing a petition for the extension of the employee's L-1 visa status. However, if the worker is moved to a different related entity, an amended L-1 petition may need to be filed with USCIS.
Mergers and acquisitions can also create qualifying relationships for purposes of the L-1 visa. In this situation, L-1 visa petitions may not be filed until the relationship has been formed, which usually involves the transfer of stock. An agreement to create a relationship is not sufficient to establish the qualifying relationship because it does not involve the necessary ownership and control.
A third visa category often used by multinational companies that could be affected by a corporate reorganization is the E visa category. The E-1 visa is used by citizens of countries with which the United States maintains a treaty of commerce and navigation who are coming to the United States to carry on substantial trade, principally between the United States and the treaty country (for example, an Israeli citizen who is coming to the United States to work for a company that imports security systems from Israel). The E-2 visa is used by citizens of countries with which the United States maintains a bilateral treaty who are coming to the United States to work for a company that is owned by nationals of the same treaty country as the employee (for example, a Swiss citizen coming to the United States to work for the Swiss cheese company, La Fromagerie).
In order for an E-1 or E-2 employee to work in the United States, the U.S. employer must qualify as a treaty company, either because a majority (more than 50 percent) of its trade is with the treaty country (E-1) or because it is at least 50-percent owned by nationals of the treaty country (E-2).
In the E-1 scenario above, if the U.S. company is acquired and the new employer continues to carry on a majority of its trade with Israel, then the Israeli E-1 employee may continue to work in the U.S. in E-1 visa status (although it is recommended that an amended E-1 petition be filed to reflect the change in corporate structure). However, if the new employer cannot show that more than 50 percent of its trade is with Israel, the E-1 employee will no longer qualify for E-1 visa status and will have to change to a different visa status.
In the E-2 scenario, the Swiss citizen may only obtain an E-2 visa if he or she works for a company in the United States that is at least 50 percent Swiss owned. Owners who are United States permanent residents or who are dual citizens of both the United States and the treaty country are treated as U.S. nationals for this purpose and their ownership interest is not counted toward the requirement for 50 percent ownership by treaty country nationals. Therefore, 50 percent ownership by the treaty country nationals must be maintained in any merger or acquisition; if the treaty company (La Fromagerie, in the example above) is acquired by a company that is not Swiss, E-2 employees will no longer meet the requirements for this category and will be forced to leave the United States if they are not eligible to apply for a different visa category.
Issues Affecting Pending Green Card Applications
The employment-based green card application process generally consists of three steps (see sidebar). In the case of pending green card applications, it is critical to first determine whether the new employer entity is considered a successor-in-interest. If not, the new employer will have to start the green card process over from the very beginning, potentially costing the company thousands of dollars in legal and filing fees and delaying the green card by several years. For purposes of the green card process, a new employer entity will be considered a successor-in-interest if (1) the job opportunity is the same as the job opportunity listed in the labor certification; (2) the new employer establishes its eligibility as a successor-in-interest in all respects, including providing evidence of the predecessor's ability to pay the employee the offered wage as of the date of the filing of the Program Electronic Review Management (PERM) application; and (3) the new entity's I-140 petition documents the transfer and assumption of the ownership of the predecessor entity.
In addition, an employee's ability to continue with the permanent residence (green card) application depends on where in the process he or she is at the time of the corporate restructuring. If the labor certification is pending, it will remain valid as long as the new employer is a successor-in-interest to the employer that filed the original labor certification and there have been no changes in job position or location. Whether or not the new employer qualifies as a successor-in-interest is decided by USCIS at the time of the filing of the I-140 petition. Once the labor certification is approved by DOL, the new employer would then file the I-140 petition with USCIS along with evidence of the successor-in-interest relationship. However, if there are any changes in job position or location, or if the new employer does not qualify as a successor-in-interest, the pending labor certification will be invalidated and the new employer will have to file a new labor certification. This can have serious repercussions for employees who are relying on the pending labor certifications to continue extending their underlying nonimmigrant visa status. It will also delay the green card process significantly, especially for those employees concerned with priority dates due to immigrant visa backlogs.
If the I-140 petition is pending when the corporate restructuring occurs, but the adjustment of status application has not yet been filed, then the new employer will need to file an amended I-140 with USCIS showing that the requisite successor-in-interest relationship exists. The same is true if the I-140 has been approved but no adjustment of status application has been filed yet.
The best scenario for both the new employer and foreign national employees in the middle of the green card process is an approved I-140 and a pending adjustment of status application. This is because the American Competitiveness in the 21st Century Act (AC21) allows a foreign national to change employers if the I-140 has been approved and the adjustment of status application has been pending for 180 days or more, as long as the new position is in the "same or similar occupational classification." In determining whether a new position is the "same or similar" as the position on the approved labor certification, USCIS looks at several factors including the job descriptions of both positions, the salaries, and the DOL's Dictionary of Occupational Titles (DOT) and/or Standard Occupational Classification (SOC) codes for each position. While there is no requirement to notify USCIS of a change in employer with respect to a pending adjustment of status application, many attorneys recommend proactively notifying USCIS of the change in employer and showing that the new position is the "same or similar."
Multinational managers and executive transferees (see L-1 visas above) do not have to go through the arduous labor certification process when applying for a green card. However, because their eligibility for permanent residence hinges upon the relationship between the foreign employer and the U.S. employer, a corporate restructuring can have negative consequences on these employees' eligibility to qualify for permanent residence in this category.
When the U.S. company and the foreign company are affiliated through the ownership of a group of individuals, mergers and acquisitions become an issue because each group of individuals must own and control each business and each individual in the group must hold approximately the same proportion of each business (or the same shareholders must have a controlling interest in each business). Additionally, the U.S. employer must have been doing business in the United States for at least one year to be able to file this type of petition on behalf of one of its employees. Interestingly, there is no requirement that a qualifying relationship exist between the United States and the foreign entities for the one-year period, so a U.S. entity acquired by a foreign entity may immediately apply for an otherwise qualifying manager or executive. However, the foreign entity that actually employed the transferee must continue to exist in order to file an immigrant visa petition on behalf of a multinational manager or executive.
I-9 Compliance
One of the most important (but overlooked) issues that an employer should be concerned with at the time of a restructuring is the Form I-9. The Immigration Control and Reform Act of 1986 requires that a Form I-9 (Employment Eligibility Verification) be completed for each newly-hired employee, with some exceptions. A successor-in-interest may assume the I-9 liabilities of the predecessor employee; however, this means that the new employer is also liable for any mistakes in the I-9s previously completed by the predecessor. Therefore, before a transaction is undertaken, an examination of the organization's I-9s should be conducted through either an audit or a review. If the successor organization does not assume I-9s of the predecessor, new I-9s may be completed for each of the organization's employees within three days of the transaction to avoid any allegation of an unfair immigration-related employment practice such as document abuse or discrimination on the basis of citizenship or nationality.
Conclusion
It is critical for in-house counsel to be aware of immigration-related issues that may arise as a result of a restructuring between companies that employ foreign nationals. Companies should work with competent and experienced immigration counsel early on in any transaction to ensure that they are in compliance with immigration regulations and to ensure that foreign national employees remain authorized to work in the United States.