Due Diligence for Corporate Transactions Should Include Assessing Immigration Law Compliance

Contact: Ingrid E. Cummings, APR Rubicon Communications, LLC
Phone: 317-873-0651

Indianapolis, August 1, 2003

Due Diligence for Corporate Transactions Should Include Assessing Immigration Law Compliance

It is important to take into consideration the immigration status of employees of companies contemplating transactions that change corporate structure. Recent media reports that low company valuations may be creating a wave of merger and acquisition activity. The changing demographics of the workforce are creating new issues for deal makers at the due diligence stage.[1]

In mergers, partial or complete asset purchases or stock purchases, termination of employees of the target company and rehire by the buyer company may be preferred as a way to limit exposure to certain claims. However, the employees may not be eligible under U.S. Immigration Law for rehire by the buyer.

In some situations, failure to retain key employees can be a deal killer. An example would be where the impetus for the transaction is specialized software, and program engineers are critical to the buyer's plans to market license agreements, develop customer specific adaptations and provide after-sale services. Management needs assurance that key employees can continue work for the buyer without interruption.

Foreign born employees themselves usually have expectation regarding maintaining lawful status, and often they plan to utilize a job with a U.S. employer as the basis for becoming a lawful permanent resident ("green card" holder).

Here are a few suggestions for assessing the immigration consequences of a corporate transaction:

First, focus on the target's compliance with the Employer Sanctions Provisions of the Immigration and Naturalization Act (the "Act").[2] Such provisions make it unlawful to hire or retain someone not authorized for employment under the Act. Employers are required to file Form I-9 to document their good faith efforts to determine employee eligibility for employment.[3] This includes noting the expiration date of any document purportedly evidencing eligibility for employment.[4]

Thus, the target employer should be able to warrant and document that all employees are eligible for employment under pre-transaction conditions and to notify the buyer of any expiration dates for visas or employment authorization documents. Regardless of any representations or warranties, however, any new employer of a foreign national must comply with the law and regulations. In most circumstances, a previous employer's assurances about the immigration status of employees will not, of itself, afford the employee lawful status or authorization for employment.

Next, the buyer should determine the number and position of all employees of the target who are not citizens of the United States. This should include employees with temporary visas (called non-immigrant visas) or temporary employment authorization documents.

Next, if there are employees on temporary visas or with time limits on their employment authorization documents who the buyer wants to retain, an analysis of the particular status of each such employee must be done. Here are a few examples of typical situations:

Students who graduate from college often are given permission to work for one year as part of their training. This is called optional practical training. A transition to a new visa status will be required in order to retain an optional practical training student beyond the expiration of the student's employment authorization documents.

Another common situation involves an employee who is well into the process of obtaining lawful permanent resident status based upon a job offer from the target. The Act now permits some foreign employees who have had their petition to adjust their status to lawful permanent resident pending for 180 days or longer to "port" to a new employer.[5] Processing times for employment based permanent immigration frequently exceed three years. In some situations the "port" provisions will be needed, while in others (e.g., most 100% stock purchases) the change in employment does not trigger significant immigration consequences.

A final example would be H-1B visa holders, which is for professionals in "specialty occupations."[6] This visa allows a foreign national to work for a specific employer for up to six years and is often utilized as a bridge for someone going through the lengthy permanent immigration process. In most situations, a new process for the new employer/sponsor must be undertaken. However, employers sometimes balk at the H-1B visa sponsorship requirement, which includes public posting of the terms (including salary) of employment.

There are many other non-immigrant visas, each involving a complicated set of regulations that must be followed.

From the perspective of the employee, and his or her family, the change in employer can significantly alter their plans to remain in and work in the U.S. The employee's options may include switching to a new employer not involved in the transaction.

If changes of visa status are required, Immigration and Naturalization Service processing time must be respected. Changes in status or transferring to a new employer can take as little time as a few weeks to as long as many months. Thus, evaluating the immigration consequences of a major corporate transaction should be done as far in advance as possible.

Thomas R. Ruge
LEWIS & KAPPES, P.C.July, 2003

Mr. Ruge has practiced immigration law since 1976. He is a former adjunct profession of immigration law at the Indiana University School of Law at Indianapolis and founding chairperson of the Indiana Chapter of the American Immigration Lawyers Association. For more information regarding immigration issues or the immigration practice group at Lewis & Kappes, see www.Lewis-Kappes.com.

[1] Marketplace, July 8, 2003.

[2] 8 U.S.C. 1324a

[3] 8 C.F.R. 274a

[4] 8 C.F.R. 274a.2(b)(1)(v)

[5] 8 U.S.C. 1154 (j); (INA § 204(j))

[6] 8 U.S.C. 1101(o)(15)(H)(i)(b); 8 C.F.R. 214.2(h)