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Today’s business world marches to the beat of change. Against the ever-shifting backdrop of global commerce, two companies across an ocean meet; their interests align; they agree to mingle assets. After the ink dries on the agreements, international employees in the old company are now international employees of the new. For these companies to achieve seamless change, the transition of employees holding U.S. visas should be given special weight by legal and human resources managers. Whether employees have a work visa of finite duration or a work authorization tied to a full employment-based immigration process, the impact of mergers, acquisitions, and outsourcing cannot be overstated. The migration of people raises key compliance issues that missteps and omissions could transform into liabilities for the successor company. In the current climate, the greatest peril comes from the potential civil and criminal liability for workers whose employment eligibility is not verified or who lack employment authorization. In addition, various visa categories require compliance with wages, job function, location, and other factors, and if the original employer has not maintained up-to-date documentation demonstrating such compliance, the successor company will have to brave the auditor’s scrutiny. It is thus imperative that the due diligence prior to closing encompass these immigration-related areas of work force compliance. VISA STATUS One of the first issues raised in a merger is whether the visa status of certain employees will continue after the change in employer. The basic rule under the U.S. immigration laws is that if the acquiring employer (“Newco”) is deemed the “successor in interest” to the original sponsoring employer (“Oldco”), the visa holder may continue employment with Newco immediately upon the closing of the deal. The key factor is whether Newco absorbs the underlying business, including assets and liabilities of Oldco. If Newco is a successor in interest in the case of a full stock acquisition, such as a seamless change in ownership of the acquired company, it fully absorbs Oldco’s business, and the ongoing work authorization of visa holders moving from Oldco to Newco is not compromised. In addition, the residency process may continue for the affected workers. Where the acquisition involves assets rather than a full stock acquisition, the question becomes whether Newco has acquired virtually all of the assets and liabilities of Oldco. A full absorption of the old business need not take place — Newco may be purchasing only certain product lines or business units. In that instance, counsel needs to assess whether the acquired unit is a defined business — that is, the division responsible for a certain product line or function (for example, IT, accounting, or procurement). In either instance, the “successor in interest” argument is more likely to be persuasive if a fully defined business continues as part of the new organization. For other types of corporate restructurings, such as mergers, divestitures, and spin-offs, the question hinges on whether a full business line has transferred to the successor company. Pertinent factors include whether equipment, employees, intellectual property, licenses, and other assets and liabilities transfer to Newco. By contrast, if Newco acquires only certain components or limited assets, comparable to “spare parts” being sold in lieu of a fully functional machine, the business line is likely not continued and a “successor in interest” relationship is not indicated. Outsourcing is an increasingly common transaction but falls outside traditional notions of corporate restructuring. Corporations may elect to reduce costs and attain a higher service level by contracting out certain key functions, and the supplier may elect to absorb the business unit that managed the outsourced function and realign that function within its business model. Where the full business unit, including assets such as employees, is transferred to the vendor, the supplier may be deemed a “successor in interest” to the original employer, making it akin to a divestiture of a business unit. Once a successor in interest has been established, Newco may elect to undertake the immigration-related responsibilities of Oldco. For most visa categories, an amendment may be filed within a reasonable period (60 to 90 days) after the closing of the transaction and the transition of payroll and employment. In these instances, the candidate’s visa and work authorization will continue naturally, pending approval by the U.S. Bureau of Citizenship and Immigration Services. For one key visa category — the H-1B visa for specialty occupation workers, professionals who possess a college degree and work in a specialty field — no amendment is required if the new employer expressly accepts immigration-related obligations and liabilities through a memorandum documenting this undertaking in the public-access files. The transaction documents should also include an assumption of these liabilities. Newco may wish to include an indemnification agreement by Oldco for any penalties associated with noncompliance that Newco fails to discover. It is essential that Newco closely review the H-1B public-access files to determine compliance before it accepts liability. GREEN-CARD HOLDERS Visa holders in the immigrant “green card” (residency) process via Oldco’s sponsorship (also known as the “in-scope” visa holders) may be concerned about preserving the benefit of the application as a result of the transition to Newco. If Newco is a successor in interest, the company typically can rely on a simple amendment to these candidates’ immigrant petitions and expect the process to continue more or less uninterrupted if their general duties and location remain the same at Newco. In the case of intracompany managers and executives who have applied for “priority worker” petitions, Newco will need to establish that it continues to maintain global operations. Because the underlying residency eligibility of these workers is their experience with Oldco’s foreign operations prior to transferring to the United States, that experience exempts the sponsoring employer from having to conduct a job market test. If Newco absorbs only the U.S. operations of Oldco, the immigration agency has discretion to deny the petition, because the transferring entity is no longer part of Newco’s organization. In many instances, however, the residency process may be continued provided Newco has some global operations, even if they do not include the original transferring entity. If Newco is not a successor in interest to Oldco, however, the situation for visa holders is no different than if they left their employment to begin work with a new, unrelated company. Newco, as the new employer, must sponsor the employees anew for a work visa and, for those in the residency process and not fully eligible to change employment, for permanent residency. But Newco’s substitution as a new employer may present significant adverse consequences to visa holders. The most practical solution may be to limit the in-scope visa holders to those who are more mobile — those who have several years left on their visa status and who are eligible to transfer their visas to the new company; however, options do exist for valuable workers whose visa situation is more complex. The consequences for visa holders must be explored in advance of closing so that Newco is positioned to maintain compliance, preserve work authorization, and counsel transitioning employees. The company’s focus on these key issues and communications with visa holders will help avoid a loss of key workers who may look to other employers that are offering immigration “perks.” In addition, the due diligence mandated by the U.S. immigration laws also encompasses overall work eligibility of the transitioning work force as a whole and a full review of all immigration-related compliance files. Since April 2006, the Department of Homeland Security and its immigration enforcement arm have engaged in an unprecedented and aggressive campaign of criminal and civil investigations for work site compliance violations, particularly in industries with a high level of identity fraud and work permit violations. In this climate, companies engaged in major acquisitions or transitions must engage in a close audit of I-9 files. In addition, they need to ensure that Oldco has responded to any Social Security Administration letters indicating a “no match” between the Social Security number provided for an employee and the Social Security database. Companies may consider conducting a full new-hire I-9 process at closing, a potentially daunting task depending on the volume of workers but one hat would avoid any transfer of liability (in that instance, the contract documents should reflect the exclusion of I-9 liability from the transaction). Alternatively, companies may instead review Oldco’s I-9 files in advance of the closing and prepare new I-9s only in cases where they find a substantive defect in the original I-9. The audit should be documented and a compliance memorandum developed. With these protections in place, Newco can accept the I-9 liabilities and still include an indemnification agreement as part of the closing documents. Any major transaction like this requires the parties on both sides of the deal to evaluate compliance, liability, and operational issues closely, including these immigration-related diligence items. These elements are essential to facilitate a fluid transition of personnel, and incorporating these components into the overall timetable for the transaction will lay a strong foundation for international human resources management in the new organization.
Elizabeth Espin Stern is partner and head of the global migration and executive transfers group in the D.C. office of Baker & McKenzie.

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