Article by Cora-Ann Pestaina
When it comes to corporate restructuring, the focus tends to remain firmly on the dollars and cents while the immigration consequences for the company’s foreign national employees are sometimes the last items considered, if considered at all. However, these immigration consequences can be quite significant and can include the loss of critical employees or lead to employer sanctions if employees are employed without valid work authorization. It is important to understand how these corporate changes can affect employees’ immigration status and it’s always best practice to have corporate counsel consult with immigration counsel in advance of any restructuring and not after it is a done deal and when some of the company’s nonimmigrant employees may have already fallen out of status.
This article discusses the effect of corporate restructuring on some of the most common nonimmigrant visa categories. The potential effect on the employees’ path to lawful permanent residency through employer sponsorship will be discussed in a subsequent article.
Corporate restructuring can take on various forms such as mergers, spin-offs, stock purchases, asset purchases, etc. and it is important to understand the type of restructuring in order to examine its potential impact on the foreign national workforce. For example, the decision of whether to purchase stock or assets has important immigration consequences. In a stock purchase, the buyer purchases all of the selling corporation’s capital stock. The buyer (or buyer’s representatives such as the board, the officers of the company and so forth) acquires all of the shareholders’ ownership rights and, indirectly, assumes all liabilities of the company (whether such liabilities were disclosed or not disclosed) including all liabilities associated with immigration compliance. In an asset purchase, the buyer purchases assets instead of stock and can dictate what, if any, liabilities will be assumed in the transaction. The buyer therefore limits its exposure to liabilities that may be large, unknown, or not stated by the seller, including liabilities related to immigration compliance. These types of corporate changes can significantly affect foreign national employees in nonimmigrant visa statuses such as H-1B, L-1 or E-1/E-2.
H-1B Employees
The H-1B is the most popular visa classification for foreign national professionals employed in the U.S. and is a unique visa classification. It is different from other classifications in that it requires filings with both the Department of Labor (DOL) and United States Citizenship and Immigration Services (USCIS). The first step in the preparation of an H-1B petition is the filing of a Labor Condition Application (LCA) with the DOL, attesting to compliance with the requirements of the H-1B program. The LCA collects information about the occupation including the occupational title, the number of immigrants sought, the gross wage rate to be paid, the starting and ending dates of employment, the place of employment, and the prevailing wage for the occupation in the area of intended employment. The LCA contains special attestation requirements for employers who previously committed willful violations of the law or for employers who are deemed to be H-1B dependent. The employer must also state that its employment of nonimmigrants will not adversely affect the working conditions of workers similarly employed in the area of intended employment.[1] Within one day of the LCA filing, the employer must maintain a public access file accessible to interested and aggrieved parties. The file must be available at either the principal employer’s place of business or at the employee worksite.[2] An executed copy of the certified LCA is submitted as part of the H-1B petition filed with USCIS.
USCIS regulations mandate that an amended H-1B petition be filed whenever there is a material change.[3] What may constitute a “material change” is determined on a case-by-case basis but any change that would necessitate a new LCA is generally a material change. Material changes may occur when there is a significant change in job duties; a change in job location; or when there is a change to the actual legal entity that employs the foreign national. With regard to a corporate restructuring, an amended petition is not required where a new corporate entity succeeds to the interests and obligations of the original petitioning employer (such as in a stock purchase) and where the terms and conditions of employment remain the same but for the identity of the petitioner.[4] In these instances, the new entity will be considered a “successor-in-interest” to the original H-1B petitioner. A new LCA will not be required but the new entity, in order to protect the status of any foreign national employees who hold H-1B status, must update and maintain certain information in the public access file of each H-1B employee, prior to the date of the reorganization, including a sworn statement assuming liability for the existing H-1B/LCA employees.[5]
This is one reason why early consultation with immigration counsel can be very important. Going forward, in applying for an extension of status for any of its H-1B employees, the new entity will be required to establish that it qualified as a “successor-in-interest” at the time of the restructuring. Accordingly, this assessment should also be made early to ensure that it can be successfully demonstrated in the future.
If the restructuring is an asset purchase and not a stock purchase and the new entity therefore did not assume all of the liabilities and obligations of the seller, the new entity would not qualify as a “successor-in-interest”. Employees in H-1B status would only be able to commence employment with the new entity upon the filing of a new petition by the new entity. This is referred to as “H-1B portability” and is only permitted if the H-1B employee was not employed without authorization before the filing of the new petition.
The new H-1B petition must therefore be filed before the start date at the new entity. Accordingly, it may be too late if immigration counsel is consulted after the date of the restructuring.
L-1 Employees
The L-1 visa category is reserved for intra-company transferees. It permits multinational organizations with operations abroad to transfer key employees (executives, managers or specialized knowledge employees) to the U.S. to provide temporary services to an affiliated U.S. entity. The foreign national employee must be transferring from a foreign entity with a “qualifying relationship” to the U.S. entity (e.g., parent, subsidiary or affiliate). This “qualifying relationship” means that there must be a shared nexus of control between the foreign and the U.S. entities. This relationship must continue to exist throughout the L-1 visa sponsorship although it does not have to be the exact relationship that existed when the L-1 visa was obtained.
Because one of the key attributes of the L-1 category is the “qualifying relationship” between the foreign and U.S. entities, corporate restructuring that affects this relationship, such as the sale of stock or assets of the U.S. entity, could dramatically alter the status of L-1 employees. It is important that the impact of the restructuring be examined prior to its effective date to allow time for L-1 employees who may need to apply for a change of status to another nonimmigrant status, if eligible, or who may need to depart the U.S. In a restructuring, the important factor will be whether the employing U.S. entity maintains a qualifying relationship with at least one active and operational foreign entity. For example, L-1 employees will maintain status if there is a purchase of a parent company which owns both the foreign and the U.S. entities. A demonstration that the qualifying relationship continued to exist despite the restructuring will be required when filing to extend the employees’ L-1 status.
E-1/E-2 Employees
E-1 (treaty trader) and E-2 (treaty investor) visas are issued pursuant to treaties of friendship, commerce, navigation, Bilateral Investment Treaties (BIT) or other arrangements between the United States and various other countries. The individual must be entering the U.S. solely to carry on substantial trade which is international in scope principally between the U.S. and the foreign state of which he or she is a national (E-1 trader) or solely to develop and direct the operations of an enterprise in which he or she has invested, or is actively in the process of investing, a substantial amount of capital in a bona fide enterprise (E-2 investor). A key employee from the treaty country of the E-1 or E-2, including executives and supervisors or essential personnel may also obtain an E visa.
Importantly, not only must a person entering on an E visa be a national of a treaty country but if he or she is an employee of a company, both the person and the company must be from the same treaty country. The nationality of the company is generally based on the nationality of the person(s) who owns at least 50% of the company. In the event of a corporate restructuring leading to a change in ownership, the most important factor will be whether the nationality of the company is maintained. For example, if an Israeli company is purchased by other nationals of Israel then the E-1 or E-2 employees would maintain their status. However, if this company were purchased by nationals of Spain, a country which also has E-1 and E-2 treaties with the U.S., this would terminate the E visa holders’ status and require their departure from the U.S. because they would no longer hold the same nationality as the company. Oftentimes, this restructuring is conducted at a high level and not communicated to employees who may remain unaware of a disruption in their visa status that could ultimately affect their ability to continue to live in the U.S. Discussions must be held prior to any restructuring that would change ownership and a loss of work authorization for key employees.
If the H-1B, L-1 or E visa employee’s status is not considered and if necessary steps are not taken in advance, the employee could fall out of status on the effective date of the corporate restructuring (i.e., the date that the final documentation is signed). If the employee continues to work, they could be doing so without work authorization, which could potentially affect their ability to become a lawful permanent resident (i.e., a green card holder) in the future. The employee’s ignorance regarding the behind-the-scenes corporate restructuring will not serve as a defense. The employer could also face sanctions for employing workers without employment authorization. Derivative family members (e.g., spouse or child) could also be rendered out of status. Immigration regulations[6] do allow for a grace period of 60 days based upon a cessation of the nonimmigrant worker’s employment. However, employment during the grace period is prohibited and could affect the nonimmigrant worker’s ability to remain in the U.S. and transition to another status. In a case where the corporate restructuring and its effect on the nonimmigrant worker employees is only being discussed after its effective date, the specific facts would need to be examined to determine exactly how the nonimmigrant worker is affected.
The importance of examining the potential immigration-related issues that may arise as a result of a corporate restructuring for companies that employ foreign nationals cannot be overstated. A seamless transition can only be accomplished through thoughtful planning which will protect against any significant business interruption and avoid any inadvertent violations of immigration laws and regulations.
[1] See 8 U.S.C. § 1182(n)(1)(D); 20 C.F.R. §§ 655.730-733.
[2] 20 C.F.R. § 655.760(a).
[3] See 8 C.F.R. §214.2(h)(2)(i)(E).
[4] See INA §214(c)(10), 8 USC §1184(c)(10).
[5] See 20 C.F.R. §655.730(e).
[6] See 8 CFR 214.1(l)(2).
