More on the Impact of Corporate Restructurings on H-1B Workers

We wrote last year on the immigration implications of corporate restructurings on foreign national employees in H-1B status, the main nonimmigrant (temporary) work visa category. Stanley Mailman & Stephen Yale-Loehr, The Immigration Impact of Corporate Reorganizations on H-1B Workers, New York Law Journal, Apr. 24, 2000, at 3 (Immigration Impact). Since that article, three important developments have occurred: (1) Congress has passed a law addressing this issue; (2) the Immigration and Naturalization Service (INS) has issued its latest views on this topic through recent correspondence; and (3) new regulations published by the Department of Labor (DOL) establish new procedures in this area. Unfortunately, as will be seen below, at least one important issue remains unresolved.

Background

As background, H-1B status for temporary professional workers is job- and employer-specific. A worker who changes jobs or employers must obtain a new or amended H-1B before starting work in the new job or for the new employer. That requirement can sometimes pose problems, especially when the new employer wants the worker to start right away. Unfortunately, it can take four or more months for an H-1B petition to wend its way through the various bureaucracies involved. First, the employer must determine the prevailing wage for the job, which is sometimes done through a state labor office. Second, the employer must file a labor condition application (LCA) with the federal DOL and receive certification of that filing. Third, the employer must file the amended or new H-1B petition, along with the approved LCA, with the INS.

Sometimes a company must file a new or amended H-1B petition even if the employee keeps the same job but is affected by a corporate restructuring. INS regulations require an amended or new H-1B petition if there are "material changes in the terms and conditions of employment." 8 C.F.R. § 214.2(h)(2)(i)(E). But what is a "material" change? The INS regulations fail to define this key term. It certainly includes a significant change in the nature of the job itself, e.g., from computer programmer to sales director. But what happens when the job remains the same but there is a change in the ownership of the company or division where the job is situated?

This is where a concept known as "successor in interest" comes in. While the concept is not uniformly defined in immigration law, the INS has recognized a successor in a purchasing company that assumes the rights, duties, obligations and assets of the original company and continues to run the same kind of business. See memorandum from James A. Puleo, Acting INS Executive Associate Comm’r, to all INS offices, Amendment of Labor Certifications in I-140 Petitions, File No. HQ 204.24-P (Dec. 10, 1993), reproduced in 70 Interpreter Releases 1692 (Dec. 20, 1993); Matter of Dial Auto Repair Shop, Inc., 19 I. & N. Dec. 481 (Comm’r 1986). If a successor in interest exists, there is no material change, and hence no need to file a new or amended H-1B petition.

A New Law

But what constitutes a successorship in interest? Does a company have to assume all the rights and liabilities of a company it acquires, or can it just assume the immigration rights and liabilities to be a successor? The INS has been unclear on this point. See generally Immigration Impact, supra; Angelo A. Paparelli, et al., "It Ain’t Over till It’s Over": Immigration Strategies in Mergers, Acquisitions and Other Corporate Changes, 5 Bender’s Immigr. Bull. 789 (Oct. 1, 2000). Immigration and corporate lawyers have complained about this ambiguity for some time. Responding to those cries, last fall Congress passed a provision addressing corporate reorganizations and H-1B workers. The provision, buried in § 401 of the Visa Waiver Permanent Program Act, Pub. L. No. 106-396, 114 Stat. 1637 (2000), provides that an amended H-1B petition is not required where the petitioning employer is involved in a corporate restructuring (including but not limited to a merger, acquisition, or consolidation), as long as the new corporate entity "succeeds to the interests and obligations of the original petitioning employer and where the terms and conditions of employment remain the same but for the identity of the petitioner." There is no legislative history to explain what interests and obligations the new corporate entity must assume to satisfy the new law.

A New INS Interpretation

The INS has not yet published regulations to implement this new law. In the meantime, corporate restructurings are continuing apace, and people need guidance now. For that reason, Steven Ladik, an immigration lawyer in Dallas, Texas, wrote the INS on March 15, 2001 regarding a proposed acquisition. According to Mr. Ladik, "Company E" will acquire a substantial portion of the information technology outsourcing division of "Company S." As part of the acquisition, Company E will acquire several thousand employees of Company S, including over 100 H–1B nonimmigrants. Mr. Ladik requested confirmation from the INS that amended H–1B petitions need not be filed where Company E expressly agrees to succeed to all obligations of Company S with regard to the labor condition application and its attestation provisions, and where the terms and conditions of employment will remain the same but for the identity of the petitioner. As support, Mr. Ladik cited section 401 of the Visa Waiver Permanent Program Act mentioned above.

In his March 22 response, Efren Hernandez, a senior INS official, first quoted the INS regulation that requires a petitioner to file an amended H–1B petition to reflect any material changes in the terms and conditions of employment or training or the beneficiary’s eligibility. Mr. Hernandez noted that the INS has "consistently interpreted" this requirement to mean that where a second entity assumes "substantially all" of the assets and liabilities of the first entity, amended petitions are not required. (Alas, we wish that were the case. Had the INS been consistent all along, the 2000 legislation would not have been necessary.) Mr. Hernandez added the following important point: "[T]he assumption of liabilities refers to immigration-related liabilities, such as LCA obligations and violations thereof. It does not refer to non-immigration related obligations and liabilities, such as environmental or tort obligations, for example." Mr. Hernandez noted that the Visa Waiver Permanent Program Act merely amplifies the fact that a merger, acquisition, or consolidation does not automatically create material changes to the terms and conditions of employment. Mr. Hernandez thus agreed that the acquisition described by Mr. Ladik appears to be one in which amended petitions are not required.

The INS letter is reproduced in 78 Interpreter Releases 609 (Apr. 2, 2001). We hail the INS for its common-sense interpretation that it is only the immigration-related assets and liabilities that must be assumed to avoid having to file amended H-1B petitions.

New DOL Regulations

A new DOL regulation adds some procedural meat to the bare statutory bone. Until now the DOL and the INS traditionally viewed a new employer tax identification number as a key element in determining when a new legal entity exists, triggering a requirement to file a new or amended H-1B petition. The DOL had stated in correspondence that if an individual was working for an employer with a different tax identification number than the one on the original H-1B form, the employer had to file a new LCA. See letter from James Norris, Chief, DOL Division of Foreign Labor Certifications, to attorney Donald Freiberg (Mar. 4, 1997), reproduced in 74 Interpreter Releases 1095 (July 14, 1997). In turn, the INS had indicated that if a new LCA was required, a new or amended H-1B petition had to be filed. See letter from Isaiah Russell, Jr. Acting Branch Chief, Business and Trade Services Branch, INS Benefits Division, to attorney Donald Freiberg (Mar. 19, 1997), reproduced in 74 Interpreter Releases 1097 (July 14, 1997).

In apparent deference to the new statute, new DOL LCA regulations back down from that view somewhat. 65 Fed. Reg. 80,110-80,254 (Dec. 20, 2000). The new regulations acknowledge that in some circumstances a corporate restructuring will not trigger a requirement to file new LCAs for existing H-1B employees, even if the change involves a new employer identification number. Id. at 80,112 (supplementary information). To comply with the new rule the new entity must maintain a list of the H-1B employees transferred to it and maintain in the public access file a list of the affected LCA numbers and their dates of certification, a description of the new entity’s actual wage system, the new entity’s employer identification number, and a sworn statement from an authorized representative of the new entity expressly assuming the liabilities and obligations of the existing LCAs. Id. at 80,232-33 (adding 20 C.F.R. § 655.760(a)(7)). The statement must contain certain specified language (including, according to the preamble, assumption of liability for any violations by the previous entity under the LCA). According to the regulation, the new entity "shall not" employ any of the predecessor’s H-1B employees unless either this statement is executed and placed in the public access file or new LCAs and petitions are filed. Successors will not be able to use existing LCAs of the predecessor company to file new petitions or extend existing petitions.

The DOL estimates that about 1,000 employers a year will take advantage of this new procedure, resulting in about 10,000 fewer new or amended LCAs that have to be filed each year. Id. at 80,112 (supplementary information). An employer does not have to meet the Internal Revenue Service’s definition of a "single employer" to take advantage of this procedure. Id.

The new DOL rule formalizes the premise of the new statute, namely that the acquiring company must agree to take over the LCA-related interests and obligations of the original petitioning employer. The new rule says in essence that as long as the new company states its willingness to do so, no new LCA is required. Thus, in a way, companies can self-define when a particular restructuring falls within the statute by following the DOL’s procedures.

Travel Issues

One unresolved issue concerns travel. Can an H-1B worker who is now working for a different company because of a corporate restructuring travel overseas and return to the United States on his or her original H-1B visa? The answer is unclear. In his letter to Mr. Ladik, the INS’s Mr. Hernandez noted that until extension petitions are filed, the INS cannot issue documentation reflecting the alien workers’ H–1B status for the new employing entity. He advised that if any of the acquired H–1B employees wish to travel before that time, the successor company may want to file an amended petition to obtain a new approval notice reflecting the worker’s current status for reentry purposes. An employer who files such an amended petition should not have to pay the $1,000 supplemental fee normally charged for new H-1B petitions unless the employer also requests a first-time extension of the person’s stay. Letter from Efren Hernandez, Acting Director, INS Business and Trade Services Branch, to attorney Leslie T. DiTrani, file no. HQ 70/6.2.8 (Feb. 4, 2000), reproduced in 77 Interpreter Releases 591 (May 1, 2000).

Another possibility may be to simply provide the employee with a letter regarding the new entity, including a statement that the successor has agreed to assume all the rights and obligations with respect to the foreign national’s employment. A third possibility would be to give the employee a copy of the information provided in the public access file. It is unclear whether an INS inspector would accept such a letter or a copy of the public access file, however. In sum, H-1B employees travel at their risk until they obtain INS documentation showing the name of their new employer.

Conclusion

The new law, the INS letter, and the DOL regulation significantly help to sort out what has been a troubling personnel problem in corporate restructurings. However, ambiguities remain, as evidenced by the travel issue discussed above. The INS needs to publish regulations quickly to help resolve this and other issues.

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