New correspondence from the Immigration and Naturalization Service (INS or Service) highlights an issue for law firms currently involved in mergers and acquisitions: the impact of those corporate reorganizations on foreign-national employees in H-1B status, the workhorse of the nonimmigrant (temporary) work visa categories. The immigration consequences of a job change have always been murky; unfortunately the new INS correspondence sheds little light on the issue. This article explores the problem for H-1B workers. Employees in other nonimmigrant classifications present similar problems.
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 three to four 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 Department of Labor (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 reorganization. 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?
The INS attempted to provide clarification in a 1996 policy memo. See memorandum from T. Alexander Aleinikoff, INS Executive Associate Commissioner, to all INS offices, Amended H-1B Petitions, File No. HQ 70/6/2.8-P (Aug. 22, 1996), reproduced in73 Interpreter Releases 1231 (Sept. 16, 1996). The memo made three points relevant to corporate reorganizations. First, employers need not file a new or amended petition if the company merely changes its name. Instead, the petitioner should advise the INS of the name change when it next files a request to extend the H-1B worker’s stay. (Similarly, a simple change in stock ownership should not require any filing, as the identity of the employer remains the same.) Second, changes in the ownership structure of the H-1B employer generally do not require a new or amended petition if the petitioning entity remains the employer, provided the new owner assumes the previous owner’s duties and liabilities. (The memo fails to distinguish between buying the stock and buying the assets in a company, a key differential in many corporate reorganizations.) Third, when the employer merges with another firm to create a third entity, however, a new or amended petition must be filed, since the merger has created a new legal entity, and therefore a new employer.
The Aleinikoff memo’s reference to assuming the previous owner’s duties and liabilities reflects one INS view on successors in interest. While the concept is not uniformly defined in immigration law, the INS has recognized a successor in a purchasing company that assumes all 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).
However, the Service seems to be less demanding in defining a reorganized or successor company in its sanctions regulations–-the rules that require all employers to certify the work authorization of every worker on INS Form I-9 and keep that form for possible inspection. For this purpose, a reorganized or successor employer includes an "employer who continues to employ some or all of a previous employer's workforce in cases involving a corporate reorganization, merger, or sale of stock or assets." 8 C.F.R. § 274a.2(b)(1)(viii)(A)(7)(ii). That employer can simply take over the original I-9; it doesn’t have to do new I-9 forms on behalf of its workers. Does this regulation allow a purchaser to acquire a target company’s assets instead of its shares of stock, and thereby stay clear of some or all of its liabilities? Could the acquiring business pick up a distinct division of another company – buying its assets, lock, stock and barrel and taking over all or most of its staff – and avoid the I-9 and filing obligations? If so, the regulation is more permissive than the INS H-1B policy memos and correspondence.
Even here, however, the answer may be more ambiguous than the employer sanctions regulation suggests. In 1993 an attorney wrote the INS, asking whether a company had to do new I-9 forms if it transferred employees between wholly-owned subsidiaries or between the parent company and a wholly-owned subsidiary. The INS response: It depends. The INS quoted the regulation cited above for the general proposition that continuing employment in a corporate reorganization does not require a new I-9 form. But the INS qualified that provision by stating that "[w]hether or not an employee transfer would be considered a new hire or a continuation of employment is fact based and must be determined on a case by case basis. A determinative factor to consider is whether each unit involved has autonomy in its decision to hire or to terminate employees, irrespective of the policies and control of the parent corporation or other subsidiaries. If such autonomy exists, the transfer will, more likely than not, be considered a new hire necessitating the completion of a Form I-9 by the receiving entity." INS General Counsel Legal Opinion No. 93-87, Form I-9 Responsibility upon "Transfer" of Employee, File No. HQ 274A (Nov. 2, 1993).
Informally the DOL and INS view 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 has stated in correspondence that if an individual is working for an employer with a different tax identification number than the one on the original H-1B form, the employer must 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 has indicated that if a new LCA is required, a new or amended H-1B petition must 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). Neither of these views, however, is codified in the regulations.
The Aleinikoff memo, combined with the ambiguity as to what constitutes a successorship in interest and the DOL and INS advice on tax identification numbers, have confused immigration lawyers who work on mergers and acquisitions, and for good reason. See generally 2 Charles Gordon, Stanley Mailman & Stephen Yale-Loehr, Immigration Law and Procedure § 20.13[5] (rev. ed. 2000). Lawyers have written the INS asking whether their particular fact pattern requires new or amended H-1B petitions. For example, one large company bought five consulting firms in the information technology (IT) sector, each of which employed H-1B personnel. The acquiring company planned to consolidate the five IT firms into a single subsidiary. For a variety of logistical and administrative reasons, the new subsidiary would operate under the name of one of the original five firms (A), but would operate using the managerial structure of another of the original five firms (B). The acquiring company planned to keep B’s federal tax identification number for the five IT firms once they had been consolidated.
Sounds like a major reorganization, doesn’t it, with some of the acquired IT companies losing their tax identification numbers in the shuffle. Yet the INS opined that those facts did not require filing amended H-1B petitions for the affected foreign workers. Instead, said the INS, the company should simply tell the INS about the change in ownership structure when it filed to extend the H-1B workers’ stays. See letter from John W. Brown, Acting Chief, Business and Trade Services Branch, INS Benefits Division, to attorney Nathan Waxman (Dec. 17, 1996), reproduced in 74 Interpreter Releases 207 (Jan. 27, 1997).
By contrast, consider the latest INS correspondence on this issue. An attorney wrote the INS that his client, a company in North Carolina, had recently purchased all the stock of an existing company that also was located and doing business in North Carolina. Upon completion of the transaction, the purchased employer will get a new name and will also likely obtain a new federal tax identification number. Under usual immigration law principles, where the companies retain their separate corporate identities, the purchasing company would be treated as a parent, and the purchased company as a subsidiary. See, e.g., 8 C.F.R. § 214.2(l)(1)(ii)(I), (K) (definitions of "parent" and "subsidiary" in L-1 nonimmigrant visa context). The purchasing company wishes to have its current H-1B workers go on the payroll of the purchased company, under its new name. The wages, hours, working conditions, and work location for the H-1B workers will not differ from what they were with the purchasing company.
The attorney asked whether under those circumstances the employer had to file amended H-1B petitions. Yes, replied the INS. Under current INS policy, wrote the Service, when an alien beneficiary is transferred from one firm to another firm within the same corporate organization, an amended petition must be filed if the new company (presumably the subsidiary in this case) becomes the alien beneficiary’s new employer. Letter from Efren Hernandez, Acting Branch Chief, Business and Trade Services Branch, INS Benefits Division, to attorney Michael Lied (Feb. 3, 2000), reproduced in 77 Interpreter Releases 478 (Apr. 10, 2000).
Why the difference in result in these two sets of letters? One reason may lie in who ends up being the "employer" of the H-1B workers. Under the Aleinikoff memo (and presumably the facts underlying the corporate reorganization in the Waxman-INS correspondence), no new H-1B is required if the petitioning entity remains the employer and there is a successorship in interest. Both elements must be met. And under the I-9 regulation there is continuing employment (and hence no new I-9 form needed) in a reorganization in which the new company employs all of the prior employer’s workforce. By contrast, in the Lied-INS correspondence, a successorship in interest exists, but the subsidiary ends up the employer for the affected H-1B workers. Thus, new H-1B petitions are necessary.
The two sets of letters show that careful planning is necessary in any corporate reorganization to avoid immigration complications. Something as simple as obtaining a new federal tax identification number may require a company to file amended petitions for all its H-1B workers. For companies with many H-1B workers, that can cost thousands of dollars in filing fees alone, not to mention hundreds of hours to prepare and file such petitions.
Failing to guess correctly on this issue can have dire consequences for the employer and employee. If an employer fails to file a new or amended H-1B petition because it believes a small corporate reorganization is minor or immaterial but the INS later disagrees, the Service can retroactively revoke the H-1B petition. 8 C.F.R. § 214.2(h)(11)(i)(b). An employer could belatedly find that its H-1B employees have been working without authorization, exposing the company to possible employer sanctions and the employees to possible removal for having violated their status. And if the employer does recognize the need to file a petition, how does it deal with the INS position that the employee may not work until the amended or new petition is approved? See 8 C.F.R. § 214.1(e). Moreover, how do supervisors deal with the aspirations of key nonimmigrant employees who are already well on the road to permanent residence with petitions filed by the original company? Some reorganizations, depending on how they are structured, would seem to derail or delay those plans under current INS and DOL interpretations.
Conclusion
Dealing with the work status of nonimmigrant employees during a corporate restructuring can be like walking a minefield without a map. The INS and the Department of Labor offer little by way of hard law to assist. Congress may step in to address part of the problem. One bill primarily aimed at raising the annual limit on H-1B workers also contains a provision to increase the portability of H-1B status. Section 5 of S. 2045, the "American Competitiveness in the Twenty-first Century Act of 2000," allows lawfully admitted H-1B nonimmigrants who have not engaged in unauthorized employment to accept and begin a new job once a new employer files a new H-1B petition. The application for new employment would have to be filed before the date of expiration of authorized stay. Work authorization under this provision would continue through the time the new petition is decided. It would terminate if the INS denies the new petition for some reason.
S. 2045 is a good but only partial step. It does not specifically address what constitutes "new employment" in the corporate reorganization context. At least it would alleviate the long waits that some H-1B workers and employers currently face before they can change jobs. Even if the provision is enacted, however, attorneys, employers and H-1B workers will still have to struggle to answer some of the questions posed above.
As a more comprehensive solution, the INS and DOL should form a task force to establish clear guidelines covering job-change issues that involve nonimmigrant work status and applications for permanent residence. Doing so would benefit everyone involved, including the agencies. The current situation is piecemeal policy making at its worst.
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