Corporate mergers and acquisitions are typically complex and expensive transactions. While financial matters typically comprise the core of an acquiring company’s due diligence efforts during a merger or acquisition, immigration compliance should also receive increased attention before a transaction closes, particularly in light of recent enforcement efforts in the area of immigration compliance. Generally speaking, the entity surviving after a merger or acquisition remains liable for I-9 violations caused by the acquired entity. Having solid knowledge of and effectively assessing I-9 compliance is an effective planning measure for companies today in the world of mergers and acquisitions.
Form I-9 Basics
Form I-9 is used to verify the identity and employment authorization of individuals hired for employment in the United States. Employers are required to complete a 1-9 for every employee hired after November 6, 1986. I-9 forms must be retained until the later of three (3) years after an employee’s date of hire or one (1) year after the employee’s date of termination. In August 2016, fines for I-9 paperwork violations increased by approximately 100% – costing employers between $216.00 and $2,156.00 per violation. Audits conducted by U.S. Immigration and Customs Enforcement (“ICE”) have routinely resulted in tens of millions of dollars in fines to U.S. employers each year.
There are a number of steps an acquiring entity should take with respect to I-9 compliance prior to completing a merger or acquisition. Initially, the acquiring entity should conduct a full audit of the acquired entity’s I-9 forms. The audit should ensure I-9 forms are being completed correctly and I-9 retention rules are being followed. If a full-scale audit is not feasible, a sample audit should be conducted. The acquiring entity should carefully document the criteria for selecting I-9 forms subject to the sample audit and ensure the I-9 forms are reviewed on a nondiscriminatory basis. Any issues revealed through a pre-acquisition I-9 audit should be corrected by the acquired entity in the role of employer prior to the anticipated transaction.
The acquiring entity might consider assigning a monetary value to any noncompliant I-9s based on the ICE penalty schedule. The value estimates the monetary risk the acquiring entity may face by closing the deal and assuming the liability associated with potentially problematic I-9s. The acquiring entity should also consider what steps the acquired entity may have taken to remedy past I-9 issues, such as prior internal audits and I-9 training, as good faith compliance efforts are important in I-9 audits and investigations.
After a merger or acquisition, acquiring entities have two (2) options with respect to I-9 compliance. First, they may choose to treat employees who continue employment with the successor employer as new hires and complete new I-9s for each newly acquired employee. Alternatively, acquiring entities may keep the previously completed I-9 forms and assume any associated liability.
Employers choosing to complete new I-9s may complete the I-9s before the merger or acquisition takes place as long as the employer has offered the acquired employee a job and the employee has accepted the offer. The acquiring entity should use the date of acquisition as the date of hire in Section 2 of the new I-9. Employers must complete new I-9 forms for all acquired employees, without regard to actual or perceived citizenship status or national origin.
If the acquiring entity decides to retain the previously completed I-9 forms, a full-scale I-9 audit should be conducted and any noncompliant I-9 forms should be corrected. Any corrections should be completed according to ICE’s I-9 internal audit guidelines. While corrections do not immediately eliminate liability for the acquiring entity, corrections trigger the statute of limitations clock and may limit future liability.
The I-9 compliance maze can be confusing, particularly in the merger and acquisition context. Employers should consult immigration counsel to conduct its I-9 due diligence when undergoing a merger or acquisition. For questions on I-9 compliance as it relates to mergers and acquisitions or other worksite enforcement issues, please contact Melissa Azallion (Mazallion@mcnair.net) or Jonathan Eggert (Jeggert@mcnair.net) from McNair’s immigration team at (843) 785-2171.