Maintaining H-1B Status during Corporate Changes
Whether it is a merger of two or more companies or a spin-off from within a company, routine corporate restructuring processes involve a myriad of highly complex issues. How such macro changes affect H-1B employees is often overlooked. Indeed, maintaining the valid statuses of the company's (or companies') alien workers is an issue that employers and beneficiaries of the H-1B visa should take into account.
For those unfamiliar with the specific rules concerning corporate restructurings and H-1B employees, this area of practice can be a legal minefield. Oftentimes, human resource personnel and H-1B employees themselves realize too late that a corporate restructuring has generated H-1B-related issues that must be addressed. Failure to consider these ramifications can result in the company's H-1B employees losing their status and even render an employer subject to government sanctions.
In this special (but not uncommon) context, the most important issue to consider is whether the new firm is legally a "successor-in-interest" to the original H-1B sponsoring company. If the new firm is, then there is no need to file an amended H-1B for each H-1B employee. On the flip side, if the new firm is not considered a successor-in-interest, failure to submit an amended H-1B can have serious consequences.
The statute governing the issue can be found in Section 214(c) of the Immigration and Nationality Act (INA), which reads:
"An amended H-1B petition shall not be required where the petitioning employer is involved in a corporate restructuring, including but not limited to a merger, acquisition, or consolidation, where a 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."
What, exactly, is a successor-in-interest?
As prescribed by the statutory text above, in order to be a successor-in-interest, the new firm must "succeed to the interests and obligations of the original petitioning employer." In plain English, what this means is that the new company has to retain the original company’s (or companies’) obligations, i.e. assets, liabilities, and the like, in addition to maintaining the same type of business as the original. Determinations as to whether a company has assumed the required interests, obligations, assets, and liabilities are made on a case-by-case basis.
Broadly speaking, assets include, but are not limited to, the following:
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Current assets such as cash, short-term investments, accounts receivable, inventories, and prepaid expenses
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Long-term investments such as securities, sinking funds, and pension funds
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Properties, including equipment
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Intangibles such as patents, licenses, and trademarks
And liabilities include, but are not limited to, the following:
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Current liabilities such as accounts payable, short-term debts, advances from customers on contracts, and accrued compensation and benefits
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Long-term liabilities such as those arising from specific financing situations like the issuance of bonds, long-term leases, deferred income tax liabilities, and warranties
With respect to H-1B employees in particular, a successor-in-interest’s obligations also include aspects of the original company’s Labor Condition Applications (LCAs), which contain a series of attestations including, among others, an agreement to pay H-1B employees at least the prevailing wage for the offered position.
If some assets or liabilities are not assumed by the successor employer after a corporate restructuring, then the new company will not be considered a bona fide "successor-in-interest." As a result, the H-1B employees from the predecessor company will likely necessitate new or amended H-1B petitions filed by the new company.
What does a successor-in-interest" look like?
In the business world, there are many forms of corporate reorganization, including mergers, acquisitions, consolidations, and spin-offs. As noted above, whether or not a specific corporate restructuring creates a "successor-in-interest" for H-1B purposes is best determined on a case-by-case basis. However, for purposes of illustrating the concept, below we provide two relatively simple scenarios demonstrating successful "successor-in-interest" corporate restructurings.
Scenario One: Acquisition
One large company has purchased two consulting firms, firm A and firm B, in the information technology sector. Both consultancies have H-1B workers on staff. The acquiring company plans to consolidate the two tech firms into a single subsidiary. In its grand restructuring plan, the new subsidiary would retain the name of firm A but would operate using the managerial structure of firm B. The acquiring company additionally plans to keep firm B's employer identification number (EIN) once the two firms are consolidated.
Will the H-1B employees from the two acquired firms need to file new or amended H-1B petitions?
No, there is no need to file amended H-1B petitions. No matter what name or EIN the final consolidated firm takes, it is still the "successor-in-interest" to the two predecessor firms because the final consolidated firm substantially takes on the assets, liabilities, rights, and obligations of the predecessor firms.
Scenario Two: Merger
A small software company, firm X, plans to merge with a big software company, corporation Y. After the merger, firm X will cease to exist. Firm X presently employs a dozen H-1B workers.
Will firm X’s foreign workers need to file amended H-1B petitions?
No, there is no need to file amended H-1B petitions. Even if the predecessor company ceases to exist, its employees will be folded into corporation Y’s workforce under the same employment conditions. The fact that corporation Y “consumes” firm X means that Y will not only take over all of the X’s assets (software programmers, patents, trade secrets, etc.) but also its liabilities (software development costs, debts, accounts payable, etc.). In theory, corporation Y becomes a bona fide "successor-in-interest," and substantially succeeds to the interests and obligations, assets, and liabilities of predecessor firm X. Therefore, those 12 H-1B employees from firm X need not petition for new or amended H-1B status.
Of course, the optimal "successor-in-interest" scenario is one in which final corporate documents include an explicit statement concerning the assumption of all H-1B obligations by the new corporation. Technically, U.S. Department of Labor (DOL) regulations require a sworn statement by the new company regarding the assumption of LCA-related obligations, but failure to do so will not necessarily trigger the need to file a new H-1B petition.
We’re here to help.
As discussed above, the change of a corporation’s name, its ownership, or its corporate structure do not automatically lead to the necessity of filing new or amended H-1B petitions. The critical issue to consider is whether the new company is legally a "successor-in-interest," and it’s this determination that governs if a new H-1B petition must be filed.
Since these issues are quite complex, it is best to consult with an immigration lawyer with a corporate law background or a corporate law attorney. Zhang & Associates has the relevant experience, accrued over two decades, to guide you through the restructuring process for H-1B workers. You can find our contact information here.
At Zhang & Associates, we understand how important an H-1B visa is to you, whether as the employer or the prospective employee. Our seasoned staff and years-long track record of success make us the natural choice to facilitate your H-1B petitions.
For more detailed information on the H-1B category, including minimum requirements and USCIS policies, refer to the following links:
Updated 05/08/2017