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< Back to current issue of Immigration Daily < Back to current issue of Immigrant's Weekly

Maintaining Proper H-1B Status In A Corporate Restructure

by Fan Chen and Mark E. Harrington, Esq.

Applying the "Successor-in-Interest" rules to assess H-1B Status in the event of a corporate restructure

A routine corporate restructuring process, whether it includes the merger of two or more companies or the spin-off of a division from within a company, contains a myriad of highly complex issues. Unfortunately, maintaining the proper H-1B status of the company's (or companies') H-1B employees is often overlooked. For those unfamiliar with the specific rules concerning corporate restructurings and H-1B employees, this field of law can be a legal minefield. Often human resource personnel (and the H-1B employees) realize too late that a corporate restructuring has generated H-1B related issues that must be addressed. Failure to take into account the H-1B ramifications of a corporate restructuring could result in the company's H-1B employees losing their H-1B status and could even render an employer subject to government sanctions.

For H-1B employees, the most important fact about a corporate restructuring is whether the new firm is considered to be a "successor-in-interest" by the BCIS and has specifically assumed the immigration-related obligations and liabilities of the original H-1B sponsoring company.[changed 4/7/03-Ed.] If the new firm is a "successor-in-interest", then there is no need to file an amended H-1B for each H-1B employee. However, if the new firm is not considered a successor-in-interest, failure to submit an amended H-1B can have serious ramifications.

"Successor-In-Interest"

In order to be a "Successor-in-interest," the new firm must "succeed to the interests and obligations of the original petitioning employer." In terms of H-1B employees, the obligations and liabilities refer to the immigration-related obligations and liabilities such as those related to Labor Condition Applications (LCAs) filed with the US Department of Labor as part of their H-1B Petitions and other obligations prescribed by immigration rules and regulations.[changed 4/7/03-Ed.]

Traditionally, to establish a successor-in-interest, the successor entity had to demonstrate that it has substantially assumed the interests and obligations, assets and liabilities of the original employer, and continues to operate the same type of business as the original employer. Determinations concerning whether a company had assumed the required interests and obligations were and still are best performed on a case-by-case basis. Recent changes in the law relaxed this strict and often unworkable standard. Now successor in interest determinations are based on whether the new entity has specifically assumed the immigration related obligations and liabilities of the original H-1B employer. [changed 4/7/03-Ed.]

Examples

In the business world there are numerous forms of corporate reorganizations, including mergers, acquisitions, consolidations, and spin-offs. As noted above, whether a specific corporate restructuring creates a "successor-in-interest" for H-1B purposes is best determined on a case-by-case basis. However, the following are two relatively simple scenarios designed to illustrate successful "successor-in-interest" corporate restructurings.

Please be aware, however, that the optimal "successor-in-interest" scenario is one in which the final corporate documents include an explicit statement concerning the assumption of all H-1B obligations by the new corporation. In addition, Department of Labor regulations require that the new entity maintain information in the company's H-1B related Public Access Files concerning the assumption of the immigration-related obligations. [changed 4/7/03-Ed.]

Scenario One
A large company purchases two consulting firms (A, B) in the information technology (IT) sector, each of which has hired H-1B workers. The acquiring company plans to consolidate the two IT firms into a single subsidiary. In the restructuring plan, the new subsidiary would operate under the name of firm A but would operate using the managerial structure of firm B. The acquiring company plans to keep B's Employer Identification Number (EIN) once the two firms have been consolidated. Does the employees from the two firms need to file new or amended H-1B petitions?

The answer is 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 due the fact that the final consolidated firm substantially succeeds to the assets, liabilities, rights, and obligations from the predecessor firms.[i] [changed 4/7/03-Ed.]

Scenario Two
A small software company (A) plans merge with another large software company (B). After the merger, company A will cease to exist. Company A presently employs many H-1B workers. Will those foreign workers need to file amended H-1B petitions?

The answer is no-in this instance, there is no need to file an amended H-1B petition. Even if the predecessor company A will not exist, its employees are still hired by company B under the same working conditions. Company B becomes "successor-in-interest," and therefore, those H-1B employees from company A need not obtain a new or amended H-1B status. Keep in mind that both new entities in these examples would need to maintain information about the assumption of H-1B obligations in the company's public access files. [changed 4/7/03-Ed.]

Conclusion

As discussed above, the change of a corporate name, its ownership, or its corporate structure do not automatically control in determining the need for new or amended H-1B petitions. It is whether the new firm is legally a "success-in-interest" that determines whether a new H-1B petition must be filed.


[1] See letter from John W. Brown, Acting Chief, Business and Trade Services Branch, INS Benefits Division, to attorney Nathan Waxman (Dec. 17, 1996), reprinted in 74 Interpreter Releases 207 (Jan. 27, 1997).


About The Author

Fan Chen is a legal assistant and Mark E. Harrington, Esq. is an associate with Zhang & Associates, P.C, an immigration law firm based in Houston, Texas.


The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.


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