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From The Beginning: Agile Immigration Advocacy For New Businesses: Part 3 of 3

by Susan K. Wehrer and Angelo A. Paparelli

VII. The Sixth Day – Selected Issues

A. Successorship-In-Interest

Often, new ventures are begun with the hope or expectation that the company will be acquired after some period of time or that the company will engage in an initial public offering.[liv]Thus, immigration counsel should educate new companies regarding the immigration consequences of corporate restructurings at the outset of the client relationship and recommend that immigration be included as a part of the due diligence process so that the potential immigration implications of the transaction can be assessed prior to the closing of the transaction. In reality, immigration counsel is often not involved in or informed of corporate restructurings before the closing of the transaction. If notified prior to closing, however, immigration counsel must assess the type of transaction that will take place and consider potentially affected employees, both nonimmigrant and immigrant.

In the E context, eligibility turns on treaty nationality. Therefore, a change in ownership may impact a foreign national’s ongoing eligibility for E status. If informed prior to the transaction, immigration counsel should evaluate whether continued E eligibility exists and, if not, explore other immigration options. Additionally, if continued E status is sought, counsel should note that INS regulations require the filing of an amended E petition prior to a "substantive"[lv]change in the terms and conditions of E status.[lvi] Thus, counsel should try to file an amended petition prior to the restructuring, if possible.[lvii]

Given that L-1 visa eligibility turns on the qualifying relationship between a U.S. and foreign organization,[lviii] as with E visa holders above, a corporate restructuring may adversely impact an L-1 visa holder’s continued eligibility for this classification. INS regulations governing the L-1 classification require that an amended petition be filed "to reflect changes in approved relationships . . . or any information which would affect the beneficiary’s eligibility under section 101(a)(15)(L) of the Act."[lix] In some cases, a corporate restructuring will render an L-1 nonimmigrant ineligible for this classification and may require a request for change of status to another classification, if possible.

Establishing that a new company is a successor-in-interest can be extremely important to foreign nationals as a method of preserving pre-existing immigration benefits, such as previously approved visa classifications and immigrant visa priority dates. In the past, to qualify as a successor-in-interest, the successor must have acquired all the assets and have assumed all the liabilities of the predecessor organization.[lx]Fortunately, with regard to foreign nationals in H-1B status, in 2000, Congress enacted the Visa Waiver Permanent Act, which amended Section 214(c) of the INA to state that "[a]n 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."[lxi] Shortly thereafter, in its interim final rule implementing the American Competitiveness and Workforce Improvement Act of 1998 (ACWIA), the DOL, another agency with enforcement authority over the H-1B classification, provided that a new LCA will not be required when a corporate restructuring has occurred so long as the successor entity includes a sworn statement containing specific information in the public access files of affected H-1B employees. prior to their continued employment.[lxii]

In recent correspondence interpreting the Visa Waiver Permanent Act provision, the INS has acknowledged a more manageable standard, stating that "the 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."[lxiii] Therefore, these letters suggest that amended H-1B petitions are no longer required if the new employing entity has assumed the immigration-related liabilities of the predecessor.

Similarly, in correspondence addressing the successorship-in-interest concept at the I-140 stage, the INS confirmed that "a company is a successor-in-interest [for I-140 purposes] when it has taken on all of the immigration-related liabilities of the company it has acquired, merged, etc."[lxiv] One can hope that this more enlightened approach will continued to be applied, making the road a bit easier for emerging companies confronted with a corporate restructuring.

B. Professional Employer Organizations

Many new and smaller companies outsource their human resource function to what are sometimes called professional employer organizations (PEOs). This outsourcing can result in a situation in which a foreign national, for whom the company submitted a petition with the INS, may actually be paid and nominally employed or co-employed by another entity[lxv] This has resulted in confusion among attorneys and employers as to which of the entities is the employer and should be the petitioner for purposes of immigration petition filings.

The INS has informally addressed the issue of PEOs in the H-1B context in correspondence, stating that "an entity can file an H-1B petition on behalf of an alien even though the alien’s salary is paid from another source, provided that an employer-employee relationship exists. The existence of the employer-employee relationship can be demonstrated by evidence establishing that the entity has control over the H-1B nonimmigrant even though the alien’s salary is paid from another source."[lxvi] In earlier informal correspondence addressing employee leasing companies, the INS indicated that if both companies exercise a degree of control over the alien, "one of the firms involved in the leasing agreement would either have to designate itself as the petitioner for immigration purposes, provided it meets the regulatory definition of a United States employer, or both firms could petition for the alien."[lxvii]

Thus, when an employer has outsourced more than the payroll function, it runs the risk of being deemed a co-employer for immigration purposes. Under certain circumstances, to avoid the need for both entities to file a petition on behalf of each nonimmigrant worker, it may be possible for the company and the PEO to execute a written agreement designating which party will serve as the employer for all immigration purposes. It may be safest, however, for H-1B workers to be taken off of the payroll of the PEO and instead be paid by the petitioner, if possible.

VIII. The Seventh Day – Concluding Thoughts, But No Rest Yet

Immigration lawyers often provide immeasurable assistance to foreign entrepreneurs and their employees in helping the clients realize their business goals in the United States. But diligent counsel may never get a "day of rest." By advising companies from the outset, and for the duration, on the immigration consequences of various business decisions, practitioners can at least rest assured that immigration concerns are not an afterthought, but are instead an integral part of new companies’ overall development strategy. As new companies evolve, however, their goals and priorities will likely change. Thus, counsel’s eternal vigilance and ongoing interaction with corporate clients are necessary to increase the likelihood that company principals and their employees will achieve their ultimate immigration objectives.

[liv]The topic of corporate restructurings is broader than can be addressed in this overview of specific issues related to start-up companies. For a more complete discussion of the impact of corporate restructurings on various immigration processes, see A. Paparelli, A. Tafapolsky, T. Chiappari, S. Cohen, and S. Yale-Loehr, "It Ain’t Over Till It’s Over: Immigration Strategies in Mergers, Acquisitions and Other Corporate Changes," 5 Bender’s Immigration Bulletin 789 and 849 (Oct. 1, 2000 and Oct. 15, 2000); A. Tafapolsky, A. Paparelli, A. Vazquez-Azpiri and S. Wehrer, "Thriving on Change: How to Solve Immigration Problems in Merger & Acquisition Deals," New Rules for the New Millennium (AILA 2001); A. Paparelli and S. Wehrer, "Update on Mergers and Acquisitions: Congress Toys With the H-1B," 2 Immigration & Nationality Law 1 (AILA 2001-02).

[lv] INS regulations state that "[t]he Service will deem there to have been a substantive change necessitating the filing of a new Form I-129 application in cases where there has been a fundamental change in the employing entity’s basic characteristics, such as a merger, acquisition, or sale of a division where the alien is employed." 8 CFR 214.2(e)(8)(iii).

[lvi] 8 CFR 214.2(e)(8)(iii).

[lvii] The INS has informally acknowledged some flexibility in the regulatory requirement that an amended petition be filed prior to a substantive change. Given that such commentary has been informal, however, it is advisable to attempt to file an amended petition before a restructuring occurs.

[lviii] 8 CFR 214.2(l)(1)(ii)(A).

[lix]8 CFR 214.2(l)(7)(i)(C).

[lx]Matter of Dial Auto Repair, 19 I&N Dec. 481 (Comm’r 1986).

[lxi]INA 214(c)(10); 8 U.S.C. 1184(c)(10).

[lxii]20 CFR 655.730(e)(1). Note that the "prior to" language is in the preamble rather than the regulation itself. 65 Fed. Reg. 80124. However, the regulation states that "[u]nless such statement is executed and made available in accordance with this paragraph, the new employing entity shall not employ any of the predecessor entity’s H-1B nonimmigrants without filing new LCAs and petitions." 20 CFR 655.730(e)(1).

[lxiii] Letter from Efren Hernandez III, Director, Business and Trade Services, to Steven Ladik (Mar. 22, 2001), posted on AILA InfoNet, Doc. No. 01032901 (Mar. 29, 2001); see also Letter from Efren Hernandez III to Martha Schoonover (June 7, 2001), posted on AILA InfoNet, Doc. No. 01062832 (June 28, 2001).

[lxiv] Letter from Efren Hernandez III, Director, Business and Trade Services, to Douglas Donenfeld (Oct. 17, 2001).

[lxv] For a further discussion of outsourcing, see A. Paparelli, "Yes, We Have No Employees: The U.S. Immigration Consequences of Corporate Outsourcing and Secondment," 13 Immigration Law Report No. 16 (Aug. 15, 1994).

a name="A">[lxvi]Letter from Efren Hernandez III to Kari Ann Woodward (Dec. 20, 2000), posted on AILA Infonet, Doc. No. 01062632 (June 27, 2001). Immigration counsel should note that adjudicators are not bound by such correspondence. Matter of Izumii, Int. Dec. (BIA) 3360, 1998 WL 483977 (BIA) (Jul. 13, 1998) ("[The] OGC [INS Office of General Counsel] is not an adjudicative body and is in the position only of being an advisor; as such, adjudicators are not bound by OGC recommendations.")

a name="A">[lxvii] Letter from Yvonne M. LaFleur, Chief, Business & Trade Services, Adjudications, to H. Ronald Klasko (Feb. 5, 1996), reproduced at 73 Interpreter Releases 342 (Mar. 18, 1996).

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About The Author

The authors thank Yoshiko I. Robertson, associate at Paparelli & Partners LLP, and Gary Endelman of BP America Inc. for their insightful editorial comments.

Susan K. Wehrer, is an associate in the law firm of Paparelli & Partners LLP. She is admitted to practice law in the State of California. Ms. Wehrer practices in all areas of employment-based immigration law. Before joining the Firm, she practiced labor and employment law, held the position of Editor of The Labor Letters Inc., a labor and employment law newsletter, and served as Adjunct Professor of Labor Relations at Woodbury University. Ms. Wehrer has co-authored several articles of immigration-related issues.

Angelo A. Paparelli, is certified as a Specialist in Immigration and Nationality Law by the State Bar of California, Board of Legal Specialization, and has been practicing business-sponsored immigration law for over 20 years. He is the managing partner of Paparelli & Partners LLP,, a firm in Irvine, California that practices exclusively immigration and nationality law.

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