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Update on Mergers and Acquisitions: Congress Toys with the H-1B (Finale)
by Angelo A. Paparelli and Susan K. Wehrer



Eligibility for 401

Does the M&A transaction qualify? The statute provides that an amended H-1B petition is not required when the petitioning employer is involved in a corporate restructuring "including but not limited to a merger, acquisition, or consolidation."20 This suggests that the types of transactions covered by 401 may be broader than those specifically enumerated in the statute and may include, for example, spin-offs and other transactions.

What is a "new" employer? According to the statute, "a new corporate entity" must succeed to the interests and obligations of the original petitioning employer. Does this mean that the successor entity must not have existed prior to the transaction? This reading appears unduly restrictive and inconsistent with the types of transactions enumerated in 401. For example, acquisitions (a transaction listed in the statute) typically involve a situation in which an existing corporate entity acquires another entity and the existing entity remains. Therefore, in many acquisition cases, a completely new entity, i.e., one that did not previously exist, will not succeed to the interests and obligations of the petitioning employer. A more likely interpretation of the statutory language is that "new" is merely meant to identify the successor entity that thereafter will be employing the H-1B nonimmigrant in place of the initial employer that completed the H-1B petition on the alien's behalf. This "new employing entity" interpretation-meaning essentially that the successor entity is just the next employer in line-is consistent with the interpretation the DOL provides in its interim final rule.21

Qualifying corporate changes. The statute and the DOL's interim final rule appear to apply a different standard to the question of what constitutes a qualifying corporate reorganization. Section 401 requires that the "new corporate entity succeed to the interests and obligations of the original petitioning employer."22 In contrast, the DOL requires that the new employer accept "all obligations, liability and undertakings under the LCAs."23 Could this mean that the new employer would be required to file a new H-1B petition but not a new LCA, in a situation where a new employer accepts the obligations and liabilities under a predecessor's LCAs, but does not succeed to other interests and obligations, such as the predecessor's employment contracts or obligations under the prior employer's H-1B petitions? It is not likely that the DOL meant this divergent treatment to follow from its wording of the interim final rule. Perhaps the DOL may have merely intended to circumscribe its own jurisdictional role in H-1B enforcement, thus referring to LCAs accepted and honored by the new employer rather than also to I-129 petitions.

On a related point, what has become of the traditional, if outdated, formula for successorship-in-interest as first articulated in the much-criticized, rarely satisfied Matter of Dial Auto Repair Shop, Inc.?24 Under that formulation, in order to qualify as a successor in interest for immigration purposes, the surviving entity must acquire all assets, assume all liabilities, and carry on the predecessor's line of business. The DOL seems to have freed itself from the yoke of Dial Auto Repair. According to the DOL's interim final rule, "the employer's status as a new employing entity is not determined by traditional principles of successorship."25

Similarly, the INS Headquarters seems to have substantially retreated from the Dial Auto Repair test. In correspondence following the enactment of 401, Efren Hernandez III, Director of INS Business and Trade Services, has informally opined:

The INS has consistently interpreted [the regulatory requirement that a material change in the terms and conditions of employment require filing of an amended H-1B petition] to mean that where a second entity assumes substantially all of the assets and liabilities of the first entity, amended petitions are not required.26
Mr. Hernandez clarified the point by noting that "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."27 Thus, although the language in 401 and the DOL's interim final rule differ, the INS appears to take a more easily satisfied approach, and, like the DOL, adopts a relaxed interpretation that virtually lays to rest the Dial Auto Repair standard. Under the newly enunciated INS standard, any employer that assumes immigration liabilities would thus appear to be a successor in interest for immigration purposes.

Terms and conditions of employment. Section 401 states that "the terms and conditions of employment [must] remain the same [as in the original petition] but for the identity of the petitioner."28 This could be interpreted to require an amended petition in the event of any change, even an inconsequential change in the terms and conditions of employment. This restrictive reading appears contrary to the apparently ameliorative purpose of the statute-to streamline processes in the event of a reorganization. Given the common occurrence that minor changes in employment, such as position titles and working groups, may well arise following a reorganization, even when the substantive job duties remain essentially the same, it is likely that Congress intended to adopt sub silentio a material-change exception.

As noted above, INS regulations state that a petitioner must file an amended petition to reflect any material changes in the terms and conditions of employment.29 Previously, the INS has adopted a rather flexible approach to identify circumstances that constitute a material change requiring the filing of an amended H-1B petition.30 In a 1995 letter, the INS characterized a material change as "a change that directly impacts the alien's continued eligibility for H-1B classification."31 The letter further provides that "[i]n general, a promotion to a higher position within the same occupation would not normally require the filing of an amended petition provided that the alien is required to utilize the same academic training as was required in the former petition."32

Thus, it is likely that a variety of changes in the terms and conditions of employment will not meet the materiality threshold and thus will not require the filing of an amended H-1B petition. The reportedly forthcoming INS regulations interpreting 401 and outlining immigration procedures involved in corporate restructurings will no doubt shed light on this issue.


A critical issue in corporate restructurings is timing. Section 401 does not contain a timing component. Thus, it is uncertain whether completed M&A transactions that occur prior to the effective date of 401 (October 30, 2000) may benefit from the statutory elimination of the obligation to file amended H-1B petitions. But clearly all such transactions that are concluded after this date should be covered. The DOL regulations, however, purport to limit the scope of the dispensation from filing amended petitions and expressly require that certain activities must take place prior to the closing date of the corporate restructuring. In the preamble to the interim final rule, the DOL states that "prior to the continued employment of the H-1B nonimmigrant," the successor entity must agree to assume "the predecessor entity's obligations and liabilities under the LCA.33 The interim final rule also imposes an express prohibition against employing H-1B workers if the sworn statement is not placed in the public access folder before H-1B employees are transferred to the new employing entity: "Unless such sworn statement [accepting the predecessor's LCA obligations] is executed and made available . . . [in the public access file], the new employing entity shall not employ any of the predecessor entity's H-1B nonimmigrants without filing new LCAs and petitions for such nonimmigrants."34

The DOL's prohibition against a successor entity's employment of the prior entity's H-1B workforce seems ultra vires on at least two grounds. First, the congressional declaration in 401 that amended H-1B petitions are not required (meaning that a previously approved INS grant of H-1B employment incident to status shall continue unabated) surely should prevail over a mere agency pronouncement. Second, the DOL has no statutory mandate to decree when employment is or is not authorized; this is solely an INS function.

The DOL decree is also problematic on practical grounds. While it is certainly much less burdensome to supplement the public access file with respect to affected aliens in the event of a corporate reorganization rather than filing entirely new LCAs and H-1B petitions, as a practical matter, it may be difficult to place the necessary sworn statement and related documentation in the public access file prior to the reorganization. Many an immigration lawyer has lamented that he or she has not been informed of the transaction until after the ink is dry and the closing has occurred. 35

Thus, one strategy, whether in response to pre- or post-"deal" housekeeping, would be to determine the number of H-1B nonimmigrants affected by the reorganization. If there are only a minimal number (and assuming the duties and other terms and conditions of employment remain unchanged), then it may be safer to file new LCAs and amended petitions, even though this approach is more burdensome and flies in the face of 401. On the other hand, if many H-1B employees are affected, it may still be appropriate in some circumstances merely to supplement the public access files, even if this occurs after the corporate restructuring has taken place. Since the intent of the parties at the time they made their bargain may well have been to transfer the predecessor entity's workforce to the surviving entity and for the survivor to assume all employment-related obligations, the new employer may be able-in truth and in good faith-to sign a nunc pro tunc sworn statement confirming the buyer's assumption of all immigration-related obligations and liabilities under preexisting LCAs, effective as of the date of the restructuring.36

In any case, it is unlikely (but not certain) that the DOL could take the position that the H-1B workers are not authorized to work since this determination, as noted, is solely within the purview of the INS rather than the DOL. Moreover, given the DOL's enforcement philosophy in the past, which is to encourage good-faith curative measures, the agency may treat such late compliance as a technical violation and perhaps impose fines but not debarment. Obviously, however, this issue likewise must await definitive agency rulemaking, and compliance with the DOL's timing requirement (however misguided the interim final rule may be) is no doubt the safest approach.


Although 401 and the DOL rule on corporate restructuring offer the prospect of an easier life for employers, aliens, and immigration counsel, it is as yet unclear how best to handle H-1B nonimmigrants who depart and seek reentry to the U.S.37 The problem typically arises if such aliens hold a valid visa endorsed with the name of the predecessor employer.38 INS officials frequently question aliens entering the U.S. with employment-based nonimmigrant visas to confirm that they are still employed by the company indicated on their visas.

Unfortunately, unlike travel issues associated with the American Competitiveness in the 21st Century Act ("AC21"),39 H-1B nonimmigrants affected by a corporate restructuring will not have a filing receipt or other evidence from the INS indicating that they are now lawfully employed by the successor employer.40 The successor employer may provide a letter on company letterhead explaining the reorganization and stating that the new employer succeeds to the obligations and liabilities of the predecessor. This strategy, however, may not provide the level of certainty necessary for H-1B nonimmigrants who are faced with extensive international travel before an extension would need to be filed on their behalf.

In recent correspondence, the INS confirmed that there will be no official documentation of the H-1B nonimmigrant's lawful employment with the new successor employer until an extension is filed.41 The letter further recommended that if an H-1B worker wishes to travel before an extension must be filed, the new employer may wish to file an amended H-1B petition to facilitate the alien's re-entry.42 Thus, employers with H-1B workers who travel abroad and attempt to reenter the U.S. may be back at square one, despite 401. Moreover, whether or not foreign travel is planned, a finicky alien or sponsoring company may still want the assurance of a new approval notice to confirm without doubt that employment with the successor entity is clearly authorized.43


Many employers and their immigration counsel have decried the changes to the H-1B visa category that Congress introduced over the last 11 years. While predictions about the early death of the category44 were clearly wrong, the H-1B visa continues to be the hands-on plaything for Congress to adjust, tweak and toy with employment-based immigration. In this case, congressional tinkering has resulted in the user-friendly approach to corporate restructurings set forth in 401. Unfortunately, however, the DOL-much like the bullies of childhood-has tried to topple the structure that Congress built by imposing the ultra vires requirement that employers supplement their public access files with sworn undertakings prior to employing affected H-1B workers. In the absence of guidance from the INS and further clarification from the DOL, employers may want to take a stand and refuse to allow the bully to undermine what Congress has built. By taking shelter in the statute, employers may be able to avoid the DOL's apparent requirement that massive new H-1B filings are still required following most M&A transactions

Copyright 2001 Paparelli & Partners LLP. An earlier version of this article appeared in 2001-02 Immigration & Nationality Law Handbook, vol. II (AILA 2001), at 1-7.

20 Visa Waiver Permanent Program Act, 401 (emphasis added).
2165 Fed. Reg. 80124 (Dec. 20, 2000).
22Visa Waiver Permanent Program Act, 401 (emphasis added).
2365 Fed. Reg. 80232 (Dec. 20, 2000) (emphasis added).
2419 I&N Dec. 481 (Comm'r 1986), summarized in 65 Interpreter Releases 566 (May 27, 1988).
2565 Fed. Reg. 80124 (Dec. 20, 2000).
26Letter from Efren Hernandez III, Director, INS Business and Trade Services, to attorney Steven M. Ladik (Mar. 22, 2001), reported on and reproduced in 78 Interpreter Releases 609 (April 2, 2001).
27Id. Although Mr. Hernandez states in his letter that the INS has "consistently" interpreted the successorship in interest concept in this manner, the foregoing requirements are much less restrictive that those articulated in Dial Auto Repair Shop-assumption of all assets and liabilities, predecessor must go out of business, and successor must continue the business. 19 I&N Dec. at 481.
28Visa Waiver Permanent Program Act, 401 (emphasis added).
298 CFR 214.2(h)(2)(i)(E).
30See Grossman and Cohen, "The Effect of Changed Circumstances on H-1B Nonimmigrant Workers," Immigration & Nationality Law Handbook, vol. II (AILA 1997-98).
31Letter from Yvonne M. LaFleur, Chief, Nonimmigrant Branch, INS Office of Adjudications, to attorney Susan J. Cohen (Oct. 12, 1995), discussed and reprinted in 72 Interpreter Releases 1578 (Nov. 20, 1995). If this definition of materiality controls, then, in most cases, employers and sponsored aliens have little reason for concern. It is the DOL's burdensome interpretations of when the successor's sworn statement must be included in the public access file and of when a new LCA is required, however, that are more troublesome.
3365 Fed. Reg. 80112 (Dec. 20, 2000) (emphasis added).
34Id. at 80214.
35See Paparelli et al., "It Ain't Over Till It's Over: Immigration Strategies in Mergers,
Acquisitions and Other Corporate Changes," Bender's Immigration Bulletin at 789, 811 (Oct. 1, 2000).
36In other contexts, the INS has recognized that certain "late" compliance efforts may be given nunc pro tunc (retroactive) effect. For example, the INS has endowed itself with discretionary authority to approve an extension of status that was not timely filed and retroactively grant employment authorization, despite the absence of an affirmative grant in the INA (at 214). See 8 CFR 214.1(c)(4). Similarly, the INS, in its discretion, may grant a change of status that was not timely filed, even though the operative statute (INA 248) does not provide explicit nunc pro tunc authority. See 8 CFR 248.1(b).
37For further discussion of this issue, see Mailman and Yale-Loehr, "More on the Impact of Corporate Reogranizations on H-1B Workers," N.Y.L.J. (Apr. 23, 2001).
39For further discussion of this issue and others related to the new statute and regulations, see Turansick and Guzman, "Corporate Restructuring & H-1Bs Under the New Visa Waiver Permanent Program Act," New Rules for the New Millennium (AILA 2001).
39Pub. L. No. 106-313, 114 Stat. 1251, summarized in 77 Interpreter Releases 1501 (Oct. 23, 2000). See also Klasko, "American Competitiveness in the 21st Century: H-1Bs and Much More," 77 Interpreter Releases 1689 (Dec. 11, 2000).
40 See Memorandum from Michael Pearson, Executive Associate Commissioner, INS Office of Field Operations (Jan. 29, 2001) (discussing travel and AC21), reported on and reproduced in 78 Interpreter Releases 365 (Feb. 12, 2001).
41Hernandez letter, supra note 26.
43See Memorandum from Michael D. Cronin, INS Acting Executive Associate Commissioner for Programs (June 19, 2001) (discussing, among other things, admission procedures for H-1B nonimmigrants working for employers claiming exemption from the requirement to file amended H-1B petitions). The Cronin memo is discussed and reproduced in 78 Interpreter Releases 1069 (July 2, 2001).
44See, e.g., Paparelli and Patel, "The Immigration Act of 1990: Death Knell for the H-1B?" 68 Interpreter Releases 29 (Jan. 14, 1991).

About The Author

Angelo A. Paparelli ( has been practicing business-sponsored immigration law for over 20 years, and is the managing partner of Paparelli & Partners LLP in Irvine, California. He is a nationally recognized speaker, published author and leading expert on cutting-edge business-related immigration issues, including the immigration consequences of mergers, acquisitions, reorganizations and other business changes, consular visa practice, audits of employers' compliance with immigration and labor regulations, and employment-based work visas. Mr. Paparelli is certified as a Specialist in Immigration and Nationality Law by the State Bar of California, Board of Legal Specialization.

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. Before joining the firm, she practiced labor and employment law and served in a senior editorial capacity with The Labor Letters Inc., a labor and employment law newsletter.

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