With a new tax law and a booming American economy, mergers and acquisitions will occur at a busy pace in 2018. In a prior post, we explained some of the employment authorization issues that may arise in such corporate transactions. Here, we discuss another important issue that arises in mergers and acquisitions: Form I-9 compliance. Immigration and Customs Enforcement (ICE) has recently announced that it will quadruple worksite enforcement. Some of ICE’s key tools for worksite enforcement are I-9 inspections and investigations. With the many issues whirling in complex corporate transactions, buyers are tempted to overlook I-9 issues until after the deal is done. Doing so increases the risk of I-9 liability. The very nature of the acquisition may require the buyer to complete a high number of I-9 Forms in a short period of time or take the risk of accepting I-9 Forms from the seller. To determine the best approach for a particular corporate transaction, the buyer must assess the seller’s I-9 compliance and consider the buyer’s ability to complete new, timely, and compliant I-9 Forms.
A new Form I-9 Employment Eligibility Verification is required when there is a hire. Thus, in corporate transactions, when the buyer employs most or all of the seller’s employees, the issue is whether the employees are “new hires.”
Asset Acquisition: For I-9 purposes, the buyer in a corporate asset acquisition is given the choice of whether it is (1) newly hiring the seller’s employees (new I-9 Forms required) or (2) continuing their employment (no new I-9 Forms).
In many circumstances, it will be best for the buyer to complete new I-9 Forms and not to accept the seller’s I-9 Forms. This is often the best approach for I-9 compliance, and it can be the best approach for other reasons. Indeed, there can be various legal considerations that impact whether to treat the seller’s employees as new hires, with new terms and conditions of employment, or as continuing their employment. Counsel should be consulted in any decisions on whether to accept existing Form I-9s or to complete new I-9 Forms. This is particularly important in an asset transaction.
Stock Acquisition: If the corporate transaction involves a stock purchase, the identity of the corporate employer will be the same. Only the owner of the corporate employer will change. Under these circumstances, the buyer may rely on the existing I-9 Forms. Due diligence requires that the buyer carefully audit the seller’s I-9 Forms and gather information about the seller’s enforcement history with ICE. The buyer should insist that the seller bring the I-9 Forms into compliance as much as possible prior to the closing.
I-9 Fine Schedule: Employers also will face slightly higher fines in 2018 for I-9 violations and unfair immigration-related employment practices. The following new I-9 fine schedule will apply for fines assessed on or after January 30, 2018:
Best Practice: With the increase in both I-9 enforcement and the pace of corporate mergers and acquisitions, buyers should beware of potential I-9 liabilities before closing the deal.