Homeland Security Dangers During Mergers and Acquisitions
by Dustin J. O’Quinn
Form I-9 Compliance Pitfalls During M&A Deals
Merger and acquisition deals involve risks with respect to immigration laws that are often overlooked, as most M&A attorneys are not immigration or employment law experts. A new “employer” is created on the effective date of a merger or acquisition according to the Department of Homeland Security (DHS); and that employer may be exposed to criminal and civil penalties it never considered.
DHS’ Immigration and Customs Enforcement has made significant increases to its Form I-9 (employment eligibility verification) enforcement activities. In 2012, ICE initiated more I-9 audits, increased its investigations, imposed more fines, and made more arrests than it has in four years. When ICE initiates a Form I-9 audit, the employer has three business days to produce all Forms I-9 and a subsequent 10 days to correct any technical errors. Each substantive error or uncorrected technical error subjects the employer to a fine that ranges from $110 to $16,000 per violation. If a substantial percentage of the forms have errors, the paperwork fines can be increased significantly. Furthermore, company personnel and owners who know about or conspire to employ unauthorized workers are subject to serving time in prison.
During an M&A deal, companies can take certain steps to protect themselves from such penalties, and from inheriting the I-9 mistakes of target companies. Before a deal closes, the buyer should conduct a full or partial audit of the target’s Forms I-9. This type of internal audit will assist the buyer in determining the target’s culture of compliance and assessing the potential costs of acquiring its employment eligibility documents. Audits should be completed by experts with proven records of successful I-9 audit experience.
After a deal closes, the new employer is given no grace period to comply with the immigration laws. The employer must immediately assess the risks involved with its options for employment eligibility compliance. The employer may choose to treat all employees as continuing in their employment by retaining the previously-completed Forms I-9. If the employer determines to retain the target company’s forms, it inherits all liabilities arising out of the target company’s pre-closing immigration law violations. Alternatively, the employer may treat all employees as new hires by completing new Forms I-9 for every employee. For some companies, this task could be challenging because of the volume of forms to be recompleted. Compliance strategies should be assessed early to allow for proper and timely implementation.
New Form I-9
On March 8, 2013, DHS released a new Form I-9, effective immediately. The form is now two pages with seven pages of instructions. The previous form was one page. DHS revised the form to provide helpful updates and to reduce confusion for the employee and employer representative, who must both complete sections of the form. However, the government anticipates a 21-minute increase in Form I-9 completion time.
Bypass the risk of being found non-compliant by seeking (or offering) guidance on: auditing a target or existing company’s Forms I-9; developing the new employer’s compliance culture; and training human resources staff on the new Form I-9 and its proper completion. These tips can help acquirers avoid a serious, expensive and often over-looked mine field.
Dustin J. O'Quinn is an attorney with the Dallas office of Gardere Wynne Sewell LLP. He can be reached at email@example.com.