Potential immigration pitfalls when it comes to M&A

If your business undergoes a restructuring process such as a merger or acquisition, failing to take potential immigration issues into consideration could result in you inheriting migrant employees without the necessary mechanism for protecting their migrant worker status, thereby risking the revocation of your sponsor licence or even hefty fines. In this article, Tsige Berhanu provides insight into the necessary steps to take, to avoid falling foul of the current immigration regulations.

Leading up to the EU Referendum in June 2016, the Office for National Statistics reported that net migration stood at 335,000, the second-highest number on record. With these figures at an all-time high, more businesses than ever have found themselves recruiting a significant number of non-EEA nationals. Meanwhile, despite the huge political shift that Brexit caused in 2016, M&A activity remained at one of the highest-performing levels across the last decade.

Sponsorship and TUPE

Going through a structural change such as a merger with another entity brings with it immigration compliance-related duties.

Where the acquiring company already holds a sponsor licence, it is required to report the change within 20 days of completion. If the transaction involves the transfer of employees under TUPE or similar arrangements, then steps will need to be taken to ascertain whether any of the transferees are migrant workers. If so, advance planning is required in order to ensure that the migrant workers who will transfer under TUPE are sufficiently protected from an immigration law point of view. This could be by updating an existing sponsor licence with their details or where the acquiring entity does not hold a sponsor licence, by submitting an application for a sponsor licence, again within 20 days of completion. This will be very tricky to achieve if not well planned and prepared prior to completion as the application process involves putting together a variety of documentation.

Failure to take these steps could amount to having the leave (work permit) of those migrant workers being curtailed to a mere 60 days. If the migrant workers are then unable to obtain fresh sponsorship within those 60 days, they will be required to leave the UK. Apart from possibly losing members of its workforce, this will also place the company in the difficult position of having to marry its duties under immigration law with its commitments under employment law, in light of the TUPE arrangements.

Furthermore, if TUPE-transferred migrant workers are allowed to carry on working without taking the above steps, it will mean they would be working illegally. This will have significant consequences for the employing company.

The consequences of failing to comply

Apart from having a bad immigration record, being in breach of the prevention of illegal working provisions can result in serious criminal as well as civil penalties. This will also be taken as a breach of the employer’s sponsorship duties which in most cases results in the sponsor licence being revoked. If a licence is revoked, the leave of all sponsored migrant workers would be curtailed to 60 days, after which they will be required to leave the UK.

Having a sponsor licence revoked and being the subject of an adverse immigration enforcement action also brings with it very bad publicity that can be detrimental to the company’s reputation and result in loss of business.

Practical steps

First and foremost, it is crucial to include possible immigration implications as part of the due diligence process for any acquisitions, mergers or similar transactions. Good planning and forecasting can be the difference between protecting yourself and finding your business in hot water. Recommended steps are:

• Carry out comprehensive due diligence checks prior to embarking on a merger or acquisition and note down:

1. If one or both entities have sponsor licences;
2. If there are any migrant workers, who will be affected by the transaction;
3. Identify the steps required to comply with immigration requirements; and
4. Diarise the dates the steps will need to be actioned by.

• Implement solid HR policies and processes that clearly demonstrate that the business has a robust system in place to prevent illegal working and is fully compliant with all immigration rules. Having a well-planned and clear immigration policy and process can provide a full defence to employers against enforcement actions by the immigration authorities and it is highly recommended that all businesses should have such a process in place.