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Immigration issues must be considered in mergers and acquisitions
August, 22nd 2014

Global mergers and acquisitions are enjoying a boom at the moment. According to Dealogic, a firm providing support to investment banks, global M&A volume has increased by 43 per cent in the past year.

While companies going through mergers usually consider issues such as office space, finances, tax and communication with employees, they often give little thought to immigration issues.

This puts them at risk of inheriting employees they cannot employ lawfully. Following recent changes to the civil penalty scheme, it also means that they face paying fines of up to £20,000 per illegal worker.

An important issue to consider is the sponsorship licence that enables a company to sponsor and, therefore, employ non-EEA nationals. This licence, which is granted by the Home Office, is not transferable. Any merger, takeover, de-merger or change of ownership must be reported to the Home Office within 28 days, along with details of any sponsored workers affected by the change. Failure to do so can result in sponsored migrants losing their right to live and work in the UK, and deprive the business of key personnel.

If there is a change in the ownership of an organisation, the sponsor licence is revoked and the new owners must apply for a licence if they do not already have one. In some cases, the existing entity must apply for a new licence. Where a business is sold through an asset sale, as opposed to a sale of its shares, the position is clear enough, but we recently acted for a company that was a licensed sponsor and whose share capital was purchased by a larger company. Although the legal entity remained the same and, therefore, there was no change of employer, the Home Office confirmed that our client had to obtain a new sponsor licence.

So as the law currently stands, any share sale resulting in a controlling number of shares being transferred to a new owner means the old sponsor licence will be revoked and a new licence must be applied for within 28 days.

Where the identity of the employer has changed, which it generally does with an asset sale, Tupe (the Transfer of Undertakings (Protection of Employment) Regulations 2006) is triggered and the new employer becomes responsible for any sponsored workers who transfer to it under the regulations.
As Tupe often also applies to outsourcing arrangements, any sponsored workers employed by the old service provider will become the responsibility of the new contractor, who will need to apply for a licence if it does not already have one. This must be done within 28 days of the transfer.

Where Tupe applies, the new employer should carry out right to work checks in relation to all transferring employees within 60 days of the transfer.

Practical steps
Buyers of businesses and new service providers should check in good time if the seller or current service provider sponsors any migrants so that they can make arrangements to continue to sponsor those migrants. If they do not do so, they may find themselves employing the migrants unlawfully. There is also a risk of migrants bringing employment claims if the new employer has to dismiss them because it did not apply for a licence or make the other necessary arrangements.

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