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“Hidden in Plain Sight”: The Unforeseen Form I-9 Liability Inherent in Mergers and Acquisitions

This white paper will discuss the unique Form I-9 requirements in the mergers and acquisitions context and provide helpful tips to ensure Form I-9 compliance after a merger or acquisition.

“HIDDEN IN PLAIN SIGHT”: THE UNFORESEEN FORM I-9 LIABILITY INHERENT IN MERGERS AND ACQUISITIONS

It is no secret that 2021 has seen a surge in mergers and acquisitions, with deal value climbing to over $121 billion in the first half of 2021. While many mergers and acquisitions result in increased profit through synergies in many administrative functions - Human Resources being one of them - mergers and acquisitions are a ripe target for regulators, including the Department of Homeland Security.

This white paper will discuss the unique Form I-9 requirements in the mergers and acquisitions context and provide helpful tips to ensure Form I-9 compliance after a merger or acquisition.

An employer must ensure that a Form I-9, Employment Eligibility Verification Form, is completed for each employee hired after November 6, 1986.1 The employee must complete Section 1 of Form I-9 prior to the first day of work for wages.2 The employer must physically inspect and complete the Section 2 certification within three days of the employee’s first day of work for wages.3

When an employer acquires a new employee through merger or acquisition, the employer has two options. The employer can opt to treat the acquired employees as existing employees and adopt the previous employer’s Forms I-9.4 Alternatively, the employer can treat each of the acquired employees as a new hire and complete an entirely new Form I-9 for each employee.5

Treating Acquired Employees as Continuing in Employment

If an employer elects to treat the acquired employees as existing employees and retain the previous employer’s Forms I-9, the new employer is liable for any defects or violations.6 According to United States Citizenship and Immigration Services, 76% of Forms I-9 have a defect that could result in an administrative fine ranging from $230 to $1,948 per Form I-9 for a first offense.7 As a result, the acquiring employer should devote considerable due diligence resources to reviewing the previous employer’s Forms I-9 for any defects or patterns of defects or violations. The acquiring employer should also review the previous corporation’s Form I-9 completion practices and determine whether the documents were physically examined in accordance with the regulations.

Some other considerations are:

  • Whether this would be a good opportunity to get the Forms I-9 in question into compliance?
  • Whether this would be a good time to conduct an internal audit of all employees?
  • Is the new employer using E-Verify, either voluntarily or under state law or a condition of a federal contract?
  • Can the new company easily incorporate the historical Forms I-9 into its own system?
  • Does the new company have the staff to prepare a large number of new Forms I-9?

If, after all of these considerations, the acquiring company decides to adopt the prior employer’s Forms I-9, a memorandum should be prepared and placed with the acquired Forms I-9 explaining the adoption, date of corporate transaction, and the number of Forms I-9 adopted. Further, corporate counsel would be wise to seek indemnification from the seller from any future fine related to adopted defective Forms I-9.

Treating Acquired Employees as New Hires

If the acquiring employer elects to treat the acquired employees as new hires, the employer should be mindful that it must complete new Forms I-9 for every acquired employee.8 Failure to do so may give rise to an unlawful employment discrimination complaint under Section 274B of the Immigration and Nationality Act (INA).9

When treating an acquired employee as a new hire, the first day of employment is the effective date of the merger, when payroll is moved, or the date of change in operational control. Section 1 may be completed at any time after an offer of employment with the successor corporation but before the end of the first day of work.10 Section 2 must be completed within three days of the new “hire date.”11 This provides an opportunity for employers to bring their Forms I-9 into compliance.

If the employer is enrolled in E-Verify, either voluntarily or through state or federal contract obligation, it must also run all of the acquired employees through E-Verify.12

Conclusion

While Form I-9 compliance is often overlooked during a merger or acquisition, failure to conduct due diligence and evaluate the acquired company’s Forms I-9 can prove costly if errors are found. Further, failure to conduct an internal audit during a merger or acquisition is a lost opportunity to ensure compliance and consistency throughout your Form I-9 and E-Verify program.

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1 Form M-274 at § 2.0; 8 C.F.R. § 274.2(b).
2 8 C.F.R. § 274a.2(b)(1)(i)(A)(i). See also U.S. v. Curran Eng’g Co., Inc., 7 OCAHO no. 975, at 17 (1997).
3 8 C.F.R. § 274a.2(b)(1)(ii). See also Curran Eng’g, 7 OCAHO no. 975, at 17.
4 The regulations provide that “an employer will not be deemed to have hired an individual for employment if the individual is continuing in his or her employment and has a reasonable expectation of employment at all times.” 8 C.F.R. § 274a.2(b)(1)(viii). An individual is considered to be continuing in her or her employment with a successor corporation if “the employer obtains and maintains from the previous employer records and Forms I-9 where applicable.” See 8 C.F.R. § 274a.2(b)(1)(viii)(A)(7). A successor corporation is defined as “an employer who continues to employ some or all of a previous employer’s workforce in cases involving a corporate reorganization, merger, or sale of stock or assets.” 8 C.F.R. § 274a.2(b)(1)(viii)(A)(7)(ii).
5 See Form M-274 at § 7.0.
6 Id.
7 Katie Loehrke, The Form I-9 is New - The Risk of Penalties for Noncompliance is Not, The Business Journals (January 3, 2017, 7:20 a.m.) https://www.bizjournals.com/bizjournals/how-to/growth-strategies/2017/01/penalties-for-noncompliance-on-form-i-9.html; 8 C.F.R. § 274a.10(b)(2).
8 See 8 U.S.C. § 1324b.
9 Id.
10 Supra, n.2.
11 Supra, n.3.
12 See USCIS Q&A, https://www.e-verify.gov/about-e-verify/questions-and-answers?tid=All&combine=merger.


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This document and/or presentation is provided as a service to our customers. Its contents are designed solely for informational purposes, and should not be inferred or understood as legal advice or binding case law, nor shared with any third parties. Persons in need of legal assistance should seek the advice of competent legal counsel. Although care has been taken in preparation of these materials, we cannot guarantee the accuracy, currency or completeness of the information contained within it. Anyone using this information does so at his or her own risk.

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