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Maintaining Workforce Integrity: Form I-9 Compliance in Mergers and Acquisitions

Employers in the United States have an important duty to ensure that their employees are authorized to work in the country. Form I-9 is a critical document used by employers to verify the identity and work authorization of the individuals they have hired. To maintain the integrity of the U.S. workforce, the Immigration Reform and Control Act of 1989 (IRCA) was put in place to prevent unlawful employment and to ensure all employees are legally authorized to work in the country.

The main purpose of Form I-9 is to establish the identity and work authorization of all employees – regardless of citizenship status. By completing Form I-9, both employers and employees are helping uphold the federal regulations prohibiting unauthorized individuals from seeking employment in the U.S.

MERGERS AND ACQUISITIONS: WHAT SHOULD AN EMPLOYER DO?

During the normal course of business, companies experience growth. Employers who have merged with another company or have acquired another company must still remain in compliance with the I-9 regulations. When a company acquires new employees through a merger or acquisition, the company has two options regarding Form I-9: the company can treat the acquired employees as existing employees or treat the acquired employees as new hires.

TREATING ACQUIRED EMPLOYEES AS EXISTING EMPLOYEES

When treating the newly acquired employees as if they are existing employees, the employer chooses to retain the previous owner’s completed I-9s and treats the individuals as employees who are just continuing employment with no interruption. The Immigration and Nationality Act states that an employer will not be treated as having hired a new employee if that employee is continuing in their employment and has a reasonable expectation of continuing such employment, including with a related, successor, or reorganized employer. When an employee elects to retain the previous I-9s, the company is now liable for any defects, omissions, or violations that may have occurred under the previous owner.

Before deciding to go this route, the acquiring employer, therefore, should review the previous company’s Form I-9 practices and conduct an audit of the previous forms to ensure compliance with the regulations. As the acquiring employer will be held liable for any defects, omissions, or violations, correcting the few errors found will help reduce the potential for penalties should an audit later occur. Best practice indicates that a memo should be prepared and placed in the personnel files to describe the corporate transaction that occurred, the date of the transaction, and the number of I-9s which were retained.

TREATING ACQUIRED EMPLOYEES AS NEW HIRES

The second option for the acquiring employer is to treat all acquired employees as new hires. If this is the route chosen, the employee must complete new Form I-9s for all the acquired employees, regardless of citizenship or national origin.

It is important to note that the first day of employment for these “new hires” will be the date the merger or acquisition is effective. In some cases, the first day of employment may be the date when payroll is moved or the date when operational control has officially changed. As with all new Form I-9s, Section 1 must be completed by the new employee no later than the first day of employment. Section 2 must be completed by the employer within three days of the first day of employment.

Not only must the acquiring employer complete new Form I-9s for all the newly acquired employees, but if the employer is enrolled in and uses E-Verify (either voluntarily or because they are required to), all acquired employees must be run through E-Verify.

Compliance with Form I-9 regulations is an often overlooked aspect during a merger or acquisition. However, failure to conduct due diligence and properly maintain I-9 compliance can lead to costly fines if errors are found. It is essential that employers are aware of the necessity of Form I-9 compliance during a merger or acquisition in order to follow the regulations established to maintain the integrity of the U.S. workforce and ensure legal employment practices.

Employers must remain diligent in the proper completion of the form and should seek legal advice when facing any uncertainty regarding Form I-9 requirements. For over 25 years, Reddy & Neumann, P.C. has worked with employers to protect their businesses from the potential consequences of worksite noncompliance related to hiring and the retention of employees. Our firm guides employers to ensure full compliance with all Form I-9 requirements by conducting internal audits of a company’s records, processes, and procedures.

By: Jessica Palarca

Jessica Palarca is an attorney in Reddy & Neumann’s PERM Labor Certification Department where she assists clients in the beginning stages of the green card process.

Jessica earned her J.D. from the University of Houston Law Center in 2009 and was admitted into the Texas bar the same year.  As the child of two immigrant parents, Jessica found her passion for immigration law early in her career.  With over a decade of experience in both the private and non-profit sectors, she brings a different perspective to each case she handles.  Through the years, Jessica has learned that to achieve the best possible results for each individual served, one must keep things simple and provide personalized attention and care to each case.