Corporate transactions can uncover a number of immigration considerations, particularly if the buyer, seller, or target company, or any entity involved in the transaction, has a sponsor licence. Even without the complexities of a sponsor licence and the duties of the company, immigration issues can arise relating to the prevention of illegal working. Quite often these issues are not identified until after closing with buyers facing potential exposure.
With buyers increasingly insisting on a ‘light touch’ approach to due diligence exercises, immigration matters are often considered out of scope. It is usually only in the course of employment due diligence exercises (carried out by an employment lawyer with immigration experience) that possible flags can be identified at an early stage.
As a matter of good practice, if acting for the buyer, it is helpful to check the register of sponsors for both the buyer and seller or target entity names to see if they hold a sponsor licence; if the seller/target does, this can then lead to questions around the skilled worker population. If a very senior or key employee is a sponsored worker or if there is a large number of sponsored workers, immigration matters are more likely to be pushed up the agenda for consideration and into scope of ongoing due diligence and advice. This will also flag to the buyer early on issues regarding the continued employment of such workers, as sponsor licences are not transferable.
Generally as part of due diligence, if there is the opportunity to ask questions, the buyer should query whether the target undertakes right to work checks in respect of all their employees as well as requesting a breakdown of those employees with limited leave to remain, with visa expiry dates noted. If there is a sponsor licence, the buyer should enquire as to how many sponsored employees there are (and importantly whether any key/senior employees hold a Skilled Worker visa) and whether there have ever been any compliance issues in respect of the Skilled Worker population and/or the sponsor licence.
The response to such questions will allow the buyer to determine whether immigration could be a risk area in the transaction.
Given the impact of the pandemic and that many employees are working remotely (and not always from their country of residence and employment), it is useful to ask whether all employees employed by the seller/target are working in the UK. Where employees have returned to their country of residence and/or travel to another country and work there, this can have a number of potential right to work and tax implications.
It is always worth checking that there is sufficient protection within the purchase agreement in respect of immigration matters.
If there is no sponsor licence, a buyer is likely to request warranties to confirm the seller’s/target’s compliance with the Immigration, Asylum and Nationality Act 2006 (i.e. to ensure that all employees have a valid right to work in the UK) and that the seller/target has carried out right to work checks on all employees, to result in a valid statutory excuse against illegal working.
If there is a sponsor licence, in addition to the above, the buyer will want assurance from the seller/target that the sponsor licence remains valid, subsisting and A-rated. This is to ensure that, if required, the sponsor licence can continue post-completion in respect of the sponsored workers (if any).
To the extent any potential illegal working issues are uncovered, the buyer could try to seek indemnities. These indemnities could cover the employment liabilities arising from the termination of the individual’s employment. It could also cover any civil penalties imposed on the employer as a result of the target/seller employing someone without the right to work. Any losses arising from any criminal liability by the employer would not be recoverable under an indemnity. Buyers must therefore be clear on the extent of the risks and the likely liability.
The parties should ensure that they are aware of any reporting requirement relevant to a sponsor licence which will be triggered by the transaction. Generally where there is a change in the ownership of the sponsor licence holding entity, a new licence will be required (unless otherwise agreed in correspondence with the Home Office).
Whilst the Home Office guidance provides that the report/new application can be made within 20 days of completion, this is usually a busy period for the buyer/seller and as such it can be easily overlooked. It can therefore be helpful for all parties (and should be insisted on if acting for the buyer and there are key employees who are sponsored) to provide that the making of the report/new application is a completion deliverable.
If the relevant transaction has not been reported as a completion deliverable, then this will have to be finalised post completion. Decisions will have to be taken as to the nature of the documents submitted to the Home Office. As well as making the necessary reports in respect of a sponsor licence, there are also various considerations in respect of right to work checks.
Where the Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE) applies to the transaction, the buyer will benefit from the statutory excuse obtained by the seller/target prior to completion (assuming correct right to work checks were carried out). However, if the checks have been inadequate and the employees are subsequently held to be working illegally then the buyer will be liable. The Home Office therefore provides a 60 day grace period following the transfer, to allow the buyer to conduct its own right to work checks. Where this is feasible (in terms of size of the incoming work force) the buyer should carry out the checks. If any discrepancies in respect of potential illegal working arise during this period, the buyer will not be liable for any civil penalty, provided it has taken swift action (ensuring the employee’s immigration position is regularised or dismissing the employee).
If TUPE does not apply to the transaction, the benefit of any statutory excuse would not transfer. As such, the buyer should conduct its own right to work checks to establish a statutory excuse against illegal working.
In a share acquisition, the buyer will continue to benefit from right to work checks (as the legal entity of the employer will not change). However there is no grace period during which the buyer may conduct its own checks to establish a new statutory excuse if required. Nevertheless, where possible, a buyer should conduct a review of right to work post completion, to identify any potential issues which can then be addressed.
Often where the transaction will result in the buyer acquiring a large work force (whether through TUPE or share acquisition), it is not practical to carry out new right to work checks following completion. Instead, buyers will rely on careful due diligence to flag any risk areas and/or appropriately drafted warranties and indemnities (see above).
As the effects of the pandemic begin to ease, the impact of Brexit will become more apparent. As such, more employers are likely to have sponsor licences (requiring the considerations noted above) and, due to so many more employees having limited leave to remain in the UK, the scope for potential illegal working will be higher than ever, requiring careful and focused due diligence to identify risk areas at the outset of a transaction.
This article was originally published on the Immigration Law Practitioners’ Association (ILPA) website.