Companies must understand the immigration law implications of corporate changes

By Aziza Akhouaji

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Companies that undergo corporate changes as a result of mergers, acquisitions or restructurings are typically obliged to fulfil immigration compliance-related duties and may face significant consequences related to their employees if they fail to do so. In practice, experience has shown that transactional lawyers and corporate specialists often consider immigration law issues as merely peripheral in corporate deals. No significant merger would ever be completed without a comprehensive due diligence, yet immigration law aspects may have serious impacts too if not taken into consideration as part of the initial risk assessment and post-transactional integration process.

This article addresses the immigration law-related requirements companies may face in any corporate changes and the possible consequences they may have in the event of negligence.

Immigration law violations should no longer be considered a mere inconve­nience for companies. They can have a significant impact on important projects and the bottom line, which could be derailed if a company is penalized for an infraction and flagged as an entity that should be watched for immigration issues. In Germany, any corporate changes are likely to trigger transfer laws and, with that, the obligation to report the change to the German authorities to
ascertain the legal and work authorization status of affected employees.

Failure to do so may lead to significant compliance issues, including unlawful employment as well as consequent sanctions and significant fines. As such, immigration considerations should form an integral part of any due diligence process for corporate changes, including the examination and determination of compliance aspects and the careful assessment of the employment eligibility of foreign nationals.

Legal obligations and immigration compliance-related duties

When thinking of illegal employment, reasonable concerns include clandestine employment pertaining to certain economic sectors where employers may fail to meet notification obligations, pay the required minimum wage or make social security contributions. However, an employment status may also become an illegal status if the approved specifications of an employee’s initial work authorization vary due to corporate changes affecting the employer or employment conditions. Either way, German immigration law does not discriminate between circumstances: Sanctions and fines will apply equally to failure to comply and negligence.

Corporate changes often create risks for foreign nationals, including employees with pending immigration applications and those holding visas and work authorizations, for example. In particular, certain employees’ legal right to work may change and often goes unnoticed by the transactional lawyers, human resources or global mobility specialists involved, though employers have auditing obligations as stated in section 4, paragraph 3 of the German Federal Residence Act (Aufenthaltsgesetz, AufenthG). For instance, according to German immigration law, any corporate changes may be subject to renotification to the Federal Employment Agency (Bundesagentur für Arbeit, BA) regarding the continued employment of third-country nationals. This implies that companies are asked to submit corporate change-related documentation and stems from the fact that, by law, the employment of a foreign (non-EU/-EEA) national is generally prohibited until an individual work authorization tied to a corporate entity has been issued (section 4, paragraph 3 AufenthG). This ‘preventive ban for authorization option’ (Präventives Verbot mit Erlaubnisvorbehalt) provides German officials with a great deal of discretion in the decision to issue and reissue a work authorization, taking into consideration unemployment rates and other economic factors in Germany. During this process, the Federal Employment Agency typically assesses the eligibility of the employee and conducts a comparability check with German nationals employed in a similar position and region. Failure to notify the relevant authorities on time could invalidate current work authorizations and result in a lengthy reauthorization process and major disruption to business.

Consequences of failing to comply

Immigration noncompliance and related consequences may arise in a surprising number of ways following a restructuring process. Disruption due to invalid work authorizations is only one consequence of negligence. Besides sanctions and fines, violation of immigration laws could further expose companies to long-term consequences such as aggressive work site compliance audits and prolonged government case handling of future applications. Depending on the extent of the breach, failing to meet auditing obligations that result in illegal employment may lead to both administrative as well as criminal sanctions. In such cases, administrative proceedings and fines of up to €500,000 are common. Persistent breaches, on the other hand, could be prosecuted as criminal offenses and punished with prison sentences of up to three years and accompanied by high fines, entry into the national database, loss of state subsidies and possibly deportation of employees if the employee loses the right to stay in Germany.

Practical steps

So what should companies do to avoid a breach in the first place? It is vital to consider any immigration implications as an integral part of the due diligence and post-transactional integration process for any corporate changes. This will help identify the number of employees affected and the steps that should be taken to comply with immigration requirements. It will also help to have the correct documentation and inform the relevant authorities in a timely manner in order to obtain the required approvals. Finally, HR policies and processes may need to be implemented or adjusted to be fully compliant with current immigration rules.

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