U.S. immigration laws are playing an increasingly significant role in corporate transactions, and the incoming presidential administration’s expected emphasis on immigration enforcement highlights the importance of addressing these considerations during due diligence. A thorough due diligence process is a critical step for acquiring companies to enhance compliance with immigration laws, evaluate potential liabilities, and identify necessary pre-closing and post-closing actions for a smooth transition. One critical focus of immigration due diligence is assessing the acquired company’s compliance with Form I-9 requirements.

During due diligence, the acquiring employer should review a representative sample of the acquired company’s Forms I-9 to confirm they were correctly and timely completed and retained in compliance with immigration laws. It should also evaluate the I-9 processes and procedures of the acquired entity, its I-9 compliance policy, and steps taken to address past I-9 issues, such as prior internal I-9 audits and I-9 training. Although retaining copies of I-9 documentation with Forms I-9 is not required by immigration regulations, if the acquired company has a policy to do so, the acquiring employer can assess if employment eligibility documents appear genuine and valid. Reviewing existing I-9s can help identify correctable compliance issues and enable the acquiring company to estimate potential monetary risks associated with noncompliant I-9s based on Immigration and Customs Enforcement (ICE)’s penalty schedule.

Employer Obligations to Complete I-9 Verification as Part of a Corporate Change

Under U.S. law, all employers are required to complete Form I-9 to verify the identity and employment authorization of every worker hired for employment in the United States. Immigration regulations specify that an employer is not considered to have “hired” a worker if the worker is continuing employment and maintains a reasonable expectation of continued employment. This includes situations where a worker remains with a related, successor, or reorganized employer, provided that the successor employer obtains and retains the previous employer’s Forms I-9 and related records, as applicable.

A “related, successor, or reorganized employer” includes entities that continue employing some or all of a previous employer’s workforce following a corporate reorganization, merger, or sale of stock or assets. The impact of such corporate changes on I-9 obligations depends on the nature of the transaction, but acquiring employers generally have two options for managing the I-9 process:

Option 1: Treat Acquired Employees as New Hires

Under this approach, the acquiring employer treats the acquired employees as new hires and completes new Forms I-9 for each employee. The new I-9s take the place of previously completed existing I-9s. Under this option:

• The “first day of employment” on the new I-9 corresponds to the effective date of the merger or acquisition (or in some cases when payroll or operational control transfers).
• New Forms I-9 must be completed promptly, regardless of the employees’ citizenship or national origin.
  • I-9 Section 1: Must be completed by the employee no later than their first day of employment. If the employee has accepted an offer of employment, Section 1 may be completed in advance of that date.
  • I-9 Section 2: Must be completed by the employer within three business days of the employee’s first day of employment.

Employers should prepare a brief memorandum to place in each acquired employee’s I-9 file describing the corporate transaction and its effective date, and confirming that employees were treated as new hires and new I-9s were completed. Additionally, employers enrolled in E-Verify, whether voluntarily or as required by state law, must also run all acquired employees through E-Verify. Employers subject to the Federal Acquisition Regulation (FAR) E-Verify clause have an additional option and may choose to verify (or reverify) their entire workforce.

If due diligence reveals significant errors, incurable violations, or inconsistencies in the acquired company’s I-9 forms, option 1 may present as the better option. Key considerations include:

• Compliance Timeline: New I-9s must be completed within three business days of the closing date. Late completions create substantive, incurable deficiencies, which could result in fines during a government audit.
• Temporary Work Authorization: Completing new I-9s helps identify employees with temporary work authorization who will require reverification.
• Administrative Burden: This option can be resource-intensive, requiring sufficient trained staff to prepare and complete the new I-9s correctly within the tight timeline.
• E-Verify Requirements: Employers enrolled in E-Verify (voluntarily or as required by state law) must also process all acquired employees through E-Verify.

While this option may improve overall I-9 compliance, it carries risks, including operational disruptions because employees unable to complete I-9 verification (or, if applicable, pass E-Verify) due to unauthorized work status must be terminated. For industries or companies reliant on specific workforce demographics, the potential for staffing shortages could significantly impact business operations.

Option 2: Retain Existing Forms I-9

Alternatively, the acquiring employer can treat acquired employees as continuing their employment and retain the previous employer’s completed Forms I-9. Under this option, the acquiring employer assumes responsibility for any errors or omissions in the existing I-9s. During an I-9 audit by ICE, the acquiring employer would be held accountable for any deficiencies, which could result in fines or penalties. Fines for I-9 paperwork errors now range from $281 to $2,789 per violation.

If the acquired company’s I-9 forms are generally compliant and errors are minimal, option 2 may present as the better option. Key considerations:

• Liability: By assuming the I-9 forms, the acquiring employer accepts liability for any errors or omissions in the existing I-9.
• Lower Administrative Burden: This option avoids the challenge of correctly completing new I-9s within the three-day compliance window and mitigates the risk of fines for late completions. Similar to Option 1, a memorandum should be placed in the employees’ I-9 files detailing the corporate transaction, the effective date, and the number of I-9 forms adopted.
• Employee Retention: Adopting existing forms reduces the likelihood of employees leaving due to concerns about their immigration status.

When proceeding with option 2, conducting an internal I-9 audit post-closing can help identify and correct curable violations, reducing potential penalties. Post-closing, the acquiring employer should:

• Conduct an internal audit to correct curable violations and ensure compliance.
• Document the audit process and annotate I-9s to reflect corrective actions.
• Complete missing I-9s for any employees on payroll.
• Provide training to company representatives responsible for I-9 compliance.
• Implement a formal company-wide I-9 compliance policy.

Demonstrating good faith compliance through these measures can reduce penalties in the event of an ICE audit.

For unionized employees or those covered by collective bargaining agreements, this option may also help avoid disputes, as unions may oppose completing new I-9s or E-Verify checks. Additionally, including an indemnification clause in the acquisition agreement may protect the acquiring employer from immigration-related liabilities inherited from the acquired company.

Immigration compliance in mergers and acquisitions has become increasingly critical amid heightened enforcement. By conducting thorough due diligence and carefully planning for Form I-9 compliance, acquiring employers can mitigate risks, ensure a smooth transition, and position the transaction for long-term success.