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Immigration Due Diligence Requirements in Mergers and Acquisitions

In December 2015, a number of regulatory amendments came into force in Canada that could create significant liability for businesses who are engaged in an M&A or other corporate restructuring without addressing the immigration implications. In this newsletter, we outline these amendments and the risks associated with overlooking immigration in an M&A due diligence process.

Under these regulations, found in the Immigration and Refugee Protection Regulations, SOR/2002-227 (IRPR), employers of temporary foreign workers are expected to comply with a number of conditions, which may include the following:

  1. Employer must comply with the conditions included in an offer of employment or a labour market impact assessment, including but not limited to the foreign national’s title, job duties, remuneration, benefits, hours of work (IRPR 209.2(1)(a)(iii) and 209.3(1)(a)(iv));
  2. Employer must comply with the federal and provincial laws that regulate employment, and the recruiting of employees, in the province in which the foreign national works (IRPR 209.2(1)(a)(ii) and 209.2(1)(a)(ii));
  3. Employer must provide the foreign national with employment in the same occupation as that set out in the foreign national’s offer of employment and with wages and working conditions that are substantially the same as – but not less favourable than – those set out in that offer (IRPR 209.2(1)(a)(iii) and 209.3(1)(a)(iv));
  4. Employer must make reasonable efforts to provide a workplace that is free of abuse (IRPR 209.2(1)(a)(iv) and 209.3(1)(a)(v);
  5. Employer must demonstrate that an offer of employment is genuine (IRPR 200(1)(c)(ii.1)(A) and 203(1)(a));
  6. Employer must remain actively engaged in the business in respect of which the offer of employment was made (IRPR 209.2(1)(a)(i) and 209.3(1)(a)(i));
  7. Employer must ensure that the employment of the foreign national will result in direct job creation or job retention for Canadian citizens or permanent residents (IRPR 209.3(1)(b)(i));
  8. Employer must ensure that the employment of the foreign national will result in the development or transfer of skills and knowledge for the benefit of Canadian citizens or permanent residents (IRPR 209.3(1)(b)(ii));
  9. Employer must hire or train Canadian citizens or permanent residents (IRPR 209.3(1)(b)(iii));
  10. Employer must make reasonable efforts to hire or train Canadian citizens or permanent residents (IRPR 209.3(1)(b)(iv)); and
  11. Employer must maintain all documentation confirming the above conditions for a period of six (6) years from the date that the foreign national began employment (IRPR 209.2(1)(b) and 209.3(1)(c)).

These are strict requirements with very little room for divergence. The only acceptable justifications for deviating from these obligations are set out in the legislation as well, including:

  1. A change in federal or provincial law (IRPR 203(1.1)(a));
  2. A change to the provisions of a collective agreement (IRPR 203(1.1)(b));
  3. The implementation of measures by the employer in response to a dramatic change in economic conditions that directly affected the business of the employer, provided that the measures were not directed disproportionately at foreign nationals employed by the employer(IRPR 203(1.1)(c));
  4. An error in interpretation made in good faith by the employer with respect to its obligations to a foreign national, if the employer subsequently provided compensation – or if it was not possible to provide compensation, made sufficient efforts to so – to all foreign nationals who suffered a disadvantage as a result of the error(IRPR 203(1.1)(d));
  5. An unintentional accounting or administrative error made by the employer, if the employer subsequently provided compensation – of if it was not possible to provide compensation, made sufficient efforts to do so – to all foreign nationals who suffered a disadvantage as a result of the error(IRPR 203(1.1)(e));
  6. Circumstances similar to those above(IRPR 203(1.1)(f)); and
  7. Force majeure (IRPR 203(1.1)(g)).

Prior to December 2015, the regulations regarding employer compliance may have seemed inconsequential – why would changing a temporary foreign worker’s salary or title during the course of their employment have any impact on a multi-million dollar M&A deal? What benefit would there be to including immigration compliance in an already lengthy list of due diligence requirements? While that may have been true prior to December 2015 in Canada, this is no longer the case.

Approximately 1 in 4 employers of temporary foreign workers are randomly audited by Immigration, Refugees and Citizenship Canada (IRCC) and Employment and Skills Development Canada (ESDC), and any findings of non-compliance will leave employers open to significant liability. Any breach of the conditions listed above by an employer can result in a finding of non-compliance, including breaches as innocuous as being unable to demonstrate that any information provided in respect of a work permit application was accurate for a period of six (6) years after the first day of the foreign national’s employment, to the most serious breaches, such as failing to make reasonable efforts to provide a workplace free from abuse (IRPR 209.95(1) and Table 1 of Schedule 2).

Included in the regulatory changes are a range of consequences that will allow the Canadian government to respond proportionately to varying degrees of non-compliance and address situations where employers have benefited financially from non-compliance, some of which may have disastrous consequences for an acquiring entity if not identified during the due diligence stage.

Penalties may include any or all of the following:

  1. Administrative monetary penalties, ranging from $500 to $100,000 per violation, to a maximum of $1 million per year per employer (IRPR 209.95(1)(a), 209.98, Table 2 of Schedule 2, and 209.992(1));
  2. Ban/period of ineligibility on future LMIA and work permit applications, for a period of one, two, five or ten years, or permanently for more serious situations of non-compliance (IRPR 209.95(1)(b), 209.99(1), Table 3 of Schedule 2, and 209.992(2));
  3. The revocation or cancellation of current and pending LMIA and work permits (IRPR 209.92); and
  4. Publication of the employer’s name on a public government website for an indefinite period of time (IRPR 209.997).

As a result, acquiring entities may unwittingly become responsible for large fines and other consequences listed above without having directly hired temporary foreign workers, solely on the basis that the entity assumed the liabilities of the temporary foreign worker’s previous employer. As discussed above, justifications for non-compliance are also very limited, and a lack of due diligence prior to purchase will be insufficient to shield an acquiring entity from liability.

Failure to conduct due diligence with regards to immigration matters can also carry criminal penalties as well for both the employer and the temporary foreign worker. Under Section 124(1) of the Immigration and Refugee Protection Act, S.C. 2001, c. 27 (IRPA), it is an offence to employ a foreign national in a capacity in which the foreign national is not authorized under the IRPA to be employed. Section 124(2) of the IRPA goes on to state that a person who fails to exercise due diligence to determine whether employment is authorized is deemed to know that it is not authorized, but under Section 124(3), the exercise of all due diligence to prevent the commission of the offence is a defense. If found guilty, a person who commits an offence under this section of the IPRA can be liable for a maximum term of imprisonment of two years and for a fine of up to $50,000.

Employers and temporary foreign workers can also be found guilty of offences of misrepresentation or counselling misrepresentation, which are broadly defined offences that can result in imprisonment for a maximum of five years and a fine of up to $100,000. A finding of misrepresentation can also result in the issuance of a removal order against a temporary foreign worker and a bar from entering Canada for a period of five years.

In light of the above, it is essential that corporate M&A lawyers retain a Canadian immigration lawyer to assess any potential immigration compliance issues at the due diligence stage of any transaction and provide a full report on potential liabilities. A complete review at the due diligence stage will alert an acquiring company to the financial or legal liabilities, such as the possibility of the imposition of fines or jail terms.

Even more importantly, however, such due diligence will also ensure that the acquiring company is aware of the immigration liabilities that may affect its ability to transfer its own employees into and out of Canada. The imposition of a ban on the hiring of temporary foreign workers or the transfer of foreign nationals to a Canadian entity can prevent an acquiring company from training new staff, maintaining Canadian clients, expanding business or increasing profits, all of which may have formed the basis for concluding an M&A deal.

It is also essential that after an M&A is concluded, the new company ensure that the new entity meets all of its compliance obligations moving forward. M&A transactions, corporate restructuring, and corporate name changes can also result in findings of non-compliance if appropriate steps are not taken to notify IRCC and ESDC of these changes as it affects certain temporary foreign workers. These efforts must be undertaken within 90 days of any corporate change to ensure that employers remain compliant.

For more information about Employer Immigration Compliance in Mergers and Acquisitions, please contact Carrie Wright (carrie@bartlaw.ca) or Jacqueline Bart (bart@bartlaw.ca) or at our BartLAW general telephone number (416-601-1346).

Firm News:

  • BartLAW won the distinguished 2016 Global Law Experts Annual Awards in the SME category – Immigration Law Firm of the Year in Canada – 2016.
  • Jacqueline Bart was featured in the International Who’s Who of Corporate Immigration Lawyers as the leading Canadian corporate immigration lawyer who runs a “highly accomplished” immigration practice, and delivers “comprehensive counsel” to clients.
  • Carrie Wright and Jacqueline Bart authored the Canada chapter for the upcoming 2nd edition of ‘Immigration Law’ publishing as a Practical Law Global Guide, edited by Laura Devine. This Guide will be published by Thomson Reuters this month.
  • Jacqueline Bart authored an article about Canada’s Stringent Employer Immigration Compliance Rules for Corporate Immigration 2016.
  • BartLAW is a committed sponsor Rock for Life, a fundraiser for Lawyers International Food Enterprise,which held the annual fundraiser at the Rivoli in May 2016. To learn more about LIFE, click here.

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