Background

All employers in the UK are subject to duties surrounding the Prevention of Illegal Working (PIW). These require certain checks to be carried out in relation to all potential employees (including British nationals) prior to the commencement of their employment, in order to establish their right to work in the UK. Following those checks, specified documents must be kept on an employee’s personnel file to provide an excuse against a potential civil penalty (known as a statutory excuse), in case the employee in question is found to be working without appropriate permission.

In addition to the general duties under the PIW regime, employers registered with UK Visas and Immigration (UKVI) to sponsor migrants under Tier 2 and/or Tier 5 of the Points Based System (known as Sponsor Licence holders) are subject to additional obligations in relation to sponsored employees (the licensing regime).

Both the PIW rules and the licensing regime may have implications for organisations involved in corporate transactions.

Prevention of Illegal Working Regime

Where an organisation is involved in a merger, takeover or de-merger and there is a movement of employees, it will trigger new obligations under the PIW regime for the organisation receiving the transferred employees and it may be subject to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). The buyer is required to carry out the right to work checks on all newly acquired TUPE employees within a period of 60 days from the date of the transfer. This check would also determine when a follow up check should be undertaken, if applicable. Failure to carry out the checks correctly will result in the loss of statutory excuse against a civil penalty if any of the TUPE employees are found to be working in the UK without appropriate permission.

Since 16 May 2014, the maximum level of civil penalty has been £20,000 for each illegal worker. In addition, since 6 April 2015 your licence will be revoked if you employ an illegal worker. Although the actual penalty might be reduced in certain circumstances the aggregate penalties could become quite eye-watering for any organisation and it is clearly therefore very important to have the right procedures in place to ensure compliance with the PIW regime.

TIP: Whilst 60 days may feel like a considerable amount of time, in reality clients often comment that the time passes by very quickly as the business principals invariably become embroiled in other aspects of post-deal integration/management. In light of this, and as there may be delays in employees collating the relevant documentation, we recommend that organisations undertake the right to work checks as soon as practically possible after the transfer and build in the obligation to provide evidence of a right to work as part of the due diligence process.

Other than employees transferred under TUPE, the right to work checks should be carried out before employees start working for the new employer. This is because in scenarios where TUPE does not apply the affected employees’ contracts of employment do not automatically transfer to the buyer.

TIP: We recommend requesting new starters to arrive 30 minutes before their contractual start time on their first day for the checks to be completed or, if appropriate, to incorporate the checks in the interview process (often final interview).

Licensing regime

It is important for organisations to review carefully the schedule of employees at the start of the due diligence procedure as under the licensing regime, the transfer of sponsored employees to another entity under TUPE will trigger certain obligations for the seller and the buyer.

  • The seller has a duty to report the transfer to UKVI via the Sponsorship Management System within 20 working days of the transfer and the report should include the details of any transferred employees and whether the Sponsor Licence should be surrendered (if the entity ceases to operate or the Sponsor Licence is no longer needed);
  • If the buyer does not have a Sponsor Licence, it must apply for one within 20 working days from the date of the transfer in order to be able to continue to sponsor any affected employees. If the buyer already has a Sponsor Licence, it must report the transfer within 20 working days, with the details of any sponsored employees that have been transferred.

UKVI is likely to request a variety of documents in relation to the transfer and the underlying transaction. The buyer will take on all the sponsorship duties in respect of any transferred employees, including the duty to report certain events relating to those employees, in line with UKVI’s Tier 2 & 5 guidance for sponsors.

Furthermore, UKVI specifies in its guidance that all transactions resulting in a change of ownership (this includes a change of ownership of the controlling number of shares) will result in a Sponsor Licence revocation and the new owner would need to apply for a new Sponsor Licence to continue to sponsor current employees under the Points Based System, unless it already has one. This is the case even though in such a scenario there is no transfer of employees.

Each case should be assessed on its own facts and UKVI might be open to representations that the change of the member does not merit revocation of the Sponsor Licence.

TIP: Organisations should fully review and establish the immigration status of those persons set out in the seller company’s schedule of employees as part of their normal due diligence investigation at the earliest opportunity to ascertain, amongst other things, what timeframes they may need to adhere to in order to comply with UKVI’s requirements.

If the seller and buyer comply with these duties, any sponsored employees subject to a TUPE transfer should not be affected. However, if the relevant entities fail to apply for a Sponsor Licence and/or to report the transfer, any affected employees will lose their right to work in the UK and their permission to remain in the UK may be curtailed by UKVI. This could have a serious impact upon employees with family members who themselves have jobs requiring permission to work and for children who need permission to study and who may need to travel a school trip on short notice.

If a transfer takes place without TUPE protection, the buyer will need to issue new Certificates of Sponsorship (CoS) to any affected employees requiring sponsorship, to enable them to make fresh applications for permission to remain in the UK to work for them. The same applies if a sponsored employee is transferred under TUPE, but his/her job significantly changes after the transfer.

TIP: We recommend that all organisations review their CoS allocation at the outset of the due diligence process as they may need to increase their allocation with UKVI which takes about 4 – 6 weeks to process. UKVI will consider an urgent request if a sponsored migrant is in the UK and has less than 15 days remaining on their visa. Consideration should also be given to whether the role needs to be advertised to settled workers in accordance with the resident labour market test prior to assigning a CoS as these issues may cause unnecessary delay to the sponsorship of employees, if not considered at the outset of the due diligence procedure.

Preparation and planning is key

Consideration of the duties and responsibilities under the PIW and licensing regimes at an early stage in the transaction is in the best interests of all parties concerned. There is little reason that the issues involved cannot be addressed during the ordinary course of the due diligence process that would normally be carried out at an early stage of the transaction leaving the principals in a position to front-load the steps to be taken to ensure immigration compliance well in advance of completion.

If you have any questions or require further advice about the issues raised in this article, please contact Chetal Patel, an Associate in the Immigration Department.


Chetal  Patel photo

Chetal Patel

Senior Associate

T
+44(0)20 7551 7741

E
c.patel@bwbllp.com
View full information about Chetal Patel

Posted on 28/07/2015 in Legal Updates

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