Tips for managing immigration risks in corporate acquisitions

Corporate Acquisitions: Employment Insights - Episode 6 

Natalie Wood accompanied by guest speaker Chris Harber, Head of the Immigration team at Boyes Turner, will help you understand right-to-work checks during both asset and share purchases in corporate transactions.

Discover the importance of right-to-work checks under TUPE provisions and similar arrangements, and learn the practical steps new employers must take to verify employee status, especially for those with time-limited visas. Chris shares his expert advice on avoiding the pitfalls and penalties of non-compliance.

Their conversation delves into the role that accurate right to work documentation plays in corporate transactions. Sellers will find out how maintaining meticulous right to work records can enhance their credibility and potentially avoid the need for indemnity policies. Meanwhile, buyers will learn the essential due diligence steps to verify all right to work checks, with practical tips on acceptable forms of documentation and how to correctly record and store these checks. 

This episode features practical advice for employment law challenges and protecting your investments during corporate acquisitions. 

Episode Links

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• Contact us
• Our Employment services
• Our HR training

Chapters

• 5:28 Financial risk to employers
• 7:45 Physical documentation checks
• 12:39 When the sellers hasn't done right to work checks
• 15:19 Sponsorship license in share purchases

Transcript

Natalie Wood: 0:04 

Hi, I'm Natalie Wood, an associate in the Boys Turner employment team. In this Employment Law podcast series, myself and my colleague, Katie Harris have been discussing the different elements of corporate support work that we do as employment lawyers, which is integral to any corporate acquisition. We've covered a great deal in this series, which we hope that you have found interesting and useful. In this final episode, we're going to be discussing immigration issues that often crop up when we're dealing with corporate acquisitions. These can be tricky and high-risk areas. We're going to be looking at common issues and risks that arise and key things to look out for and provide some guidance to both buyers and sellers on these difficult issues, and I'm delighted to be joined today by Chris Harber, who is head of our Immigration team here at Boyes Turner. Hi, Chris. 

Chris Haber: 0:49 

Hi Natalie, Good to be here. 

Natalie Wood: 0:51 

So, touching on immigration points of focus, Chris, please can you talk about the different types of immigration issues that exist when employing people in terms of employer responsibilities and liabilities for not complying with those, and I think for our listeners it'll probably be quite helpful to sort of first understand what right to work is. 

Chris Haber: 1:12 

Sure, sure. So obviously, to start with, the basic rule is that you cannot employ someone who does not have the right to work in the UK. So all of your employees must have the relevant either citizenship, nationality or immigration status to allow them to work in the UK. Now, the right to work check rules are not mandatory, which confuses a lot of people. So when you employ someone, when you take someone on for the first time, there is no piece of legislation that says to you as an employer, you must check that this person has the right to work in the UK. It is at your discretion fundamentally, but nevertheless it is illegal to employ someone who does not have the right to work in the UK. So by the time you draw the natural conclusion on that, it's probably quite a good idea to be running a right to work check when you're running through employing someone. 

Chris Haber: 2:04 

So how do you do a right to work check? What are you trying to do? Now the purpose of conducting a right to work check is to obtain something called a statutory excuse against civil penalty in the event of illegal working. The key words there are in the event, which is really, really important. I'll come on to that in a second. So when you go through the process of conducting a right to work check in the UK, here in the UK, for the majority of people that you employ, that's going to be a fairly straightforward process of getting the individual to bring their passport in. Obviously, being in the UK, the majority of people will be British citizens, so that's a fairly straightforward process check the passport, make sure the person matches their picture, make sure the names match up and go from there. So where the individual is not a British or Irish citizen, for that matter, there are a number of options available to you as an employer as to how you check an individual's right to work. 

Chris Haber: 2:58 

The most common for those and moving to be the only route of checking a right to work is what's called a share code, an online right to work check. So for anyone who has immigration status in the UK, whether it be as a visa or under the EU settlement scheme. They will be able to provide you with something called a share code, which you will then put into an online system, and you will be able to use that to generate a really neat, nicely formatted PDF document that you download, and that is the right to work check in a nutshell. So it's really straightforward. There are a few small instances, which will come up every now and then, where an individual is not able to provide you with a share code. So, for example, the most common situation that you're likely to see is if someone has permanent residency in the UK and it was granted to them a long time ago, either as a letter or as a separate immigration document which is outside of the passport, or, in some instances, as just a stamp in their passport. 

Chris Haber: 3:59 

In those instances, under the current regime, it's not possible to successfully conduct a right to work check on those, so the individual will need to go and apply for a different type of form, type of type of evidence of their immigration status to allow them to evidence their right to work. Now you will only be levied with a civil penalty by the government if the person that you have employed actually is illegally working. So even if you have not conducted a right to work check, only if that individual is not legally resident in the UK, you will be issued with a fine. So that's a really, really important part to factor in here and you can take a decision as a business. It's not something I would typically recommend businesses take, but you can take a view. When you're recruiting someone, for example, if you're recruiting your sibling, if you're recruiting your brother, your sister you're going to know what nationality they are, so you can take a fairly reasonable approach in terms of figuring out what their immigration status is or what their nationality is. 

Chris Haber: 4:57 

Obviously, if it's Joe Bloggs from the street, you're probably not going to want to take that risk in terms of knowing who they are. So there is a balance there to be struck between making sure that you're mitigating any risks that are introduced to the business against commercial benefits to getting employees into the business quickly. 

Natalie Wood: 5:15 

And so you talked a lot about the risk element. So what, I guess in financial terms, would a potential risk to an employer be if they weren't to do a right to work check and it turns out that an employee was working illegally? 

Chris Haber: 5:28 

Really good question. So the fines have gone up recently. They've gone up quite dramatically. They were £20,000 last year. They've recently gone up to £60,000 per employee. Blimey, yeah, it's a hell of an impact For a lot of businesses that can be make or break. That amount of money is a huge, huge fine. For first time offences that's typically reduced to I think it's £45,000 is the first time offence. For subsequent offences it then goes back up to the £60,000 threshold. It's really important to emphasise it's per employee. 

Chris Haber: 6:01 

So if you have a large liability, if it transpires that you're employing five, six, seven people illegally, then it can be really really, really bad for you from a financial perspective. So it's one of those risk reward. Is the reward of having these individuals working for you going to outweigh the risk of the fine? Probably not. In most instances you also have a reputational factor to consider as well. So every quarter the Home Office publishes a list of companies that they've issued fine against. That goes onto the internet. It's available to download every quarter. The press and the media do look at that very frequently to see if there are any big names that come up, and there have been big names come up in the past. 

Natalie Wood: 6:48 

And presumably it would have, could have an impact on if a business is trying to make an application to sponsor a worker in the future. 

Chris Haber: 6:56 

Yeah, yeah, 100. So it is something the home office will look at, either if you already hold a sponsor license that allows you to recruit from overseas, obviously, or if you're considering applying for one in the future. If you have had any fines against you for employing illegal workers, that will impact the decision. It won't necessarily be an immediate no or an immediate revocation of your license, depending on the circumstances, but it will be a factor. It will be about a mark against your name. 

Natalie Wood: 7:24 

And if the employer has done everything right, they've done the right to work check and as far as they're concerned, the employee is perfectly legally entitled to work in the UK. And it turns out the documents were forged or something completely outside their control, but actually that employee is not legally entitled to work in the UK. How does that change things? 

Chris Haber: 7:45 

So this is one of the sort of the juicier areas of how you do right to work checks. Now, obviously, for the share code. So where someone has immigration status in the UK and they've provided you, as the employer, with a share code and you've done the online right to work check, the basic details of that cannot be forged because this is a home office record. So, short of figuring out how to hack into the home office's databases, there's no way to falsify that as such. The only thing that you would potentially look at with there is the likeness of the person that's presented for work compared to the picture that's on the profile. So then you need to do a little bit of making sure that that person is genuinely who that the person in the picture is. Again, the good thing with those scenarios is that the picture will be fairly recent. Realistically, it's only going to be a maximum of five years old, so images aren't going to change that much in that sort of in that period of time. So you can be fairly confident on the picture that's on them in that period of time. So you can be fairly confident on the picture that's on them. 

When you're checking a physical document. So back in the day when all documentation had to be presented in person and obviously nowadays, with British and Irish passports, there is always the risk that the person presenting the document to you has done something to it. So they've either altered a genuine passport so they've either managed to steal or borrow someone else's passport and they've made they've made alterations to it to make it look like that's them, or it is an entirely false document from the outset and they've paid several hundreds and sometimes thousands of pounds for someone to provide them with a false document. 

Chris Haber: 9:21 

The Home Office are very aware that forgeries and counterfeits can be exceptionally good, certainly at face value, to an untrained eye. False documents can be very convincing to employers. So the Home Office don't expect you as an employer, to be a forgery expert. They're not expecting you to know every single security feature in the passport and goes for every page of the fine tooth comb. It's very much. Does it pass the sniff test? 

Chris Haber: 9:50 

So your key things you're looking for you're looking for pages missing. You're looking for signs of abrasion or scratching out details on the information page you're looking for. If the passport has a laminated page on it, you're looking for the laminate to be lifted to see if any details have been changed underneath. You're looking at the general quality of the document. Passports in particular are exceptionally high quality documents cost £70 for a new passport. It costs that much to manufacture that document. So it's a really high quality document, really high quality printing processes that it goes through as well. So if it looks like a poor document, if it doesn't feel like a genuine sort of like you feel your passport when you go on holiday, then that's kind of the level the home officer are at in terms of what they would expect from you as an employer and as an employer, if you were to check a passport, you were happy with it and it was very convincing. 

Natalie Wood: 10:41 

But then perhaps you know it's just a very good forged document. If then it turns out that employee isn't entitled to work in the UK, then presumably the Home Office wouldn't sort of invoke any of those high-level fines against the employee. 

Chris Haber: 10:55 

Yeah, that's correct. So as long as you've correctly completed the right-to-work check, then you are exempt from fine. And it goes back to the original point I was saying about why you do it. So the whole purpose is to obtain that thing called a statutory excuse in the events of illegal working. So if you've done the right to work check properly and you've checked the passport, you've correctly recorded it on your systems and it turns out that that passport was a forgery, even if the Home Office pick that up, it's fine because you have your statutory excuse against the civil penalty because you've conducted the right to work check properly. 

Natalie Wood: 11:27 

So I mean in this series we've talked a lot about the impact of different acquisitions and how these can change the approach and risks taken. So difference, obviously between share purchase and asset purchase transactions. Is this the same for immigration issues? 

Chris Haber: 11:42 

A little bit. Yes, now it gets complicated. So if you take on staff for the TUPE, then there is no obligation on you as the new employer to have to reconduct right-to-work checks. Nevertheless, it is still beneficial to you as the new employer to conduct your own right-to-work checks because ultimately you still have a responsibility to conduct follow-up right-to-work checks on anyone who has a time limit on their right to work in the UK. So, for example, if there is a member of staff where their visa is coming up to expire in the next year, that responsibility is on you as the new employer to make sure that you conduct a new right to work check when that visa expires. So even though there is no obligation on you to conduct new right to work checks, it makes a lot of sense to do new right to work checks anyway so that you can figure out who has time limit on their right to work check. 

Chris Haber: 12:39 

Now we do see some instances where we ask the question and the seller comes back and says we haven't done any right to work checks. 

Chris Haber: 12:46 

Now, again going back to that original reason as to why you cannot write to work checks in the event of illegal working, for the majority of instances the employee will probably be a British citizen anyway, so they're probably going to have the right to work check. Nevertheless, there is a risk to you as the buyer because if there is an employee in in the in the cohort that's transferring to you who does not have the right to work, then you complete the transfer and then the home office come and audit your, your, your, your staff and they discover that that person does not have the right to work. The fine is levied against you, not the old employer. So there is a risk there as part of that process. So typically, what we would recommend in those instances where the old employer has not carried out right to work checks properly, we would normally ask for an indemnity policy to be included in the acquisition to make sure that any risks, any financial risks that are brought against the new employer, are protected against effectively. 

Natalie Wood: 13:43 

And presumably also if there's sort of a period after the transaction where the sort of buying entity can do those checks and can then benefit from the statutory excuse and also that's potentially something they also might want to do. 

Chris Haber: 13:57 

Yeah, 60 days. You get basically two months to do any follow-up right-to-work checks you want to. 

Natalie Wood: 14:07 

So in a share purchase that sort of same 60-day period doesn't apply. So whatever's happened pre-transaction, that's sort of the situation post acquisition. So what would your advice be to a buyer in a share purchase then? 

Chris Haber: 14:19 

Now it gets difficult because with a share purchase, ultimately the employer has not changed. The entity that is employing them will still be responsible for that individual, so any fines will still be levied against that that employer. Nevertheless, depending on the size of the liability, depending on the size of the company, that risk is going to change. So if you're acquiring, if you're, if you're buying shares into in a company where there are, say, five employees, that risk is obviously very limited and very low and you can mitigate that quite easily. If you're acquiring shares for a company which has got several thousand employees, obviously that potential liability is much higher. So we still typically recommend carrying out right to work due diligence where there is a share purchase. 

Natalie Wood: 15:05 

And presumably the stakes can be high from a commercial perspective. If you've got an employer who is particularly reliant on sponsored workers and if their checks haven't been done properly and actually they lose the right to sponsor workers or if that's a potential outcome, then sort of commercially speaking the stakes are quite high. 

Chris Haber: 15:29 

Even so as well, if you have, say, for example, you're making a share purchase of a company that has a sponsor license and that company is sponsoring, let's say, 5, 10, 15 people, if there are any issues with right to work checks and the home office and there are serious issues with right-to-work checks and the Home Office make the decision to revoke the licence, not only are you affected in terms of the licence being removed and losing that ability to recruit internationally, you also have the basic impact of those sponsored workers will no longer be able to work for you because you've lost your license. So you then open up the can of worms around having to terminate their employment. Are they eligible to claim for unfair dismissal because of the employer's negligence on running their license and right to work checks? So you open up a whole range of other potential issues if there is a license in place. 

Natalie Wood: 16:20 

And in addition, as well, presumably to just simply not having people in the workforce doing the job that's required. 

Chris Haber: 16:24 

Yeah, exactly, and you can depending on again, depending on the size and structure and organisation of where you use your sponsor licence. There will be some companies where losing the sponsor licence is fundamentally critical to their operations. It doesn't have to be numbers as well. It can be that you decided to apply for a sponsor licence because you wanted to hire a particular person in a particular job, so that one person is really really critical to the operations of your business. 

Chris Haber: 16:54 

So say, for example, you have, let's say, for example, a chief financial officer in your business and you had a particular candidate in mind that needed sponsorship when you wanted to recruit them. You apply for the license specifically for that person, you sponsor them. You then lose your license and that person loses their ability to work for you. You are then without a CFO. You've then lost a really, really important person of your business. So it doesn't necessarily have to be about the number of employees that are affected. It can just be about the critical nature of the roles they perform. 

Natalie Wood: 17:27 

When we work on these corporate transactions as part of the DD process, we ask sellers to confirm that they have done right-to-work checks and we ask details about what kind of documentation that they have obtained. Often, the response we get is we've checked their driving license and our understanding is that they are not adequate for right to work check purposes. Over to you, as the immigration expert, on that one. 

Chris Haber: 17:50 

First and foremost, a driving license is not evidence of right to work in the UK. It is not any form of evidence of your nationality. Even though it's got a lovely big Union Jack printed on it, driving licence does not prove your citizenship. So the Home Office have a nice long list of various documents and combinations of documents that you can use to evidence your right to work in the UK. First and foremost, easiest way of doing that is your passport, so a passport for British citizens. It doesn't even have to be valid, it can be expired. As long as you can present a British passport, there's a genuine document and that document is a fair likeness to you, then you can use that as evidence of right to work. So obviously it would be quite difficult for you to try and use your passport. If you are, say, in your mid-40s and you provide your passport from when you were 15, that's probably not going to cut the mustard. But as long as it is a fair representation of you and you are confident that that picture in that passport is a fair likeness to you, then you can use it. 

Chris Haber: 18:59 

Obviously not everyone is going to have a passport, so there are a number of different documents that we can use to evidence right to work in the UK. The most common combination that is used is evidence of national insurance. That has to be evidence that's either come directly from a government agency, so ie HMRC or DWP. It could also be on a previous payslip from a previous employer. That's printed on the payslip from a previous employer. TAnd you have to use that national insurance number in combination with your birth certificates so you have to have a birth certificate. 

Chris Haber: 19:32 

Birth certificates are a lot easier to request duplicates of. There are a limited number of ways in which you can evidence your right to work without those documents, however, it's getting really into the fringes and needs an awful lot of supporting documents. You also need to rely on writing to the home office as well in some of those instances. I won't go into those details at the moment because the chances of finding those instances are vanishingly rare. Thankfully, you don't really see that many. I've certainly never seen any instances of that in 10 years in the industry, so they are rare. Majority of people obviously going to have a passport. If not, then it's a national insurance number and birth certificate together. 

Natalie Wood: 20:10 

So, Chris, in summary, what are the key take-homes for buyers and sellers in corporate transactions? 

Chris Haber: 20:21 

So from a, I'll start from the seller's perspective and move on to the buyers. So, being a good seller. If you're in a position where you want to be looking to be acquired soon, or if you think that's going to be coming up on the radar, make sure you're right to work Documentation is up to date. It is something that buyers will typically look at when they go through their due diligence with you. It is something that will always come up and quite often you'll need to put indemnity policies in place if you don't have that. So, certainly for smaller businesses, for the sake of what is effectively a couple of hours of work, of going through your data, making sure that you've correctly recorded all of your right to work checks and that you've got proper copies of everyone's evidence of right to work. It's worth its weight in gold from a seller's perspective. It makes you look like a much, much more credible seller. 

Chris Haber: 21:10 

So really, really check your data from a seller's perspective, from a buyer's perspective and, just generally speaking, from an employer's perspective as well. So, first and foremost, always make sure that you're recording the right to work checks in the right format. If you've got a share code, then make sure you download a copy of that online check, save it to the employee's personnel file. Make sure that's recorded properly. If it's a British citizen or an Irish citizen and you're checking physical documentation, make sure that the copies that you take are good, clear colour copies of the records, either physical. You can either do a photocopy or you can do a scan and save it to their to an online system. 

Chris Haber: 21:51 

Make sure you are recording the dates that you conduct to that right to work check on, either on the document itself. So if you take a scan copy, for example, a really easy way of doing it is that you take a copy of the document, photocopy it, print it, write on the document right to work check, complete it on and then put today's date Scan it back in and save that to the file. If that ensures you, you can also have a separate tracker. So whether you have a HR system that you use or whether you keep it really really straightforward and save on a spreadsheet, make sure you're recording the dates you're conducting the right to work check on as well. 

Chris Haber: 22:26 

One of the things with right to work checks is that you can only establish the statutory excuse before the individual starts work for you. So if they started work for you even yesterday, for example, it's too late to obtain a statutory excuse. So there's always going to be those instances come up. So, from a buyer's perspective, make sure that you identify where those scenarios are cropping up and insist on an indemnity policy to cover any potential fines labelled against you. 

Natalie Wood: 22:56 

Well, that's all really helpful. Thank you very much, Chris. 

Chris Haber: 22:58 

Absolute pleasure. 

Natalie Wood: 22:59 

Thank you very much also for joining us today. 

Chris Haber: 23:01 

Thank you. 

Natalie Wood: 23:02 

If you're interested in checking out the other episodes in this series, go to the Boys Turner website or just subscribe and follow the podcast and you'll be able to listen to them as soon as they're available.