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M&A implications of new foreign worker regulations

|Written By Janet Bomza

“Is this the start of another M&A bubble?” a recent Globe and Mail headline asked.

The writer was referring to the last six months of mergers and acquisitions. With all the pent-up demand created by the recent recession and Canada’s reputation riding high as a safe investment haven, Canadian companies are prime targets in M&A activity.

That’s good news for corporate lawyers who’ve had to twiddle their thumbs since July 2008. But in the haste of making deals, they may overlook key factors.

Corporate lawyers are used to calling in their employment-law colleagues to look at contracts and pensions experts to check the fine print. But what about the immigration implications of M&A deals?

Immigration is the part of due diligence that often gets forgotten.

While it has always been significant in mergers and acquisitions, it’s especially important now given changes to the regulations for temporary foreign workers taking effect on April 1.

The new regulations do a number of things. First, they limit the number of years a foreign national can hold a work permit in Canada.

Second, they introduce a two-year ban for non-compliant employers plus publication of their names and addresses on a blacklist. In addition, they establish factors to assess the genuineness of an offer of employment. Finally, they establish expiry dates for labour market opinions.

So how does that affect an acquisition? If the target company employs temporary foreign workers, their immigration status and its compliance with Canada’s immigration laws and regulations will have to be checked with a magnifying glass.

The sanctions for companies that aren’t in compliance or are deemed to have made offers of employment that weren’t genuine have serious implications for acquirers.

Depending on the type of Canadian work permits the foreign workers hold and on the structure of the deal, the acquiring company might have to apply to Service Canada for a new labour market opinion and to Citizenship and Immigration Canada for work permits reflecting the completion of the acquisition when it closes.

Such reapplications take time, and the workers may not be authorized to continue to work in Canada without renewal of their immigration documents.

If the target company has significantly changed the foreign workers’ salaries or working conditions since they obtained immigration status, the company could be in contravention of the temporary foreign worker program.

If this comes to light

after the acquisition, the new owner’s name will go on a blacklist published on Citizenship and Immigration Canada’s external web site. It will also be unable to hire new foreign workers or renew work permits of existing foreign employees for two years.

If any of the foreign workers have been working in Canada for four years or more, they may be ineligible for future renewals of their work permits.

They may also be prohibited from working in Canada for a full four-year term before they’re once again able to get Canadian permits. Even the recruitment processes used to hire the foreign workers must be examined.

The new regulations apply to both low- and high-skilled workers regardless of their rank or importance to a company’s overall operations.

It’s not hard to imagine a situation where a foreign skilled worker has come to Canada to oversee the installation of specialized equipment or where the person who will initially run a newly acquired entity is from outside of the country.

What if the worker’s ability to work in Canada was temporarily or even permanently suspended?

There are different consequences depending on the classification of the Canadian work permit issued to the foreign worker.

There are also different consequences depending on the structure of the acquisition. If the deal is a simple purchase of shares, it likely won’t trigger immigration consequences.

If the acquisition is a purchase of assets, however, the consequences will be different. In either case, if a new entity is the result or the company name changes, temporary foreign workers will need new work permits under the new name.

The key action to take as part of the due-diligence process is to request an immigration audit before structuring the acquisition in order to minimize the consequences.

A firm that specializes in immigration should perform the audit because the status of every foreign worker employed by the target company must be checked and documents attached as schedules to the agreement. The time and expense will be well worth it.

Lawyers wouldn’t want their clients to discover they’d acquired a company where a key employee or a chunk of the workforce won’t be eligible to work in Canada for several months, or worse, whose work permits won’t be renewed next year. The question would arise as to why the lawyer didn’t make them aware of the issue.


Janet Bomza is managing partner of the Bomza Law Group. A certified specialist in citizenship and immigration law, she advises corporate clients on the complete range of immigration matters. She can be reached at 416-598-8849 or jbomza@bomzalawgroup.com.

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