Byron Burger’s recent immigration controversies are a reminder for businesses of how important it is to get the right policies and procedures in place to ensure that their employees have the right to work in the UK.
It also serves as a reminder for buyers and investors of the importance of carrying out due diligence on a target company’s immigration compliance and right to work check procedures.
The corporate angle
Immigration is an area that is easily overlooked during M&A and PE investments. Yet recent events show there are potentially financial and reputational risks to buyers of, or investors in, a target company that fails to comply with immigration legislation. Potential buyers and investors would be well advised to flush out any compliance issues and seek rectification of them prior to any acquisition.
So what are the risks?
Civil penalties – Civil penalties of up to £20,000 per employee found to be working illegally may be issued, unless the employer has established a statutory excuse by carrying out right to work checks before the individual’s employment began. This applies even if the employer did not know the person did not have the right to work.
Criminal sanctions – It is a criminal offence to employ an individual knowing, or with “reasonable cause to believe”, that they do not have the right to work in the UK. This carries a maximum sentence of five years in prison.
Effect on sponsor licence – An employer could have its sponsor licence downgraded, suspended or revoked as a result of non-compliance which could prevent businesses from being able to sponsor and employ non-EEA nationals.
Reputation – Companies issued with a civil penalty are named and shamed but the bad publicity Byron Burger received means businesses must find the fine balance between meeting their legal obligations whilst maintaining good employee relations.
What happened to Byron?
Byron Burger had carried out the correct checks on its employees but had been shown fraudulent documentation. Therefore they have not faced any civil penalties or criminal action. They have, however, received heavy criticism for arranging a meeting with employees at which immigration officers arrested attendees. The legislation in this arena is now so strict that employers are forced to take a tough stance with their employees when it comes to the prevention of illegal working. Unfortunately for Byron Burger, this has resulted in negative media attention and potential reputational damage despite its compliance with the law.
As a business, buyer or investor, what do I need to consider?
As a buyer or investor, your due diligence should cover:
- Obtaining details about the makeup of the target’s workforce; whether it employs many non-EEA nationals; and whether there is a high turnover of higher risk low paid staff
- Obtaining details of the immigration status of all non-EEA nationals
- Checking if the target is covered by a sponsor licence
- Investigating any sponsor compliance issues and the effect of the acquisition on the sponsor licence
- Requesting information about the right to work check procedures
Buyers or investors should also:
- Request warranties in the share or asset purchase agreement that all employees have the right to work in the UK and that the employer has carried out right to work checks and, if applicable, has complied with its sponsor obligations
- Consider asking for indemnities to address any specific concerns regarding breach of immigration legislation
- For an asset purchase resulting in employees transferring under the Transfer of Undertakings (Protection of Employment) Regulations (known as TUPE), carry out its own right to work checks on all transferring employees within 60 days of the transfer
- For a share purchase, consider carrying out its own right to work checks post-Completion and put in place procedures to ensure further right to work checks take place at the expiry of an employee’s limited leave to remain
Businesses are strongly advised to:
- Train all managers on the correct procedure for right to work checks – crucially these must be carried out before an employee starts work and correct signed and dated copies must be kept. If the employee has limited leave to remain, these checks must be carried out again upon expiry of the leave to remain
- Take prompt action if they suspect someone may not have the right to work in the UK and seek legal advice
- Ensure that immigration and right to work processes are audited regularly
- Obtain legal advice in relation to employees’ immigration applications
- For those with a sponsor licence, ensure that ‘Key Personnel’ are aware of their duties and keep the Home Office updated regarding changes of personnel and changes to the business, such as office locations
By Serena Spink, Associate
First published in Growth Business, September 2016