Buying a Business that Employs Foreign Workers: What You Need to Know
Buying a Business that Employs Foreign Workers: What You Need to Know
As more Canadian businesses rely on foreign workers, the Government of Canada continues to tighten its enforcement of the rules governing their employment. This makes it increasingly important for prospective buyers to understand the implications of acquiring a business that employs temporary foreign workers. Corporate changes such as mergers, acquisitions, and restructurings can raise compliance issues related to work permits and foreign worker obligations.
Key Considerations for Buyers
When acquiring or merging with a business that employs foreign workers, buyers should assess:
- Whether the transaction triggers the need for new work permits for existing employees; and
- Whether the acquiring company could be held responsible for any non-compliance by the previous employer.
Assessing post-acquisition liabilities
The concept of “successor in interest” is crucial in determining post-acquisition liabilities. Refugees and Citizenship Canada Refugees and Citizenship Canada (IRCC) guidelines indicate that if the new employer takes over the previous company’s operations, assets, and obligations, it may be considered a successor in interest. This means the new entity may be held responsible for both current and past compliance with foreign worker regulations.
There is no strict definition of what qualifies as “substantially assuming” another company’s interests, but relevant factors include taking on:
- Assets and liabilities
- Real property and intellectual property
- Employees and human resources responsibilities
- Business operations and client contracts
If the acquiring company is deemed a successor in interest, it also becomes the employer of record for foreign workers under existing work permits, with all accompanying responsibilities.
New Work Permit Requirement
If the buyer is recognized as a successor in interest, and the type of business remains the same, new work permits or Labour Market Impact Assessments (LMIAs) are generally not required. However, if this is not the case, the new employer may need to secure new LMIAs or submit new offers of employment before foreign workers can resume working.
The temporary foreign worker is not obligated to obtain a new work permit and will continue to be authorized to work in Canada for the duration of the period stated on the existing work permit as long as both of the following apply:
- The take-over organization meets the requirements under which the LMIA-exempt work permit was issued (for instance, a qualifying relationship for intra-company transferee), or the take-over organization assumes the LMIA contract.
- The worker’s employment conditions as per the original offer of employment (for example, the wages, duties and location) have not changed.
For businesses using the International Mobility Program (IMP), it is essential to determine whether the qualifying relationship still exists - for example, in the case of Intra-Company Transferees. Any changes to job title, duties, location, or wages should be reviewed carefully, as certain work permits may restrict such changes and require amendments.
Additionally, employers with active LMIAs should notify Employment and Social Development Canada (ESDC) of the change in corporate structure to determine whether a new LMIA is needed.
If the take-over company does not become a successor in interest, a new LMIA or offer of employment and new work permits are required for all temporary workers holding employer-specific work permits, and the employees should cease working for the take-over company until new work permits have been obtained.
Managing Liability for Non-Compliance
In general, if the buyer is not a successor in interest, it is only responsible for compliance moving forward—not for any past violations by the seller. However, if the buyer is deemed a successor, it may inherit liability for previous non-compliance, including the risk of administrative penalties, inspections, and even being barred from hiring foreign workers in the future.
Steps to Reduce Risk
To mitigate risk when purchasing a business that employs foreign workers, consider the following actions:
- Conduct a Compliance Audit
Before finalizing the transaction, review the target company’s foreign worker history and compliance for at least the past six years. Obtain a list of all foreign workers and assess whether the business followed all relevant regulations. The LMIA application imposes conditions on the employer to abide by a prevailing wage, a specific job location and specific job duties when the work permit is issued. Therefore, each LMIA is tailored to fit a particular job offer by a particular employer. - Include Indemnity Provisions in the Purchase Agreement
Protect your business by negotiating indemnification clauses for foreign worker compliance issues. These clauses can help cover the cost of legal representation, government audits, and any necessary disclosures to IRCC or ESDC. - Update the Employer Portal
After the transaction, notify IRCC of any changes to the company’s name, address, or Canada Revenue Agency (CRA) number. If the CRA number changes, request IRCC to link the new number to the employer’s compliance portal. - Consider Voluntary Disclosure
If you discover past non-compliance, consider making a voluntary disclosure to the appropriate government authority. This can reduce penalties and demonstrate good faith in meeting your legal obligations.
Using Compliance Findings to Negotiate Purchase Terms
Identifying past non-compliance with foreign worker regulations during due diligence can significantly affect the valuation of the business. If issues such as unreported employment, invalid work permits, or prior regulatory violations are uncovered, the buyer may be exposed to potential fines or operational disruptions. These findings can serve as a basis for negotiating a reduced purchase price, requesting specific indemnities, or including holdbacks in the purchase agreement to account for future risk. Addressing these matters early allows buyers to make informed decisions and better protect their investment.
Industry implications
For many of our construction industry clients, foreign workers are often essential to keeping construction projects on time and on budget. If their work permits are invalidated, or if your company is penalized for past non-compliance, the impact on your operations could be severe. For example, a contractor acquiring a framing or concrete company may unknowingly inherit liabilities tied to improperly documented foreign labour - jeopardizing future projects or the ability to secure new contracts.
Conclusion
For many industries labour is a core asset. When acquiring a company that employs foreign workers, it is critical to conduct thorough immigration compliance checks and structure the transaction to protect your business. Due diligence and proactive planning are essential. Working with experienced legal counsel can help ensure a smooth transition and minimize exposure to risk when acquiring a business that employs foreign workers.
How We Can Help
At Libra Law, we would be pleased to assist you with any aspect of your business purchase, including immigration compliance advice and structuring the transaction to minimize legal risk. Whether you are acquiring a company that employs foreign workers or simply need guidance on your obligations as a new employer, we are here to help. Please don’t hesitate to contact us to discuss your situation.
NOT LEGAL ADVICE. This article is for general informational purposes only and does not constitute legal advice. To obtain advice tailored to your specific situation, please consult a lawyer or a qualified professional.
