Member Article

In an increasingly global world, an organisation’s ability to recruit and retain international talent plays an ever important and potentially business critical role. In the UK, the only way in which employers can directly employ many of these talented individuals is through obtaining a sponsor licence from the Home Office. Employers who hold these licences must be constantly mindful of the conditions placed upon them, and nowhere more so than during a corporate transaction, where getting it wrong can lead to the licence, and with it the ability to sponsor key workers, being revoked.

Sponsor licences are not transferrable

In any corporate transaction it is essential to identify as early as possible if there is a sponsor licence anywhere in the corporate structure. Even if the licenced entity does not form part of the transaction, it could have significant consequences. This holds regardless of whether TUPE is applicable, and even if it is a basic share sale. The principle is that sponsor licences are not transferrable; one entity cannot acquire a sponsor licence from another. Changes in the ownership of a sponsor licence require a new licence.

The practical implications of this can be complex, particularly in corporate groups where there might be one licence to cover many branches. Indeed, as a result of some transactions, an employer canautomaticallylose their licence. In order to preserve the continued right to sponsor, there are a number of steps that need to be taken, and quickly.

A proactive approach

Once a transaction is completed, employers have just 20 days to report any change in a sponsor licence or make a new sponsor licence application to the Home Office. If prepared in advance of the transaction completing, there is minimum risk to the smooth operation of the licence. It only becomes a problem when an employer has failed to do this and it goes unnoticed until the Home Office carry out checks, probably at a time when you are most needing the licence. The only solution here is to make a new application for a sponsor licence, which will delay matters and may lead to a refusal. The Home Office may decide that the employer is no longer trustworthy given their breach, and should therefore not be trusted to sponsor. While this can be serious, what the Home Office decide to do in these sorts of situations depends on many factors, including past compliance and the nature of the change. If it gets to this stage, entering into a respectful dialogue with the Home Office can save the licence and preserve an employer’s ability to bring in international talent long-term.

What should you do to prepare?

As part of any transaction or restructure, you need to be identifying at the earliest possible opportunity any existing sponsor licences and how they might be affected by the transaction. Ensuring that the appropriate questions are asked as part of the diligence procedure will alert you to whether there is a licence in place, where in the company structure it is held, and what steps need to be taken on completion of the transaction.

This is important even where there is no commercial transaction, and it is a simple restructuring of the group. As the organisational chart below goes to show, while a restructure may change little in terms of day-to-day operations, and many of the key staff will remain, the licence will technically be revoked as the direct ownership has changed. In this case, taking appropriate steps in good time can prepare the team to notify the Home Office of the change and make an application for an updated sponsor licence.

In the above example,Service Co holds a sponsor licence.As the company in direct control of the licence holder is changing, it is likely that a new licence will be required.

What if a sponsored worker is transferred under TUPE?

Both the ‘buyer’ and the ‘seller’ are required to take action in instances in which TUPE (or similar protection) applies, though the specifics of the action will depend on the nature of the transaction. Even if this is an intragroup TUPE, whereby the transaction does not affect the parent holding the sponsor licence, the licence holder must report this change to the Home Office.

In more conventional transactions, the seller will need to report that they are no longer sponsoring a migrant. They may also at this time decide to surrender their licence. The buyer should then also report that they are acquiring a migrant under TUPE. The buyer will be accepting all of the sponsorship duties for this person. Practically, however, as they did not issue the certificate of sponsorship, they will be unable to report future migrant activity on the SMS platform, and this must instead be done in writing. If the acquiring employer does not have a sponsor licence, they must apply for one within 20 days of the transaction concluding.

This is complicated further when transferring a migrant who has entered the UK under the provisions of an intra company transfer visa, Tier 2 (ICT). While such employees can be transferred, they may not be able to extend their visa. It takes thoughtful planning to mitigate any loss around this issue and the course of action taken will depend on how critical the employee is to the operation.

Illegal working: civil penalties operate on a strict liability basis

The Home Office expects every employer to work to prevent illegal working, regardless of if they have a sponsor licence or not. While there is a duty placed upon sponsor licence holders to carry out right to work checks on all of their workforce, any employer who is found employing a person who has no right to work is liable to a civil penalty of up to £15,000 per illegal worker. A penalty will be issued regardless of when the worker commenced the employment, in the case that the employer has failed to retain the appropriate documents to establish a statutory excuse.

In addition to this, it is a criminal offence to knowingly employ someone where they have no right to work. While knowledge of the offence is often harder for the state to prove, if they do so the court can issue an unlimited penalty and even sentence someone to up to 5 years in prison.

Illegal Working: sponsor licence holders beware

There is a duty on sponsor licence holders to carry out right to work checks on all of their workers and a breach of this duty may lead to the Home Office taking action. Practically speaking, however, it would not be usual to see a licence revoked on the sole basis that an employer has failed to carry out a right to work check on 100% of their workforce.

If, however, the sponsor has been found to employ a worker without a right to work and a civil penalty is issued, there is a serious risk that the Home Office will revoke the licence, ending the ability of the employer to sponsor new staff and putting the existing sponsored workforce at risk of having their current permission to stay in the UK cut short.

While it is common for transactions to include warranties and indemnities that provide that the seller has complied with the law and carried out right to work checks sufficient to guarantee a statutory defence to a civil penalty, a purchaser may want you to take further steps. While the advice should always be to carry out a comprehensive right to work check as soon as a transaction is concluded, this may not always be feasible depending on the size of the workforce. It is important to ensure that employers, particularly those with sponsor licences, understand the risks associated with illegal working in order to better inform their decision making as transactions conclude.

While immigration complexities and right to work technicalities are not always at the forefront of the minds of those involved in multi-million-pound complex transactions or tax-efficient restructuring, using the transaction as an opportunity to tidy up HR files, ensure compliance and get the sponsor licence compliance right can, if identified early, be a smooth and straightforward process. Leave it too late, however, and companies run the risk of threatening letters from the Home Office and a workforce concerned about their futures.

To discuss any of the matters raised in this article in further depth, and learn more about how our immigration team may be able to help, please contact Blair Melville,[email protected]or Jacqueline Moore,[email protected]