New traps are waiting to snare the unwary on April 1, 2011, when the regulatory amendments to the Temporary Foreign Worker Program become effective. For the acquirer of businesses that depend, to a greater or lesser degree, upon the services of temporary foreign workers and the professionals who advise them, these amendments bring with them new burdens and best practices in the acquisition process. The impact will extend to the preparation of acquisition agreements, due diligence searches and document review. This short paper examines the ramifications of these regulatory amendments for the commercial practitioner and their clients.
It will now be incumbent upon a solicitor acting for a client acquiring a business to inquire of that client whether or not the target business utilizes temporary foreign workers and the importance of such workers for the effective operation of the business. The significance of such workers for the business may be found in the critical mass of a low skilled labour force or the strategic importance of only one highly skilled foreign worker.
Consideration should be given to having the appropriate representations and warranties written into the acquisition agreement that include, at a minimum, the following:
- the target company has not, during the two years immediately preceding the closing, provided wages, working conditions or an employment position that were significantly different than were offered to the temporary foreign worker initially;
- no temporary foreign worker has been employed for longer than four years prior to the closing date;
- the target company has been in compliance with all federal and provincial labour and employment laws continuously prior to the date of closing;
- the target company has not utilized external recruiters to recruit temporary foreign workers, unless fully disclosed to the acquirer.
Copies of all work permits and labour market opinions relating to temporary foreign workers employed by the target company should be appended as a schedule to the acquisition agreement, as should the details of any agreements with external recruiters, if that is the case. A further representation and warranty should be included in the agreement confirming that these documents are all of such documents in existence and that they are true and accurate copies of the originals.
Depending upon the circumstances, it may be appropriate to provide in the acquisition agreement for a holdback of a portion of the purchase price to be applied to any temporary foreign worker issues that might arise for some period post closing. At the very least, a provision should appear in the acquisition agreement which commits the vendor to indemnify the purchaser for any costs incurred by the purchaser in respect to any breaches of the representations and warranties regarding temporary foreign workers.
Due diligence on an acquisition of a business takes many forms and can be very simple or very complex depending on the nature of the transaction and the quantum of the acquisition price. At a minimum, the conditions of all work permits and labour market opinions should be examined carefully. Once established, following the April 1, 2011 implementation date, a search should be made of the Citizenship and Immigration Canada website listing the so-called “blacklisted employers”, being those employers who, in the preceding two years have made offers of employment that were deemed not to be genuine, i.e., where the wages, working conditions or employment position were significantly different from the offer of employment. This is particularly relevant, because other temporary foreign workers may not be able to renew their work permits for two years following the date that the employer is listed on the CIC website, the penalty period. The due diligence efforts of the purchaser should also include an examination of the employment period of the temporary foreign workers employed by the target company, as there is a maximum of four years of employment for temporary foreign workers permitted under the new regulations. Following the four years of employment, the temporary foreign worker is restricted for a further four year period from accepting employment in Canada unless they are eligible for a work permit under a category which is exempt from the maximum period of stay. Further, enquiries should be made as to any past employments of temporary foreign workers to ensure that they have not been re-hired during the prohibited period.
Structuring the Acquisition
The acquisition of business enterprises take many forms, including the purchase of shares, the purchase of assets, mergers and amalgamations. The structure chosen may have a significant consequence under the new regulations for temporary foreign workers.
The acquisition of a business by the purchase of shares of a corporation does not give rise to any particular steps being taken with respect to the existing work permits and labour market opinions respecting the temporary foreign workers of the target company. However, when the business is being acquired by the purchase of assets, it will be necessary for the temporary foreign workers to apply for new work permits in the name of the purchaser and the purchaser may need to apply for new labour market opinions unless the purchaser substantially assumes the interests and obligations, assets and liabilities of the target company. In any event, where the employer is a new entity or has a new name as a result of the acquisition, merger or amalgamation, the temporary foreign workers should apply for new work permits to reflect the name of the new employer.