With migrant workers making up a massive 25% of the workforce in the tech sector (according to the Migration Observatory report published at the beginning of this year), a large number of businesses within the sector already hold or are looking to hold a sponsor licence under the UK’s Skilled Worker route.
With this comes significant compliance obligations and duties which can catch the unwary and unprepared by surprise.
One example is where there are changes in corporate structures, acquisitions and mergers, or group reorganisations. As we reported in our more general article here, changes in corporate structure will usually trigger some form of sponsor compliance obligation. This might mean notifying the Home Office about relevant changes, or in some cases, applying for an entirely new sponsor licence altogether.
One situation where compliance obligations are triggered is in the event of a change in ownership of the sponsor business. This might be as a result of the sale of a Company, but it can also happen where there is a change in the controlling shareholder of the business. This can easily apply to tech companies, as they grow and apply for funding in exchange for equity in the business, or as founders look to exit, or where equity is redistributed, for example to incentivise key strategic hires.
By way of an example, a technology start up is formed as a spin out from a university. Initially the three founders take 20% of the equity each, and the University takes 40% of the equity in the business in exchange for their investment. Nobody has a controlling share in the business.
The business struggles to recruit in its niche area and successfully applies for a sponsor licence in the Skilled Worker category. This allows the business to recruit overseas nationals, or take on international students who want to work in skilled roles after completing their studies. The business successfully sponsors a key strategic hire as a Skilled Worker. They are an integral part of the business’ plans for growth.
The business is a success and attracts interest from potential private equity investors. Ultimately, the founders reach an agreement with investors who agree to provide additional funding in exchange for equity in the business.
The proposal under the new arrangements is that the Private Equity investor will obtain a 51% share of the business, the University will reduce its share to 19%, and the founders will reduce their share to 10% each.
This would trigger important immigration compliance requirements.
This investment results in a change in the person who holds a controlling shareholding behind the business.
Even though the business continues to operate as normal on a day to day basis and there has been no change to business itself or the employment contracts of any of the employees (including the sponsored migrant worker), this triggers the requirement for the business to make an entirely new sponsor licence application. This is because it is a fundamental principle of sponsor licensing that sponsor licences are not transferable.
In this case, the business will need to report the change to the Home Office within 20 working days and apply for a new sponsor licence with in the same period. When the new licence is granted, the business will need to formally confirm to the Home Office that they will take full responsibility for the sponsored workers under the new licence.
Missing this compliance obligation has potentially business critical consequences. Where the new licence application is not made in time, sponsored staff will have their visas curtailed or cut short, and they will be given 60 days to find a new sponsor or leave the UK (or face deportation). In our example, this means our key strategic hire might be forced to leave the UK or to go and work elsewhere, fundamentally affecting both the value of the business and its growth prospects going forwards.
If the individual continues working on the basis of the “old licence” (which could easily happen entirely inadvertently and without any intention to breach immigration law requirements), the sponsored worker will be working illegally. This means the business is exposed to a potential civil penalty fine of up to £20,000 per illegal worker. In addition, the reputational damage of an illegal working penalty could do irreparable damage to the business, particularly, if they are involved in tendering for funding or contracts.
This is just one example of why tech sector businesses need to make sure they are getting the right advice from the right specialist team who are able to provide a joined up, holistic service and avoid these pitfalls. Throughout your tech businesses journey, different legal considerations apply, to ensure the maximum runway for your business whilst managing risk and enabling you to achieve longer-term goals whilst addressing short-term needs. We are experts at what we do and we provide the specialist advice that you need.
Should you require further advice or support, please contact Laura Darnley, Head of Business Immigration, or Ruth Hargreaves, Legal Director in our Technology Team.
