Employee ownership and immigration law: What is the impact on your sponsor licence if your business moves to an EOT?

Becoming employee owned via an Employee Ownership Trust (EOT) usually means “business as usual” as far as customers, suppliers and employees are concerned. This is an advantage of the trust model of employee ownership.

There will, however, be a change of controlling shareholder, which can have regulatory and commercial implications. Fieldfisher’s multi-disciplinary Employee Ownership Solutions team has seen how this can lead to an immigration law issue.

If a company holds a sponsor licence, under the Skilled Worker Visa category or other sponsorship route, it is vital action is taken in respect of their licence when the controlling interest changes.

What is sponsorship?

Since free movement ended for EU nationals on 31 December, 2020, more businesses are looking to the UK’s immigration system to enable them to source workers from beyond Britain and Ireland. The main work-based visa on offer is the Skilled Worker Visa, which requires a job applicant to have ‘sponsorship’. This means that the worker must have a UK-based employer offering them a job that, in turn, meets the requisite skill and salary thresholds.

In order to use the sponsorship system, a UK business must first acquire a ‘sponsor licence’. A company can do this by submitting an application to the Home Office giving some detail about their business and showing that it is a valid trading entity. Once the licence is approved, the business can sponsor job applicants for visas while the licence remains valid.

The Home Office considers sponsorship a two-way street; the sponsor takes the benefit of being able to recruit foreign workers and so the Home Office expects sponsors to shoulder some of the responsibility of policing the immigration system.

Sponsors must therefore adhere to a series of duties and expected behaviours whilst they hold a licence. These duties include record-keeping duties, which entail a sponsor retaining certain documents on file in respect of their sponsored workers.

The duties also require sponsors to report certain events and changes in circumstances to the Home Office that relate not only to the worker but also to the sponsor themselves. This is why a change of ownership, such as the trustee of an EOT acquiring a controlling shareholding, will have implications for a sponsor licence.

The impact of an EOT on a sponsor licence

As part of their reporting duties, a sponsor must report any ‘significant changes’ to their own circumstances to the Home Office within 20 working days. A sponsor licence is not ‘transferable’ so a change to the ownership structure of a licence holder is something the Home Office wants to know about.

Moving to employee ownership using an EOT invariably involves the trustee (or trustees) of the EOT acquiring at least a majority shareholding and typically a 100% shareholding. It does not matter who is on the board of directors of the EOT trustee or who the trustees are, there will be a significant ownership change as far as the Home Office is concerned.

For a business that is moving to EOT control there are key steps that the Home Office will expect them to take:

  • firstly, as the old licence cannot be transferred, the Home Office expects a new sponsor licence application to be made within 20 working days of the change of ownership. This will require the company to go through the same application process they did when they obtained their licence, complete with the supporting documentation and payment of a fee; and
  • secondly, a series of reports need to be made to the Home Office via their online portal, the Sponsor Management System, all within 20 working days. A report needs to be made notifying the Home Office of the change in ownership on the old licence, which is then usually made dormant. Once the new licence is granted, reports should be submitted to confirm that the business is still continuing to employ the sponsored workers. The workers themselves will not need to make a new visa application but when they come to extend their visa, a certificate of sponsorship should be issued on the new licence.

The potential consequences for failing to carry out these actions are severe. The Home Office can cancel the worker’s sponsorship and curtail their visas. The workers would then either have to leave the UK or find new employers, and the business can be prevented from applying for another licence for 12 months.

The concern is that a sponsor that moves to EOT control may not fully understand the extent of their obligations or the actions they need to take. Any company holding a licence and considering this change, or that has already changed to EOT control and has not considered the impact on its licence, should seek advice to ensure any detrimental impact on its sponsored workers is avoided.

Moving to employee ownership using models other than the EOT model, or subsequent material changes in an EOT’s shareholding, can also involve a significant change in circumstances that needs action to preserve a company’s sponsorship arrangement.

Get in touch with the EOA if you’ve been affected by this issue >>

About author and Fieldfisher

Guest blog by Joanna Hunt, pictured, Head of Immigration, Fieldfisher LLP. Joanna is an immigration lawyer who supports a wide range of businesses with their immigration needs, including advising on the immigration law aspects of EOTs.

She is also a member of Fieldfisher’s firm-wide, market-leading Employee Ownership Solutions team, which is committed to delivering the spirit of partner Graeme Nuttall OBE’s Nuttall Review of Employee Ownership by advising employee-owned organisations on maintaining their structures and working with others to convert to employee ownership.

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