Utah Bar Journal

For businesses like Kawasaki’s, one of Baltimore’s best-known sushi restaurants, the increased enforcement has pushed their business into bankruptcy. In April 2006, Kawasaki’s two owners were arrested and charged with money laundering and alien harboring, crimes that carry penalties of ten years imprisonment. Immigration officials alleged that the owners exploited cheap illegal labor to maximize profits so that they could purchase luxury vehicles and other assets for themselves. Ultimately, the owners were forced to forfeit over a million dollars in cash and property. Investigations and raids have not been limited to small employers; multi-national corporations such as Swift & Company, Wal-Mart, and IFCO have also been the target of raids.

The message is clear: regardless of the size of the company or the industry, it is increasingly likely that your client’s business could be the target of a civil or criminal immigration investigation. In 2007, the White House will add 171 new agents and an additional $41.7 million dollars towards worksite enforcement. More importantly, federal agents are shifting from civil fines towards tougher criminal charges such as harboring, money laundering, and alien smuggling to hold small business owners, human resource specialists, and even corporate executives accountable.

Swift & Company
On December 12, 2006, Immigration and Customs Enforcement (ICE) conducted one of its largest raids in history by arresting 1,282 workers at six Swift & Company meat processing plants, including one in Hyrum Utah.1 ICE began investigating Swift in February of 2006 when immigrants in deportation proceedings confessed to working at the Swift plant in Iowa.2 ICE had also received anonymous calls on its hotline and referrals from local police.3 Due to the arrests, Swift lost 40 percent of its labor force and temporarily suspended operations at all six of its plants. The one day raid resulted in $20 million dollars of lost production, and Swift is now considering buy-out options.

A casual observer might ask how Swift could not have suspected that much of its labor force was undocumented. In fact, Swift, fearful of being penalized for hiring undocumented workers, had intensely scrutinized the documents of its workers – so much so that in 2001 Swift was forced to pay a $200,000 settlement to the Department of Justice Special Counsel for excessively scrutinizing documents of individuals who looked or sounded “foreign.”4 Federal immigration laws prohibit employers from considering foreign appearance, accents, or national origin in their hiring practices. Employers are caught between two federal agencies with opposing interests: ensuring that all workers are authorized for employment and protecting those who are lawfully here from discrimination.

I-9 Obligations
The Immigration Reform and Control Act of 1986 (IRCA) requires all employers to fill out an I-9 form, available at www.uscis.gov, for all employees hired after November 6, 1986, regardless of their immigration status.5 The purpose of the I-9 form is to ensure the identity and employment authorization of workers. The form consists of two portions. In the first portion, the employee attests, under penalty of perjury, that he or she is a citizen, lawful permanent resident, or alien authorized to work temporarily. In the second portion, employers are required to record that they have examined original documents from a specified list verifying the employee’s identity and eligibility to work. Employers must accept the documents if they appear “reasonably genuine” and relate to the person presenting the documents.

The I-9 must be completed within three days of starting work. The I-9 itself is not submitted to the ICE. Instead, the employer must keep the form on file for three years from the date of hire, or one year after the last day of work, whichever is later. The I-9 may be stored in its original form, microfilm, microfiche, or electronically. The only exceptions to an employer’s I-9 obligation are independent contractors and sporadic domestic laborers. Employers are not required to complete I-9s for independent contractors, but remain liable if they know that contractors are using unauthorized aliens to perform labor or services.

Generally, in cases involving a corporate reorganization, merger, or sale of stock or assets, no new I-9 form is necessary as long as the employer obtains and maintains the previous employer’s I-9s.6 A successor employer is exempt by regulation from completing I-9 forms where the predecessor employer has fulfilled that obligation. An employer who has acquired a business and retains the predecessor’s employees is neither expected to dispose of I-9s previously executed by its predecessor in interest, nor required to execute all new I-9s. However, if the succeeding company chooses to retain the old I-9 forms rather than completing new ones, the succeeding company will be liable for any omissions and defects in the original I-9s.7 A successor employer may choose to complete new I-9’s for all employees to ensure proper completion.

“Knowing” Employment
The IRCA prohibits any person or entity from knowingly hiring or continuing to employ an unauthorized worker. “Knowledge” may be either actual or constructive. Constructive knowledge is defined as knowledge which may fairly be inferred through notice of certain facts and circumstances which would lead a person, through the exercise of reasonable care, to know about a certain condition. A non-exhaustive list of conditions which would establish a rebuttable presumption of constructive knowledge include employers who (1) fail to complete or improperly complete the I-9, (2) have information available to the company that would indicate that the alien is not authorized to work, or (3) act with reckless and wanton disregard for the legal consequences of permitting another individual to introduce an unauthorized alien into the workforce.

Initially, courts interpreted the doctrine of constructive knowledge fairly narrowly. Constructive knowledge was specifically found where employers ignored notices by INS stating that certain employees were not authorized to work.8 The Ninth Circuit overruled an administrative law judge’s finding of constructive knowledge where the employer had failed to notice that the employee’s name was misspelled on his Social Security card and a lack of lamination of the Social Security card.9 The Court disagreed with the INS argument that constructive knowledge should be found where the employer failed to notice the delay in presentation of a Social Security card, the lamination of the card, the misspelling of Rodriguez as Rodriquez on the Social Security card, the lack of any reference to the United States of America on the card, and the use of two family names on Rodriguez’s California drivers license but not on the card. In that case, the Ninth Circuit noted that “to preserve Congress’ intent ... the doctrine of constructive knowledge must be sparingly applied.”10 More recent cases have broadened the interpretation of constructive knowledge to include instances where an employer was in possession of an I-9 that indicated the alien was out of status and failed to re-verify.11

Social Security No-Match Letters
The Social Security Administration (SSA) is often the first government agency to give an employer notice of unauthorized employment. The SSA issues No-Match letters when the employee name and Social Security number provided on the W-2 form conflict with the Social Security Administration’s records. In 2003, the SSA sent 126,250 No-Match letters to employers that corresponded to about 7.5 million incorrect W-2’s. Many employers have received a No-Match letter, but few understand how to properly respond. Many employers find the No-Match letters confusing because they instruct employers not to fire workers solely on the basis of such letters, but failure to follow-up with the Social Security Administration may be deemed constructive knowledge of unauthorized employment.

Last April, seven managers of IFCO Systems, the largest pallet services company in the country, were arrested on criminal charges for failing to terminate workers after being repeatedly notified that more than half of IFCO’s workers had invalid or mismatched Social Security numbers. Immigration agents consider the percentage of employees which were deemed a No-Match, and the employer’s response, in determining good faith compliance with immigration laws.

On June 8, 2006, the Department of Homeland Security issued a proposed regulation describing the steps an employer should take after receiving a Social Security No-Match Letter. An employer who receives a No-Match letter should not terminate an employee solely on the basis of the letter. Instead, employers must 1) attempt to resolve the discrepancy within 14 days and 2) reverify employment authorization through the I-9 procedure within 63 days. If the employer completes a new I-9 form for the employee, it should use the same procedures as if the employee were newly hired, except that documents presented for both identity and employment (a) must not contain the Social Security number or alien number and (b) must contain a photograph. While this is only a proposed regulation, it represents the Department of Homeland Security’s view of an employer’s current obligations. It is critical that employers respond correctly, as failure to respond may impute constructive knowledge of unauthorized employment.

Good Faith Defense
If an employer has employed an undocumented worker, good faith compliance with I-9 procedures provides a “narrow but complete defense.”12 A person or entity that has complied in good faith with the requirements of employment verification has established an affirmative defense against unlawful hiring.13 Completion of the I-9 form raises a rebuttable presumption that the employer has not knowingly hired an unauthorized alien, but the government may rebut that presumption by offering proof that the documents did not appear genuine on their face, that the verification was pretextual, or that the employer colluded with the employee in falsifying the documents.14 The good faith defense does not apply to employers who fail to make corrections on the I-9 after being given 10 days notice, or employers who have a pattern and practice of hiring undocumented workers.15 Therefore, setting proper policies and training employees who administer I-9 documents is critical to demonstrating good faith compliance.

Basic Pilot
Widespread fraudulent Social Security cards and drivers licenses have circumvented the federal government’s archaic verification through the I-9 form. Because there are over twenty employment authorization and identity documents that are acceptable for I-9 purposes, employers have significant difficulty in determining which documents are genuine. Congress addressed this problem through a technology-based solution rather than stiffer penalties against document fraud or identity theft. Since 2004, the Department of Homeland Security has begun the Basic Pilot program, a free online verification system. Currently 14,000 employers participate in the program. Once employers are registered, they enter in the Social Security number and name of the employee into the web-based program, and receive confirmation on work eligibility within seconds.

After the Swift raids, Department of Homeland Security Secretary Michael Chertoff said, “if you enter into Basic Pilot and you do it in good faith, that will protect you against criminal and civil liability.” Using Basic Pilot does not create bullet-proof liability protection, but an employer using Basic Pilot establishes a rebuttable presumption that the employer has not violated the immigration laws for that worker.16 One major limitation to immunizing the entire company from liability is that Basic Pilot can only be used on new hires, not job applicants or current employees. The Basic Pilot program is not currently mandatory, but it may be in the future. Both of the 2005 Immigration bills considered in the U.S. House and Senate would have required the use of Basic Pilot for all employers, but neither bill was enacted.

State Involvement
Employers should take note that both comprehensive immigration bills passed in the House17 and the Senate18 included provisions that would have made the Basic Pilot Program mandatory for employers. States who are frustrated with the federal government’s inability to stop undocumented hiring have taken matters into their own hands. In 2006, Colorado enacted two laws which will affect employers who do business with the state and all employers in the state.

The first law authorizes the Colorado Department of Labor and Employment (CDLE) to conduct audits of all employers in Colorado. Beginning on January 1, 2007, all employers in Colorado are required to retain the I-9 forms and copies of the identity and employment authorization documents.19 Unlike IRCA, the state law has no good faith defense, and requires employers to “verify” the information and documents of the employee. In addition to the I-9, a one page “Affirmation of Legal Work Status”20 must be completed by the employer for each employee within 20 days of hire, and must be retained with the I-9.21 Employers who fail to comply with this law face fines of $5,000 upon the first offense, and $25,000 on the second or any subsequent offense. This first law may be challenged on the basis that Congress has specifically preempted states from taking action in imposing civil and criminal sanctions against employers.22

The second Colorado law, effective August 7, 2006, requires employers who have public contracts for services with the state, city, or county to participate in Basic Pilot.23 Because state regulations have not been issued concerning the law, it is unclear whether the law includes employees working on the state contract regardless of whether they work in Colorado.24 Employers who have public contracts must verify that subcontractors also comply with Basic Pilot. Where a publicly contracted employer has actual knowledge that a subcontractor has hired an undocumented worker, the employer has a duty to inform the contracting state agency within three days. While there are no civil or criminal penalties for non-compliance, an employer found to be in breach will be held liable for actual and consequential damages for breach of contract. A public list of non-complying employers will be maintained by the Secretary of State for two years.

Georgia passed its own State Bill 529 and, beginning July 1, 2007, will require employers who have public contracts to use Basic Pilot.25 It is likely that more states will take action, as nine states have introduced similar legislation. Many of these proposals contain employer verification requirements and additional penalties for employers who hire unauthorized workers.

Two Utah bills, House Bill 127 and 156, were introduced by Republican representatives in an attempt to make Basic Pilot mandatory for government contractors and potentially all employers. Neither bill was able to obtain committee approval in the 2007 legislative session.

Conclusion
With the Congressional debates on an immigration reform bill, worksite enforcement will continue to intensify in 2007. As with the Immigration Reform and Control Act of 1986, which legalized millions of workers while imposing new obligations on employers, any new immigration reform bill will likely impose a higher standard of due diligence required of employers. With the government’s renewed enforcement efforts, simple precautionary measures such as internal audits and strict compliance with I-9 related regulations are now more important than ever.

1. Press Release, U.S. Immigration and Customs and Enforcement, U.S. Uncovers Large-Scale Identity Theft Scheme by Using Illegal Aliens to Gain Employment at Nationwide Meat Processor. (Dec. 13, 2006) (on file with author).

2. Sudeep Reddy, Government Raids of Swift Plants Add to Growing Immigration Debate, The Dallas Morning News, Dec. 14, 2006.

3. Id.

4. Staff Reports, Swift Responds to Plant Raids, The Greeley Tribune, Dec. 22, 2006.

5. 8 C.F.R. § 274a.2(b) (2006).

6. 8 C.F.R. § 274a.2(b)(1)(viii)(7) (2006)(an individual continues his or her employment with a related, successor, or reorganized employer, provided that the employer obtains and maintains from the previous employer records and Forms I-9 where applicable).

7. U.S. vs. Nevada Lifestyles Inc., 3 O.C.A.H.O. 518 (1993).

8. Mester Mfg. Co. v. INS, 879 F.2d 561 (9th Cir. 1989); New El Rey Sausage Co. v. INS, 925 F.2d 1153 (9th Cir. 1991).

9. Collins Foods International Inc. v. INS, 948 F.2d 549 (9th Cir. 1991).

10. Id. at 555.

11. INS v. China Wok Restaurant, Inc., 1994 WL 269371 (O.C.A.H.O.).

12. United States v. Walden Station, Inc., 8 O.C.A.H.O. no. 1053, 810, at 813 (2000), 2000 WL 773098 (O.C.A.H.O. 2000), See Immigration and Nationality Act § 274A(b)(6)(A), 8 U.S.C.A. § 1324a(b)(6)(A) (2005).

13. Id.

14. H.R. Rep. No. 99-682, at 57 (1986) as quoted in Collins Foods International Inc. v. INS, 948 F.2d 549 (9th Cir. 1991).

15. Immigration and Nationality Act § 274A(b)(6)(B)-(C), 8 U.S.C.A. § 1324a(b)(6)(B)-(C) (2005). Immigration Reform Act § 411. “Technical or paperwork violations of the employer sanctions provisions are exempted, as long as there has been a “good faith attempt” by an employer to comply with the verification requirement. The exemption will not apply if the employer fails to cure the violations within a ten-day window or if the employer has engaged in pattern and practice violations. This section applies to violations occurring on or after September 30, 1996.”

16. A rebuttable presumption is established by 402(b) of Immigration Reform Act that the Employer has not violated section 274A(a)(1)(A) of the Immigration and Nationality Act with respect to the hiring of any individual if it obtains confirmation of the identity and employment eligibility of the individual in compliance with the terms and conditions of Basic Pilot.

17. Border Protection, Antiterrorism, and Illegal Immigration Control Act of 2005, H.R. 4437, 109th Cong. (2005).

18. S. 2611. 109th Cong. (2005).

19. Colo. Rev. Stat. § 8-2-122 (2) (2007).

20. Affirmation of Legal Work Status, Colorado Department of Employment and Labor, www.coworkforce.com/ice/AffirmationOfLegalWorkStatus.pdf.

21. Id. See also Colorado Dept. of Labor FAQ’s, (Jan. 10, 2007)

22. 8 U.S.C.A. § 1324a(h)(2) (2005). The provisions of this section preempt any state or local law imposing civil or criminal sanctions (other than through licensing and similar laws) upon those who employ, or recruit or refer for a fee for employment, unauthorized aliens.

23. Colo. Rev. Stat. § 8-17.5-101 (2007)

24. Colorado Dept. of Labor FAQ’s. (Jan. 10, 2007) (available as AILA Doc. 07011073), The Colorado DLE has interpreted HB 1343 to apply to out-of-state employers and employees, so long as they are performing a service under a public contract.

25. Ga. Code Ann. § 13-10-91 (2007).