I9-Verification

CA Company Fined $605K for I-9 Violations

08.25.2015

Author

Jeff Aleixo

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On July 8th, 2015, an Administrative Law Judge (ALJ) ordered a Richmond, California-based event and production company to pay $605,250 for I-9 paperwork violations, marking the largest fine to date awarded by an ALJ for I-9 paperwork violations.

If you find that surprising, keep in mind that fines for I-9 violations awarded by other authorities have been even greater. Record-setting cases include the $34 million decision against Infosys in 2013, a $1+ million settlement in 2010 with Abercrombie & Fitch involving their I-9 technology deficiencies and a case involving the Fairfax County, VA public schools, when several thousand employee files that noted citizenship status were destroyed.

The case against Hartmann Studios, Inc., was heard by the same Judge who decided another high-profile I-9 violations case, Judge Ellen Thomas of the Office of the Chief Administrative Hearing Officer (OCAHO). The prior case exposed non-compliant handling of onboarding for a remote workforce, and this case highlights handling of another special class of employees.

In fact, the earlier case is even cited under “Conclusions of Law” in the Hartmann decision, specifically that “An employer’s failure to sign section 2 of Form I-9 is a very serious violation.” In Hartmann’s case, the company’s casual approach to I-9 compliance cost them; the judge found their procedures “evidenced a general disregard for ensuring its workers were authorized to work under U.S. law,” and that “the company does appear to need additional motivation to conform its employment verification process to what the law requires.”

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Background of Hartmann’s Case

  • Hartmann Studios had 718 employees.
  • Roughly 400 of these were a special class of what they referred to as “on-call workers,” which were hired through a Collective Bargaining Agreement with the International Alliance of Theatrical Stage Employees Union Local 16A.
  • Local 16A developed their own hacked “three in one” employment form, including part of a W-4, parts of the I-9 and a check-off box to authorize deduction of wages for union dues. Although this was a more serious violation, it was not included in the charges.
  • The company’s I-9s had previously been audited by INS in 1994, during which the company was not fined, but had to fire some employees who were unable to provide updated documentation.
  • Notice of Inspection (NOI) was given by ICE on February 17th, 2011. The next day ICE agreed to postpone until March 4, 2011, giving them more time than most employers have.
  • Notice of Suspect Documents and Notice of Technical or Procedural Failures was served on October 12, 2011.
  • Notice of Intent to Fine was served on May 14, 2013.
  • Hartmann’s 2011 reported gross revenues were $73 million.

Fines & Violations

  • The 808 I-9 violations were grouped into five separate counts:
    • Count One: Failure to prepare and/or present I-9 Forms for four previous employees.
    • Count Two: Failure to prepare and/or present I-9 Forms to ICE upon request for eight employees.
    • Count Three: Failure to ensure employees have signed / checked / entered alien numbers for section 1 of the I-9 Form in six cases.
    • Count Four: Failure to properly complete section 2 of the I-9 Form. This represents the bulk of the violations; 797 instances are listed in the decision’s appendix.
    • Count Five: Failure to properly complete section 3 of the I-9 Form for three employees.
  • Originally the fines were set at $935 per violation (due to the error rate exceeding 50%). This was later dropped to $700 for each violation ($550 for the nine section 1 and 3 violations), plus an additional $200 for each unauthorized worker.

Takeaways and Observations

  • This case further reinforces an established precedent in OCAHO case law that “penalties should have a deterrent effect on an employer’s behavior and not merely be the cost of doing business.”
  • Pay attention to the timeline – Hartmann had much more time to prepare for an audit than an employer would typically have. There is also a significant period of time that passed between the NOI and the Notice of Intent to Fine and that is over two years. However, the judge noted that no steps were taken to improve the I-9 process until after Hartmann received the Notice of Intent to Fine. It is difficult to argue good faith in such a case.
  • If you have special groups or classes of employees that are subject to a unique onboarding process, such as overseen by a third party where a non-compliant form may be in circulation, pay special attention to reviewing that process for compliance. The outcome could easily have been worse for Hartmann based on their exposure from the hacked Local 16A form used for 399 workers. The workers were on their payroll and were their responsibility.
  • The fine structure again reinforces the new order of I-9 compliance, which is not about punishing employers for hiring illegal workers but rather punishing them for failing to follow the rules. It is all about administrative compliance: paperwork, documentation and records.
  • Hartmann unsuccessfully argued that ICE had intimated it would not be fined for I-9 paperwork violations when it settled a prior wage and hour class action for $2 million. That serves as a reminder that an unclean house can have multiple repercussions. One violation can lead to the next, crossing agencies and jurisdictions when you cannot provide a compliant trail and have agents combing through your records.
  • Always regularly self-audit your I-9 records and continue to train your staff involved in the I-9 process. Be ready before you get a NOI.
Discover tips that you can use to ensure compliance and prepare in the event of an I-9 audit or immigration raid.

I-9 Paperwork Violations Update

I-9 violations have always represented a serious threat to businesses profitability or, in some cases, their survival. Monetary penalties for knowingly hire and continuing to employ violations range from $375 to $16,000 per violation. Penalties for substantive violations, which includes failing to produce a Form I-9, range from $110 to $1,100 per violation. In determining penalty amounts, ICE considers five factors: the size of the business, good faith effort to comply, seriousness of violation, whether the violation involved unauthorized workers, and history of previous violations.

What makes this situation even more complicated are the I-9’s rapidly changing regulations that expose businesses to potential legal trouble if they are unprepared for compliance requirements. In light of the Trump administration’s focus on enforcement of immigration laws, employers need to devote considerable time and resources to conduct extensive self-audits and to follow specific United States Citizenship and Immigration Services (USCIS) procedures for correcting errors or omissions in anticipation of Form I-9 audits.

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Editor’s Note: This post has been updated for accuracy and comprehensiveness.

Disclaimer: This article is general in nature and is not intended to replace the guidance of an employment tax expert and/or legal professional with regards to an appropriate course of action in your particular circumstances. Please consult with a professional for appropriate advice in your case. Pursuant to IRS “Circular 230” rules, any information included herewithin is not intended or written to be used for the purpose of avoiding penalties under the federal Internal Revenue Code.