What happened in 2015 in OCAHO Decisions involving I-9 Penalties?

[Editor’s Note: Today’s blog is courtesy of Bruce E. Buchanan, an attorney at the Nashville and Atlanta offices of Sebelist Buchanan Law PLLC. As he has done in years past, Bruce discusses some important I-9 penalty decisions published during the past year and their potential impact on employers.]

In calendar year 2015, the Office of Chief Administrative Hearing Officer (OCAHO) issued 13 substantive decisions against employers in I-9 penalty cases (§ 1324a). This number has dropped from a high of 30 Form I-9 penalty decisions in 2013.

The following are the I-9 penalty cases published in 2015 along with penalties sought by Immigration and Customs Enforcement (ICE) and penalties assessed by OCAHO:

Employer’s Name Penalty Sought By ICE OCAHO’s Decision
Foothill Packing $168,455 $21,560
Employer Solutions Staffing Group (ESSG II) $227,252 $227,252
Speedy Gonzalez Construction $186,860 $97,000
Liberty Packaging $19,354 $11,700
Horno MSJ, Ltd. $30,575 $14,600
Kenneth McPeek Racing Stables $64,795 $35,900
Niche, Inc. $157,220 $63,850
Homestead Metal Recycling $5,890 $2,450
PM Packaging, Inc. $53,762 $27,200
Hartmann Studios $812,665 $605,250
7-Eleven $34,408 $15,450
Beyond Cleaning Services $6,600 $0
Buffalo Transportation $110,000 $75,600

An analysis of the above numbers demonstrates OCAHO lowered ICE’s proposed penalties on average by 32.8%. ICE sought $1,877,796 while OCAHO ordered $1,200,772. These reductions were substantially less than in 2014 and 2013, when the reductions were 35.25% and 46.50%, respectively. One reason for the decrease is there were no reduction in U.S. v. ESSG II and only a 25% reduction in the largest penalty case – U.S. v. Hartmann Studios, Inc. Even though the number of decisions is dropping, ICE is consistently collecting about $16 million per year in cases with final orders, which includes litigated and non-litigated cases.

The two major industries involved in these decisions were manufacturing/food processing – five, and hospitality – three. These are two of the most common industries inspected by ICE. Nine of the 13 employers involved in these OCAHO decisions were classified as small employers – usually defined as under 100 employees.

Significant Decisions

There were a number of significant holdings by OCAHO in 2015. In U.S. v. ESSG II, the employer failed to have the individual, who reviewed the original employee documents, sign Section 2; rather, an individual at the corporate office reviewed copies of the documents, not the original documents and signed the Section 2 certification, contrary to the law. This led to a penalty of over $225,000.

In Beyond Cleaning Services, OCAHO reviewed several tests to determine whether the cleaning workers were independent contractors – right of control test, economic realities test, and 8 C.F.R. § 274a.1(j) regulatory factors. OCAHO applied the regulatory factors, where independent contractors were defined as “individuals or entities that carry on independent business, contract to do a piece of work according to their own means and methods, and are subject to control only as to results…. With such factors as whether the individual supplies the tools or materials, makes services available to the public, works for different clients at the same time, directs the order or sequence in which the work is to be done, and determines the hours in which the work will be done.” Thus, OCAHO found the workers performed jobs independent of any supervision or control by Beyond Cleaning Services, they worked for other companies at the same time, and the services of at least two workers were available generally in the market.

OCAHO rejected a unique defense in 7-Eleven, where 7-Eleven argued the employees hired were authorized for employment because the franchisee was required by 7-Eleven to submit information and data concerning new hires into a centralized information system, which determined the employee’s work eligibility. As OCAHO stated, “no other scheme or system” an employer wishes to use may “circumvent or replace the Form I-9 completion and retention requirements…”

In U.S. v. Homestead Metal Recycling Corp., OCAHO found two minority-share owners were legally considered employees because the individuals did not have any control of the company. (This holding is consistent with U.S. v. Santiago’s Repacking, Inc., where OCAHO found a partner must have meaningful control of a company in order not to complete an I-9 form.)

In Niche, Inc., the employer violated the Act by continuing to employ workers after their Employment Authorization Documents (EADs) had expired and the employer failed to timely re-verify these workers, who, in fact, had timely acquired new EADs.

OCAHO held in U.S. v. Buffalo Transportation, Inc. that the employer’s argument – that ICE should be estopped from assessing fines on the 138 substantive violations because it waived its right to do so by failing to reference these employees in the previously served “Notice of Technical or Procedural Failures” on BTI – was found to be without merit. OCAHO cited a provision in the “Notice of Technical or Procedural Failures” which states “Additional failures to meet the employment verification requirements of § 274A(b) of the INA may have been discovered. These failures are not included in this notification and may result in the issuance of a Notice of Intent to Fine.”

Common Types of I-9 Form Errors

In the 2015 OCAHO decisions, the most common errors were the failure to ensure the completion of Section 1 by the employee, and failure to properly complete Section 2. These errors occurred in nine of the 13 cases. Other common I-9 errors were the employer backdating I-9 forms; failure to prepare or timely present I-9 forms for the employees; failure to provide a document number and/or issuing authority in Section 2; and failure to list documents from Lists A or B and C. In Hartmann Studios, the employer failed to sign the Section 2 certification on 800 occasions. This led to a penalty of over $600,000.

Reduction in Penalties

The two main reasons for the reduction in penalties was OCAHO’s findings that the penalties should be adjusted to the mid-range of penalties and not be disproportionate to the employer’s resources nor excessive under the Small Business Regulatory Enforcement Fairness Act. Plus, on five occasions, OCAHO found the ICE’s proposed penalties were higher than the company’s ability to pay.

Takeaways

Although the litigated cases have dropped the last two years, OCAHO is still upholding substantial penalties. However, some employers were successful with affirmative defenses in 2015, but not “unique” ones.

One important takeaway from 2015 concerning I-9 forms is not from an OCAHO decision; rather, it is from the ICE/OSC Guidance, where the government is encouraging internal I-9 audits. By doing so, an employer may be able to avoid being one of the casualties discussed in this article. It is important for all employers, large and small, to conduct internal I-9 audits under the direction of an immigration compliance attorney, and have a written Immigration Compliance Policy. Employers should also consider using electronic I-9 software (under the guidance and advice of counsel) to facilitate the internal I-9 audit and ensure compliance with new hires moving forward.

***

Bruce E. Buchanan is an Attorney at the Nashville and Atlanta offices of Sebelist Buchanan Law PLLC. He represents individuals and employers in all aspects of immigration law, with an emphasis on employer immigration compliance, as well as employers in employment/labor law matters. He is Past-Chair of the Tennessee Bar Association’s Immigration Law Section from 2011 to 2012 and has been the editor of the TBA’s Immigration Law Section Newsletter and the TBA’s Labor and Employment Law Section Newsletter since 2009. Mr. Buchanan also serves on the Board of Directors for the Nashville International Center for Empowerment (NICE) and the United Cerebral Palsy of Middle Tennessee and Middle Tennessee Seminole Club. He is an associate member of the Mid-Tennessee Chapter of the Associated Builders & Contractors (ABC).