Fifth Circuit Throws Out $226,000 I-9 Penalty Assessed Against Staffing Company

Last week, the U.S. Court of Appeals for the Fifth Circuit released its highly anticipated decision concerning whether an employer can complete I-9 forms with “corporate” rather than “personal” knowledge of the documents presented by the employee. This issue arose last year when a staffing company was ordered to pay over $226,000 in civil penalties for improperly completing its I-9 forms.

While large I-9 fines are certainly nothing new to employers these days, the facts here were slightly different – the I-9s themselves were mostly fine, but the staffing company had this rather “unique” method for completing section 2. And while many experts today would say the government’s case against the company was a slam-dunk, the court’s decision may actually surprise you. Let’s take a closer look…beginning with a trip down memory lane.

A Unique I-9 Process

Employer Solutions Staffing Group (“ESSG”) is a temporary employment staffing firm, located in suburban Minneapolis, with operations throughout the U.S. In April 2010, ESSG contracted with a manufacturing company to provide staff for their facility in El Paso, Texas. ESSG did not, however, hire the staff directly, but instead subcontracted that responsibility to another organization called Flexicorps, Inc. Here’s where it gets interesting…

As it turns out, ESSG had a well-documented I-9 process designed to streamline employee onboarding while at the same time ensuring compliance with verification rules (or so they thought). Here’s how it worked: A Flexicorps recruiter or hiring agent would meet with newly hired employees at the El Paso plant, instruct them to complete section 1 of the I-9, and ask to see original documents. The recruiter would then examine the documents in the presence of the employee and verify that that they appeared genuine. The recruiter also made a copy of the supporting documents (in color, no less). So far, so good, right? Well, here’s where the process strayed a bit…

After the Flexicorps staff completed this process, they would attach the document photocopies to the I-9 forms and mail the entire packet to a payroll administrator at ESSG in Minnesota. The payroll administrator then completed section 2 and signed the attestation based on an independent review of the I-9s and photocopied documents. The end result: one person viewed the original documents in the presence of the employee and an entirely different person reviewed copies and completed section 2. Houston, we have a problem.

The Audit

In November 2011, Immigration and Customs Enforcement (“ICE”) paid a friendly visit to ESSG, requesting that they present I-9s for all current and terminated employees at their client’s El Paso location. After reviewing the I-9s, ICE served some more paperwork on ESSG, accusing the company of failing to properly complete I-9s for 242 employees – leading to a whopping fine of $237,162.75.

ESSG vigorously contested the charges and requested a hearing before the Office of the Chief Administrative Hearing Officer (OCAHO). As always, Judge Thomas listened to both sides very carefully and thoughtfully. ICE pointed out that nothing in the statute or regulation would enable an employer to sign (and thereby attest) to examining original documents that were actually viewed by somebody else. Based on this violation, each one of the 242 I-9s completed in this fashion was deemed invalid. ESSG on the other hand asserted that the rules of agency permit this process since agency law generally attributes the principal’s knowledge to the agent and vice versa. So even though the ESSG payroll admin didn’t actually see the original employee documents, he/she could still attest to their authenticity since their agent, Flexicorps, had done so. ESSG also pleaded for leniency based on its stellar E-Verify record.

Not surprisingly, both arguments fell flat. In her ruling against the company, Judge Thomas noted that the ESSG’s attestations on the I-9s were “patently false” since there was no way a payroll administrator in Minneapolis could attest to examining original documents relating to an employee who presented those documents to a different person over a thousand miles away. Judge Thomas also reminded ESSG that use of the E-Verify program does not provide an excuse for failing to properly complete section 2 (and in fact, E-Verify states very clearly that completing the I-9 first is always a pre-requisite).

In the end, ESSG was ordered to pay $935 for each of the 242 false attestations ($226,270) and an additional $985 for one missing I-9 (total penalty equaling $227,251).

ESSG Gets Another Day in Court

ESSG was not ready to give up yet, petitioning the Fifth Circuit Court of Appeals to review the Judge’s decision with respect to the 242 attestations. As the court noted last week, the central issue before them was whether the verification laws and regulations require “personal” rather than “corporate” attestation on the I-9 form. Personal attestation would mean that the individual who views the original documents in the employee’s presence must complete and sign section 2; corporate attestation, on the other hand, would enable an employer to complete and sign section 2 based on an independent review performed by a different representative. How did the court decide?

Deference Matters

When reviewing a decision by an administrative agency (in this case, OCAHO), a court must observe the appropriate degree of “deference” (i.e., respect) that is owed to the agency’s ruling in light of ambiguities in the law. And as it turns out, there are varying standards of deference that have been defined over the years, each one named after a particular U.S. Supreme Court case.

While deference standards can be complex (and are beyond the scope of this blog), it basically boils down to the following:

  • Chevron standard – extremely deferential towards the agency when it exercises its authority to put forth rules that carry the force of law
  • Auer standard – also extremely deferential, but applies in particular to an agency’s interpretations of its own regulations
  • Skidmore standard – varying degrees of deference based on the agency’s power to persuade (the lowest standard of the bunch)

In their brief before the court, DHS argued that Judge Thomas’ decision was owed “Chevron” deference, which would mean that the court couldn’t overturn it unless it was deemed unreasonable. DHS also argued that the language on the I-9 form itself was owed “Auer” deference, since the I-9 is (in essence) an interpretation of DHS’ own regulations.

However, the court declined to provide either forms of deference, relying instead upon the lower Skidmore deference standard. In doing so, the court noted that statutes and regulations which call for monetary penalties must give the regulated party “fair warning” of the conduct they prohibit or require. More specifically, the challenged statute or agency action must “give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly.” And as the court described below, the I-9 form in question was clear as mud.

Court’s Reasoning

At the onset, the court noted that the relevant statutory text in the Immigration and Nationality Act did not specifically address whether the section 2 signer must be the same person who physically examines the documents in the presence of the employee. Next, they considered the relevant regulations and found them to be equally ambiguous with respect to the issue at hand.

The court then looked to the I-9 form itself and held that the attestation language (“I attest, under penalty of perjury, that I have examined the document(s) presented…and that to the best of my knowledge the employee is authorized to work…”) could actually be interpreted to permit an individual to attest to actions performed by the entity as a whole. The court also noted that section 2 consistently refers to the “employer’s” verification requirements, and employer is broadly defined in the instructions to include, for example, an employer’s representative.

Lastly, the court looked to Judge Thomas’ decision, and while they found it was based on “commonsense” and “logic,” they noted that her interpretation did not flow clearly from any authority in existence prior to the I-9 audit. Put more simply, neither Congress nor DHS had ever declared a bar to corporate attestation.

What this means for Employers

While the Fifth Circuit decision is good news for ESSG, employers should take note: this decision does not confer a definitive stamp of approval for a “corporate” I-9 attestation (something that would come in quite handy for managing remote employees). As the court notes, they were merely evaluating ESSG’s process based on the I-9 form in existence at the time of the audit (versions 2009 and prior). In fact, the court went out its way to note that their decision does not address whether DHS can lawfully prohibit corporate attestation.

And as it turns out, DHS has endeavored to do just that. In the current 3/8/13 version of the form (required since May 7, 2013), the instructions state (quite clearly) that “The person who examines the documents must be the same person who signs section 2.” The court actually referenced this instruction too, as further proof that DHS’ prior guidance was vague and ambiguous. It’s also worth noting that the agency’s proposed new “smart I-9” form has a similar instruction – “The person who physically examines the employee’s original document(s) and completes Section 2 must sign his or her name in this field.”

Next Steps

In light of this recent decision, employers are well advised to review their current (and past) I-9 practices and procedures to see if they will withstand scrutiny in the event of an audit. Here are five areas worth exploring:

(1) How are my I-9s currently completed and signed? Do we always ensure that the person who signs section 2 (or section 3) is the person reviewing the document(s)?

(2) Are we currently using any staffing agencies, and if so, how are they completing the I-9s? Subcontracting I-9 services can be very tricky business (especially when there are multiple staffing agencies involved).

(3) What is our current process for managing I-9s of remote employees (those who cannot meet with an employer representative prior to beginning work for pay)? Are we ensuring that the third-party authorized representative who reviewed the documents has completed and signed section 2?

(4) What is our process for correcting old I-9 forms where the individual who saw the document may no longer be employed with our company? Do we allow other HR or hiring individuals to correct certain portions of the original I-9? What types of I-9s do we have on file (2013 only, 2009 and prior, etc.)?

(5) For those using electronic I-9 systems, what processes/procedures do we have in place to ensure that I-9s are properly completed by the individual who examined the documents? A well-designed system will enable an employer to review all I-9s prepared “in the field” to make sure that the I-9 was completed properly (which is especially important for those participating in E-Verify).

Need more information on Form I-9 completion and remediation strategies? Please contact us today with any questions you might have!

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John Fay is an immigration attorney and technologist with a deep applied knowledge of I-9 compliance and E-Verify rules and procedures. During his career, John has advised human resource managers and executives on a wide variety of corporate immigration compliance issues, including the implementation of electronic I-9 systems. In his current role, John serves as Vice President and General Counsel at the LawLogix division of Hyland Software, Inc., where he is responsible for overseeing product design and functionality while ensuring compliance with ever-changing government rules.