OCAHO Breaking New Ground

[Editor’s Note: Today’s blog is authored by Bruce E. Buchanan, an Attorney at the Nashville office of Siskind Susser, P.C.]

OCAHO has been busy issuing an incredible rate of decisions on I-9 penalty cases, making it nearly impossible to keep up.  Some of the latest decisions, though, are worth highlighting in today’s article.

DOES I-9 LIABILITY FOLLOW THE OWNER ALWAYS?

United States v. The Red Coach Restaurant (Aug. 2013) involved an employer, Red Coach, operating a bed and breakfast which received a Notice of Inspection (NOI) from ICE in February 2011.  During its investigation, ICE concluded that the employer failed to timely complete nine Forms I-9 and committed 41 other violations (Sections 1 and 2) of the I-9 forms.

Meanwhile, from the time ICE had begun its investigation to the time ICE had issued the fines, the employer had entered into a long-term agreement with an outside management company to help manage the bed and breakfast’s day-to-day operations.  (There was no change in legal ownership of the bed and breakfast.)

Upon receiving an assessed fine from ICE for $37,730 for its I-9 violations, the employer decided to file a hearing with OCAHO.  Consistent with previous decisions, OCAHO often holds that a penalty should have a deterrent effect on future violations.  In this case, the employer reasoned that the high fine failed to serve as a future deterrent because the owner no longer managed the daily operations of the bed and breakfast.  Any penalty, at this point, against Red Coach would have little deterrent effect on the management company that was recently contracted to run the daily operations.  The employer’s reasoning was convincing.  OCAHO agreed without offering any analysis of the situation except citing two cases where those businesses no longer existed at the time of the OCAHO litigation.  Thus, OCAHO reduced the penalty down to $16,300.

An interesting aspect in this case is that normally, the new owner of a business would be held liable as a successor-in-interest for the violations of the prior owner. This is an important reason why many attorneys advise their clients who are acquiring a business to perform due diligence since companies don’t want to inherit a potentially huge liability from I-9 noncompliance by the business being acquired.

In this particular case though, it appears that since the management company did not buy the operation but only contracted to manage the operation, the management company would not be liable for the assessed I-9 penalties. Does this mean that if a company is faced with an I-9 inspection from ICE with a potential significant liability that it should contract out its operational management?  Although the specific facts the Red Coach case implies this is a possibility, it’s hard to discern the unwritten factors that contributed to the reduction in I-9 fines.

LUMP SUM OR PAYMENT PLAN?

In United States v. Monadnock Mountain Spring Water (Aug. 2013), OCAHO expressed support for the proposition of paying a penalty over a period of years. Originally, ICE offered the employer the opportunity to pay the $14,630 penalty over three years. When the employer rejected the offer and litigated before OCAHO, OCAHO offered the company a choice – pay the $14,630 over three years or pay a reduced penalty of $10,500 in one lump sum.

This raises the question of whether ICE would be offering employers an option of paying off I-9 penalties over a period of years, usually three to five years, or paying a reduced negotiated amount in an immediate lump sum. If so, it could leave many employers in a quandary. On the one hand, employers may be faced with cash flow so large, lump sum payments can be challenging.  On the other hand, the peace of mind of settling and concluding an I-9 investigation may be worth the one-time payment up front.  The key, though, it is have an advocate negotiate on your behalf.

This case raises two troubling questions.  First, most settlement discussions between ICE and employers are typically not admissible in court.  It begs the question if and how the settlement discussions in this case were admitted into court since there was no discussion of it in the case.

Second, although ICE can strongly persuade an employer to elect one of the two options for payment, it is a bit troubling that OCAHO imposed those options on the employer.  Since OCAHO is a decision-maker (as opposed to ICE, an investigator and prosecutor), if OCAHO had accepted the employer’s reasons to reduce the penalties, then OCAHO should have rendered a decision to do just that, rather than going one step farther and forcing an employer to choose how/when to pay off the penalty.

GRANDFATHERING CLAUSES FOR WORKERS HIRED BEFORE NOVEMBER 7, 1986

Finally, OCAHO considered, in United States v. Anodizing Industries (May 2013), what constituted “continuous” employment to determine whether an employer was “grandfathered in” (i.e.: hired before November 7, 1986) such that a Form I-9 was not required.

In this case, the employer argued a 5% owner, who began working for the company in 1981, did not need to fill out an I-9 form even though he took a leave of absence from 2002 to 2006. The company reasoned that he had a “reasonable expectation of continuous employment,” especially due to his partial ownership. OCAHO rejected the employer’s arguments because the employer could not show how a four-year gap in employment created a “reasonable expectation of continuous employment,” in order that he qualify to be grandfathered in.  Detrimental to the employer’s argument was that it could not demonstrate clear company lay-off and recall practices to support the claim that the 5% owner/employee had a “reasonable expectation of continuous employment.”

Concerning the 5% ownership interest, OCAHO did not discuss its implications in requiring an owner-employer to complete an I-9 form. In United States v. Santiago Repacking (2012), OCAHO held that a one-third owner in a closely-held corporation does not need to complete an I-9 form because no one had control over him in his work and one cannot be both an employer and employee.

In this case, the facts were a bit different.  There was no evidence that the 5% owner was treated differently than any other employee or that his 5% ownership had any effect on his working relationship with the management and other owners.  It is important to remember that individuals with significant ownership are not required to complete an I-9 form even if they are on the company’s quarterly wage reports and drawing a paycheck. While it may be to a company’s benefit to complete the I-9 form anyway, it’s always helpful to know what arguments to make before ICE or OCAHO.

As the above cases demonstrate, OCAHO is issuing some interesting decisions that undoubtedly impact employers who come before it during a hearing for their I-9 penalties.

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Bruce E. Buchanan is an Attorney at the Nashville Office of Siskind Susser, P.C.  To learn more about Mr. Buchanan’s future webinars related to I-9 and E-Verify, click here. Mr. Buchanan 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).