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California’s AB 5 looms large in 2020 for I-9 Compliance Managers

Most HR compliance managers have at least one “I-9 related” nightmare from their past, which haunts them from time to time. These episodes range from the mundane to the ridiculous – remember the time when Sheila misunderstood the retention requirement, and threw away all of the I-9s for current employees after 3 years? And then there was Frank who launched the (thankfully) short-lived “virtual I-9” process by telling everyone it was okay to review identity and work authorization documents via Facebook live. For sure, “Shredding Sheila” and “Facebook Frank” will never live those down.

But in all seriousness, the above scenarios are in fact very real, and symptomatic of a larger issue: the “process” of completing the Form I-9 can often be broken, even in the largest and most well run of organizations.

Now, imagine this: you just learned that starting next year, you’re going to have to complete a substantially larger number of I-9s as your organization onboards an increasing number of newly hired employees. And unlike other years, this I-9 increase has nothing to do with a robust economy, a recent acquisition, or other fortuitous event.  Instead, this year, the Form I-9 flood stems entirely from a highly controversial law that (in effect) reclassifies your independent contractor workforce as employees. Form I-9 compliance, meet California’s AB 5.

California AB 5 – a Quick and Non-Exhaustive Overview

If you’re already well-versed in AB 5, feel free to skip down to the “I-9 Ramifications” section below. Otherwise, read-on for a quick AB 5 summary.

On September 18, 2019, California Governor Gavin Newsom signed Assembly Bill 5 (“AB 5”) into law which codifies a strict set of requirements that employers must use for determining whether a worker is an employee or an independent contractor. The law, which goes into effect on January 1, 2020, actually stems from a 2018 California Supreme Court case, Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which involved a same-day courier service which had reclassified its workers as independent contractors.

In Dynamex, the California Supreme Court adopted for the first time the so-called “ABC test” for determining whether a worker is an employee or independent contractor for purposes of an Industrial Welfare Commission Wage Order (which imposes obligations relating to minimum wages, maximum hours and other work conditions). Under the ABC test, as adopted by AB 5, a worker shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Put simply, a worker is only a contractor if he or she is totally free of company control, is responsible for work duties that are not central to the employer’s core business, and has his or her own independently-incorporated business.

Now, why does this all matter? Well, for one thing, employees (especially in California) are entitled to a host of benefits such as minimum wage protection, overtime, worker’s compensation, paid sick leave, and business expense reimbursement to name just a few. More broadly though, AB 5 would in essence compel certain organizations to reclassify a substantial component of the so-called “gig economy” workforce, which has been steadily growing during the past few years and contributing to California’s overall economic growth.

But wait, there’s more! The California Chamber of Commerce along with many other industry groups lobbied for exemptions, and a long list of professions was excluded from the law. These include doctors, lawyers, architects, engineers, insurance agents, accountants, financial advisers, real estate agents, and freelance writers and photographers (if they contribute no more than 35 submissions to an outlet in a year). Notably absent from the exemption list are ride-share and delivery companies (which make up a significant number of those gig workers).  The complete list can be found at the newly enacted Labor Code § 2750.3(b)-(h).

Supporters of AB 5 note that the law will prevent businesses from improperly misclassifying workers as independent contractors in order to sidestep employment laws that ultimately protect workers. Meanwhile, opponents argue that AB 5 would gut the gig economy in California (and elsewhere) and actually hurt workers who value their autonomy and independence in choosing their own schedules.

As mentioned earlier, AB 5 goes into effect next year (January 1, 2020), but debate over this law is far from over. Just last week, the California Trucking Association filed an amended complaint in federal court, arguing that AB 5 violates federal law because it is preempted by the supremacy and commerce clauses in the US Constitution and is in direct conflict with other federal laws. Meanwhile, Uber, Lyft, Postmates, Doordash and Instacart have already raised over $100 million for a 2020 ballot initiative to ask California voters to exclude them from AB 5.

Form I-9 Ramifications

AB 5 looms over I-9As detailed above, AB 5 is a monster of a law, with a wide-ranging impact on a substantial number of organizations doing business in California. For sure, many HR departments (in conjunction with counsel) are hard at work, figuring out if and when to apply the various “employee” hiring requirements for their independent contractor workforce. This is important since ignoring AB 5 opens an employer to significant potential liability, whether through government agency investigations or private claims brought by individual workers.

But even if you determine that AB 5 does apply to your business, and you take steps to onboard several new “employees,” you need to remember that all-important requirement of completing the Form I-9, a deceptively simple process that is increasingly regulated and monitored at both the federal and state levels. And California employers, in particular, frequently find themselves caught in the middle.

But wait, you say, wouldn’t AB 5 be preempted by federal immigration law, which has a specific regulatory definition for independent contractors (who aren’t subject to the Form I-9 requirement)? Could an employer thereby successfully argue that I-9s are not required for these individuals, since the standards for determining independent contractors for I-9 purposes are generally not as strict as the ABC test?

Perhaps, but this argument will likely be a moot point if employers take steps (as AB 5 would require of them) to treat workers as employees and thereby assume greater control over the manner and means by which the individuals perform their work. Put differently, for many employers, AB 5 may inevitably turn their workforce into employees under a variety of different tests.

Keeping all of that in mind, below are three essential things to remember as you plan your I-9 compliance in an AB 5 world:

1) Ignoring ICE is not cool

Consider this: last fiscal year, I-9 related worksite investigations conducted by Immigration and Customs Enforcement (ICE) surged by 300 to 750 percent over the previous fiscal year, due in large part to the agency’s commitment to create a “culture of compliance” amongst the nation’s employers. The strategy goes something like this: in order to ensure that employers are hiring a legal workforce, ICE will hold businesses accountable for completing the Form I-9 process for employees according to the exacting standards prescribed by law. This means completing the Form I-9 correctly within some very unforgiving timelines.

And California employers need to be especially vigilant when it comes to I-9 enforcement. In 2018, ICE conducted several large-scale “I-9 audit sweeps” throughout the country, which notably impacted many California employers across the state. While ICE maintains they do not target any particular industry or location, the fact remains that there have been a series of ongoing disputes between the Trump administration and California relating to immigration compliance and enforcement.

Takeaway: make sure you’re ready for a Form I-9 inspection, preferably by conducting an attorney-led and software-facilitated I-9 audit and remediation project.

2) The Form I-9 also has worker protections

In the rush to complete I-9s, HR managers often forget that federal law requires employers to follow Form I-9 and E-Verify rules consistently, regardless of an employee’s citizenship, immigration status, or national origin. To do otherwise could lead to a charge by the Immigrant and Employee Rights Section (IER) of the Department of Justice of an “unfair documentary practice” that violates the anti-discrimination provision of the law.

Below are four examples of unfair documentary practices (formerly known as “document abuse):

  1. Requesting that employees produce more documents than are required by the Form I-9 to establish the employee’s identity and employment authorization;
  2. Requesting that employees present a particular document, such as a “green card,” to establish identity and/or employment authorization;
  3. Rejecting documents that reasonably appear to be genuine and belong to the employee presenting them; and
  4. Treating groups of applicants differently when completing the Form I-9, such as requiring certain groups of employees who look or sound “foreign” to produce particular documents the employer does not require other employees to produce.

During the past few years, we’ve seen a significant increase in the number of I-9 discrimination-related settlement agreements, whereby employers are required to pay stiff fines and subject themselves to ongoing DOJ monitoring obligations. Many of these investigations can be avoided by proper I-9 verification planning, education, and systemization.

In addition, California enacted its own version of the unfair documentary prohibition in 2017 with the passage of Senate Bill 1001 which added Section 1019.1 to the CA Labor Code along with potential penalties of up to $10,000 per violation. And in 2018, California passed the Immigrant Worker Protection Act (AB 450), a controversial and partially enjoined law which nevertheless still requires employers to provide notice to employees of Form I-9 inspections within 72 hours.

Takeaway: ICE is not the only agency that regulates I-9s. As you plan for additional hires, make sure you perform a top to bottom evaluation of your current I-9 hiring processes and procedures, paying special attention to how you typically inform employees of the documents required for I-9 verification. You’ll also want to thoroughly prepare for an I-9 inspection and put processes in place to notify employees within the required 72-hour time period.

3)  The I-9 and E-Verify processes can be automated in a compliant fashion

As HR managers brace themselves for the intended (and unintended) consequences of AB 5, one universal truth will likely emerge: the more people you hire, the more painful the I-9 (and E-Verify) process becomes. When polled about managing I-9 compliance at industry conferences, HR representatives typically recite a litany of concerns, including frequently changing (and not well-publicized) rules, uncertainty regarding how to correct mistakes, unforgiving timelines for completing the form, managing rehires and remote employees, duplicative E-Verify tasks, managing reverifications, and responding to a Form I-9 inspection in a timely manner

The good news is that employers can resolve many of these concerns by utilizing an electronic I-9 and E-Verify software platform which has been designed with compliance in mind. I emphasize the “compliance” aspect since there are MANY solutions on the market which do not adhere to the regulations, or even worse, lead employers down a non-compliant path.

If you’re in the market for I-9 software, there are two very important facts to remember: (1) ICE does not vet or approve electronic I-9 systems – meaning you have to do your own due diligence; and (2) the system MUST meet strict regulatory standards, including various recordkeeping and safeguarding controls. Many systems on the market today do not follow these protocols, and so it’s imperative that you choose wisely and work with counsel when possible.

If you’d like to learn more about the Guardian Electronic I-9 and E-Verify software, which was designed by immigration attorneys, please visit www.lawlogix.com/guardian.


About John Fay

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 President at the LawLogix division of Hyland Software, Inc., where he oversees all aspects of the division’s operations and provides strategic leadership and direction in the development and support of Form I-9, E-Verify, and immigration case management software solutions.

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