Case Study: Judge orders Subway Restaurant to pay $27,000 for I-9 Violations
The Department of Justice, Office of the Chief Administrative Hearing Officer (OCAHO) has published a precedent decision regarding an employer’s liability for Form I-9 violations and the proper weight of various factors used to assess the amount of civil fines.
The case, United States of America v. Snack Attack Deli, Inc. d/b/a Subway Restaurant #3718, tells the familiar story of a small restaurant in North Carolina that had neglected its employment eligibility verification responsibilities for several years and failed to complete I-9s for its employees. Faced with a potentially crippling fine of $111,078 for 108 distinct I-9 violations, the restaurant requested a hearing with OCAHO to dispute both its liability and the assessed fines. In ruling on the government’s motion for summary judgment, the Administrative Law Judge, Ellen Thomas, agreed with Immigration and Customs Enforcement (ICE) that the violations were serious and that the employer lacked good faith (as defined in more detail below). On balance though, the Judge considered the company’s small size and the general state of the economy to be more important considerations that weighed in favor of a reduced penalty. While the $27,000 fine is still substantial for this lone Subway restaurant, there are several important lessons to be learned for all employers with I-9 skeletons in the closet. But first, let’s take a closer look at the facts.
The ICE Snack Attack
Snack Attack is a Subway franchise restaurant located in Fayetteville, North Carolina, which had the misfortune of receiving a Notice of Inspection (NOI) from ICE in early 2009. According to the case record, the ICE Forensic Auditor visited Snack Attack on January 30, 2009, and requested all Form I-9s for current and former employees between the years of 2006 through 2009. The Auditor also provided a copy of a sample I-9 form along with a copy of the Handbook for Employers (M-274) and expressly told one of Snack Attack’s employees that if new forms were prepared, they should not be backdated. When the I-9s were delivered for inspection however, ICE immediately noticed two big problems: (1) Snack Attack had produced only 11 Forms I-9 for the 108 employees (current and mostly past employees); and (2) Snack Attack had only partially completed the 11 forms that were produced (section 2 was blank on all of them), and 7 of the forms had been backdated in section 1, including the I-9 of the restaurant owner!
Not surprisingly, ICE then issued a Notice of Intent to Fine (NIF) on July 29, 2009, alleging that Snack Attack committed 108 I-9 violations, including improper completion for the 11 named individuals and failure to complete for the remaining 97 individuals. Penalties were sought in the amount of $1,028.50 for each violation, for a total of $111,078.00.
Issue of Liability
In its answer and brief before OCAHO, Snack Attack alleged and asserted all manner of defenses to the issue of liability, even going so far as to claim that the backdating on the 7 forms was not their fault because it occurred in section 1 (that argument didn’t go very far by the way). Snack Attack’s owner also claimed that it had sold the business to another individual, even though there was nothing in the record to support it. In the end, Judge Thomas ruled that there was no genuine issue of material fact regarding liability, and so she moved on to the issue of civil penalties.
How are I-9 paperwork fines calculated?
The Immigration statute and regulations set the minimum and maximum range for civil money penalties for I-9 violations. Employers who fail to properly complete, retain, and/or present Forms I-9 for inspection may be subject to a civil penalty for violations occurring on or after September 29, 1999 from $110 to $1,100 per affected employee. In practice, ICE agents and auditors will consult the “Guide to Administrative Form I-9 Inspections and Civil Money Penalties,” which was released in May of last year, to figure out the base fine amount and appropriate adjustments.
|Substantive Verification Violations||1st Offense $110 – $1100||2nd Offense $110 – $1100||3rd Offense + $110 – $1100|
|0% – 9%||$110||$550||$1,100|
|10% – 19%||$275||$650||$1,100|
|20% – 29%||$440||$750||$1,100|
|30% – 39%||$605||$850||$1,100|
|40% – 49%||$770||$950||$1,100|
|50% or more||$935||$1,100||$1,100|
The recommended base fine amount is determined by dividing the number of substantive violations by the total number of Forms I-9, which then results in a “violation percentage” (shown in the left column above). The ICE Special Agent or Forensic Auditor will then apply an enhancement matrix (which can increase or decrease the fines) based upon 5 criteria: 1) the size of the business of the employer, 2) the good faith of the employer, 3) the seriousness of the violation(s), 4) whether or not the individuals involved were unauthorized aliens, and 5) any history of previous violations by the employer.
|Business size||+ 5%||– 5%||+/- 0%|
|Good faith||+ 5%||– 5%||+/- 0%|
|Seriousness||+ 5%||– 5%||+/- 0%|
|Unauthorized Aliens||+ 5%||– 5%||+/- 0%|
|History||+ 5%||– 5%||+/- 0%|
|Cumulative Adjustment||+ 25%||– 25%||+/- 0%|
It’s important to note, as we’ll see below, that the statute does not require that equal weight be given to each factor, nor does it rule out consideration of additional factors.
How did ICE arrive at $111,078.00 and was it justified?
According to the case filings, the ICE Auditor established the base fine by first ascertaining that the percentage of employees for whom there were violations was 100% so that the base penalty for each violation was $935.00 (the highest amount for a first offense). He then considered the five statutory factors and concluded that two of those factors (good faith and seriousness) warranted aggravating the penalties by 5% each, whereas the other 3 factors were deemed neutral (no increase nor decrease). So the government’s final figure for each violation was calculated as $1,028.50. In response, Snack Attack argued that it was a small business, acted in good faith, and that it had a clean history (no unauthorized workers and no previous violations).
So how did Judge Thomas weigh all of these factors and what lessons can be learned?
Size of the Business
Except in rare circumstances, a company’s small size is a mitigating factor, presumably because such companies often lack the dedicated resources needed to ensure proper I-9 completion. In determining the size of the business, at least one OCAHO judge has considered: (1) the business revenue or income; (2) the amount of payroll; (3) the number of salaried employees; (4) the nature of ownership; (5) the length of time in business; and (6) the nature and scope of business facilities.
In the case at hand, ICE argued that Snack Attack was neither a small nor large business, and pointed to the company’s high turn-over rate and access to Subway’s I-9 resources. Judge Thomas rejected this view, however, finding that Snack Attack’s modest income and small number of employees should lead to a mitigation, rather than a neutral factor.
The Seriousness of the Violations
OCAHO case law has established that there are varying degrees of seriousness, ranging from serious to utterly trivial (a continuum of sorts). In the case at hand, Judge Thomas wrote that failure to prepare an I-9 at all is among the most serious of paperwork violations, and case law reflects that an employer’s failure to attest in Section 2 is always a serious violation as well.
Whether the Individuals Involved Were Unauthorized Aliens and History of Previous Violations
Although there was no evidence of unauthorized workers at Snack Attack (and no way to tell whether any of the 97 individuals for whom no I-9s were presented were unauthorized), ICE nevertheless argued that this should not be a mitigating factor. In making this argument, ICE pointed to the fact that Snack Attack’s practices could easily lead to the hiring of unauthorized workers and also claimed that the store owner had recruited at least 2 unauthorized workers. In response, however, Judge Thomas ruled that uncharged prior events could not be used in setting penalties and thus deemed this factor “neutral.” The parties also agreed that Snack Attack had no history of prior violations.
Good Faith of the Employer
The issue of good faith (as it applies to the mitigation of fines) ultimately turns on whether or not the employer reasonably attempted to comply with its I-9 obligations prior to issuance of the Notice of Inspection. While Snack Attack vigorously argued that its owner was unaware of the Form I-9 rules and took steps after the fact to rehabilitate its practices, Judge Thomas found that there was not “a scintilla of evidence” that suggested the owner made any effort whatsoever to ascertain the requirements of the law and lacked the reasonable diligence required. Moreover, the judge found that Snack Attack acted in bad faith by its total failure to take any pre-notice steps to learn I-9 processes and by its cynical attempt to disclaim responsibility for the backdated information in section 1 of the I-9 forms.
OCAHO case law has long held that judges can consider other non-statutory factors when apportioning fines for I-9 violations, and Judge Thomas continued to do so here. In particular, she noted that a company’s ability to pay the proposed fine and external factors (such as the economy) should weigh heavily if the proposed fines are so onerous as to lead an employer to lay off employees or close shop altogether. In the case at hand, these factors worked in Snack Attack’s favor, as Judge Thomas held that the $111,000 penalty was clearly disproportionate to the Snack Attack’s size and resources, especially when considering the poor health of our economy and the high unemployment rate. As a result, the Judge reduced the fines for the 4 defective forms to $200 per violation, the 7 backdated forms to $300 per violation, and the remaining 97 forms to $250 per violation.
While the judge’s “weighting” may vary slightly based on individual circumstances, there are some important lessons for all employers:
- Small businesses should recognize that the burden is on ICE to show that a business is anything other than small, and OCAHO has a very expansive definition (i.e., no bright line test). Large employers, however, will most likely be held to a higher standard and an aggravated fine, especially if they have significant revenue and resources at their disposal.
- Failing to complete an I-9 form at all is considered the most serious of violations, and so it’s important that employers act quickly to complete new forms (while you can), and before an employee leaves or is terminated. In Snack Attack’s situation, most of its 97 missing I-9s were for employees long gone.
- Proactively addressing I-9 issues through training, attorney-led audits, and policy making are essential elements of “good faith” that can be used to defend an unreasonable ICE fine. Excuses and claims of ignorance of the law are rarely effective, and back-dating will always get you into hot water!
- Although I-9 fines are calculated based on established rules and statutory factors, there may be some wiggle room based on external factors, such as the economy, a company’s financial health, etc.
- Last, but not least, responding to a NOI or NIF can be exceedingly complex, requiring analysis of various policy memoranda, OCAHO case law and sharp negotiation skills. If your organization is facing an I-9 investigation, it’s always best to consult experienced legal counsel who can advise your potential I-9 liability and the best course of action.