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Dealing with Skeletons in the Closet, Part I: the Latest Case on I-9 Liability and Penalty Determinations

[Editor’s note: today’s article is the first in a two-part series on the most recent I-9 penalty case]

With Halloween upon us, now is the perfect time for organizations to consider the potential I-9 compliance liability that may be lurking in their cabinets, drawers, and other dark places which are often too scary to explore. As guest blogger Kevin Lashus told us recently, Immigration and Customs Enforcement (ICE) has issued a record 2,393 notices of inspection and 331 final orders totaling $9 million in fines this fiscal year, which represents a dramatic increase in worksite enforcement over previous years. While this fact may be more sobering than scary, the ultimate message to employers is the same: now is the time to finally pay attention to those pesky I-9 critters in order to prevent a truly horrific compliance disaster if ICE comes knocking on your door. Because believe me, the first words out of their mouths will definitely not be “trick or treat…”

In keeping with Halloween traditions, below is the first installment of a cautionary tale for all employers of how an I-9 compliance program left untouched can turn into a very expensive paperwork nightmare.

The Case of Ketchikan Drywall Services

Recently, the Department of Justice, Office of the Chief Administrative Hearing Officer (OCAHO) published a precedent decision (United States of America v. Ketchikan Drywall Services, Inc.) regarding liability for Form I-9 mistakes and omissions. As with previous such cases, the decision sheds some light on the often bewildering practice of I-9 remediation while also serving as a constant reminder that this can be very tricky stuff indeed. In reading the below, please keep in mind that it’s always best to work with experienced immigration counsel before embarking on your I-9 correction quest.

The Employer and the Audit

Ketchikan Drywall Services (KDS) is a company engaged in the business of installing drywall and steel stud framing for commercial and residential construction projects in and round the Puget Sound area in Washington State. As with many such companies, their business is seasonal in nature and project-oriented – workers are hired for 35-40 days for specific projects during the spring and summer months, laid off, and then recalled as needed. Those of you out there responsible for I-9s are probably already seeing the potential issues…

In March of 2008, ICE served a Notice of Inspection (NOI) on KDS, requesting the I-9s and copies of any attached supporting documents for employees hired between January 1, 2005 and March 25, 2008. In response, KDS produced documents on April 2, 2008, and the government then served a Notice of Intent to Fine (NIF) on April 4, 2009. KDS then sent additional I-9s and document to the government in June and August of 2009. The government accepted both of these late shipments and revised the NIF accordingly. The total sought for all the alleged violations was $286,624. Subsequently, KDS requested a hearing with OCAHO and this case was born.

The Ketchikan case provides a detailed accounting of various I-9 “issues” which were raised by both parties during the course of the hearing. Anyone who has endeavored to correct an errant I-9 form will appreciate Judge Thomas’ exacting analysis of whether a missing checkbox here or a misplaced word there should be considered a fine-able offense. Before we get too far into the I-9 weeds though, there are some preliminary questions/issues which are worth exploring in this case. Have you ever wondered whether you can produce additional I-9s and supporting documents after an appeal has been filed with OCAHO? Or whether copying documents can relieve an employer of substantially all I-9 liability? Or what about completing I-9s for temporary or seasonal employees – do these always warrant a section 3 or new I-9?

1. Late production of supporting documents will not be considered

As mentioned earlier, KDS delivered its I-9s to the government in batches after the initial subpoena, and ICE was accommodating enough to accept them. However, KDS also submitted even more I-9s and supporting documents as part of the appeal (during both its motion for summary decision and its response to the government motions) with the express wish that these also be considered. According to the record, KDS explained that because of a misunderstanding regarding the scope of the government’s subpoena, it did not produce copies of all the List A, B or C documents it copied at the time the original I-9 forms were completed. According to the President, KDS as a matter of company policy, always made copies of the documents presented which were kept separately from the I-9 in a worker’s personnel file. He said KDS understood the subpoena to request only the I-9 forms and documents attached to them, so that copies of documents kept in the individual personnel files were not produced because they were not “attached” to the I-9s.

Judge Thomas quickly dismissed this argument though, pointing out that while the regulations do not require an employer to make copies of the employees’ documents, they plainly do require that if an employer makes copies, those copies are to be kept with the Form I-9. She also noted that several of the documents presented later did not match the information recorded on the I-9 (e.g., the driver’s license copy presented was an earlier or later version), so these were not good evidence that a proper verification had occurred.

Lesson learned: if you make copies of supporting documents, make sure to keep them with your I-9s in the event of an ICE inspection.

2. Copying documents does not relieve an employer from completing the Form I-9

KDS also advanced the rather unique argument that it should not be penalized for a missing I-9 if it had made copies of the section 2 documents presented. Judge Thomas rejected this assertion outright by quoting the regulations at 8 C.F.R. 274a.2(b)(3), which state: “An employer… may, but is not required to, copy or make an electronic image of a document presented by an individual solely for the purpose of complying with the verification requirements of this section. If such a copy or electronic image is made, it must be retained with the Form I-9. The copying or electronic image does not relieve the employer from the requirement to fully complete section 2 of the Form I-9.” It’s hard to get around that one.

Judge Thomas did acknowledge however that there are instances (discussed in part 2 of our series) when a specific omission may be excused when a copy of the document is retained with the form and presented at the time of inspection. But there is no general rule that omissions are cured by copying documents.

Lesson learned: there are many great reasons to copy I-9 supporting documents (see our prior guest blog discussing these), but you must remember that you still need to complete the I-9 form.

3. An employer does not need to complete a new I-9 or section 3 for a returning employee if the individual is continuing in his or her employment and has a reasonable expectation of employment at all times

Employers with a seasonal workforce will appreciate the difficult I-9 decisions which often ensue. In the Ketchikan case, ICE argued that KDS failed to prepare I-9 forms for 43 individuals, 33 of whom had multiple dates of hire, termination, and rehire. KDS admitted 15 of the violations, but contended that the other 28 were seasonal employees who continued in their employment and did not have to be “rehired” for I-9 employment eligibility purposes. KDS explained that its workers are routinely laid off at the completion of a particular project and recalled for work on new projects later on. When these employees are laid off, it records them as “terminated” in their computer system so that they will not appear on payroll reports. KDS, however, considers them to be simply “inactive.” ICE on the other hand argued that when the employer’s own records show a termination, ICE will deem those records as conclusive evidence that there was no continuing employment relationship, and a new I-9 (or section 3) must be completed.

In response to these arguments, Judge Thomas acknowledged that an employer will not be deemed to have hired an individual for employment if the individual is continuing in his or her employment and has a reasonable expectation of employment at all times. If an employer has not hired an individual for new employment, it has no obligation to complete another I-9 or section 3. Regulations define the term “continuing in employment,” and provide specific examples, including, when an individual is either temporarily laid off for lack of work or is engaged in seasonal employment. The regulations further provide that an employer claiming that an individual is continuing in employment bears the burden to show both that the individual expected to resume employment at all times and that the individual’s expectation is reasonable.

Wow – a lot to consider, right? Well, we’re not done yet. In order to determine whether the individual’s expectation is reasonable, the employer must take into account several factors including the employer’s past history of recalling absent employees for employment (which indicates a likelihood that the individual in question will resume his or her employment within a reasonable time), the financial condition of the employer (which reflects that the employer is able to permit the individual to resume employment within a reasonable time), and any oral and/or written communication between employer, its supervisory employees and the individual (which indicates that it is reasonably likely that the individual can expect to resume employment within a reasonable time).

Ok, let’s get back to the Ketchican case to see how this played out. Since the government did not contest KDS’ allegations regarding its computer system, the Judge essentially let that reasoning stand – termination date did not really mean termination for KDS. The judge did, however, look closely at KDS’ rehiring patterns to see whether the employees resumed employment within a “reasonable time.” Given the facts and circumstances and the description of Ketchikan’s business, she found that if an employee was employed during a particular calendar year, a reasonable time for recall would include any time later that same calendar year or within the next calendar year, which would be the next season. If an employee who worked in one year was not recalled at any time within the next year or season, the possibility of recall two years later could not without more be characterized as being within a “reasonable” time and thus a new I-9 or section 3 should be completed.

Example: employees who worked each successive season in the years 2005, 2006, and 2007 may be considered as continuing in their employment. Failure to complete new I-9 forms for these employees thus resulted in no violation. However, employees who worked only during the 2005 and 2007 seasons, but not at all in 2006 could not be said to have any reasonable expectation of employment at “all times.”

Lessons learned:  Employers with a seasonal workforce must take special care to properly complete section 3 or a new I-9 for employees who are “rehired” within 3 years of their previous start date. In deciding whether an employee is technically rehired, employers should remember that they have the burden to prove that that the individual expected to resume employment at all times and that the individual’s expectation is reasonable.

Stay tuned for Part 2 of this series which will explore specific I-9 violations in section 1 and 2 and the always popular penalty determinations – which in this case led the judge to assess $173,250 in I-9 paperwork penalties!

Human Resources Today