Electronics manufacturer ordered to pay $43,000 for 62 I-9 violations
By now, many of us know that I-9 mistakes can be costly. Perhaps they are not as expensive as compliance failures in other areas of the law, but they certainly do add-up when you realize the potential scope of the problem: your entire workforce plus recently terminated employees. Not to the mention the fact that I-9 mistakes can often be seemingly minor blunders (the paperwork equivalent of failing to dot all of your [I]’s and cross all of your [T]’s).
Today’s blog will focus on yet another I-9 penalty case from the Office of the Chief Administrative Hearing Officer (OCAHO) which was recently published online. As we discussed recently in our “frightening” Halloween series, now is the perfect time for organizations to evaluate their I-9 program, enlist the help of experienced attorney auditors, and move to an electronic I-9 system to prevent these issues from arising in the first place. Because as we’ll see below, I-9 penalties are very much like “winter weather”: stormy and hard to predict.
The Facts of the Case
Alyn Industries (dba Electronic Source Company) manufactures printed circuit board assemblies for some of southern California’s leading companies in the aerospace, military, medical, telecommunication and wireless markets. According to the company’s public website, their facility in Van Nuys, California is outfitted with state-of-the-art assembly equipment which enables them to quickly deliver manufacturing services and products. In July of 2009, Immigration and Customs Enforcement (ICE) initiated an I-9 investigation of Alyn as part of its bold new audit initiativewhich promised (and has since delivered) increased focus on holding employers accountable for their hiring practices. When the I-9s were delivered for inspection, ICE noted several deficiencies, including Alyn’s failure to:
- Prepare and/or present I-9 forms at all for 2 employees
- Ensure that section 1 of the Form I-9 was completed for 1 employee
- Properly complete section 2 of the I-9 form for 59 employees
Based on the above, ICE then issued a Notice of Intent to Fine (NIF) on November 25, 2009, alleging that Alyn had committed 62 I-9 violations. Penalties were sought in the amount of $1,028.50 for each violation, for a total of $63,767.00.
Issue of Liability
Unlike our last I-9 penalty case, the company here admitted to all of the violations (note – at this point they were NOT represented by counsel), and instead simply challenged the reasonableness of the proposed penalties. Because the violations themselves were admitted, Judge Thomas ruled that the government was entitled to summary decision as to liability for the 62 violations alleged, and reaffirmed that the only issue in need of resolution was the amount of civil money penalties.
How are I-9 paperwork fines calculated?
As we’ve discussed in the past, 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 employee whose Form I-9 is not properly completed, retained, and/or presented. 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 $63,767.00 and was it justified?
According to the case, 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). The auditor then considered the five statutory factors and concluded that two of those factors (good faith and seriousness) warranted aggravating the penalties by 5% each.
|Base Fine||Aggravating %||Fine per Form||Number of Forms||Total Fine|
ICE’s memorandum also argued that the penalties should be aggravated by an additional 5% for 39 of the violations based on the fact that the individuals were unauthorized aliens; but since the government’s calculation of civil money penalty did not reflect that aggravation, the judge refused to consider it. ICE treated the size of the employer and the history of previous violations as neutral factors, warranting neither aggravation nor mitigation of the penalties. So how did Judge Thomas weigh all of these factors and what lessons can be learned?
Arguments from the Company
Alyn employed what may now be called the “Snack Attack” defense (see our previous blog on the Subway chain restaurant case) which involves arguing that (a) you are a small business; (b) have had no previous violations; and (c) are a victim of poor economic conditions (and thus deserving of a break – for goodness sake). Specifically, Alyn pointed out that it is privately owned and operates at a single worksite, and though it employed 62 people as of July, 2009, it had only 50 employees as of December 2010. The company also asserted that it had a net loss of $270,694 in calendar 2010.
The Judge’s Analysis
As in recent cases, Judge Thomas closely analyzed each of the statutory factors along with “other considerations” in reaching her conclusion. While this is NOT an exact science (in the slightest), it is interesting to see how the Judge evaluates a particular company’s circumstances, and whether it considers a factor to be aggravating (ICE’s favor), mitigating (company’s favor) or simply neutral.
Size of the Business – Judge finds neutral
ICE argued that Alyn was a “moderate sized business” (identifying a number of factors including revenue or income, the amount of payroll, the number of salaried employees, the nature of its ownership, its length of time in business, and the nature and scope of the business facilities). ICE also analyzed other “sub-factors” in making this determination, including whether the employer used all its resources to comply with the law, whether a higher penalty would enhance the probability of compliance, and whether the turnover ratio might have interfered with the completion of the Forms I-9. Judge Thomas rejected these additional sub-factors, noting first that how an employer uses resources pertains more to an employer’s good faith than to its size. She also rejected the analysis of whether a higher penalty would enhance the probability of compliance by reasoning that an employer’s ability to pay is not a proxy for size (i.e. highly profitable does not necessarily mean large). On the other hand, Judge Thomas was not willing to mitigate the fine based on Alyn’s size either. While OCAHO case law generally considers companies with fewer than 100 employees to be small businesses (and Alyn only has 50), Judge Thomas noted that the company was clearly not a failing “mom and pop” operation either.
Good Faith of the Employer – Judge finds neutral
ICE argued that Alyn showed “bad faith” by failing to secure proper I-9 training and institute good procedures, especially in light of the fact that the company has been in business since 1998 and had revenue in the millions. Alyn on the other hand argued that its errors were the result of carelessness, not disdain or gross disregard. The company also pointed out that, since the inspection, it has enrolled in E-Verify and instituted stringent compliance checks. The Judge dismissed both of these arguments. First, in response to the government, she noted that neither ICE guidelines nor OCAHO case law supports the notion that failure to affirmatively seek out and secure training in I-9 compliance is evidence of “bad faith.” In response to Alyn’s position, she reminded them that 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 it was certainly commendable for Alyn to clean up shop, the important component here is when they made those efforts.
The Seriousness of the Violations – Unknown?
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, there were essentially 4 types of violations. First, there was failure to complete the form (the most serious of paperwork violations); second, there was failure to sign section 2 attestation (also serious since it implies avoidance of liability for perjury); third, there was failure to ensure that an employee checked a box in section 1 of the I-9 to attest to her status in the United States; and lastly, there was a failure to enter either a List A or a List C document showing employment authorization in section 2 of the form. Judge Thomas grouped the first two types of violations (failure to prepare and failure to sign section 2) together as “exceedingly serious” in character whereas the other 2 were dubbed “less so.” Despite the fact that 60 forms had serious errors, the Judge did not specifically “aggravate” the fine. She did, however, use these two basic groupings to come up with her own fine amount (see below).
Whether the Individuals Involved Were Unauthorized Aliens and History of Previous Violations – Neutral
As mentioned earlier, ICE aggravated its base fine due to the presence of unauthorized workers. Specifically, ICE alleged that 39 individuals were unauthorized aliens, based on evidence that the Alien Registration Numbers of 26 employees did not match the name and date of birth on the I-9 form; there was no record at all for 10 employees in the USCIS database; 3 employees were found to have expired documents; 1 had previously been removed; and 1 had an outstanding removal order. Judge Thomas, however, rejected these arguments, noting that ICE failed to produce a list of specific individuals identified as being unauthorized and did not elaborate on the precise nature of the discrepancies in the USCIS database. She concluded that the penalties may be aggravated for the I-9 forms only of those individuals who are themselves determined to be unauthorized.
Any History of Previous Violations – Neutral
Both parties agreed that Alyn had no history of previous violations, but Alyn took this one step further to argue that the Judge should consider this a mitigating factor in the calculation of fines. Judge Thomas followed the usual OCAHO play book on this point (not violating the law in the past does not on its own provide adequate grounds for mitigation), and declined to show any leniency.
Other Considerations – Neutral
Now we come to the always-unpredictable “other considerations” factor for determining I-9 penalties. OCAHO case law has long held that judges can consider other non-statutory factors when apportioning fines for I-9 violations. Alyn seized on this opportunity their arguments, noting that they were, in essence, similar to the Subway restaurant in Snack Attack, and thus deserving of substantial mitigation. Specifically, in the Snack Attack case, Judge Thomas had stated 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, however, Judge Thomas noted that the circumstances of Snack Attack were neither similar nor analogous: Snack Attack was a small family owned fast food franchise deli sandwich business that had been losing money for some time and had only a handful of employees. In contrast, Alyn is a subchapter S corporation that has been in business for more than 10 years and had assets of $2 million in 2009 and $1.4 million in 2010. While the company did allege that it had fallen on tough times, the Judge ruled that there was “insufficient evidence to conclude that its situation is anywhere near as dire as that presented in Snack Attack, or that the company lacks the ability to pay a reasonable penalty.”
And the fine is…
You’ve made it this far, so now you must be wondering how did Judge Thomas end up with a $43,000 fine? Below is the conclusion:
The permissible penalties in this case range from a low of $6,820 to a high of $68,200, and the government has proposed penalties that are very close to the highest available. Giving due consideration to the statutory criteria, the proposed penalties appear excessive. The only factor weighing strongly against Alyn in this case is the seriousness of the violations themselves. In light of these considerations and as a matter of discretion, penalties nearer to the midrange are found more appropriate to the facts and circumstances of this case and the penalties are accordingly set at $700 each for the 60 most serious violations and $500 each for the other 2, for a total penalty of $43,000.
Did you catch that? Essentially, it appears that Judge Thomas has set the fines mostly on a perception of fairness. The ICE fines were too high, and none of the statutory factors were much help with the exception of the seriousness violation. So, in the end, she set the fines at a “midrange,” differentiating them only by the seriousness. The actual mitigation percentages, by the way, work out to be roughly 25% mitigation for serious errors and 46% for not-so-serious errors. Not bad for the employer all things considered!
The most important lesson learned here is that I-9 penalty calculations are far from an exact science, and in the end, you are ultimately at the whim (reasoned or not) of ICE and OCAHO. Bottom line: proactively addressing I-9 issues through training, attorney-led audits, and policy making before an ICE Audit are essential steps that can be invaluable to you during an ICE investigation (or in the worst case scenario, during penalty negotiations). Otherwise, you leave yourself open to the many vicissitudes of I-9 penalty determinations…