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ICE turns up the heat on Chipotle Mexican Grill Restaurants

What started as a fairly routine I-9 audit in Minnesota late last year has now turned into an expanding probe of the company’s hiring practices, according to the latest Wall Street Journal article on the embattled restaurant chain.  As we previously reported, Immigration and Customs Enforcement (ICE) has been investigating the company for several months now following an I-9 audit in Minnesota last year which revealed that many workers had produced “suspect documents” (i.e., those which may be fraudulent or stolen) during the hiring process. In response, the company was forced to terminate approximately 450 employees, which represented more than a third of its Minnesota workforce. According to the Wall Street Journal, the ICE investigation has now expanded to restaurants in Atlanta, Los Angeles, Washington, DC, and Virginia, where at least 40 workers have been dismissed following a similar investigation. Considering that Chipotle has over 1,100 company-owned and operated restaurants, you can bet that the company is closely examining its hiring practices now to prevent further fallout.

Why is Chipotle being targeted? And is my company next?

As we’ve discussed in the past, ICE generally conducts I-9 investigations of employers based upon credible leads, which may consist of complaints from disgruntled employees, tips from the public or cases having national security or public safety implications (which is most likely not the case here). In addition, ICE may also initiate I-9 audits based upon referrals from other government agencies that may have investigated an employer in an unrelated matter. Contrary to popular belief, ICE maintains that it does not deliberately target specific industries (such as food and beverage, construction, retail, etc.), although in reality employers in these areas will often face the brunt of ICE enforcement activities.    Is your company next? Maybe, maybe not. The better question is: are you prepared to handle the intense scrutiny, difficult deadlines, and minefield of legal issues that can arise when you receive that innocent-looking I-9 Notice of Inspection? Among other things, I-9 inspections allow ICE to uncover patterns of identity theft, fraudulent use of documents or bad-acting human resource officials. Aside from the potential civil and criminal liability, there’s also the possibility of negative financial consequences in the form of bad publicity, increasing labor costs, and even shareholder lawsuits.

Was the writing on the wall for Chipotle?

In April 2010, Chipotle released its 2009 Annual Report which described the company’s record margins and substantial growth. As is required, the company also outlined several risk factors including one in particular which turned out to be quite prescient:

Various states in which we operate are considering or have already adopted new immigration laws, and the U.S. Congress and Department of Homeland Security from time to time consider or implement changes to Federal immigration laws, regulations or enforcement programs as well. Some of these changes may increase our obligations for compliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome, or reduce the availability of potential employees. In addition, we have been subject to audits by immigration authorities from time to time. Although we require all workers to provide us with government specified documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers. Unauthorized workers are subject to deportation and may subject us to fines or penalties, and if any of our workers are found to be unauthorized we could experience adverse publicity that negatively impacts our brand and may make it more difficult to hire and keep qualified employees. If a significant number of unauthorized workers is identified in a particular market or across our company, the resulting disruption to our operations could be significant and our financial performance could be materially harmed as a result.

Now to be fair, most public companies in the restaurant industry do not go nearly as far as Chipotle in defining potential immigration liability in their SEC filings. Nevertheless, its disclosure certainly does beg the question: given the knowledge of potential problems and the risk that some employees “could be unauthorized”, should the company have proactively managed this risk ahead of time to reduce the resulting fallout? It’s worth noting that the company’s most recent filing states that the termination of approximately 450 employees resulted in “a temporary increase in labor costs as we train new employees, as well as some degree of negative publicity.”

How Should Employers Manage the I-9 Risk?

The way to I-9 compliance for most organizations starts with a thorough self-examination of existing paper I-9s, E-Verify submissions (if applicable), standard operating procedures, and past hiring practices. While there are many do-it-yourself guides available on the Internet and elsewhere, consulting an immigration or employment lawyer who is familiar with I-9 and E-Verify issues can prevent employers from making matters worse and provide a solution tailored to the organization and industry. Employers should also strongly consider using an electronic I-9 and E-Verify system which adheres to the regulations and has been thoroughly vetted by the marketplace.  Using such a system will offer numerous benefits to organizations looking to streamline their employment eligibility verification process and eliminate the risk of a costly I-9 audit. In addition, systems exist which can assist employers with identifying fraudulent documents or stolen identites in advance of a full-blown ICE investigation. As we often say, dealing with such employment eligibility issues is a whole lot easier before ICE comes knocking at the door.

Human Resources Today