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Mississippi Manufacturer Agrees to Pay Record $2.5 million fine for Immigration and I-9 Violations

[Editor’s Note: today’s blog is courtesy of Wendy Padilla-Madden from Balch & Bingham LLP.] Howard Industries, a privately held manufacturer of electrical transmission and distribution equipment, pled guilty yesterday to conspiracy to violate immigration laws for actions discovered during an August 2008 immigration raid on the company’s transformer plant in Laurel, Mississippi. The company also agreed to pay a $2.5 million fine (largest ever in the state of Mississippi), which is roughly 5 times the original base amount, for the actions of one human resources manager. Clearly, there was some wrong-doing here, but what exactly did the company do (or fail to do) to earn such a dubious distinction within the state of Mississippi? Let’s take a trip down memory lane.

The Nation’s Largest Workplace Immigration Raid

On August 25, 2008, U.S. Immigration and Customs Enforcement (ICE) in consultation with the US Attorneys’ office raided the company’s manufacturing plant in Laurel, Mississippi and arrested 595 workers who were believed to be undocumented. Approximately 475 of these workers were sent to a detention center and most of them were later deported (few were convicted on identity theft charges). Meanwhile, the company repeatedly denied allegations that it had knowingly hired individuals without work authorization, putting all of the blame on its human resources manager, Jose Humberto Gonzalez,who was later charged in a 25-count indictment with conspiracy and employee verification fraud.

The Rogue HR Manager?

According to court documents, Gonzalez would routinely hire unauthorized workers who presented false identity documents, including alien registration receipt cards and Social Security cards, and complete the I-9 with the bogus information. Gonzalez was also accused of submitting SSNs to the Social Security Administration to verify their numbers and then disregarding the results if they came back as invalid. To prove a conspiracy, the government also established that he regularly instructed employees to obtain alternative identity documents which he knew falsely represented their true identities and assured Spanish-speaking workers at the plant that he would warn them in the event of a raid. Gonzalez pled guilty in December 2009 to conspiracy and admitted that he hired hundreds of people who he knew were not authorized to work. He faces a maximum of 5 years of imprisonment on the conspiracy charge and on each employee verification fraud count. He also faces a minimum of 2 years of imprisonment for the aggravated identity theft charge and possible fine up to $250,000. Company Can’t Escape Liability Since April 2009, ICE has made it abundantly clear that employers, including their officers and executives, face criminal exposure for I-9 compliance failures, particularly those involving unauthorized workers. In the case of Howard Industries, Thursday’s complaint explicitly notes that the company is “legally responsible for the actions of [the HR manager] as his employer.” As a result, Howard Industries was charged with knowingly and willfully conspiring to encourage and induce undocumented workers to reside in the US (in violation of 1324(a)(1)(A)(iv)) and knowingly conspiring to conceal, harbor and shield from detection such workers (in violation of 1324(a)(1)(A)(iii)). In the end, however, the company waived indictment and agreed to plead guilty to the one-count felony of “Conspiracy to commit offense or to defraud United States” (18 U.S.C. § 371) which called for a term of not less than one and not more than 5 years of probation and a fine of up to $500,000. However, this fine was substantially enhanced to $2.5 million due to the nature of the crime (harboring), the number of workers involved (100 or more), and the relative size of the company.

Lessons Learned

While the case of Howard Industries seems quite extreme, all employers should take the following message to heart: failures in employment eligibility compliance can lead to a wide range of non-exclusive penalties, including civil fines, criminal indictments, asset forfeiture or even jail time. In addition, there are the less predictable costs such as negative publicity (just Google “Howard Industries” and “Raid” to see some very sad stories) as well as the considerable litigation expense. The case at hand also teaches us a lesson about the increasingly popular E-Verify program, which Howard Industries was using. Many employers have embraced E-Verify as a means not only to ensure they have a legal workforce, but also in an attempt to insulate themselves from penalties. In reality though, the E-Verify program does not provide a safe harbor against worksite enforcement, but instead, merely provides a rebuttable presumption that the employer has not violated immigration law if it in good faith obtains confirmation of an employee’s work authorization through E-Verify. Since the program cannot easily detect identity theft (which was rampant in this case), many of the queries presumably came back as work authorized. Regardless, the use of E-Verify could not and did not save Howard Industries. E-Verify should not be considered a substitute for solid I-9 compliance practices.

Next Steps

To avoid the Howard Industries predicament, employers should contact experienced immigration counsel in advance to conduct a full audit of their I-9 records, examine Social Security No-Match letters, IRS discrepancy notices to identify potential issues with the current workforce. Based on the advice of counsel, employers should then develop a comprehensive I-9 policy which covers the basic I-9 steps, practices to reasonably determine the authenticity of documents presented by employees to establish identity and work authorization, reverification of temporary work authorization, and tricky situations such as what to do if an employee does not produce documents by the third business day after hire. In addition, counsel can discuss the pros and cons of using the E-Verify system and help employers move into the 21st century with an intelligent electronic I-9 system. The bottom line: while the days of dramatic raids may be behind us, employers will ultimately be held accountable one way or another for complying with the immigration law. As ICE investigations continue to ramp up, (just last week 1000 NOI’s were released by ICE), now is the time to take a good look at your I-9 and E-Verify compliance program and institute all necessary changes to protect your organization, your reputation and your bank account.

Human Resources Today