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New York Restaurant begins 2014 with a Large Form I-9 Penalty

[Editor’s Note: Today’s blog is courtesy of Bruce E. Buchanan, an Attorney at the Nashville and Atlanta offices of Siskind Susser, P.C.]

The Department of Justice, Office of the Chief Administrative Hearing Officer (OCAHO) issued its first decision in 2014 – U.S. v. Two for Seven LLC d/b/a Black & Blue Restaurant, which tells the story of a small New York restaurant that was assessed an I-9 penalty of $88,700 by OCAHO. The good news is the restaurant was successful in reducing the penalties from $264,605 which Immigrations and Customs Enforcement (ICE) sought. In reaching its decision, OCAHO analyzed several interesting legal issues, one of which Black & Blue Restaurant won and two that it lost.

Black and Blue Restaurant, located in Rochester, New York, was charged with the failure to prepare 19 Form I-9s and the failure to ensure the completion of 269 Form I-9s.  In 2013, its Buffalo, New York location was assessed a penalty of $32,850 by OCAHO.

No Need to Prepare I-9 Forms for Certain Employees Working Three Days or Less

Black and Blue Restaurant successfully argued it was not required to have I-9 forms for three employees who worked three days or less because there was no evidence that any of the employees had actually been paid by the restaurant (implying that these were sudden terminations).  OCAHO normally finds no violation where an employee works three days or less because the employer has three business days to complete section 2 of the I-9 form.  The exception is when an employee is hired as “day labor” (in which case the entire I-9 must be completed on the first day).

Is an Employee Actually a Partner?  Why does it matter?

However, the restaurant lost on its argument that one individual was a partner; therefore, no I-9 form was required.  OCAHO had previously held in 2012 that an owner or partner who is in the position to control the company, including hiring and firing employees, is not required to complete an I-9 form.  The theory is one cannot be both an employer and an employee.

In this case, the restaurant called an individual a partner but provided no evidence to support his authority.  Thus, OCAHO found the individual was an employee of the restaurant and its failure to prepare an I-9 form was a violation of the law.

IRCA Prevails over Auditor’s Memorandum

The restaurant asserted that the ICE auditor had provided them with a memorandum which indicated that it only needed to produce I-9 forms for those employees employed after January 1, 2008 through April 7, 2010.  However, the Immigration Reform and Control Act of 1986 (IRCA) clearly states one must retain former employees’ I-9 forms for three years from the date of hire, or one year after the employee’s termination, whichever is later. The beginning date for the inspection was January 1, 2008.  Thus, the restaurant had a duty to produce the I-9 forms of former employees hired after January 1, 2005 or terminated after January 1, 2007.  Since the auditor had no authority to modify the law, OCAHO rejected the restaurant’s argument that it did not need to produce the I-9 forms of 45 employees terminated prior to January 1, 2008.  Rather, the restaurant had an obligation to retain those I-9 forms because all of its employees were hired from July 2005 forward.

Penalties Were Excessive in Light of Relevant Facts

OCAHO rejected ICE’s proposed penalty of $264,605 based on the fact that this would amount “to more than one half of the company’s income for 2011, an excessive fine for a relatively small business located in an economically depressed area of western New York.”  Instead, OCAHO assessed penalties of $500 per violation, rather than $935, for the failure to prepare Form I-9s for 19 employees.  Furthermore, it assessed a penalty of $300 each, instead of $935 each, for the 264 Form I-9s that it failed to properly complete Sections 1 and 2.  The reasoning for the higher penalties for the failure to prepare 19 Form I-9s is that those were more serious violations.

Lessons Learned

This decision is another example that OCAHO is much more willing to use a variety of factors to assess penalties than ICE, which calls for a per-violation fine of between $110 (for employers having less than 10% violations) to $935 (for employers having 50% or greater violations) for a first-time offense.  Thus, through litigation, an employer can obtain a much more favorable result, especially if it is a small business with limited financial resources or is a business which is losing money on a regular basis.

Additionally, it is important for employers to assess whether ICE correctly determined which employees’ I-9 forms were required to be retained and produced pursuant to the Notice of Inspection (NOI).  Finally, this decision is consistent with the trend in 2013, where approximately 50% of the cases litigated were in the hospitality industry.

About the Author

Bruce E. Buchanan is an Attorney at the Nashville and Atlanta Offices of Siskind Susser, P.C. He represents individuals and employers in all aspects of immigration law, with an emphasis on employer immigration compliance, as well as employers in employment/labor law matters. He is Past-Chair of the Tennessee Bar Association’s Immigration Law Section from 2011 to 2012 and has been the editor of the TBA’s Immigration Law Section Newsletter and the TBA’s Labor and Employment Law Section Newsletter since 2009. Mr. Buchanan also serves on the Board of Directors for the Nashville International Center for Empowerment (NICE) and the United Cerebral Palsy of Middle Tennessee and Middle Tennessee Seminole Club. He is an associate member of the Mid-Tennessee Chapter of the Associated Builders & Contractors (ABC).

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