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Staffing Company Ordered to Pay $1.5M for Wide Array of I-9 Paperwork Violations

There are a lot of things that can go wrong when completing the Form I-9, which is why HR reps often refers to it as the most complicated two-page form in America. Auditors will typically find inaccurate information, under-documentation, over-documentation, or simply blown deadlines when reviewing an employer’s I-9s for compliance.

And the I-9 audit process itself can be fraught with problems, due in large part to the crisis of time in responding to a sudden demand for I-9s and other documents within 3 short days.

But it’s not often that we hear about a case where everything goes wrong all at once in such a spectacular fashion – a veritable “Murphy’s Law” (I-9 edition), as was illustrated by the recently published I-9 penalty case against a staffing company that ended up with a whopping $1.5M fine.

This latest I-9 penalty case highlights the real dangers lurking in employers’ cabinets (and boxes) and serves as a wake-up call to all those organizations who have been putting off their I-9 cleanup projects.

In that regard, I’m including 3 takeaways at the end of this article to help any HR rep (or other compliance professional) manage their own I-9 challenges. But first, let’s take a closer look at this particular audit case.

The ICE Audit and Fine

At the onset, it’s important to note that this blog is based on court decisions (summary judgment and final order) published in connection with U.S. v. R&SL Inc., d/b/a Total Employment and Management (TEAM), a case argued before the DOJ’s Office of the Chief Administrative Hearing Officer (OCAHO). The company involved in the audit may not entirely agree with the facts presented or the outcome of the case, and so I wouldn’t necessarily draw any conclusions about the company or the alleged violations.

Keeping that in mind, here’s what we know. On August 7, 2019, Immigration and Customs Enforcement (ICE) filed a complaint against the staffing company, alleging four counts of I-9 related violations in connection with an audit that occurred in September 2016. The violations, which were later amended by ICE for various reasons, can be summarized as follows:

  1. Knowing hire of 1 employee who received an E-Verify TNC
  2. Failure to turn over I-9s for 513 employees as part of the I-9 inspection
  3. Late completion of 213 I-9s
  4. Failure to ensure proper completion of 1,011 I-9s

In total, ICE sought $2,691,518.15 in penalties for violations involving 1,853 employees.

Given the number of interesting (and informative) I-9 issues raised in this case, I’m going to briefly touch upon each one, exploring the specific ICE allegation, the company’s argument, and how the court ultimately decided.

Issue #1: Knowing hire violation based on E-Verify TNC inaction

As part of the I-9 investigation, ICE determined that one of the company’s employees was not authorized to work. How did ICE know? Among other things, the social security number he provided was issued prior to his own date of birth. And it was apparently assigned to another person. Meanwhile, ICE also discovered that the company had received an E-Verify Tentative Nonconfirmation (TNC) and had not taken any steps to resolve the mismatch. Accordingly, ICE charged the company with a “knowing hire” violation, which calls for a much higher penalty.

In defense, the company argued that ICE failed to establish that they had knowingly hired or continued to employ the individual, correctly pointing out that a TNC is not constructive notice that an individual is unauthorized to work in the United States. The company also argued that the number on the employee’s I-9 matched the number on the social security card – showing that they had properly completed the Form I-9 verification process.

The court agreed with the staffing company, noting that a social security mismatch alone is not evidence that an employee is unauthorized to work in the United States. Under the E-Verify Memorandum of Understanding (MOU) and program rules, an employer must allow employees to contest the finding, and can only terminate once a Final Nonconfirmation (FNC) is received. While it appears the company did not follow through with the TNC process, the court declined to hold them responsible in this instance. Score 1 for the company.

Issue 2: Three Large Boxes of Uncertainty

As many HR managers are keenly aware, I-9 forms (completed on paper) tend to be scattered across an organization, usually residing in the city/state where the employee was hired. But when ICE comes knocking at the door, the employer must produce all applicable I-9s within 3 business days – which is typically bad news for the employer’s HR rep.

Or in this case, the owner of the company who had to drive to various offices in Washington and Oregon to produce the roughly 4,000 I-9s subject to inspection. Given the tight deadline, the company did not have time to make copies of the I-9s before turning them over to ICE. And to make matters even more interesting, the ICE representative provided the company with a very basic receipt for the I-9s that simply stated “3 large boxes of original Forms I-9” without indicating exactly which I-9s/employees had been provided.

Which later became a huge problem when ICE conducted its review and discovered over 500 missing I-9s. The company argued that its payroll manager had painstakingly reviewed all I-9 records prior to shipping them to ICE, and that the records were in fact present at the time of delivery. Meanwhile ICE submitted evidence showing its chain of custody of the I-9s and argued that the I-9s at issue had never been sent by the company at all.

But ultimately, the court ruled in favor of the staffing company, primarily because ICE (as the “complaining” party) ultimately bears the burden of proving by a preponderance of the evidence that the company is liable for committing an I-9 violation. And as described above, the court essentially found the arguments to be equally compelling (a “draw” if you will), which meant that ICE lost this round as well.

Issue 3: Late I-9s

According to the record, the ICE auditor reviewed the company’s payroll documents and quarterly reports to match the employees’ start dates with I-9 form preparation dates. As a result of this analysis, ICE determined that in 213 instances, the company did not complete an I-9 form within one day (section 1), or within three days (section 2).

The company argued that as a staffing agency determining the true “hire date” can be difficult because there are typically two different dates at play: (1) the date when an employee accepts an offer to be staffed and is entered into the assignment pool (earlier date); and (2) the date an employee is actually assigned to a job (later date).

While the court appreciated this challenge, it nevertheless pointed out that the payroll records and quarterly reports clearly resolved any issue as to whether the I-9s were timely completed, since both showed that the employees started work and received wages (the later date) more than 3 days before section 2 was completed.

For each of the 213 violations, the company was ordered to pay $731.50 for a total of $155,809.50 for this count alone.

Issue 4: Various I-9 violations, including backdating

Count 4 includes a smorgasbord of errors on over 1,000 I-9s, including records that had a missing or blank I-9 page, no signatures, no attestation checkmarks, missed reverifications, incomplete documents, partial or missing expiration dates, and even an impermissible Signature Stamp in Section 2. ICE considered each one of these to be a substantive violation, and the court ultimately agreed.

But ICE did not fare so well with a variety of other so-called substantive violations (nitpicking really) which the court ultimately threw out. These included things like failure to include the state or county in the issuing authority for a List B or C document, incomplete document description or issuing authority, unrecognized Issuing Authority abbreviation, use of a “Job Corps ID” issued by the US Department of Labor as a List B document, and even a situation where the employees signed in the wrong spot.

In each of the instances above, the court ruled that the violation (if any) should not be considered a substantive error for which the employer should be fined. While this was ultimately good news for this particular staffing company, it illustrates a big problem for employers in future audits – namely, ICE’s propensity to include seemingly innocent mistakes (or anomalies) as substantive violations in their Notices of Intent to Fine.

Improper Backdating to Conceal I-9 Timeliness Violations

Within count 4, the court also discussed the issue of backdating – specifically, the practice of backdating one’s signature on the Form I-9 so that it appears the verification (or other required step) occurred at an earlier time.

ICE provided I-9s and payroll information showing that certain employer representatives were hired after the date of their section 2 signatures on the I-9s at issue. Based on that evidence, the court concluded they could not have signed section 2 of these I-9s on the dates indicated because they did not actually work for the company at that time.

ICE also alleged that one particular employee backdated a substantial number of I-9s (178) based on evidence that she used her married name on forms that were signed/dated before she officially changed her name (as reflected by company records).

The court was noticeably perturbed by these allegations, remarking that a company’s decision to backdate essentially subverts the whole purpose of the Section 2 I-9 verification process. The court also questioned whether the backdating revealed a complete fabrication by the company – suggesting, perhaps, that no one had ever reviewed documents at all.

How the penalties were assessed

As with many contested I-9 cases, the court discussed the standards for evaluating and reviewing the I-9 penalties, with the primary focus being to set a meaningful fine to promote future compliance without being unduly punitive. In addition to the mandated statutory factors, the court may also consider other factors raised by the company, including its ability to pay the fine and other matters of equity and fairness.

In this regard, the staffing company proffered two arguments: (1) they had to spend over $100,000 in legal fees in order secure a hearing before the court and (2) they cannot afford the penalty, due to cash flow issues.

But ultimately, the court was unmoved by these arguments, finding that the company’s gross receipts and gross profits had increased over time, and that they had continued to expand their operations during the pendency of the case.

In the end, considering all of the evidence and arguments presented, the court imposed the highest penalty amount for the 178 backdated forms, charging $1,457.30 per violation. Next, the court assessed $1,100 per violation for the 1011 failures to properly complete the I-9 form. And last but not least, the late I-9s received the lowest fine at $713.50 per violation.

Total tally for the above: $1,527,308.90.

Key Takeaways for all Employers

As many HR and compliance managers are painfully aware, the Form I-9 process is all about ensuring compliance – not only for new hires moving forward, but also for your existing employee population as well. Although the case at hand turned out to be costly for this particular staffing company, employers can still learn some valuable lessons to help them prepare for the increasingly likely possibility of an I-9 inspection.

(1) Three days is simply not enough time to gather your I-9s for an audit

Form I-9 files, much like car keys, glasses, and wallets, have a way of eluding us – often hiding in desk drawers, personnel folders, or off-site locations. But the law surrounding the production of I-9s is very clear (and in practice, often unforgiving). Absent an extension of time (which is often not provided), employers must be able to turn over I-9s to the government within 3 business days. Failure to do so can be costly, since late-produced I-9s are often treated the same as if you never had completed the I-9 at all.

The best way to mitigate this risk is to consolidate your I-9s now, ideally by scanning and converting them into a secure electronic I-9 solution. This process (often referred to as I-9 data migration) will enable you to quickly produce I-9s in the event of an audit and implement a purging routine to eliminate I-9s for terminated employees (based on the 3 year/1 year retention requirement).

(2) Take the time now to uncover potential I-9 issues and correct them

In the case at hand, ICE charged the staffing company with over a thousand violations based on errors and omissions which could have been discovered and addressed prior to the audit.  While many of these errors were deemed substantive in nature, ICE will often show leniency when an employer has taken steps to remediate the I-9s (either by fixing the existing record or creating a brand-new I-9 where applicable). In addition, since most I-9 failures are, by their nature, “continuing violations” until cured, it’s important to fix them as soon as possible in order to take advantage of the general 5-year statute of limitations.

While examining (and fixing) all of your old I-9s may sound daunting, you can take advantage of a well-designed electronic I-9 system that offers data migration (described above) along with detailed error-checking, reporting, and automated remediation. Fixing I-9 mistakes can be complicated (especially since the rules are unclear) – which is why a systemized approach can ensure that you’re applying your correction techniques consistently (and in compliance with your legal counsel’s instructions).

(3) Good faith is a good strategy

The silver lining to many Form I-9 audit problems is good faith – a multi-purpose concept which often comes into play when assessing I-9 penalties and fines. In the case at hand, the court had very little sympathy for the employer due to the allegations of backdating a substantial number of I-9s.

While it may be tempting to sweep past mistakes (or omissions) under the proverbial rug, employers are always better served to address the error head-on and focus on efforts they are taking to improve their compliance in the future.

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Do you have questions on today’s article? Or want to know how an electronic I-9 system with integrated E-Verify functionality can help? Please contact us for more information.


About John Fay

John Fay is an immigration attorney and technologist with a deep applied knowledge of I-9 compliance and E-Verify rules and procedures. During his career, John has advised human resource managers and executives on a wide variety of corporate immigration compliance issues, including the implementation of electronic I-9 systems. In his current role, John serves as President at the LawLogix division of Hyland Software, Inc., where he oversees all aspects of the division’s operations and provides strategic leadership and direction in the development and support of Form I-9, E-Verify, and immigration case management software solutions.

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