Two Companies Ordered to Pay Penalties for Missing I-9s

Mary listened intently to the attorney in the front of the room discussing I-9s. It was a familiar story: I-9s need to be completed for all employees after such and such a date; everybody makes mistakes on them; and it’s best to correct them as soon as possible. She had decided earlier in the day to skip this particular presentation – not because she wasn’t interested. But rather, she didn’t want to ruin what had been a perfectly nice day at the conference. But now, here she was, learning about all of the hidden disasters lurking in her company’s I-9 closet. And she slowly realized the scariest one of all is one that she can’t even see: all of those missing I-9s!

I’ve been on the road a lot recently, and the above teaser is actually a true account from one of my speaking gigs. The anonymous audience member (“Mary” in this blog) confided in me that she worried constantly about the state of her paper I-9s – there were just too many variables involved for an organization of her size to ensure they are done properly. Of particular concern were several rogue locations where I-9s were apparently an “optional” form, based on whim or happenstance. We talked about the usual remedies: enlist the help of experienced immigration attorneys, setup additional training, and move to a smart electronic I-9 system to prevent these issues from arising in the first place. But I sense that she needed more “ammo” in order to spearhead a company-wide change.

Fortunately, Mary is in luck – because the Office of the Chief Administrative Hearing Officer (OCAHO) recently published two precedent decisions where companies were ordered to pay penalties for missing I-9s. While the companies (and potential fines) in these two cases are much smaller than Mary’s, the lessons learned are ultimately the same: Immigration and Customs Enforcement (ICE) treats missing I-9s as the most serious of paperwork violations, and the court will adjust the fine only in cases where it’s out of proportion to the company’s resources. In other words: big companies beware!

Case #1: ICE Castles Daycare

We’ll begin with United States v. Ice Castles Daycare Too, Inc, which tells the story of a small daycare facility for children in El Paso, Texas which was formed in late 2000. Like many day care centers, Ice Castle Daycare experienced a fair amount of employee turnover – so much so that they had 74 employees during a 3-year time period (2006 through 2009). Each time an employee was hired, they would conduct a standard background check and examine ID and work authorization documents, occasionally retaining a copy for the file. What they failed to do during this time though was complete any I-9 forms!

After auditing the company in 2009, ICE served a Notice of Intent to Fine in the amount of $55,352 for the 74 missing I-9s. There were no instances of unauthorized employment or other charges.

Case #2: Pegasus Restaurant

United States v. Pegasus Restaurant, Inc. recounts the story of a small restaurant in Colorado, serving Mexican, American, and Greek food. Founded in 1984, Pegasus has approximately 55 employees and experiences a typical turnover rate for the restaurant industry (employing 134 individuals during the government’s 3-year investigative period). Like Ice Castles, Pegasus also failed to complete any I-9s during this period and, according to ICE’s investigation, employed 4 individuals who lacked work authorization (these individuals, however, had quit or been terminated).

Based on the facts above, ICE sought a total penalty against Pegasus in the amount of $131,554.50 ($981.75 for each of the 134 violations).

Question 1: Can the companies escape liability for missing I-9s?

This is perhaps the most sobering question of all – and the answer in both of these cases was a resounding “no.” While employers are afforded the possibility a “good faith” defense to I-9 compliance failures, this only applies to minor “technical or procedural violations” (and not against those errors which are substantive in nature). Therefore, right from the get-go, the companies were facing the inevitable fine.

Question 2: Were the fines assessed by ICE reasonable?

In both cases, Judge Thomas of OCAHO found that the fines were disproportionate, in light of the size and resources of the employers involved. This is very telling indeed as it illustrates how ICE will aggressively pursue the highest fine amount based on its own internal guidelines – the higher percentage of violations, the higher the fine. For this reason, employers with missing I-9s need to be especially concerned about the potential liability in those empty cabinets and boxes.

Question 3: How were the fines adjusted and why?

The fines for Ice Castle were adjusted from $55,352 ($748 per violation) to $18.500 ($250 per violation).

The fines for Pegasus were adjusted from $131,554.50 ($981.75 per violation) to $49,427 ($350 per paperwork violation and $981.75 for the 4 unauthorized workers).

The dominant factors in both cases appeared to be the size and nature of the business and its ability to pay the proposed ICE fine. Ice Castles was clearly a small business (even ICE admitted as such), but Judge Thomas went further in characterizing it as a facility with “declining enrollment, still struggling in an environment of declining sources of government assistance in an industry with a relatively high turnover rate for employees.” Judge Thomas also noted that the ICE fine was almost one hundred and fifty percent of the facility’s ordinary business income for 2009.

The Pegasus case reached a similar conclusion. Although the company had over 134 employees during a 3 year period and annual gross income in excess of $1 million, Judge Thomas pointed out that OCAHO case law has traditionally considered other factors as well – including the level of employee turnover and the relevant revenue standards for the employer’s business.  In addition, Judge Thomas reiterated that a penalty should be sufficiently meaningful to deter future violations without putting the company out of business.

Conclusion

Time and time again, case law has proven that missing I-9s are among the worst possible paperwork errors for employers today. ICE consistently considers them to be serious violations (demanding the highest possible fines allowed), and the court will typically lower the fines only in situations where the employer lacks appropriate resources or funds. And even in those cases, it’s hard to put a price tag on the time/money spent in fighting the violations and dealing with the negative press!

Bottom line: if you’re truly concerned about addressing I-9 issues, now is the time to make the change. While it may not be possible to undo every past mistake, you’re much more likely to significantly reduce liability if you take proactive steps now – long before ICE or OCAHO enters the picture.