United States: Immigration Law Enforcement Developments: Contractor Liability For Undocumented Subcontractor Employees

Estimate: 12 million illegal immigrants in America making up about 5 % of the workforce.

According to the Pew Hispanic Center, illegal immigrants constitute:

Some estimates conclude that unauthorized workers comprise an estimated 22% to 36% of the construction industry workforce.

Early 2006: Immigration and Customs Enforcement (Division of Department of Homeland Security) announced that it was targeting employers of illegal immigrants and that it would use criminal prosecution and forfeiture of assets to do so. DHS Chief Michael Chertoff has vowed to use "every authority" within DHS’s power to "shut down businesses that exploit an illegal workforce to turn a profit."

April 11, 2006: In the Northern District of Ohio a federal indictment was unsealed charging two temporary employment agencies and nine individuals with hiring and harboring illegal aliens, mail and wire fraud, and laundering approximately $5.3 million. Suspects were arrested in Pennsylvania, New York and Ohio. The indictment alleges that HAV Connect Inc., and TN Job Services Inc. provided hundreds of illegal alien employees to unwitting companies in Ohio by falsely representing that they were legal.

April 19, 2006: ICE officials arrest 7 current and former managers as well as 1,100 illegal workers employed by IFCO Systems North America Inc., the largest pallet service company in the United States. The arrests followed a two year long investigation which determined that more than half of IFCO’s 5,800 employees during 2005 had invalid or mismatched Social Security numbers. The arrests occurred at more than 40 IFCO locations nationwide pursuant to criminal complaints filed in the Federal Court for the Northern District of New York charging them with harboring illegal aliens for financial gain. Two other IFCO employees were arrested for criminal document fraud violations.

May 2006: Fischer Homes, a leading builder of residential homes in Kentucky, Indiana and Ohio: News headlines reported that ICE arrested 4 construction supervisors and 76 foreign nationals at three of their Kentucky jobsites. All Fischer Homes construction supervisors were charged with criminal aiding abetting and harboring illegal immigrants for private financial gain. The investigation tied Fischer Homes directly to the subcontractor who hired and employed the illegal workers. The indictment alleged that the use of subcontractors was a ruse designed to buffer Fischer which, it was alleged, knew of the subcontractors’ illegal practices and assisted in coordinating those efforts. Charges against the supervisors were dismissed, without prejudice, in November 2006 due to the disappearance of a key witness, a subcontractor who supplied the illegal labor to the Fischer jobsites.

November 29: ICE arrests 32 workers in a Home Depot parking lot on their way to work for labor brokers utilized by Spectrum Interiors, a drywall subcontractor engaged throughout central and southern states.

December 1: ICE announced that Stucco Design, Inc. and its owner agreed to forfeit $1.8 million representing the proceeds of illegal activity and 18 months imprisonment after which he will be deported. Stucco Design, an Indiana firm, performed stucco related services in at least seven mid-west states. According to the charges, the company was able to undercut bids and win work from general contractors by taking advantage of lower labor costs through the use of illegal labor. It was alleged that the owner paid for hotel rooms and transported the illegal workers throughout seven states, failed to withhold federal or state income tax, social security tax and did not pay the workers overtime. The investigation began after the North Dakota Highway Patrol stopped a truck for a traffic violation in October 2005. All four illegal aliens were employees of Stucco Design and had been working at a construction site for Wal-Mart. They told authorities that they were not required to show any documents to establish their eligibility to work in the U.S. and that their employer knew they were illegal.

December 12, 2006: Swift Foods: ICE agents arrested over 1,200 employees in 6 states. Swift voluntarily participated in Basic Pilot (discussed below). This constituted the largest sweep ever against one firm. According to the Washington Post, Swift’s president and chief executive, Sam Rovit, criticized the arrests, saying the company has "played by the rules and relied in good faith" on the Basic Pilot program since 1997.

Smithfield Packing Company: Seemingly as a result of its participation in IMAGE (discussed below), the company discovered that approximately 550 of its workers had mismatched social security numbers. The company advised employees they had 14 days to correct the discrepancies which led to a walkout in November 2006. In January 2007, 21 workers at the plant were arrested after the government scrutinized forms submitted by the Company. According to the Washington Post, over 500 workers in the plant’s workforce of 5,000 are facing termination because of data obtained through Basic Pilot. A company spokesperson said that its participation was "a business decision" resulting from an implied threat of raiding by ICE. "We felt that by going this way, there would be less of an effect."

March 2007: ICE arrested illegal aliens working on construction projects in four U.S. Southern States. Many workers had been employed by Tarrasco Steel. Jose Gonzalez, owner, was accused of falsifying and altering information contained on the 1-9 forms.

March 2007: Nine business locations of Jones Industrial Network in the Baltimore, Maryland area were the subject of a criminal investigation. The investigation was commenced when ICE was tipped off that a temporary employment agency was providing illegal aliens to work at critical infrastructure sites.

This Act gave amnesty to 2.7 million aliens living in the U.S. illegally.

The Act made it illegal, for the first time, to knowingly hire undocumented workers.

A. Definition of Knowing:

Includes not only actual knowledge but also knowledge "which may be fairly inferred through notice of certain facts and circumstances which would lead a person, through the exercise of reasonable care, to know about a certain condition."  Such knowledge can be inferred where the employer "(i) fails to complete or improperly completes the I-9; (ii) has information available to it that would indicate that the alien is not authorized to work . . . ; or (iii) acts with reckless and wanton disregard for the legal consequences of permitting another individual to introduce an unauthorized alien into its work force or to act on its behalf." Id. 8 C.F.R. 274a.1(1)(1).¹

What constitutes constructive knowledge is a question of facts and circumstances:

The person or entity must attest, under penalty of perjury and on a form designated or established by the Attorney General by regulation, that it has verified that the individual is not an unauthorized alien by examining either an appropriate document establishing both employment authorization and identity ("List A documents"); or a combination of documents establishing identity and work authorization ("List B and List C documents"). (See I-9 Form and Lists of Acceptable Documents Attached as #1).²

Employers are not required to be document experts. In reviewing the genuineness of the documents presented by employees, employers are held to a reasonableness standard. In other words, if an employer completes the I-9 verification process during which the employee produces facially genuine documentation, the employer has complied with the law even if the employee is in fact not authorized to work in the United States. Given document reproduction technology and the frequency of identity theft, it is relatively easy for an employee to defraud an employer. As a result, an employer may be in full compliance with the law even though it may in fact employ numerous illegal workers.

In enacting the law, Congress recognized that the law might discourage employers from hiring certain eligible workers if they looked or sounded foreign. Therefore, the law and other anti-discrimination laws prohibit unequal treatment on the basis of citizenship, national origin, accent, language, ethnicity or immigration status.

If the documents provided by the prospective employee reasonably appear on their face to be genuine, and to relate to the person presenting them, then the documents must be accepted and the employee must be hired (assuming they meet all other applicable qualifications). To do otherwise could be an unfair immigration-related employment practice rendering the employer liable for backpay, reinstatement, fines and penalties.

Generally, an employer (or a general contractor) does not have an obligation to review, supervise or complete the I-9 process for the employees of its independent contractors or subcontractors nor are general contractors; nor are they liable for IRCA violations committed by independent contractors or subcontractors.

However, if an employer knowingly uses a contractor or independent contractor for the purpose of retaining the services of an illegal alien, the employer is deemed to have illegally "hired" the alien as though he or she were an employee. 8 U.S.C. § 1324a (4); 8 C.F.R. 274a.5. C.F.R. 274a.1(g).

Employer: A person or entity, including an agent or anyone acting directly or indirectly in the interest thereof, who engages the services or labor of an employee to be performed in the United States for wages or other remuneration. This has been interpreted to include personal liability for corporate officers.

State Legislatures around the country are considering laws to combat illegal immigration. Since 2006 at least ten states have introduced legislation specifically geared toward unauthorized employment and model their laws after the federal Immigration Reform and Control Act ("IRCA"). Two of the ten states, Georgia and Colorado have enacted such legislation related to verification of employment eligibility and impose specific penalties and requirements on employers.

Colorado became the first state to impose employment verification obligations on all employers. In addition to compliance with the I-9 federal regulations the Colorado Law, 8-17.5-101 and 102 C.R.S., effective January 1, 2007, requires the employer to follow the federal I-9 rules, to keep copies of employment authorization documents and requires the employer to sign a special "affirmation" confirming inspection of the legal work status of new employees within twenty (20) days of hiring,. Another Colorado statute A.B. 1343 requires public contractors to enroll in the Basic Pilot Program. The Georgia Security and Immigration Compliance Act, SB529, also requires public contractors and subcontractors to participate in the Basic Pilot Program to verify the status of new hires. The law phases in the compliance requirements over three (3) years depending on the number of employees. Part of the rules to be implemented to enforce the law includes a state work authorization program.

Such state legislation may face constitutional challenge since immigration enforcement has always been thought to be the province of the federal government.

A number of proposals to create a mandatory employment eligibility verification system have been introduced in Congress and is widely viewed as an essential element of immigration enforcement measures to be included in any comprehensive immigration reform proposal. Current belief is that tighter worksite controls will result in a decrease of unauthorized employment in the United States.

The keystone of all of the proposals introduced is mandatory participation in an employment verification system and increased reliance on the employer to vet illegal workers. Associated with the new measures are increased penalties and sanctions for non-compliance, including the inclusion of a new element of reckless disregard or constructive knowledge to the intent required to hold an employer liable for its own or its subcontractor’s violations.

Pursuant to 18 USC s.1962(c) it is illegal "for any person employed by or associated with any enterprise engaged in, or the activities which affect, interstate or foreign commerce, to conduct, or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity…."

A pattern of racketeering activity for the purposes of a RICO act requires at least two acts of racketeering activity. An act of racketeering is commonly referred to as a predicate act. A pattern of racketeering activity is shown when a racketeer commits at least two distinct but related predicate acts.

In 1996, Congress added violations of the Immigration and Nationality Act, to RICO’s list of predicate offenses. According to 18 USCs1961(1)(F) "racketeering activity" means any act which is indictable under the Immigration and Nationality Act, section 274 (relating to bringing in and harboring certain aliens)….if the act indictable under such section of such Act was committed for the purpose of financial gain." It also includes other immigration related activities and activities that may go hand in hand with immigration and labor law violations such as fraud, forgery, money laundering etc.

Persons injured by racketeering activity can recover triple damages, fines and imprisonment.

RICO has been characterized as "an unusually potent weapon--the litigation equivalent of a thermonuclear device." Miranda v. Ponce Federal Bank, 948 F.2d 41, 44 (1^st Cir. 1991)

Numerous RICO cases have been filed recently. At the heart of the cases are the allegations that the defendants engaged in a criminal enterprise, the common goal of which was to systematically violate immigration laws, federal and state labor and employment laws resulting in illegal profit at the expense of undocumented workers. Documented workers claim they have suffered artificially low wages, benefits and other terms and conditions of employment brought on by their employers’ exploitation of undocumented workers.

Not a RICO case, but illustrates ICE efforts to hold companies responsible for their subcontractor’s violations.

Beginning in approximately 1998, ICE targeted cleaning contractors that were hiring unauthorized workers from Eastern Europe. The investigation culminated on October 23, 2003 with a series of enforcement actions at some 60 Wal-Mart stores in 21 states. In these actions, ICE agents arrested 245 illegal aliens employed by cleaning contractors and put the individuals into deportation proceedings.

Immediately following these enforcement actions, officials at Wal-Mart contacted federal authorities and pledged cooperation in the investigation into the employment practices of its cleaning contractors. Discussions led to the simultaneous filing of a complaint (citing Wal-Mart with violation of Immigration laws) a stipulation and consent decree on March 14, 2005 that:

Within days after Wal-Mart’s settlement with the United States, individual employees commenced a class action RICO complaint. The plaintiffs alleged that janitors worked more than 60 hours per week, seven days per week, with no overtime pay, vacation time or minimum wage. They further accused Wal-Mart of locking them in overnight, and of sometimes not paying them at all and otherwise exploiting them because of their status as illegal aliens. Plaintiffs intended to rely upon two letters to Wal-Mart which plaintiffs argued put Wal-Mart on notice of its contractors’ illegal immigration practices.

The District Court, Judge Greenway held that: (1) RICO claim could not be based on allegations that retailer and its contractors both engaged in the racketeering activity, and also constituted the RICO enterprise; (2) allegations that retailer locked its stores' doors at night and required workers to find a manager with a key in order to exit were insufficient to state a claim for involuntary servitude, as predicate acts; and (3) allegations that, as a result of retailer's predicate immigration violations, retailer obtained plaintiffs’ janitorial labor at rates below legally mandated levels were insufficient to allege proximate cause of plaintiff’s damages.

RICO Claims dismissed.

Nation’s second largest carpet manufacturer known through its affiliates Alexander, Bigelow and Karistan. Employs 30,000 people.

Current or former hourly employees brought class action alleging that employer knowingly conspired with third party employment agencies and recruiters to employ and harbor illegal workers which allowed it to reduce labor costs by depressing wages for its legal hourly employees and discourage worker's compensation claims, in violation of federal and state RICO statutes, and that employer was unjustly enriched by the lower wages it paid, and by reduced number of workers compensation claims it paid. The United States District Court for the Northern District of Georgia, 314 F. Supp. 1333 denied employer’s motion to dismiss RICO claims and claim for unjust enrichment for paying legal workers lower wages because of illegal workers defendant employed, but dismissed unjust enrichment claim based on reduced number of worker's compensation claims defendant was forced to pay. Plaintiffs appealed.

The Court of Appeals for the 11^th Cir. 411 F.3d 1252 affirmed in part and reversed in part. The Supreme Court initially granted certiorari, but thereafter dismissed writ and remanded.

The Court of Appeals, 11^th Cir. held that (1) complaint sufficiently alleged pattern of racketeering activity; (2) complaint sufficiently alleged conduct of enterprise;
(3) complaint alleged sufficient injury to plaintiffs' business interest; (4) complaint sufficiently alleged proximate cause; (5) plaintiffs had standing under federal and Georgia RICO; (6) corporation may be sued under Georgia's RICO act; 7) unjust enrichment claims dismissed.

Allegations:

• Mohawk employees and agents for their employment agencies traveled to the U.S. border to recruit undocumented aliens that recently entered the U.S. in violation of federal law and transported them to North Georgia to work at Mohawk.

• Mohawk made incentive payments to employees and other recruiters for locating workers that Mohawk employs and harbors.

• Various recruiters, including Mohawk employees, have provided housing to these illegal workers upon their arrival in North Georgia and have helped them find illegal employment with Mohawk.

• Mohawk knowingly or recklessly accepts fraudulent documentation form these illegal aliens.

• Therefore, Mohawk has reduced the number of legal workers it employs which permits it to depress the wages it pays its legal hourly workers and to otherwise reduce labor costs since illegal workers are less likely to file Workers Compensation claims.

Plaintiff, Canyon County sued multiple defendants RICO seeking to recover County allegedly had suffered as a direct result of defendants’ knowing employment of large numbers of illegal immigrants. The District Court dismissed the claims because the language in 1964 of RICO bars a governmental entity from suing for the "costs of municipal services." Accordingly, the Court granted Defendant’s Motion to Dismiss because Canyon County could not advance any argument, case, or statutory interpretation to distinguish or challenge the law that they lacked standing to pursue a RICO case.

Further, the Court reasoned that because Canyon County’s RICO action was predicated on recovery for the "costs of municipal services," it could not cure this basic flaw in its pleading and therefore precluded any further amendments to its Amended Complaint.

Since the Court was dismissing all of the federal claims before it, it declined to exercise jurisdiction or comment on the state law claims.

Former employees at poultry processing plant sued employer/plant owner, alleging use of illegal immigrants in order to depress employees' wages, and asserting claim under Racketeer Influenced and Corrupt Organizations Act (RICO). The United States District Court for the Eastern District of Tennessee, Judge Edgar, 214 F. Supp.2d 840 granted employer's motion to dismiss. Employees appealed.

The Court of Appeals for the 6^th Cir reversed and remanded the decision to the District Court of Tennessee holding that: (1) under the Garmon doctrine, National Labor Relations Act (NLRA) did not "preempt" wage-related RICO claims; (2) employees alleged sufficiently direct injury and advanced sufficiently plausible theory of damages to confer standing under RICO's civil suit provision, for purposes of motion to dismiss; (3) proximate cause showing was also sufficient at that stage in proceedings; and (4) employer had not properly raised issues of whether union was indispensable party to action, or the sole party that could pursue RICO claims.

Trial scheduled to begin early March, 2007.

Tyson joined Basic Pilot in 1998.

The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 mandated that the Social Security Administration and Immigration and Nationalization Service (Now U.S. Citizenship and Immigration Services ("USCIS") part of the Department of Homeland Security) establish pilot programs to verify the employment eligibility of new hires. The result is Basic Pilot.

Only about 10,000 out of 8 million employers participate in the system.

To participate, the employer must sign a Memorandum of Understanding with SSA and USCIS and complete a training course.

This involves verification checks of the SSA and DHS databases using a web based access method.

Designated Agents can conduct verification process for other employers. Both Designated Agent and Employer must sign an MOU.

Post a notice that Basic Pilot is being used and a message regarding Immigration-Related Unfair Employment Practices from the Department of Justice.

Fill out the required I-9.

Within 3 days of hire, log onto DHS website and enter name, DOB, and social security number. Choose from a dropdown menu the documents presented by employee. Information is transmitted to SSA. If the SSN and the name match in SSA records, the employer receives a message that the worker is authorized and the process is finished.

If the SSN and name match but the SSA cannot verify that the employee is authorized (i.e., SSN issued "not for employment purposes"), DHS has up to three days to verify work authorization. If DHS finds a match, the process is finished. If neither SSA nor DHS can verify the identity and work authorization of an individual, the employer receives a "tentative non-confirmation." The employer must notify the employee of the tentative non-confirmation who has 8 working days to challenge the finding. Employers are prohibited from taking adverse action based upon a tentative non-confirmation. Employers should terminate when: employees indicate they do not wish to contest the finding; when employees are found not to be work authorized; when employees receive final non-confirmation findings.

High rates of erroneous tentative non-confirmation due to erroneous or incomplete data entry. (Estimated 20% i.e., received negative response when person was in fact authorized to work.)

Inability to electronically conduct the verification resulting in weeks of delay while hard copy files are reviewed by SSA or DHS. About 15% of queries required secondary "manual" verification.

Estimated that 1 out of 8 submissions are never resolved.

Receipt of tentative non-confirmation may constitute "knowledge" of illegal status with no effective means to determine actual status and with potential liability for mistakenly terminating an authorized worker.

Cannot prevent identity fraud. If an unauthorized worker presents valid documentation that belongs to another person authorized to work, Basic Pilot would find the worker to be authorized. If employee presents counterfeit documents that contain valid information and which appear authentic, program would verify that the person is work authorized.

Program information may be shared with ICE which will lead to prosecution of employees and participating employers.

In July of 2006, ICE announced a joint government-business initiative designed to build cooperative relationships that strengthen overall hiring practices thus assisting in restoring integrity to the immigration system of the U.S. Participants must sign the ICE Mutual Agreement between Government and Employers ("IMAGE") which requires participants to adhere to the following Best Employment Practices:

1. Provide an executive summary outlining the process elements of the company’s current hiring practices;
2. Submit to an I-9 audit by ICE;
3. Conduct comprehensive self assessment of employment practices using IMAE guidelines and submit employer Self-assessment Questionnaire to ICE;
4. Use Basic Pilot;
5. Adhere to Employer Recommendations for Enhanced Compliance developed by ICE;
6. Establish annual training program on I-9 compliance and on how to detect the fraudulent use of documents in the I-9 process and cooperate with ICE to make employees available for ICE training sessions as deemed appropriate;
7. I-9 and Basic Pilot verification conducted only by trained individuals with a "secondary" review to minimize the potential for a single individual to subvert the process;
8. Arrange for annual I-9 audits by external auditing firm or trained inside individual;
9. Establish self-reporting procedure for reporting to ICE any violations or deficiencies;
10. Ensure and document definitive resolution of "no-match" letters according to SSA and DHS guidelines;
11. Establish tip line and protocol for responding to tips;
12. Establish safeguards against discrimination;
13. Communicate IMAGE guidelines to other companies in the hiring network such as employment services, contractors and subcontractors. Work toward incorporating IMAGE guidelines into relationships and agreements with these companies and establish a protocol for assessing the adherence to the Best Employment Practices guidelines by the company’s contractors and subcontractors.
14. Submit annual report to ICE to track results and assess the effect of participation in the program. Report to include" a) identification of individuals removed from employment pursuant to the program; b) instances and resolution of SSA no-match letters; c) major organizational changes; and d) identification of any vulnerabilities that are found to be exploited by unscrupulous employees and unauthorized aliens. When appropriate, ICE encourages timely disclosures in advance of the annual report. Discovery or allegations of substantive criminal violations must be immediately reported to ICE in accordance with Best Employment Practices 5 above.

Participation does not preclude criminal or civil enforcement actions should information be developed and verified that they are engaged in illegal practices.

No data is available regarding number of participating employers. In interviews, ICE spokespeople have said that dozens have taken steps to participate.

Obtain subcontractor disclosure of any prior alleged violations of immigration, labor or employment laws during prequalification process.

Create contractual obligations:

Train staff to refrain from using any suspected violators and to respond appropriately if placed "on notice" of possible violations.

Create response plan in the event of: 1) receiving knowledge of suspected violations; 2) law enforcement raids; 3) media attention; 4) union activity.

Post notices requiring compliance with contact information to report suspected violations.

Consider restricting use of labor brokers or sub-subcontracting.

Consider requiring the use of Basic Pilot or IMAGE.

• Arrests of undocumented workers followed by subpoenas to subcontractors/labor brokers and general contractors followed by prosecution against these entities, followed by civil damage claims by individual plaintiffs

• Competitor lawsuits alleging unfair trade practices or RICO

• State and local governments enacting immigration laws or requiring employers to use Basic Pilot or Image

• Congressional initiatives to require use of IMAGE or Basic Pilot

• Increased law enforcement including criminal prosecutions and forfeiture of illegally obtained profits, emphasizing charging company managers with violations.

• Targeting employers who receive large numbers of Social Security No-Match letters.

• Increased cooperation from local law enforcement.

• Increased attempts to enforce general contractor liability for violations by subcontractor.

Footnotes

^{1. A proposed rule change adds two more examples of situations that may lead to a finding that an employer had such constructive knowledge: 1) receipt of a "no match" letter from SSA; 2) written notice from DHS that the immigration status or employment authorization documentation presented or referenced by the employee in completing Form I-9 was not assigned to the employee according to DHS records. The proposed rule also states that whether DHS will find constructive knowledge in particular cases of the kind described in the existing and proposed regulation will depend on the "totality of relevant circumstances." It also provides a "safe harbor" for employers who respond to "no match" letters with a re-verification process described in the proposed regulation.}

2. Effective September 30, 1997 List A documents 2, 3, 8 and 9 were removed from the list although USCIS has yet to update the form.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.