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Employers Face Steep Penalties

Fines are going up, and courts are getting stricter regarding employment eligibility compliance. Employers who aren’t on the ball with their documentation and recordkeeping practices are at risk. Be sure to take particular note of a new version of Form I-9 that is now a requirement. 

If it’s not clear to employers that Uncle Sam means business regarding employment eligibility, they better start to take notice or risk potentially turning over hundreds of thousands of dollars to the federal government. Little by little, employers are becoming more aware of what’s needed for employment eligibility compliance, but the details are changing quickly, and the penalties are getting higher.

When it comes to the United States workforce, only U.S. citizens, noncitizen nations, lawful permanent residents or aliens authorized to work may receive remuneration for labor performed in the U.S. The Immigration Reform and Control Act (“IRCA”) of 1986 and other revisions to the Immigration and Nationality Act created substantive requirements, including timing, and established fines for an employer’s failure to comply. Mandated by the IRCA was Form I-9, officially the Employment Eligibility Verification Form, developed so that the government — through employers — could determine that every individual working in the United States is, in fact, legally authorized to work in the United States. In addition, the IRCA included specific prohibitions on employment discrimination based on citizenship, immigration status and national origin.

It is up to the employer to ensure each employee fills out Section 1 of the I-9 on or before the first day of work (but only after a job offer has been extended). The employer must then physically examine the documents the employee presents to support their authorization to work and complete Section 2 of the I-9, including signing the certification. Section 2 must be completed before the end of the third day of work. An employee can present combinations of an enumerated list of documents to show authorization to work, and an employer is not allowed to require any employee to show any specific type of document. The employer is responsible to do its best to ensure the presented documents are valid for that individual employee. Enrollment in E-Verify is not a substitute for these requirements — instead, it is simply one method for an employer to ensure the presented documents are valid. Employers are required to maintain I-9s for all current employees and for all terminated employees for the longer period of one year after termination or three years after hire.

Failure to follow these requirements can lead to steep penalties for employers. While many employers are aware penalties exist for hiring unauthorized workers, fewer are aware the government can also levy fines for mere paperwork errors — including failure to follow the timing requirements or a failure to use the correct version of the I-9. In addition, the government can assess increased fines for mitigating and aggravating factors, including the size of the business, good faith and the seriousness of the offense. As a result, base fines can be increased by up to 25 percent.

Needless to say, the fines can become excessive, and the heat on employers has only gotten hotter over the last few years. For example, in 2015, Hartmann Studios in Richmond, California was ordered to pay $605,250 for I-9 compliance violations found in more than 800 I-9s, including:

  • 797 that were missing Section 2 or on which it was unsigned;
  • eight forms for employees that could not be located; and
  • seven forms wherein the employee made an error in Section 1.

Notably, most of the $605,205 fine was not related to a finding that any employee was actually unauthorized to work; instead $564,205 was for paperwork violations alone.

In August 2016, the U.S. Department of Justice, the Department of Homeland Security and the Department of Labor together announced a doubling of civil fines for violations of Form I-9 requirements, which raised the ceiling for a single paperwork violation to a potential whopping $2,156. Under the increased fine schedule that went into effect in August 2016, the same paperwork violations Hartmann Studios faced would have exceeded $1 million.

Fast forward one year, and the U.S. 9th Circuit handed down a prominent ruling in DLS Precision Fab vs. ICE (U.S. Immigration and Customs Enforcement). ICE had audited DLS, a sheet metal manufacturer, and found paperwork errors on 489 employees’ I-9s, as well as 15 workers who were not authorized to work in the U.S. ICE assessed a fine of $495,250, which the administrative law judge (ALJ) later reduced to $305,050. Like Hartmann Studios, most of this fine was for paperwork violations. DLS argued that it should have the fines reduced because they had hired an HR Director who simply failed to appreciate the I-9 requirements and because they would have to file bankruptcy if the fine was imposed. The 9th Circuit denied any relief whatsoever. And, like Hartmann Studios, the fines in DLS were imposed under the old fine rubric, meaning they would have been double had they been imposed after August 2016.

Now may be an opportune time for employers to ensure that their I-9 processes and procedures are up-to-date. As of September 18, ICE is requiring employers use a new version of Form I-9. Further, because ICE can demand an inspection of all an employer’s I-9s with only three days of notice, a preventative audit is a great way to reduce legal risk and engage in remediation to reduce any potential fines and make your best case for the mitigating factor of good faith to be applied. The 9th Circuit has made it clear the courts are not inclined to cut employers any slack on the requirements, even if that means putting the company out of business.

Any company that wants to remain open needs to take stock of its documentation and recordkeeping practices. Now is not the time to be caught flat-footed, since there are an increasing number of government audits that can easily assess fines in the high six-figure range for employers who aren’t on the ball.

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Jen Cornell

Jen Cornell is an attorney with Nilan Johnson Lewis in Minneapolis. Her background in management gives her a unique perspective when it comes to employment law—that of her clients. Having held several leadership positions in her former career as a firefighter, she understands what it takes to manage and train employees and is accustomed to solving complex problems quickly and efficiently. Clients also appreciate Jen’s drive and determination and trust her to provide honest, thorough and creative advice to help them make the right decisions for their business.

Jen’s practice focuses on all areas of employment law, with an emphasis on highly sensitive internal investigations, complex class action litigation and data-driven preventative audits for both local and national clients.

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