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Employer can’t avoid $305K in penalties for Form I-9 and other INA violations

By Lorene D. Park, J.D.

Except for a single untimely charge, the Ninth Circuit has denied a company’s petition to review a law judge’s finding that it was liable for 504 violations of the Immigration and Nationality Act (INA), including I-9 paperwork violations and the knowing continued employment of ineligible aliens. The company was not entitled to a good faith defense despite its efforts to comply with immigration laws by hiring a new HR director. The appeals court also rejected the company’s argument that the law judge erred in summarily imposing $305,050 in civil penalties; Judge Clifton dissented as to the penalties, finding questions of fact regarding the company’s ability to pay (DLS Precision Fab LLC, dba Di-Matrix Precision Manufacturing v. U.S. Immigration & Customs Enforcement, August 7, 2017, per curiam).

HR director shirked compliance duties. DLS, a company in Phoenix, provides sheet metal fabrication. In the late 2000s, it grew to 200 employees due to the expansion of a Department of Defense program. To deal with its larger workforce and to comply with employment laws, DLS hired a well-credentialed human resources director. Relevant here, INA Section 274A(b) and applicable regulations require employers to use form I-9 to verify employees are authorized to work in the U.S., and to retain them for possible inspection. Employers are prohibited from knowingly continuing to employ “an unauthorized alien with respect to such employment.” Unbeknownst to DLS, their new HR director shirked his duty to ensure compliance to the point “of literally stuffing the government’s correspondence in a drawer and never responding.”

DLS ordered to pay $305,050 in penalties, goes bankrupt. In 2009, ICE served DLS with a notice of inspection and, after reviewing I-9 forms, it served a notice of suspect documents. In October 2012, ICE served a notice of intent to fine. DLS requested a hearing before and ICE filed a six-count complaint with the Office of the Chief Administrative Hearing Officer in January 2013. An administrative law judge (ALJ) granted ICE’s motion for summary decision, finding DLS liable for 504 violations, 489 of which were I-9 paperwork violations; 15 involved the continued employment of ineligible aliens. DLS was ordered to pay $305,050 in penalties.

Meanwhile, the DOD program fueling DLS’s growth was cut back, substantially reducing business. In 2012, DLS reduced its employees from 200 to 77, and then down to 34 employees in 2013. In May 2016, it filed for reorganization and protection under Chapter 11 of the Bankruptcy Code.

No good faith defense. Petitioning the Ninth Circuit for review of the ALJ’s summary decision, DLS argued there were issues of fact on its good faith defense. Disagreeing, the appeals court explained that there are two bases for the good faith defense, neither of which applied here. One applies only to “hiring, recruiting, or referral” of an unauthorized alien, which was not charged. The second one is limited to technical or procedural violations causing a failure to properly complete, retain, or produce I-9 forms. Here, DLS conceded its violations were substantive.

While DLS argued that the “peculiar facts of this case” justify extending the good faith defense to substantive violations, because it tried to comply by hiring an HR director, the Ninth Circuit was not convinced. The facts weren’t “peculiar”—DLS was not the first employer to expect an employee to comply with the law only to be disappointed—and DLS was essentially asking the court to disregard the company’s responsibility to hire and supervise its own employees. The HR director was acting as the company’s agent and his failure could properly be imputed to DLS.

Statute of limitations defense. Apart from one violation, the appeals court also rejected DLS’s argument that the ALJ erred in rejecting its statute of limitations defense. DLS claimed that because ICE filed its complaint on January 4, 2013, any violations before January 4, 2008, were barred by the five-year statute of limitations. However, DLS failed to properly assert the defense because it did not include a supporting statement of facts as required by 28 C.F.R. § 68.9(c). Also, every charge but one was in fact timely asserted by ICE, if applying the proper start date. For I-9 form violations, the period starts on the day a company is no longer required to retain the form, which was either three years after hire or one year after termination, whichever is later. For knowingly continuing to employ ineligible aliens, the period starts the last day of employment.

The one violation that the court treated different was for knowingly continuing to employ one individual for whom there was no dispute of fact that would have required a statement of facts to support the affirmative defense. Thus, as to this one violation and one individual, the appeals court granted the petition for review; it was otherwise denied.

Summary determination of penalty. In its petition, DLS also argued that genuine issues of fact on its ability to pay precluded the ALJ’s summary determination assessing civil penalties of $305,050. Denying this part of the petition, the appeals court explained that the relevant statute, 8 U.S.C. § 1324a(e)(5), sets out five factors that must be considered in setting the penalty. The ability to pay is not one of those factors, though the agency has recognized that the ALJ has discretion to consider ability to pay, and whether the penalty would be so onerous that, instead of deterring future violations it will result in the employer eliminating jobs or going out of business.

Here, the ALJ acknowledged this factor and DLS’s evidence before finding that DLS failed to raise a genuine dispute so as to preclude summary determination of the penalty. Though DLS presented an affidavit from its director of business development stating that the company had no way to pay because of a severe contraction in business and significant net losses, the ALJ found that the “cryptic submissions” raised more questions than they answered. Because it was within the ALJ’s power to decline to consider this factor at all, the appeals court found no error.

Dissent as to penalty. Judge Clifton dissented only on the summary determination of the penalty, finding it improper because there was a material, unresolved factual issue on DLS’s ability to pay the penalty. Clifton explained: “At summary decision, the evidence of the nonmovant is ‘to be believed, and all justifiable inferences are to be drawn in his favor.’ That did not happen here. Based on the available evidence, there was no way for the ALJ to know whether DLS could have paid the amount of the penalty that was imposed.”