Summary of cornerstone case regarding Employer Sanctions Act, Form I-9′s, Substantive and Procedural Errors and the correct assessment of penalties.

By Ann Allott

U.S. v. Ketchikan Drywall Services, Inc., 10 Office of the Chief Administrative Hearing Officer (OCAHO) 1139; August 11, 2011

Ellen K. Thomas, Administrative Law Judge writes a 43 page opinion clearly discussing the “Good Faith” Defense and the Virtue Memorandum of the Employment Eligibility Verification system, carefully considering Penalties for violations, discussing U.S. Immigration Customs Enforcement’s (ICE) own methodology in relationship to statutory enumerated factors in §1324a(e)(5) and determining when substantive violations have occurred. Finally, this decision declares USICE did not have sufficient evidence to find any of the workers to be unauthorized aliens!

The Ketchikan Drywall Services, Inc. (KDS) decision makes clear legal conclusions concerning many areas of Employer Sanctions enforcement and the decision is very important for practitioners dealing with Department of Homeland Security (DHS) Notices of Inspections and the actions by ICE thereafter. It is a “must read” for human resource managers responsible for the accurate completion of the Form I-9.

In this matter, after KDS responded to a Notice of Inspection, USICE, Complainant alleged:

Count 1: KDS failed to prepare Form I-9s for 43 employees. Fine: $43,581.25

Count 2: KDS failed to properly complete Section 1 on Form I-9 for 65 employees. Fine: $69,377.00

Count 3: KDS failed to properly complete Section 2 on Form I-9 for 110 employees. Fine: $115,192.00

Count 4: KDS failed to properly complete both Sections 1 and 2 on Form I-9 for 53 employees. Fine: $56,474.00

TOTAL FINE: $286,624.25

The decision reduces the fine to: $173,250.00; which is a $113,374.25 reduction.

The “Good Faith” Defense and the Virtue Memorandum (p. 5)

Section 1324a(b)(6) enacted in 1996 added a defense to certain technical and procedural violations where an employer made a good faith attempt to comply with the requirements. After producing the Form I-9s under a Notice of Inspection, an employer must be given at least ten days to correct the failure voluntarily 8 U.S.C. §1324a(b)(6)(A)(B). Substantive violations are not fixable, only technical violations may be corrected. (p. 6)

Substantive violations include the following in Section I.

* The lack of an employee signature
* Lack of a check mark in any box
* Employee attestation not completed within three days of hire; employee attestation to status as a lawful resident or authorized alien without providing an alien number, and/or expiration dates unless the employer included the “A” number in Section 2 or on a legible copy of the document produced during the inspection

Substantive violations include the following in Section II. (p. 7)

* Lack of an employer signature in the attestation section
* Listing of improper documents to establish identity or employment eligibility
* Lack of a complete document title, identification number and/or expiration date where no legible copy of the document is retained with the Form I-9 and presented at inspection.

The OCAHO court held that when an employer makes copies and keeps them separate from the Form I-9, they do so at their own peril. Newly produced documents are not to be considered. If an employer makes copies, those copies must be kept with the Form I-9. See 8 C.F.R. §274a2(b)(3). “If such a copy or electronic image is made, it must be retained with the Form I-9″. See page 8 of the Decision.

There is no general rule that omissions are cured by copying documents. (p. 9)

This decision divides the Respondent’s failures into four distinct categories:

I. Failure to Prepare.

The Form I-9 must be prepared within three days of hire, it is a failure to prepare and a serious procedural error if this is not completed.

C.F.R.§274a.2(a)(2)(2009) states each failure to properly prepare, retain, or produce the forms upon request constitutes a separate violation. An employer must retain the original signed copy of the Form I-9 for either three years after the date of hire of the employee or one year after the date the employee’s employment is terminated, whichever is later. Failure to complete the Form I-9 at all is substantive in nature and defeats the purpose of the law under 8 C.F.R.§274a.2(b)(2)(i).

Several employees of KDS had been terminated. The count considered if they needed a new Form I-9 upon re-hire and held:

“An employer will not be deemed to have hired an individual for employment if the individual is continuing in his or her employment and has a reasonable expectation of employment at all times.” (p. 13)

8 C.F.R. §274a.2(b)(1)(viii). Regulations define the term “continuing employment” and provide specific examples. 8 C.F.R. §274a.2(b)(1)(viii)(A)(3),(8).

* Temporarily laid off
* Lack of work
* Seasonal employment

An employer claiming an individual is continuing in employment bears the burden to show both that the individual expected to resume employment at all times and that the individual’s expectation is reasonable.

8 C.F.R. §274a.2(b)(1)(viii)(B). On the other hand, in this case where the employer stated employees were “terminated” was interpreted by the court to be a record keeping method that forecloses showing that they were just laid off. Here employees were told they had performed adequately and they could come back when the employer started another project. (p. 13)

After one year, employment should be viewed as a rehire. A rehire allows the employer to use Section 3 of the Form I-9 to reflect the date of the rehire, and to sign and date the employer attestation. 8 C.F.R. §274a.2(C)(1). Failure to complete Section 3 within three days of hire is a substantive violation. (p. 14)

II. Failure to Complete Section I of Form I-9:

The employee must complete Section 1. The Statute provides in pertinent part: “the individual must attest, under penalty of perjury on the form designated or established for purposes of paragraph (1), that the individual is a citizen or national of the United States, an alien lawfully admitted for permanent residence, or an alien who is authorized under this chapter or by the Attorney General to be hired, recruited or referred for such employment”

1. No box check and no alien number entered: The employee’s failure to attest to any immigration status in Section 1 is a substantive violation, whether or not documents were provided and copied.(p. 15)
2. No box checked but alien number entered: When the employee writes an alien number on the line next to the words, “A Lawful Permanent Resident”, without checking the box and signing Section 1 attestation, the employee is attesting to being a Lawful Permanent Resident and has substantially complied with the requirements of the statute. This is not a substantive violation.(p. 15, 16)
3. Box checked but no alien number entered: When the employee fails to write in an alien number on the Form I-9, the government is unable to verify the employee’s status in the United States, defeating the purpose of the Form I-9. This is a substantive violation. (p.16)
4. Multiple boxes checked: When an employee checks more than one box, it is inconsistent with any status. No one can be two things as listed at the same time. This is a substantive violation. (p. 16-17)
5. New Form I-9 for Rehired Employee (p. 17)

III. Failure to Complete Section 2 by the Employer.

The employer’s attestation must be signed and have complete information concerning the documents use.

1. No employer attestation: Simply making copies of documents has no bearing on the employer’s responsibility to complete and sign the attestation. Failure to complete and sign the attestation is a substantive violation. (p. 18)
2. Incomplete information recorded: The employer must properly record information about the documents examined. When employer does not copy legible documents used with the Form I-9, failure to provide a complete description of the documents used is a substantive violation. It is a substantive violation if the employer provides insufficient information, such as the document number or issuing authority for a document unless a copy of the document is also provided. (p. 18-19)
3. Missing or improper documents: Recording documents that are not listed is a substantive violation. For example, a military discharge is not a valid “List A” document, a Mexican “Matricula Consular” Card is not a valid “List B” document. Please note that a Canadian driver’s license is a valid “List B” document. A Social Security Letter is not a Social Security Card. A Social Security Card marked “Valid for Work Only with INS Authorization” that is not accompanied by a document evidencing authorization to work is not valid. Using improper documents is a substantive violation. (p. 19-20)

IV. Additional failures to complete Section 1 and Section 2

Section 1

1. No box checked and no alien number entered is a substantive violation. (p. 20)
2. Box checked but no alien number entered and no copy of document provided is a substantive violation. (p. 21)
3. Box checked but no alien number entered and timely legible copy of a document containing alien number is provided is NOT a substantive violation. (p. 21)
4. No box checked in Section 1 but an alien number is entered is not a substantive violation. (p. 21)
5. Failure to enter expiration date in section 1, box 4 “an alien authorized to work until . . . ” is a substantive violation. (p. 21)
6. Multiple boxes checked in Section 1 is a substantive violation. (p. 22)

Section 2

7. No issuing Authority for driver’s license without a copy of the driver’s license is a substantive violation. (p. 22)
8. Improper List C document is a substantive violation when a document with the title “Social Security Number Verification” letter is provided. (p. 22)
9. Conflicting alien numbers is a substantive violation when the employee writes a number that does not match the copy of the card presented. (p. 22)
10. Failure to list issuing authority for driver’s license but the license was copied and retained is not a substantive violation but rather technical or procedural in nature. (p.22)

Penalties (P. 23 through 30 of the Decision)

The government bears the burden of proof with respect to the penalty as well as liability. All reasonable inferences should be made in favor of the Respondent, KDS. There is no single permissible method of calculating penalties. Both mathematical and judgmental approaches may be used.

The ICE Fine Schedule (p. 24)

ICE has published its own methodology which consults the “Substantive/Uncorrected Technical Violations Fine Schedule“. After ICE makes its initial assessment, and adjusts the results in light of the statutory factors and reaches an appropriate assessment, the result need not be disturbed.

The Statutory Fine Schedule is found at §1324a(e)(5). Civil money penalties are assessed for paperwork violations according to the parameters set forth in 8 C.F.R. §274a.10(b)(2): the minimum penalty for each individual with respect to whom the violation occurred after September 29, 1999 is $110, and the maximum penalty is $1,100. The following factors must be considered in assessing the appropriate penalties:

1. Size of business
2. Good Faith
3. Seriousness of the violations
4. Whether any of the individuals were unauthorized aliens
5. A history of previous violations

This OCAHO Court decision finds nothing in the statute or in the regulations that requires the same weight be given to each of the factors in every case, or that aggravation or mitigation of a penalty is limited to any particular percentage. Each factor’s significance is based on the specific facts in each case.

1. Size of business (p. 25-27). Here in KDS, the government contended KDS was a large business as it advertises itself as “one of the largest merit drywall companies in Washington State”. The KDS workforce was between 125-200 employees, adjusted for seasonal fluctuation. The court found this does not mean it is a large company. In fact it only had four full time employees with 20 part time workers in December 2010, down from 25 full time workers and 270 seasonal workers in 2008. After carefully considering OCAHO’s previous case decisions concerning size of business the Court concluded that at best KDS was a small to medium size business during the relevant time period, not so large as to warrant an enhanced penalty or the type of small family business that necessarily points to reduction.
2. Good Faith (p. 27). KDS did not show good faith by ignoring Form I-9 responsibilities for many years. Carelessness or ignorance of the 1989 law and for which the employer had a previous warning notice suggests carelessness, not good faith. A dismal rate of compliance alone cannot, on the other hand, be used to increase a penalty based on bad faith. Culpable conduct beyond the mere failure to comply is required to support such an enhancement.
3. Seriousness of the violations (p.28). Failure to prepare a Form I-9 at all is among the most serious of paperwork violations, and case law reflects that the absence of the employee’s or employer’s attestation is among the most serious of paperwork violations and the previous OCAHO case law reflects this as well. KDS provided no reasonable basis upon which to assert the remaining violations are not serious at all.
4. Whether any of the individuals involved were unauthorized aliens (p. 28-29). The government seeks to aggravate the penalty for 169 out of 271 employees it alleges were unauthorized aliens. KDS makes several arguments in support of its contention that the government failed to carry the burden in proving that 169 employees were unauthorized. ICE made a general allegation stating the government had challenged neither the authorization of workers without specific names nor the employee numbers. The government did not describe its method of conducting verification checks. The court held “The statutory factor for consideration here is not whether some unidentified unauthorized aliens were present in KDS’ workforce. It is whether or not the individual was an unauthorized alien.” (p. 29). ICE did not specifically state who or why any individual was unauthorized.
5. A history of previous violations (p. 29-30). The government did not allege any history of previous violations and treated the factor as neutral while KDS argued for mitigation of penalties in absence of prior violations but made no argument or evidence that leniency was warranted in this case. The court held the case law does not require reduction of a penalty just because an employer has not been shown to have violated the law in the past therefore it is appropriate to treat this factor as a neutral one.

Significant Findings and Conclusions of Law (p. 32)

1. KDS engaged in 225 separate violations of the Act. (p. 32)
2. In assessing civil money penalties the court considered the following factors:

a. size of the employer’s business
b. good faith of the employer
c. seriousness of the violations
d. whether unauthorized aliens were involved
e. history of previous violations.

3. Equal weight does not need to be given to each factor and additional factors may be considered. (p. 32)
4. KDS has no history of previous violations of 8 U.S.C. § 1324a
5. The government failed to show by a preponderance of the evidence that any of the specific individuals who’s Form I-9s were found to contain violations was unauthorized for employment in the United States.
6. More than half the violations were failure to prepare at all, failure to ensure the employee signed Section 1 or failure to sign Section 2, all of which are exceedingly serious in character. (p. 32-33)
7. KDS’ poor rate of Form I-9 compliance is insufficient to show bad faith absent some culpable conduct going beyond the mere failure to comply. (p. 33)
8. KDS’ choice prior to 2006 to delegate responsibility for preparation of its Form I-9s to employees not qualified to perform the task does not reflect a good faith effort to ascertain what the law requires and to conform it conduct to it. United States v. DJ Drywall, Inc., 10 OCAHO no. 1136, 12 (2010).
9. KDS is a small to medium size business. (p. 33)
10. Giving due consideration to the record as a whole and to the statutory factors the penalties will be assessed at the rate of $770 for each violation.

IN CONCLUSION, this OCAHO decision is significant for several reasons.

* It puts a much larger burden on the government to demonstrate specifically why certain employees are considered “Unauthorized Aliens”;
* It clarifies substantive errors more clearly than previous OCAHO decisions;
* It provides better guidance concerning the assessment of penalties.

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