I-9s: Small employer stuck with six-figure penalty for errors

Does your organization carefully fill out and retain I-9 forms for all new hires? These are the forms completed to establish that new employees' documents have been reviewed to establish their entitlement to work in the United States. Failure to complete and maintain the forms can be costly, as illustrated by a recent decision from the 9th Circuit. The court affirmed civil penalties that had been imposed on an employer by U.S. Immigration and Customs Enforcement (ICE).

Employer hit with fine for I-9 deficiencies

Ketchikan Drywall Services, Inc. (KDS) is a small Washington employer with just four full-time and approximately 20 part-time employees. Sometimes drywall projects require more workers, so KDS brings on temporary employees as needed. The temps are required to go to the company's offices to provide information for their "Employment Eligibility Verification Forms," or I-9s, before beginning work on a project.

Over the years, responsibility for completing the I-9 forms was passed among nearly a dozen employees who had no particular training for the task. ICE had warned KDS of deficiencies following an I-9 audit in 2000. In 2006, KDS hired a new comptroller who had I-9 training and tried to improve compliance with the required documentation. Then in 2008 came yet another audit.

The ICE audit uncovered numerous problems. According to the agency, KDS had failed to provide any I-9 forms for 43 employees. It had also neglected to complete the attestation section of the forms (Section 1) for another 65 employees and to note the supporting documents (Section 2) for 110 more. Finally, there were 53 employees on whose I-9 forms Sections 1 and 2 were both lacking. When ICE proposed a civil penalty of $286,624, KDS requested a hearing before an administrative law judge (ALJ).

KDS argued at the hearing that it had substantially complied with I-9 requirements by retaining copies of the supporting documents for many employees, even if the related I-9 form wasn't completely filled out and signed. It said that ICE could determine the workers' legal status by examining the underlying documents. The ALJ wasn't persuaded by those arguments. He did determine, however, that ICE's evidence fell short on some violations and reduced the fine to $173,250. KDS appealed to the 9th Circuit, which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington.

Good-faith effort not enough

KDS again took the position that it had substantially complied with the intent of the I-9 requirements and that its deficiencies were technical rather than substantive. In many cases, the company had photocopied worker identity and legal status documents and stored them along with partially completed I-9 forms. At the very least, it argued, any penalty should be reduced because of its good-faith efforts to meet the spirit of the law.

The court looked to the specific language of the Immigration and Nationality Act, which requires all U.S. employers to verify within three days of hire that new employees are legally entitled to work in this country. Regulations under the Act call for employers to document their verification by completing the I-9 form, which records the documents presented by the employees and contains an attestation that the documents have been examined. Employers must retain the completed forms and present them for inspection by ICE on three days' notice.

The court noted its general deference to the agency tasked with enforcing particular requirements - in this case, ICE. ICE's decision would be overturned only if the agency had acted arbitrarily or capriciously. KDS claimed that its record keeping established the legal status of its workers and that ICE was arbitrary in insisting on "technical" compliance with the details called for on I-9 forms. It argued that the Act expressly permitted photocopying of supporting documents, implicitly suggesting retention of copies as an alternative means of compliance.

The 9th Circuit found KDS's position lacking. Copying of documents was no substitute for an employer's careful examination of and attestation to the legal status of each worker. Completion of the I-9 form ensures that the employer is engaging in the required review. And, the court noted, ICE shouldn't have to sort through documents to independently verify a worker's status. Regulations state that the I-9 forms are to be "fully" completed. Partial completion falls short, regardless of an employer's claimed "good faith."

The failure to check boxes, fill in alien registration numbers, and sign the attestation on the I-9 forms amounted to a substantive violation of requirements. Similarly, the omission of states of issue when a driver's license was used to establish identity was a serious matter even if, as KDS claimed, ICE should be able to deduce the state of issue from the configuration of the license number.

KDS also fell short when it rehired workers. In such cases, it sometimes cobbled together information from the worker's earlier I-9 with new information rather than completing a new form. The gravity of the violations went far beyond merely technical.

The 9th Circuit let the administrative penalty stand. Ketchikan Drywall Services, Inc. v. Immigration and Customs Enforcement, Case No. 11-73105 (2013).

Lesson: Fill out I-9 forms carefully and completely

This case is a good reminder to understand and fully comply with requirements for completing I-9 forms for all new hires. If you think it's enough merely to be sure that your workers have legal status in the United States but fail to fill out the forms fully, you are risking a fine.

The detailed process is in place for a reason. Employees tasked with checking documents and completing the forms for your organization should have appropriate training and understand the importance of thoroughness. If you take these steps, you'll do fine when ICE comes knocking.

This article was edited by Dinita L. James of Gonzalez Saggio & Harlan LLP.