United States: Decisions Show A Trend In Lower Immigration Fines

The Office of the Chief Administrative Hearing Officer (OCAHO) is the agency responsible for reviewing and making final determinations on the U.S. Immigration and Customs Enforcement's (ICE) penalty assessmentsfrom I-9 inspections. Recently, published cases appear to demonstrate a distinct trend of OCAHO severely reducing ICE's penalty assessments.

OCAHO is led by a chief administrative hearing officer (CAHO) whose responsibilities include providing program direction, articulating policies and procedures, establishing priorities and, importantly, administering the hearing process presided over by administrative law judges (ALJs).

ALJs are authorized to impose a variety of remedial measures, ranging from sanctions and penalties as prescribed by law, cease-and-desist orders, awards of attorney fees and, in the case of immigration-related unfair employment practices, awards of back pay. The general process involves the ALJs presiding over hearings and then rendering decisions. With respect to employer sanctions and document fraud, the CAHO conducts administrative review of ALJs' decisions and has the ability to modify or vacate those decisions.

Sources of Employer Liability: Relevant INA Statutory Provisions

OCAHO has jurisdiction over three types of casesthat arise under the Immigration and Nationality Act (INA), including allegations of: (1) knowingly hiring, recruiting or referring for a fee or the continued employment of unauthorized aliens, and failure to comply with employment verification requirements in violation of section 274A; (2) immigration-related unfair employment practices in violation of section 274B; and (3) immigration-related document fraud in violation of section 274C. Section 274A applies to all employers in the United States with regard to all employees hired, recruited or referred after Nov. 6, 106.

The Inspection Process

ICE, a division of the Department of Homeland Security (DHS), conducts investigations that expose violations of section 274A of the INA. ICE initiates the administrative inspection process by serving of a notice of inspection (NOI) upon an employer, compelling the production of Forms 1-9, typically within three business days. Often, ICE will request the employer provide supporting documentation, which may include payroll records, a list of current employees, articles of incorporation and business licenses.

ICE agents or auditors then conduct an inspection of the Forms 1-9 for compliance. If technical or procedural violations are found pursuant to INA § 274A(b)(6)(B) (8 U.S.C. § 1324a(b) (6) (B)), an employer is given business days to make corrections. Fines are imposed for all substantive and uncorrected technical violations. Employers determined to have knowingly hired or continued to employ unauthorized workers under INA § 274AW (1)(a) or (a)(2) (8 U.S.C. § 1324a(a)(1)(a) or (a)(2)) will be required to cease the unlawful activity, may be fined and in certain situations may be prosecuted criminally. Additionally, an employer found to have knowingly hired or continued to employ unauthorized workers may be subject to debarment by ICE, meaning that the employer will be prevented from participating in future federal contracts and from receiving other government benefits.

ICE will notify the audited party, in writing, of the results of the inspection once completed. Where substantive, uncorrected technical, knowingly-hire and continuing-to-employ violations are found, a notice of intent to fine (NIF) may be issued. In instances where a NIF is served, the charging document will specify the violations committed by the employer and the total penalty assessment.

How ICE Determines Its Recommended Fine

Statutory penalties for knowingly-hiring and continuing-to-employ violations range from $375 to $16,000 per violation, with repeat offenders receiving penalties at the higher end. Penalties for substantive violations, which includes failing to produce a Form 1-9, range from $110 to $1,100 per violation. In determining penalty amounts, ICE evaluates the number of substantive (or uncorrected technical) violations in relation to its recommended fine schedule, and then considers five factors to enhance or mitigate the total fine amount: 1) the size of the business; 2) good-faith effort to comply; 3) seriousness of violation; 4) whether the violation involved unauthorized workers; and 5) history of previous violations.

ICE determines the violation percentage by dividing the number of chargeable violations by the total number of I-9s that should have been produced. This violations percentage, in connection with the determination of whether this instance is the employer's first, second or third offense, determines the per-violation fine amount, according to the matrix shown in Table 1.

For example, if an employer should have produced 100 I-9s (for 100 employees) during the inspection process, and 30 of those I-9s were determined to have substantive errors, then the error rate would be 30 percent and, assuming this was the employer's first offense, ICE would charge $605 per violation, or a total of $18,150 (prior to applying the enhancement or mitigating factors).

Once the base recommended fine amount is determined in this fashion, ICE will use the matrix shown in Table 2 to enhance or mitigate the recommended fine.

In instances where a NIF is served, the charging document will specify the violations committed by the employer. The employer has the opportunity to either negotiate a settlement with ICE or request a hearing before the OCAHO within 30 days of receipt of the NIF. If the employer takes no action after receiving a NIF, ICE will issue a final order. If a hearing is requested, the OCAHO assigns the case to an ALJ and sends all parties a copy of a notice of hearing and the government's complaint, thus setting the adjudicative process in motion. The notice of hearing spells out the procedural requirements for answering the complaint and the potential consequences of failure to file a timely response. Many OCAHO cases never reach the evidentiary hearing stage because the parties either reach a settlement, subject to the approval of the ALJ, or the ALJ reaches a decision on the merits through dispositive prehearing rulings.

Recent OCAHO Decisions

Recently published OCAHO cases appear to demonstrate a distinct trend of severe reductions in ICE's penalty assessments, particularly when the employer is a small business and acted in good faith. These decisions share one notable commonality: the consistent cite to "Penalties approaching the maximum permissible should be reserved for egregious violations.' See U.S. v. Fowler Equipment Co., 10 OCAHO no. 1169, 6 (2013); U.S. v. La Hacienda Mexican Cafe, 10 OCAHO no. 1167, 3 (2013). This appears to be a clear message that ICE's methodology for assessing baseline violations (i.e., the penalty matrix) is not acceptable, as is, to the court.

The OCAHO considers the most egregious violations, where the higher penalties should apply, include situations where the employer has acted in bad faith. OCAHO case law has long held that in order to support a finding of bad faith, there must be evidence of culpable conduct that goes beyond the mere failure to comply with the I-9 verification requirements. See U.S. v. Karnival Fashion, 5 OCAHO no. 783, 477, 480 (1995). Recently published cases illustrate how OCAHO is reserving higher penalty amounts for what it considers egregious situations involving such bad faith, and is simultaneously reducing penalties when the employers show good faith.

On Aug. 7, OCAHO lowered penalties, stating that ICE's assessed fine of 30 percent of the company's annual profit was an extremely high fine for any employer, especially a small restaurant that acted in good faith and had high employee turnover. ICE had issued a total fine of $36,184.50 based upon a per-violation penalty of $935. OCAHO adjusted the fine to a per violation amount of $300 or $400, each, an amount nearer to the low end of permissible penalties, assessing a total penalty of $16,000, resulting in a 55 percent reduction from ICE's initial fine. In reaching its decision, the OCAH0 noted that the employer had no unauthorized employees and no history of previous violations, although the violations themselves were serious in nature.

In deciding to reduce the fine, the OCAHO commented that the original penalty appeared disproportionate to the particular employer's business and company's resources, because, in this case, the fine represented 30 percent of its annual profit, an extremely high fine for any employer, and penalties of such magnitude should be reserved for employers that act in bad faith or hire unauthorized workers. See U.S. v. New Sun Transit, 10 OCAHO no. 1194 (2013).

Also in August 2013, OCAHO reduced the penalties imposed on a small family business from $70,900 to $23,700, after adjusting the per-violation amount to more accurately reflect the seriousness of the violations, in line with its stated position, resulting in a 66 percent reduction from ICE's initial fine. ICE charged that the company had hired 37 individuals for whom it failed to prepare I-9 forms within the prescribed three-day period (and/or failed to present the forms to ICE), and that the company had hired six individuals for whom it failed to ensure the proper completion of an I-9 form. Observing that not all violations are of an equally serious nature and the seriousness of violations should be evaluated on a continuum, the court concluded that the violations at issue were of a lessserious nature and adjusted the fine to an amount closer to the midrange of permissible penalties, resulting in a 33 percent reduction in the total fine amount. See U.S. v. Platinum Builders of Central Florida, 10 OCAHO no. 1199 (2013).

Additionally, in August 2013, OCAHO restated a critical distinction it first discussed in 2000 in its application of statutory factors to determine the appropriate fine: that the statutory factor for consideration was whether or not the individual noted in the NIF was an unauthorized alien, and not whether there are unauthorized aliens present in the workforce. OCAHO applied this analysis and reduced ICE's initial penalty determination from $22,627 to $10,800, a 52 percent reduction. See Nebeker, 10 OCAHO no. 1165, 5 (2013); U.S. v. Hernandez, 8 OCAHO no. 1043, 660, 668-69 (2000).

In August 2013, OCAHO again applied this analysis to reduce penalties from $26,881 to $10,000, a 62 percent reduction, stating that while the company was, in fact, liable for producing newly created and backdated I-9s at the time of inspection, it was inappropriate to enhance penalties across the board based on the presence of some unauthorized workers. See U.S. v. New Sun Transit, 10 OCAHO no. 1197 (2013).

Although the apparent trend in recent cases demonstrates OCAHO 's willingness to reduce fines, in many cases very favorably for employers, employers cannot achieve this result without cost. Since appearing before a OCAHO can be a time-consuming and costly endeavor, the end result may not always be an overall cost savings to employers. However, where employers are willing and able to bring their objections to an ICE-recommended fine, it may set precedent useful for negotiating reasonable settlements with ICE.

ICE continues to conduct widespread 1-9 inspections and levy hefty fines against employers for violations that many in the private sector would consider to be "paperwork errors.' The recent trend in employer-favorable decisions at OCAHO should not lead employers to believe they can be less than vigilant in their 1-9 compliance programs. ICE remains incentivized to extract the highest possible penalties from employers through the I-9 inspection process and, for the moment, remains committed to its penalty assessment matrix and enhancement/mitigation factors. Once the inspection process begins, employers potentially face significant fine assessments as well as a lengthy and arduous road ahead, further complicated if required to ultimately bring the matter before OCAHO.

"Reprinted with permission from the December 5 issue of the New Jersey Law Journal. (c) 2013 ALM Media Properties, LLC. Further duplication without permission is prohibited.  All rights reserved."

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