A recent opinion published by the United States Court of Appeals for the Ninth Circuit serves as a cautionary tale for employers when it comes to I-9 Form compliance.[1] This is a tale about a company known as Di-Matrix Precision Manufacturing, which provides custom sheet metal fabrication in a variety of industries. Di-Matrix started small, and grew big quickly.
Winning a Department of Defense contract, Di-Matrix expanded its employee roster dramatically to handle the new government work. Seeking to ensure compliance with various employment laws, Di-Matrix hired a “well-credentialed” human resources director to manage this burgeoning employment population. Unfortunately for Di-Matrix, the HR Director’s conduct did not live up to his credentials, as he failed to manage the company’s Form I-9 compliance. Apparently, it got so bad that he would literally stuff official government correspondence in a drawer and never respond.
Eventually Immigration and Customs Enforcement (“ICE”) came knocking, serving Di-Matrix with a Notice of Inspection and an administrative subpoena. After reviewing Di-Matrix’s I-9 Forms, ICE fined the company for violations of the Immigration and Nationality Act (“INA”). Di-Matrix sought to challenge these fines before an administrative law judge (“ALJ”); however, the judge agreed with ICE, finding Di-Matrix liable for 504 violations of the INA, 489 of which were I-9 “paperwork” violations. The judge ordered Di-Matrix to pay a civil money penalty in the amount of $305,050.00. Hoping against hope, Di-Matrix appealed the ALJ’s decision to the Ninth Circuit Court of Appeals.
Meanwhile, in a continuing run of bad luck, Di-Matrix lost its defense contract and shrunk from 200 employees down to 33. It filed for bankruptcy under Chapter 11.
Di-Matrix petitioned the Ninth Circuit to reverse the ALJ’s decision, arguing that it had made a “good faith” attempt to comply with the Form I-9 requirements by employing a “well-credentialed” Director of Human Resources. The federal appellate court was not impressed with this argument, observing that there was nothing particularly special about the situation. Di-Matrix was not the first employer to hire an employee with the expectation that he would comply with the law, only to be disappointed. The appellate court stressed that a company has the responsibility for hiring and supervising its own employees, and an HR Director’s failure to perform his duties is still attributable to the employer under the INA.
Di-Matrix also attempted to have some of the violations thrown out under a statute of limitations argument, saying that those violations which occurred five years before ICE’s complaint were barred as a matter of law. The court was again not persuaded, explaining that a paperwork violation continues to exist until it is corrected or until the employer is no longer required to retain the I-9 form. Even if the paperwork error occurred more than five years ago, until the employer catches that error through a routine audit and corrects it, the statute of limitations has not yet been triggered.
Finally, Di-Matrix sought to get the $300,000 award reduced on the grounds that the ALJ failed to consider its ability to pay the fine without going bankrupt. The law does allow a judge to consider whether a penalty will be so severe that, instead of merely deterring future violations, it destroys the employer, forcing it to go out of business. But this law does not compel a judge to take this factor into consideration. So, the ALJ did not err in declining to consider the impact of the penalty fine on Di-Matrix.
Some practical observations
First, employers may wish to consider retaining outside legal counsel to audit the work done by those employees charged with Form I-9 compliance.
Second, an audit will help surface paperwork violations (and substantive ones too), enabling the employer to make corrections and trigger the running of the statute of limitations.
Third, Form I-9 paperwork penalties can add up quickly, resulting in steep fines, but the relatively modest cost of a periodic, outside audit will surely save the employer much financial heartache down the road.
[1] DLS Precision Fab LLC, d/b/a Di-Matrix Precision Manufacturing v. U.S. Immigration & Customs Enforcement, No. 14-71980, DHS No. 13A00019 (9th Cir. 2017).
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