Ninth Circuit Affirms Fine Based on I-9 Failures

Why it matters

In a cautionary tale for employers, the U.S. Court of Appeals, Ninth Circuit affirmed a fine based on failures related to the proper completion of I-9 paperwork. Sheet metal fabrication company DLS Precision Fab experienced a growth spurt and hired a new human resources director to handle the increase. However, the HR director neglected his duties, allegedly “stuffing the government’s correspondence in a drawer and never responding” after failing to properly complete and file the required I-9 forms. In an action brought by U.S. Immigration and Customs Enforcement, an administrative law judge ordered the employer to pay $305,050 in penalties for the numerous violations. DLS appealed to the Ninth Circuit, arguing that issues of fact remained on its good faith defense. Unwilling to disregard the company’s responsibility to hire and supervise its own employees, the court said the HR director acted as the employer’s agent and his failures could properly be imputed to DLS.

Detailed discussion

Section 274A(b) of the Immigration and Nationality Act (INA) requires employers to verify that their employees are legally authorized to work in the United States. Regulations promulgated under the law designate use of the Employment Eligibility Verification Form, colloquially known as the I-9 form.

Employers must retain these forms and provide them for inspection by the Department of Homeland Security upon three days’ notice; the INA also prohibits employers from continuing to employ an alien “knowing the alien is (or has become) an unauthorized alien with respect to such employment.”

DLS Precision Fab provides custom sheet metal fabrication in a variety of industries. The Arizona-based company grew to almost 200 employees in the late 2000s after the Department of Defense (DoD) expanded one of its programs. To deal with the expansion, DLS hired a new human resources director. Despite his credentials, the HR director shirked his responsibility to ensure compliance with the INA.

In 2009, U.S. Immigration and Customs Enforcement (ICE) served DLS with a Notice of Inspection and an administrative subpoena. As the agency’s investigation continued, the DoD program was cut back, resulting in a substantial reduction of DLS’s business, causing the company to reduce the number of its employees to 77 in 2012 and 34 in 2013.

DLS requested a hearing before an administrative law judge (ALJ), and ICE filed a six-count complaint alleging that the employer failed to comply with employment verification requirements and continued to employ 15 individuals despite knowing they were ineligible for employment, all in violation of the INA.

ICE moved for a summary decision, requesting penalties totaling $495,250.75. The ALJ granted the motion, finding DLS liable for 504 of the 508 alleged violations (489 of which related to I-9 paperwork, as well as the 15 continuing employment violations) and ordering the employer to pay $305,050.

DLS—which subsequently filed for Chapter 11 bankruptcy protection—appealed to the U.S. Court of Appeals, Ninth Circuit, asserting that genuine issues of fact remained as to the employer’s good faith defense to the alleged violations.

There are two types of good faith defense under the INA, the panel explained, one of which applies only to a charge of knowingly hiring, recruiting or referring an ineligible alien. This good faith defense did not apply to the violations for which DLS had been cited, the court said.

The second good faith defense provides that “a person or entity is considered to have complied with [the employment verification requirements] notwithstanding a technical or procedural failure to meet such requirement if there was a good faith attempt to comply with this requirement.”

DLS told the court that the “peculiar facts of this case” justified extending the good faith defense to the substantive violations it was accused of because the employer made a good faith effort to comply with the INA’s employment requirements by hiring the HR director, who then exhibited bad faith by neglecting his duty to keep the company compliant.

“We are not persuaded by this argument,” the panel wrote in a per curiam opinion. “For one thing, these facts do not strike us [as] particularly peculiar. DLS is not the first employer to hire an employee with the expectation that he or she will comply with the law only to be disappointed, nor is it likely to be the last.

“More broadly, DLS asks us to disregard the company’s responsibility for hiring and supervising its own employees. The HR director was acting as DLS’s agent, and his failure to perform his responsibility may properly be imputed to DLS. We cannot, in any event, effectively rewrite the statute to extend the good faith defense to substantive violations when the statute explicitly limits this good faith defense to technical and procedural violations.”

The court affirmed the summary decision, with one exception for a violation of knowingly continuing to employ one worker who left the company more than five years before ICE instituted the action, outside the statute of limitations under the INA.

In addition, the Ninth Circuit disagreed that genuine issues of fact remained as to DLS’s ability to pay the penalty amount. “Ability to pay is not, under the statute, one of the factors that must be considered in setting the amount of the penalty,” the court said. “Because it was within the ALJ’s power to decline to consider this factor at all, DLS’s ability to pay was not a material issue of fact that would preclude summary determination of the penalty amount.”

One member of the panel dissented with regard to the ability-to-pay determination, writing that because the ALJ elected to consider the evidence of DLS’s ability to pay in determining the penalty amount, a factual finding as to the actual ability of DLS to pay was something “that might affect the outcome” and was therefore a material issue.

To read the opinion in DLS Precision Fab LLC v. U.S. Immigration & Customs Enforcement, click here.