United States: OCAHO Finds PEO Liable for Near Maximum I-9 Fines for False Employer Attestation Violations: Is Your Business Similarly Exposed?

Executive Summary: On January 20, 2015, Judge Ellen Thomas, a federal administrative law judge (ALJ) with the Office of the Chief Administrative Hearing Officer (OCAHO), a division of the Executive Office of Immigration Review within the U.S. Department of Justice, issued a decision in an employer sanctions appeal filed by Employer Solutions Staffing Group II, LLC (ESSG), a Minnesota-based professional employer organization. ESSG contested liability for 243 I-9 paperwork violations resulting from an I-9 audit conducted by U.S. Immigration and Customs Enforcement (ICE) as well as the $227,251.75 in civil money penalties assessed by ICE. On review, Judge Thomas upheld the agency's finding that ESSG violated the I-9 regulations by directing its representative to complete 242 employer attestations based on the inspection of photocopies of identity and employment eligibility documents relating to employees that she had never seen, based on contract partner representations that the documents were authentic and related to the subject employees. U.S. v. Employer Solutions Staffing Group, LLC, OCAHO Case No. 14A00005 (Jan. 20, 2015).

Background

ESSG's I-9 Procedure. ESSG provides payroll and human resource services to clients for workers recruited, screened, hired and on-boarded for ESSG by temporary staffing companies such as Flexicorps, a temporary staffing company located in Larsen, Texas. Under the parties' outsourcing contract, Flexicorps oversaw new-hire completion of Section 1 of the I-9 forms, reviewed the originals of the verification documents each new hire provided, and certified to ESSG that the documents appeared to be genuine and to relate to the subject employees. Flexicorps then forwarded the partially completed I-9 forms to ESSG in Edina, Minnesota, together with photocopies of the employees' verification documents. In Edina, ESSG's payroll manager completed Section 2 of the I-9 forms based on her inspection of the photocopies of the employees' documents. She also used the photocopies of the documents to complete the E-Verify process. The on-boarding process was deemed complete when E-Verify confirmed work eligibility.

ICE Audits ESSG Workers at Client Worksite in El Paso, Texas. On February 11, 2011, ICE served a notice of I-9 inspection at the worksite of one of ESSG's clients located in El Paso, Texas. The client informed ICE that the client's workforce had been supplied under an outsourcing contract with ESSG and Flexicorps, and that ESSG was the employees' W-2 employer. In due course, ICE served ESSG with an I-9 inspection notice. In response, ESSG produced 242 I-9 forms. Section 2 of each of these forms had been completed and signed by ESSG's payroll manager. In interviewing Flexicorps personnel in Texas, ICE learned that Flexicorps reviewed the original documents presented by employees and that ESSG completed and signed Section 2 of the I-9 forms based on document photocopies forwarded by Flexicorps.

ICE Serves ESSG with a Notice of Intent to Fine. On February 6, 2013, ICE served ESSG with a notice of intent to fine (NOIF) charging ESSG with 242 Section 2 paperwork violations for improperly completing Section 2, and assessed a civil money penalty of $935 per violation – consistent with the ICE fine matrix for cases in which over 50 percent of the reviewed I-9 inventory contained substantive errors. ESSG was incredulous over the size of the fine amount – based on its perceived efforts to comply with the I-9 requirements and its participation in E-Verify. The company disagreed with ICE that it had engaged in making false attestations in Section 2 by failing to have its agent review original verification documents in the physical presence of the subject employees prior to completing each attestation. 

To preserve its appeal rights, ESSG filed a request for hearing within 30 days of receiving the ICE fine notice. When negotiations failed to produce a settlement, ICE filed a complaint with OCAHO, charging ESSG with the violations set out in the NOIF and seeking court approval for the full fine amount proposed. Following discovery, ICE filed a motion with the court to dispose of the case without a hearing based on the undisputed facts, arguing that ESSG's procedure for completing Section 2 violated the regulations and produced false attestations. ESSG countered that in completing Section 2 of the I-9s, it was entitled to rely on the certifications of Flexicorps' personnel regarding the validity of the originals.

Judge Thomas's Rulings

In her January 20, 2015 decision granting the Government's motion, Judge Thomas agreed that all 242 I-9s at issue contained false attestations because ESSG's payroll manager had executed each without having seen the subject employees or having inspected the original documents each presented while in the presence of the employee. According to Judge Thomas, nothing in law or regulation authorizes an employer to delegate the obligation to conduct an in-person inspection of employee verification documents unless the employer intends to rely upon the third party to complete and execute the attestation in Section 2 as its agent. Physical presence was necessary, Judge Thomas observed, because it was impossible for ESSG's payroll manager in Minnesota to swear, based on photocopies of the employees' documents, that the documents were genuine and related to employees she had never seen.

In the penalty phase of her opinion, the Judge held that ESSG was not entitled to have its civil money penalties reduced under the substantial compliance theory. Judge Thomas held that for that doctrine to apply, ESSG would have had to demonstrate that its procedure was objectively reasonable because "there is no way that the knowing creation of false attestations in section 2 of Form I-9 [could] be characterized as objectively reasonable." Accordingly, ESSG was ordered to pay civil money penalties totaling $227,251.75.

Important Wake-Up Call for Employers: The ESSG decision emphasizes the importance of ensuring that no one other than the individual who inspects an employee's original identity and work authorization documents is permitted to complete the employer attestation in Section 2 of the employee's I-9 form. Over the years, we have observed many employers following the same procedures adopted by ESSG to better ensure that Section 2 is fully completed to ICE standards – not just PEO's – and not just employers challenged by remote hiring conditions. Some employers have fallen victim to claims that they can meet their obligations by employing notaries who utilize Skype technology to complete Section 2 attestations for remote hires – but ICE has determined that such a procedure is not compliant and has insisted that only in-person inspection of original verification documents in the presence of the subject employee is acceptable for the employer representative who completes the Section 2 attestation.

If your company has been following the faulty ESSG procedure for completing Section 2 of the I-9 form, there is really only one effective method of correction – and that is to have those I-9 forms redone and certified by a representative who has complied with the in-person document inspection rules. Undertaking such corrective action presents other risks, including potential discrimination claims. However, failing to correct such a systemic problem could result in civil money penalties in the millions of dollars, depending upon the size of the workforce impacted by the false attestation error.

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