WHAT TO DO?
The Use of Independent Contractors Who May Be Employing Illegal Workers

The federal government's case against Wal-Mart highlights the danger of relying on the immigration verification responsibilities of independent contractors. The claims against Wal-Mart impose duties upon employers to avoid the knowing use of independent contractors who may employ unauthorized workers.

Under the Immigration and Nationality Act ("INA"), it is unlawful for a person or entity to hire, recruit, or refer for a fee: (1) an alien, knowing that he or she is an unauthorized alien; or (2) any individual without complying with the INA employment eligibility verification procedures. It is also unlawful for an employer to continue to employ an unauthorized alien.

With the passage of the Immigration Reform and Control Act of 1986 ("IRCA"), Congress began to levy civil and criminal penalties on employers who fail to verify an applicant's employment eligibility. Section 274A of the INA, as amended, imposes detailed procedural requirements that employers must follow before hiring any individual. All employers must verify the identity and work authorization of every new hire, citizen and non-citizen, by viewing documents which establish the employee's identity and his right to work in the United States. These rigid requirements are designed to ensure every individual working in the U.S., regardless of nationality, is authorized for employment.

Verification Responsibilities for the Workers of Independent Contractors

Large employers are increasingly outsourcing operational duties to independent contractors. Under the INA, an independent contractor is considered an "employer" and as such is responsible for verifying the employment eligibility of its own employees. In that context, as a general rule, an employer may use the services of an independent contractor without being required to verify the employment eligibility of the independent contractor and the independent contractor's employees.

The Wal-Mart Case

If employers are not required to verify the work status of an independent contractor's employees, why does Wal-Mart Stores, Inc., the largest U.S. private sector employer, face potential civil and criminal penalties arising from the October 23, 2003 raid of 61 stores through which 250 alleged illegal immigrants employed by Wal-Mart's independent contractors were arrested? The answer lies in INA regulations that specifically prohibit an employer from "knowingly" contracting for the labor of an unauthorized alien.

The INA prohibits any person or entity to use a contract, subcontract, or exchange entered into, renegotiated, or extended to obtain labor or services of an alien knowing that the alien is an unauthorized alien. Anyone who uses a contractor, subcontractor or exchange is deemed to have "hired" the alien in violation of the INA. This rule stems from the concern that employers might decide to "farm out" essential business functions in order to avoid responsibility for verifying employment status. The rule allows for penalties in clear cases of subterfuge, where there are obvious indications that the employer intended to make use of unauthorized workers through a subcontract.

"Knowing" under the INA includes actual and constructive knowledge. Constructive knowledge may be inferred through notice of facts and circumstances which would lead a person, through the exercise of reasonable care, to be aware of a certain fact. Constructive knowledge includes, but is not limited to, situations in which an employer: fails to or improperly completes the Employment Eligibility Verification Form ("Form I-9"); or has information available which would indicate the alien is not authorized to work; or when the employer shows reckless and wanton disregard for the legal consequences of permitting another person, like a contractor, to introduce an unauthorized alien into its work force. If an employer knows that the contractor has previously supplied it with unauthorized aliens, the employer may be considered liable under this definition of knowledge.

The INA's anti-discrimination provisions complicate the employer's burden. An employer is not allowed to request more or different documents than are required under the INA or to refuse to honor documents that on their face reasonably appear to be genuine. Additionally, knowledge that an employee is unauthorized may not be inferred from an employee's foreign appearance or accent.

Potential Penalties

The employment eligibility verification requirements of the INA are enforced by the Department of Homeland Security's Bureau of U.S. Citizenship and Immigration Services ("BCIS") (formerly the Immigration and Naturalization Service) and administrative law judges. An employer who knowingly violates any hiring, recruiting, or referral provision under the INA may be issued a cease and desist order, ordered to comply with remedial actions, and to pay fines as follows:

• If a first offense, not less than $275 and not more than $2,200 for each unauthorized alien (less if offense occurred prior to September 29, 1999); or
• If a second offense, not less than $2,200 and not more than $5,500 for each unauthorized alien (less if offense occurred prior to September 29, 1999); or
• For more than two offenses, not less than $3,300 and not more than $11,000 for each unauthorized alien (less if offense occurred prior to September 29, 1999).

Repeat and intentional offenders, or individuals engaged in a pattern or practice of violating the INA, are subject to a fine of not more than $3,000 for each unauthorized alien, and imprisonment for not more than six months. Failure to comply with the employment verification requirements, or paperwork requirements, of the INA can result in fines of not less than $110 and not more than $1,100 for each violation (less if offense occurred prior to September 29, 1999). The amount of the penalties is determined by considering several different factors, including the seriousness of the violation and the history of previous violations by an employer.

Practical Preventive Measures

Although good faith compliance with the employment eligibility verification requirements through proper completion of an I-9 Form is a rebuttable affirmative defense to a charge of unlawful hiring, this defense is not available for employers who use independent contractors and are not responsible themselves for filling out the paperwork for new hires.

Employers are barred from seeking indemnity bonds from individual employees to cover fines if the employees turn out to be unauthorized. Nevertheless, employers are allowed to incorporate indemnity clauses into agreements with independent contractors. The regulations specifically recognize the validity of contract terms that require indemnification by the contractor if the employer is penalized for hiring an unauthorized worker under the contract. Therefore, an employer can contract to impose on the independent contractor the duty to assure that all of its employees are authorized to work in the U.S., and the employer can require the independent contractor to indemnify the employer for any fines and legal fees incurred because employees supplied by the contractor were not authorized to work in the United States. Employers should also consider including a provision in the contract that requires the contractor to complete a Form I-9 for all of its employees and otherwise comply with other employer provisions of the INA.

The recent immigration-related problems faced by Wal-Mart underscore the importance to employers of ensuring that they are not hiring unauthorized workers. Even if the workers are employees of independent, the employer must take reasonable steps to ensure that an independent contractor is following appropriate employment practices with regard to its employees.

     
STRASBURGER & PRICE, LLP  •  DISCLAIMER
This publication provides information on general legal issues and is not intended to provide advice on any specific legal matters.