Small Business Owner Adherence to I-9 Requirements for Independent Contractors

An employer’s failure to comply with I-9 reporting requirements, including hiring unauthorized workers, can result in the imposition of thousands and potentially millions of dollars of fines.

Whether a worker is an “employee” or an “independent contractor” is also significant in the I-9 context since all U.S. employers are obliged to complete I-9 forms for all “employees” attesting to their work authorization. Misclassification of employees or turning a blind eye to contractors who are using undocumented labor can be a source of potential liability for employers.

The Reform and Control Act of 1986

Every employer in the United States is obligated under the Immigration Reform and Control Act of 1986 to confirm the work authorization of its employees via the filling out and execution of an I-9 form.

Employers must comply with I-9 requirements with the respect to all hires, whether citizens, permanent residents, or foreign nationals.  An employer’s failure to comply with I-9 reporting requirements, including hiring unauthorized workers, can result in the imposition of thousands of dollars of fines. Indeed, certain violators have confronted millions of dollars of fines.

As a rule, I-9 regulations only apply to “employees”—not “independent contractors”, but, as we have seen in the context of violations of the Labor laws, whether a worker is an “independent contractor” is not a foregone conclusion.

Two cases shed light on the risk employers can confront in grappling with this issue:

In a 2015 case adjudicated by the Office of the Chief Administrative Hearing Officer (“OCAHO”), the adjudicatory division of the Executive Office for Immigration Review, a cleaning services was charged and fined by Immigration Customs and Enforcement (“ICE”) for I-9 violations associated with 6 employees that the offending company claimed served as independent contractors. [1]

Based on an assessment of general principles of agency law, ICE alleged that the, so-called, “independent contractors” should have been considered “employees” and so subject to I-9 reporting requirements.

The workers, in questions, provided janitorial services to customers. The Hearing Officer’s decision and opinion is an interesting one because of its extensive discussion about the numerous standards governing how independent contractor-type arrangements can be defined.

In evaluating the arrangement between the offending company and the workers, the Hearing Officer focused on the following factors:

  1. Whether the workers were able to work for third parties (which they could)
  2. Whether or to what extent the employer supplied the materials  or equipment that was necessary for the workers to be able to do their jobs (which it did not)
  3. Whether the employer determined payment arrangements, i.e. the amount of pay, whether payment would be hourly or per project, etc. (the customer determined the payment arrangement—not the company);
  4. Whether and to what extent the company determined the means and methods of the workers’ activities and supervised them (which it did not).

While the Hearing Officer acknowledged that the type of work in question was “unskilled labor”, which oftentimes is indicative of an employment relationship, it concluded that the other factors, common to several applicable federal standards, all supported the determination that the six workers were independent contractors and so held.

In another case, Wall-Mart, in 2005, was charged by ICE for employing independent contractors whom Wall-Mart knew or should have known were not authorized to work in the United States.2]

The case went to the U.S. District Court for the Middle District of Pennsylvania, which resulted in a Consent Decree that obliged Wall-Mart to pay $11 million in fines. The significance of the case was in imposing on Wall-Mart I-9 liability because it turned a blind eye to the activities of its own contractors.

In a subsequent class action case that arose out of the ICE litigation, undocumented workers claimed that they had originally worked for Wall-Mart but were re-assigned to a contractor in order to shield Wall-Mart from I-9 liability.

While some consider the case a broadening of the scope of I-9 liability to include consideration of an employer’s own contracting companies, others have opined that the case was unique in that Wall-Mart, itself, had conspired with contractors to cover up the former’s illegal use of undocumented workers.

The Wall-Mart case raises the following question:

If a lower-level manager, interfacing with a contractor, learns that the latter is using undocumented employees to perform a service, should that knowledge be imputed to the company thereby exposing it to liability?

One answer is that since an employer can be held liable for I-9 violations based on the conduct and knowledge of even lower-level employees within its organization, it stands to reason that a lower level employee’s actual or constructive knowledge concerning a contractor’s illegal use of undocumented labor could be imputed to the principal employer.

For this reason, it has been recommended that employers including in their agreements with contractors and subcontractors that the latter agree to ensure that they comply with I-9 requirements and that the employer shall be indemnified and held harmless by the contractor in the event an action were to arise against the employer on the basis of the contractor’s I-9 violations.

The Take Away:

  • Whether a worker is an “employee” or an “independent contractor” is significant in the I-9 context and is an issue that an employer should analyze before deciding not to I-9 workers.
  • Likewise, an employer should not turn a blind eye to a contractor who is using undocumented labor to provide services to the employer. As provided by I-9 enforcement regulations, the definition of “knowing” includes having any information indicating that a worker is not authorized to work in the United States. That said, however, the applicable regulation also expressly provides that an employer may not infer from an employee’s foreign appearance or accent that such person is undocumented.

[1]See United States v. Saidabror Siddikov d/b/a Beyond Cleaning Services, OCAHO Case No. 11A0022 (August 8, 2015).

[2]See United States v. Wal-Mart, Inc., 1 CV 05-0525 (M.D. PA 2005).

Robert Goodman
Robert Goodman
Robert Ian Goodman, Esq. represents clients worldwide in the areas of complex commercial immigration and international and domestic commercial law. Mr. Goodman also provides general counsel services to entrepreneurs and start-up businesses and counsels foreign businesses interested in establishing a presence in the U.S. marketplace and U.S. businesses interested in expanding abroad. He also counsels law firms on Immigration and Commercial Law matters. Mr. Goodman is principal of Goodman Law and Goodman Immigration. He is also Special Counsel to Lawtelier LLP, based in New York City and Milan, Italy.

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