February 01, 2006

In a recent, highly publicized settlement between Wal-Mart and the Department of Homeland Security (“DHS”) arising from the employment of undocumented workers by Wal-Mart contractors, Wal-Mart agreed to pay $11,000,000 to resolve charges that it violated the Immigration Reform and Control Act (“IRCA”).^[1] Most employers assume that they are not responsible for the employment practices of their contractors. The Wal-Mart settlement has left many employers wondering whether they too could be held liable for IRCA violations committed by vendors and consultants they thought were independent. In this article, we explain the legal background of IRCA and what went wrong at Wal-Mart. We then offer tips to minimize the risk of incurring liability arising from contractors’ IRCA violations.

Legal Background: IRCA

Under IRCA, employers must not knowingly hire or continue to employ any person not authorized to work in the United States. Employers also have an independent obligation under IRCA to verify the employment eligibility of every person hired by the employer through the I-9 process.^[2] An employer acts knowingly if it has constructive knowledge that a worker is not authorized to work in the United States.^[3] Constructive knowledge can be inferred “through notice of certain facts and circumstances which would lead a person, through the exercise of reasonable care, to know about a certain condition.”^[4] Such knowledge can be inferred where the employer “(i) Fails to complete or improperly completes the I-9; (ii) Has information available to it that would indicate that the alien is not authorized to work . . . ; or (iii) Acts with reckless and wanton disregard for the legal consequences of permitting another individual to introduce an unauthorized alien into its work force or to act on its behalf.”^[5]

The law also makes it clear that an employer cannot evade the requirements of IRCA through the use of independent contractors. To that end, if an employer uses a contractor for the purpose of retaining the services of an illegal alien, the employer is deemed to have illegally “hired” the alien as though he or she were an employee.^[6]

In general, an employer has no obligation to complete an I-9 for the employees of its independent contractors and should not be liable for IRCA violations committed by these contractors unless the employer knowingly uses the contractor to evade IRCA. A separate but related issue arises where an employer misclassifies a worker as an independent contractor when the individual is, in fact, an employee (for whom the employer must complete an I-9). The test for independent contractor status under IRCA is similar, but not identical, to tests used by the Internal Revenue Service, the California Employment Development Department, and other government agencies. The determination as to whether a worker is an employee and not an independent contractor turns on a number of factors, primarily whether or not the employer has the right to control the work of the contractor or its workers.^[7] (For a thorough discussion of independent contractor tests, see “Are Your Independent Contractors Really Independent Contractors?”, Employment Law Commentary, October 1998.)

While employers are obligated not to employ illegal aliens and to complete I-9’s, the flip side of these obligations is that it is illegal under IRCA to discriminate against an applicant or employee because of his or her citizenship. One form of discrimination is “document abuse,” the practice of asking for more or different documents than the I-9 regulations require.^[8]

The Wal-Mart Case

In the Wal-Mart case, U.S. Immigration and Customs Enforcement (“ICE”) (a division of DHS which used to be part of the now-defunct INS) raided 60 Wal-Mart stores, resulting in the discovery of 245 illegal immigrants working as night janitors and cleaners for the company.

It is not entirely clear on what basis ICE asserted that Wal-Mart was responsible for its contractors’ employment of illegal aliens. We know, however, that in another lawsuit, a federal judge in New York approved a collective action against Wal-Mart based upon the allegation that Wal-Mart developed “a fraudulent scheme” with its maintenance contractors across the United States “to use undocumented workers to provide janitorial and cleaning services.^[9] The complaint alleged workers were ‘locked-in’ to stores overnight to perform cleaning services.” Thus, it may be that the sheer number of undocumented workers led ICE to conclude that Wal-Mart knowingly used contractors to evade IRCA. It may also be that the workers at issue were treated in such an egregious manner by the contractors that ICE concluded that Wal-Mart had to have been complicit for the contractors to have gotten away with the misconduct. It is not clear, however, whether ICE contended Wal-Mart was liable because it was a joint employer of the workers along with the contractors.

Steps To Reduce Exposure

In general, employers should not be liable for IRCA violations committed by parties with whom they contract—including their contractors’ employment of unauthorized aliens—provided that there is a true independent contractor relationship between the employer and its contractors. The constructive knowledge standard suggests, however, that employers may not stick their heads in the sand with regard to their contractors’ conduct and should take affirmative steps to ensure their contractors’ compliance with IRCA. In taking such steps, employers must be mindful not to over-verify, which could result in claims of document abuse or citizenship discrimination.

Footnotes:

^[1] U.S. v. Wal-Mart, Inc., 1CV-05-0525 (M.D. Penn. 2005); IRCA, 8 U.S.C. § 1324a, et seq.
^[2] 8 U.S.C. § 1324a(a)(1) and (b).
^[3] 8 C.F.R. § 274a.1(l)(1).
^[4] 8 C.F.R. § 274a.1(l)(1).
^[5] 8 C.F.R. § 274a.1(l)(1).
^[6] 8 U.S.C. § 1324a(4). See also 8 C.F.R. §274a.5.
^[7] 8 C.F.R. § 274a.1(j).
^[8] 8 U.S.C. § 1324b(a)(6); 8 C.F.R. §274a.2(b)(1)(v).
^[9] Zavala v. Wal-Mart Stores, D.N.J. No. 03-5309 (12/29/04).