A recent opinion published by the United States Court of Appeals for the Ninth Circuit serves as a cautionary tale for employers when it comes to I-9 Form compliance. This is a tale about a company known as Di-Matrix Precision Manufacturing, which provides custom sheet metal fabrication in a variety of industries. Di-Matrix started small, and grew big quickly.
Winning a Department of Defense contract, Di-Matrix expanded its employee roster dramatically to handle the new government work. Seeking to ensure compliance with various employment laws, Di-Matrix hired a “well-credentialed” human resources director to manage this burgeoning employment population. Unfortunately for Di-Matrix, the HR Director’s conduct did not live up to his credentials, as he failed to manage the company’s Form I-9 compliance. Apparently, it got so bad that he would literally stuff official government correspondence in a drawer and never respond.
Eventually Immigration and Customs Enforcement (“ICE”) came knocking, serving Di-Matrix with a Notice of Inspection and an administrative subpoena. After reviewing Di-Matrix’s I-9 Forms, ICE fined the company for violations of the Immigration and Nationality Act (“INA”). Di-Matrix sought to challenge these fines before an administrative law judge (“ALJ”); however, the judge agreed with ICE, finding Di-Matrix liable for 504 violations of the INA, 489 of which were I-9 “paperwork” violations. The judge ordered Di-Matrix to pay a civil money penalty in the amount of $305,050.00. Hoping against hope, Di-Matrix appealed the ALJ’s decision to the Ninth Circuit Court of Appeals.
Meanwhile, in a continuing run of bad luck, Di-Matrix lost its defense contract and shrunk from 200 employees down to 33. It filed for bankruptcy under Chapter 11.
Di-Matrix petitioned the Ninth Circuit to reverse the ALJ’s decision, arguing that it had made a “good faith” attempt to comply with the Form I-9 requirements by employing a “well-credentialed” Director of Human Resources. The federal appellate court was not impressed with this argument, observing that there was nothing particularly special about the situation. Di-Matrix was not the first employer to hire an employee with the expectation that he would comply with the law, only to be disappointed. The appellate court stressed that a company has the responsibility for hiring and supervising its own employees, and an HR Director’s failure to perform his duties is still attributable to the employer under the INA.
Di-Matrix also attempted to have some of the violations thrown out under a statute of limitations argument, saying that those violations which occurred five years before ICE’s complaint were barred as a matter of law. The court was again not persuaded, explaining that a paperwork violation continues to exist until it is corrected or until the employer is no longer required to retain the I-9 form. Even if the paperwork error occurred more than five years ago, until the employer catches that error through a routine audit and corrects it, the statute of limitations has not yet been triggered.
Finally, Di-Matrix sought to get the $300,000 award reduced on the grounds that the ALJ failed to consider its ability to pay the fine without going bankrupt. The law does allow a judge to consider whether a penalty will be so severe that, instead of merely deterring future violations, it destroys the employer, forcing it to go out of business. But this law does not compel a judge to take this factor into consideration. So, the ALJ did not err in declining to consider the impact of the penalty fine on Di-Matrix.
Some practical observations
First, employers may wish to consider retaining outside legal counsel to audit the work done by those employees charged with Form I-9 compliance.
Second, an audit will help surface paperwork violations (and substantive ones too), enabling the employer to make corrections and trigger the running of the statute of limitations.
Third, Form I-9 paperwork penalties can add up quickly, resulting in steep fines, but the relatively modest cost of a periodic, outside audit will surely save the employer much financial heartache down the road.
 DLS Precision Fab LLC, d/b/a Di-Matrix Precision Manufacturing v. U.S. Immigration & Customs Enforcement, No. 14-71980, DHS No. 13A00019 (9th Cir. 2017).
This publication is provided only for educational purposes; it should not be relied upon as legal advice, and it should not be used, in whole or in part, as a basis for establishing employment practices or policies, nor should it be used for resolving disputes or managing risk. Every reader’s circumstances are unique and legal advice should be obtained only from a lawyer with whom the reader has established an attorney-client relationship. Copyright 2017 ©Employment Screening Services, Inc. All material contained within this publication is protected by copyright law and may not be reproduced without the express written consent of ESS.