What do American Apparel, ABM Industries, Aber-crombie & Fitch and Chipotle all have in common? They are all publicly traded companies that suffered a cold hit when Immigration and Customs Enforcement (ICE) audited the company’s Form I-9s. In 2009, ICE began conducting these silent raids, and each year the number of audits increases, as do the fines. Last year, 3,004 employers received Notices of Inspection (NOI), and ICE collected more than $12 million in administrative fines. Companies also had to terminate hundreds of workers who were unauthorized to work in the United States.

Worksite enforcement and immigration-related employment fines remain at the forefront of ICE priorities for the upcoming fiscal year. To prepare for a potential audit, employers with a sizeable immigrant workforce should create an immigration risk compliance plan that anticipates potential labor shortages, contractual obligations pertaining to collective bargaining agreements, and statutory or regulatory reporting requirements—all while complying with antidiscrimination, wage-and-hour, securities and labor laws.

Attorney-Client Privilege Considerations

The attorney-client privilege protects confidential communications between a client and his attorney during the course of the attorney-client relationship—when the communications are made for the purpose of securing legal advice.

Yet, in the context of an NOI and the development of an immigration compliance risk management plan, all communications with corporate counsel do not automatically fall within the privilege, because in-house attorneys usually serve in both legal and nonlegal capacities. Counsel who implement an immigration compliance risk management plan should remember that a plan contains both business and legal considerations, and thus is unlikely to be protected in its entirety by the privilege.

Also, there is no privilege if the request is made for the purpose of committing a crime. In-house counsel should be mindful of the criminal penalties of the Immigration and Nationality Act (INA) when providing advice. It may even be prudent to engage outside counsel to analyze potential privilege issues.

Labor Shortages

An immigration risk management plan should include how to respond to labor shortages due to a reduction in force.

American Apparel, which received notice from ICE that 2,383 of its employees were unauthorized to work, serves as a cautionary example. As a result of the notice, the company terminated the employment of over 1,500 individuals, including many long-term employees. Other employees failed to show up for work or resigned once word spread of the investigation. In hiring replacement workers, American Apparel faced increased labor costs and decreased productivity.

In addition, employers often must address the sudden loss of employees who unsuccessfully challenge ICE’s initial determination of ineligibility to work. As such, companies may lose several employees in a short period and will need to hire and train replacement workers in order to minimize the disruption to business operations.

Identifying labor concerns due to terminations as a result of an ICE audit will require working with human resources and business leaders, as well as third parties such as temporary staffing agencies. Further, protocols should be put in place to ensure that those same terminated employees are not inadvertently re-hired by the company through the staffing agency.

Keep Union Activities in Mind

The National Labor Relations Act (NLRA) protects all workers regardless of their legal (or illegal) work status. Prompt notification to unions at the start of the NOI process is critical in order to avoid unnecessary unfair labor practices claims, since the NOI process will require obtaining additional information from employees within a short timeframe. It may also require terminations of senior workers and the adoption of new compliance measures by the company for new hires.

For example, a large food manufacturer required certain employees identified by ICE to re-verify their work authorization within 10 days. The company terminated approximately 75 striking employees for failure to provide proof of legal work authorization, and retained a temporary staffing agency to prevent a possible disruption to its workforce. At the time, employees were striking and otherwise engaged in protected activities, which prompted a Section 8(a)(3) charge against the company, alleging that the employees’ protected activities were a motivating factor in the company’s actions. However, the National Labor Relations Board (NLRB) found that the company acted in response to the results of the NOI and not in violation of the NLRA.

In contrast, a national steel company voluntarily implemented the use of E-Verify, a database that provides verification of work eligibility, on the day the company submitted its I-9s to ICE. The union alleged the company violated Section 8(a)(5) of the NLRA for unilaterally implementing E-Verify. The NLRB found that, like drug/alcohol testing, enrollment in E-Verify affected employee tenure—a material and substantial aspect of employment. Specifically, E-Verify imposed specific deadlines and removed the topic of termination from the bargaining table. The NLRB also stated that, where a change in the hiring practices is arguably necessitated by statutory or regulatory requirements, the party may not act unilaterally so long as it has some discretion in implementing legal requirements.

Ensure Timely Disclosure of the NOI to Vested Parties

Disclosing that the company is under government investigation may taint a company’s image and potentially impact business contracts. However, failing to notify vested parties in a timely manner may backfire, as American Apparel found out. In 2010, shareholders filed a derivative suit against the company for allegedly making false representations regarding the status of its immigration compliance. The company underplayed the effect of the investigation in its quarterly reports and, the lawsuit alleges, when management finally confessed, the company’s stock plummeted.

In addition to making the public disclosures required by securities laws or the company’s bylaws, counsel should also review any service contracts to identify whether there are third-party reporting requirements. For example, a staffing company may want to notify its clients of the NOI for the sake of transparency and allowing client to prepare for the potential disruption to the workforce. A construction company may want to scale back the number of bids and determine whether it may complete work in the time prescribed by the contract.

Agency Cooperation

ICE is not the only agency with the authority to review a company’s I-9s. The INA grants the Department of Labor (DOL) the authority to review the forms, even though enforcing employer sanctions remains in the purview of the Department of Homeland Security (DHS). In 2011, DHS and DOL agreed to share relevant information and cooperate in the enforcement of immigration and labor laws. Notably, ICE will not conduct a civil worksite investigation if there is an existing DOL investigation or a labor dispute, except under certain circumstances involving national security, the protection of critical infrastructure or other federal crimes.

Likewise, in 2013 the DOJ’s Office of Special Counsel for Immigration-Related Unfair Employment Practices (OSC) entered into an agreement with the Office of the General Counsel of the NLRB to share information, cross-refer matters and coordinate investigations. OSC is responsible for enforcing the antidiscrimination provision of the INA, which prohibits citizenship status and national origin discrimination in hiring, firing and recruitment or referral for a fee, as well as discriminatory I-9 and E-Verify practices.

Additionally, OSC has a long-standing agreement with the Equal Employment Opportunity Commission to refer cases to the OSC where a charge of discrimination alleges violations of the INA.

Final Considerations

By engaging in due diligence prior to the receipt of an NOI, in-house counsel can minimize potential workforce disruptions, including terminations and declining productivity, as well as anticipate concerns from third parties, such as unions, contractors and shareholders. •