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"Employers Must Protect Themselves Against Liability Over Illegal Workers"

Daily Journal
By: Carl L. Blumenstein

The highly charged issue of illegal immigration is a fixture on the front pages, newscasts and political blogs. In all the furor, California employers need to be aware of the risks of hiring illegal immigrants.

Employers face potential exposure to a multitude of civil and criminal claims if they knowingly - or even unknowingly - employ immigrants who are not legally authorized to work in this country.

The Immigration Reform and Control Act, 8 U.S.C. Section 1324a, passed in 1986 (and which may be amended in Congress or by regulation), requires much of employers. They must obtain and examine specified documents to confirm the identity of a new employee and the person's legal right to work. Employers also have to retain records of eligibility to work and verify, under penalty of perjury, that each new hire is authorized to work. They also cannot knowingly hire or retain any employee who lacks legal authorization to work in this country.

Notwithstanding their illegal status, once hired, illegal immigrants enjoy many of the same rights and protections as their legal co-workers under state and federal labor laws. Court are determined to hold employers accountable and to protect workers, regardless of their status. For example, illegal immigrants are employees under the National Labor Relations Act and are entitled to statutory protections for labor organizing and related activities. Sure-Tan Inc. v. NLRB, 467 U.S. 883 (1984) (employer violated the NLRA by reporting its illegal-immigrant employees to the INS in retaliation for union activities).

Illegal immigrants are also protected by Title VII, thereby letting them assert claims against their employers for discrimination, harassment and retaliation. Rivera v. NIBCO Inc., 364 F.3d 1057 (9th Cir. 2004). See also, Rescission of Enforcement Guidance on Remedies Available to Undocumented Workers Under Federal Employment Discrimination Laws (EEOC, June 27, 2002).

Recently, an appellate court held that illegal immigrants are entitled to benefits under the California workers' compensation statute. In Farmers Brothers Coffee v. Workers' Compensation Appeals Board, 133 Cal.App.4th 533 (2005), the court rejected the employer's contentions that the Immigration Reform and Control Act pre-empted the state's Workers' Compensation Act and that illegal immigrants did not come within the statute.

Still, fraudulent conduct by the undocumented employee may bar or restrict his or her remedies. In a much-criticized decision, the United States Supreme Court held that undocumented workers who obtained employment by presenting false documents are not entitled to receive back pay or reinstatement under the NLRA. Hoffman Plastic Compounds Inc. v. NLRB, 535 U.S. 137 (2002). Because the Immigration Reform and Control Act prohibits employers from hiring undocumented workers, the court held that back pay should not be awarded for wages that could not have been earned legally.

Hoffman Plastic has been criticized, limited and distinguished in numerous quarters. Because the court focused on the employee's fraudulent conduct - and thus the true immigration status was unknown to the employer - at least one federal district court concluded that Hoffman Plastic was inapplicable and that the full panoply of remedies would be available against the employer who knowingly hired illegal aliens. Singh v. Jutla, 214 F.Supp.2d 1056 (N.D. Cal. 2002 (declining to extend Hoffman Plastic to Fair Labor Standards Act claim for compensatory and punitive damages).

In Rivera, the court reasoned that Hoffman Plastic was inapplicable to Title VII in part because Title VII relies primarily on private enforcement, unlike the NLRA.

One of the more notable responses to Hoffman Plastic came from the California Legislature, which quickly limited the decision's effect in California. Labor Code Section 1171.5. The statute confirms that "all protections, rights and remedies available under state law ... are available to all individuals regardless of immigration status," except reinstatement remedies prohibited by federal law. Further, the statute creates a rebuttable presumption that evidence of immigration status is irrelevant - and pretrial discovery on that subject is prohibited - in employment cases

Claims by Third Parties

Besides lawsuits brought by undocumented workers, employers also face potential immigration-related claims from their legal employees. In federal courts around the country, plaintiffs have asserted Racketeer Influenced and Corrupt Organizations Act claims against employers who hire illegal immigrants, charging that such hiring practices deprive them of employment or substantially depress their wages.

In one 9th Circuit case that originated in the state of Washington, agricultural workers alleged that defendant fruit growers conspired with a front company that hired illegal immigrants and "loaned" them to the growers. Mendoza v. Zirkle Fruit Co., 301 F.3d 1163 (9th Cir. 2002). A similar RICO case made its way to the U.S. Supreme Court last term, although the court ultimately dismissed review without delving into the immigration law issues. Mohawk Indus. v. Williams, 126 S.Ct. 2016 (2005).

California employers of illegal labor also face lawsuits by third parties under state law for unlawful or unfair business practices. Business and Professions Code Section 17200 provides for injunctive relief and restitution for prohibited practices. Cortez v. Purolator Air Filtration Products Co., 23 Cal.4th 163 (2000) (failure to pay overtime wages); Herr v. Nestlé U.S.A., Inc., 109 Cal.App.4th 779 (2003) (action to enjoin age discrimination).

The November 2004 passage of Proposition 64 narrowed the range of private plaintiffs to those who suffered actual loss of money or injury to property, and thus may limit the number of lawsuits brought under Section 17200. But that statute remains a potent threat.

Liability for Another's Employee?

California businesses also face potential liability arising from illegal immigrants obtained through outsourcing arrangements. In the employment context, outsourcing typically refers to contract arrangements used by a business to obtain a work force, usually focused on a particular task or project. Outsourcing can frequently save expense, promote efficiencies and relieve administrative burdens that arise when employees are hired. But immigration issues remain a concern.

Janitorial firms retained by Wal-Mart were charged with criminal liability as a result of numerous violations of wage-and-hour regulations and improper working conditions in their treatment of undocumented employees. After being named in a follow-on civil class action in which the plaintiff employees alleged that Wal-Mart was liable as a joint employer, the mega retailer agreed to a multimillion-dollar pretrial settlement.

This case well illustrates the substantial liability a business can face if it is found to be a joint employer of illegal immigrants. Generally, joint employment occurs when the two parties to an outsourcing arrangement exercise common control over the work performed by the leased work force. Both entities are liable for wrongdoing.

In response to the increase in the hiring of illegal immigrants, the California Legislature enacted Labor Code Section 2810. This law prohibits any person from entering into an arrangement for construction, farm, garment, janitorial or security guard labor where the business "knows or should know" that the contract does not provide sufficient funds to permit the contractor to comply with local, state and federal labor regulations.

Enforcement of that prohibition, however, is somewhat attenuated: An employee injured by the contractor's violation of a labor or employment law may sue the contracting business for his or her actual damages or a $250 statutory penalty. Alternatively, the employee may seek injunctive relief, even in the absence of injury.

The statute also creates a safe harbor if the written contract for labor and services contains certain detailed information, such as the contractor's license number, the workers' compensation insurance policy number, the amounts of wages to be paid and the commission earned by the contractor.

With increasing attention now focused on illegal immigration - and the employment of undocumented workers in particular - employers should remain vigilant. While compliance with initial hiring requirements is mandatory, they should take additional steps to ensure that their practices do not create additional liability risks.

Employers should train personnel to recognize false or suspicious employment documents. They should perform periodic reviews and audits of employment documentation, as appropriate. They should keep aware of changing regulations and requirements regarding immigrant labor. And they should make sure that any "borrowed employee" arrangements are documented in writing, including clear guidance on which entity is supervising the work force.

Carl L. Blumenstein is a partner in the San Francisco office of Nossaman Guthner Knox & Elliott.

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