Following the terrorist attacks of September 11, 2001, and the increasing concerns regarding illegal immigration, federal government agencies have begun to prosecute more vigorously employer violations of the laws against hiring illegal aliens. The most well known of these laws - the Immigration Reform and Control Act ("IRCA") - imposes fines and penalties upon employers who hire illegal aliens with the knowledge of their illegal alien status. Additionally, IRCA specifically prevents an entity from hiring an independent contractor that employs illegal aliens. Thus, a contractor must not only ensure that its employees are all documented aliens, but must also make certain that its subcontractors, and even its sub-subcontractors, do not themselves employ illegal aliens.
A recent case by the Department of Justice ("DOJ") against Wal-Mart Stores, Inc. demonstrates the federal government's renewed emphasis on immigration law enforcement against employers of subcontractors who hire illegal immigrants. Prior to the DOJ's commencement of the Wal-Mart investigation in 2001, Wal-Mart utilized outside contractors to clean its stores. These outside contractors employed illegal immigrants from Asia, South America and Europe to perform these services.
A nationwide investigation by the DOJ estimated that 345 illegal immigrants worked for the independent contractors that Wal-Mart hired to clean its stores. In March of 2005, Wal-Mart and the DOJ reached a settlement in which Wal-Mart agreed to pay an $11 million fine; the independent contractors, who had actually employed the illegal immigrants, only paid a $4 million fine, collectively. As the Wal-Mart decision demonstrates, federal government agencies will investigate and prosecute those entities that hire independent contractors who employ illegal aliens, and may even apply more severe sanctions against those who hire independent contractors than against such contractors themselves.
Notwithstanding, contractors can take certain steps to prevent sanctions by the federal government. Although each case is dependent upon the specific facts and circumstances, many contractors have begun to include provisions in their subcontracts which specifically (a) preclude the subcontractor from employing illegal aliens, (b) require compliance with the regulations of the Social Security Administration and the Department of Homeland Security, and (c) require the retention of appropriate documentation and verification of all employees' legal status. The subcontract may also include a provision that forbids each subcontractor from employing any sub-subcontractor who knowingly employs illegal immigrants. In fact, some subcontracts even require subcontractors to verify the legal status for all employees, either at the time of contract formation or when called upon to do so by the contractor.
Even if an investigation determines that a subcontractor has employed illegal aliens, the contractor may still assert a "good-faith defense" regardless of whether the aforementioned provisions are contained in the subcontract. Under the good-faith defense, a contractor may avoid penalties if the documentation of an alien's legal status provided to the contractor by the subcontractor does not appear on its face to be fraudulent.
Essentially, as long as a subcontractor provides documentation to the contractor that appears genuine, the contractor is not required to (and in fact risks a discrimination claim if it does) delve further into the status of an alien employee. Thus, a contractor that actively reviews the employment verification of its subcontractor's employees can claim this good-faith defense. Although such an action would certainly require more work than merely inserting the aforementioned subcontract provisions, it can provide additional protection from the IRCA.
Gerald I. Katz is an attorney specializing in construction law throughout the United States with Katz & Stone LLP, Suite 600, 8230 Leesburg Pike, VA 22182