One Massachusetts company experienced substantial growth after contracting with the military to provide cargo parachutes, but that rapid expansion may have been the catalyst for numerous alleged Form I-9 violations.
Niche, Inc., a family-owned stitching company based in New Bedford, Massachusetts acquired a contract to provide the military with cargo parachutes for use in Afghanistan and Iraq in 2009. The company grew significantly into 2011, with a massive increase in revenue, according to the Department of Justice. However, when the business lost its deals with the military, the trend of expansion reversed. Niche now employs 21 people. Shortly after Niche lost its government contracts in 2012, Immigration and Customs Enforcement (ICE) served the stitching company with a Notice of Inspection. After Niche sent the agency its I-9 forms, ICE responded with a Notice of Intent to Fine on three counts.
How the charges against Niche were determined
Count I consisted of 165 allegations of failure to ensure the employee's completion of Section 1, or employer’s completion of Sections 2 or 3. Count II alleged 11 charges of failure to present I-9 forms in a timely manner. In the third count, ICE claimed that Niche failed to present one Form I-9 for an employee. The company accepted 153 of the violations in Count I, and seven in Count II. However, the company denied or did not have enough information to confirm or disagree with any of the other allegations.
ICE assessed a total fine of $157,220.25, with a baseline penalty of $935 per infraction. The agency arrived at that figure by determining an average violation rate of 72.85% (177 total violations divided by 240 employees). Also considered in the penalty assessment was the size of the business, which in 2011, was around 240 employees with $55 million in business contracts – not a small company by the government’s standards, ICE explained that although Form I-9 violations were serious, Niche had acted in good faith, which led the agency to reduce the baseline penalty by 5 percent to $888.25 per infraction.
Niche's contract with the military fueled its expansion.
Why Niche disagreed with the assessed fines
According to the DOJ, Niche argued that, in an honest effort to remain compliant, it enrolled in and began using E-Verify in 2008, and that it employed a bookkeeper whose responsibilities included keeping track of Form I-9 documents. As the company rapidly expanded, due to its military contracts, it hired a controller who quickly discovered that the bookkeeper was misappropriating company funds and consistently failing to complete I-9 forms. While the individual had successfully created cases for employees in E-Verify, the I-9 forms were not given the same attention to detail. In response to the incident, Niche hired more Human Resources personnel and addressed ways to improve Form I-9 compliance. It was around this time that the company was served with an NOI by ICE.
Niche agreed that there had to be some sort of fine assessed for the violations, but asserted that only the seriousness of the violation should be weighed against the company. It claimed that although it had been a large business at its height, this was no longer the case. Therefore, Niche explained, it shouldn't be treated as a large company. By this point the business had merely 21 employees on its payroll, sustained a loss of $1 million through 2014, and had floated the idea of shutting its doors should the losses continue.
"Only the current size of a business should be considered."
The administrative law judge took Niche's argument into account when recalculating the penalty assessed against the company. Although the alleged violations were considered serious, the stitching business was a first time offender that had acted in good faith, and, though once rather large, Niche had substantially shrunk in size. Based on these factors, the judge ultimately reduced the proposed ICE fine. Only the current size of a business should be considered, according to an earlier set precedent. The Count III penalty was reduced to $600, the Count II charges were dropped to $500 per infraction, and the Count I fines were lowered to $350 per infraction. Ultimately, the total fine levied against Niche was $63,850.
Although it acted in good faith, the company was still required to pay for its careless Form I-9 processes, characterized, exclusively, by a single employee's actions. Rapid corporate expansion can make it challenging to keep track of paper I-9 forms. Implementing an electronic compliance solution greatly benefits these fast growing companies, and significantly reduces the errors resulting from frequent hiring.