Executive Summary:  On July 8, 2015, an administrative law judge (ALJ) ordered Hartmann Studios to pay a fine of over $600,000 for more than 800 I-9 paperwork violations, the largest fine awarded by an ALJ for paperwork violations to date. InUnited States v. Hartmann Studios, Inc. (OCAHO Case No. 14A00008), the ALJ found the employer liable for 808 of the 818 Form I-9 paperwork violations alleged by the government. Although the judge refused to entertain Hartmann's financial hardship defense due to its failure to provide audited financial statements or otherwise respond to the government's discovery on its ability to pay the government's proposed civil money penalty ($812,665.25), she made modest downward adjustments in the proposed base penalties, but increased the aggravation penalties for violations associated with unauthorized workers, resetting the fine amount at $605,250.

Nature of the Form I-9 Violations

The overwhelming number of violations charged against Hartmann involved failing to sign section 2 of the I-9 forms it produced in response to the government's audit notice, among other violations. The judge characterized these as extremely serious violations, citing a decision she issued earlier this year, United States v. Emp'r Solutions Staffing Grp. II, LLC, 11 OCAHO no. 1242 (2015), describing the employer attestation in section 2 as "the very heart" of the verification process. See OCAHO Finds PEO Liable for Near Maximum I-9 Fines for False Employer Attestation Violations: Is Your Business Similarly Exposed? The judge also found Hartmann guilty of other serious substantive violations including failing to require employees to designate their immigration status, provide their alien identification number and sign the attestation in completing section 1; failing to properly complete the document verification portion and compare union member identity and employment authorization documents with the numbers in the three-in-one forms when completing section 2; and in section 3, failing to record the updated employment authorization document(s) of employees whose original section 2 work eligibility document had expired.

Three hundred ninety-nine of the violations related to individuals who were members of the International Alliance of Theatrical Stage Employees Union Local 16A (Local 16A) and who worked for Hartmann during the term of a collective bargaining agreement between Hartmann and Local 16A that took effect in 2008. Under the agreement, the union supplied Hartmann with skilled stage technicians on a project-by-project basis. These technicians completed a "three-in-one" form developed by the union that combined a portion of a W-4 form, parts of sections 1 and 2 of an I-9 form, and a "check-off" authorization that authorized Hartmann to withhold 3.5 percent of the employee's wages as union dues. Hartmann completed no separate I-9 form regarding these union stage hands – nor did it sign section 2 of the union form. The judge observed that the government could have charged Hartmann with the more serious offense of having failed to prepare an I-9 form with respect to the 399 union members, because Local 16A's form did not conform to the Form I-9 regulatory requirements, but declined to do so in its discretion and charged Hartmann with the lesser offense of failing to sign section 2.  The government assessed a baseline fine of $935 for each of these violations, plus an aggravation penalty of 5 percent across the board for the seriousness of the charged offenses, and an additional 5 percent for each of the 205 allegedly unauthorized workers in Hartmann's workforce.

Employer's Estoppel and Good Faith Mitigation Arguments Rejected

Hartmann argued unsuccessfully that it was prejudiced by the government's undue delay in issuing the notice of intent to fine and that it detrimentally relied upon ICE's "intimation" that it would not be fined in settling a wage and hour class action for $2 million. But the judge observed that under OCAHO precedent, the government is virtually impervious to such a claim without evidence that government agents engaged in affirmative misconduct beyond mere negligence, delay, inaction, or failure to follow internal agency guidelines that would result in serious injustice if left unaddressed, and that estoppel would not unduly burden the public interest. Hartmann had not presented such evidence. Further, the judge found that Hartmann's evident violation of wage and hour laws was not an equity warranting a reduction in I-9 penalties.

Hartmann's good faith mitigation arguments relied on its conduct after the notice of inspection was served, but OCAHO case law assessing good faith looks primarily to the steps an employer took beforehand to ascertain what the law requires and to conform its conduct to those requirements. The judge cited the admissions of dereliction made in the deposition testimony of the Hartmann executive responsible for overseeing the I-9 process and the serious nature of the paperwork violations evident from a facial inspection of the forms themselves as evidence that Hartmann failed to satisfy the good faith standard.  Post inspection enrollment in E-Verify, termination of undocumented workers, correction of paperwork violations and discontinuation of the unauthorized three-in-one form did not, as a matter of law, justify a reduction in civil money penalties under the good faith defense.

Based on the overall facts and circumstances, including evidence that Hartmann's 2011 gross revenues were $73 million, the judge reset the baseline fine for 799 of the violations in the complaint at $700, plus $200 for each of the 205 counts involving unauthorized aliens (status determinations apparently admitted by Hartmann). The judge deemed nine section 1 and section 3 violations to be less serious and reduced the penalties for those violations to $550 each.

Lessons Learned

This case demonstrates the need for employers to conduct routine self-audits of their I-9 inventories to ensure that the forms have been properly completed and retained and are ready for inspection. Failing to invest in an effective self-audit and correction program – for even a medium-size employer – can have substantial adverse economic consequences.  Participation in the E-Verify program is not a defense to paperwork violations and will not shield a company from penalties for failing to properly complete and retain I-9 forms.