The United States Court of Appeals for the Ninth Circuit, in Incalza v. Fendi North America, Inc., (filed on March 6, 2007) held that the Immigration Reform and Control Act ("IRCA") does not preempt California law that forbids firing an employee without good cause. The Ninth Circuitinterpreted IRCA's mandate that an employer cannot "continue to employ" an unauthorized worker to not require that workers' termination, and that providing a leave of absence to correct a deficiency in status would fulfill the Congressional objectives of IRCA.


In 1990, Italian citizen Giancarlo Incalza began working as a sales associate for Fendi in Rome. The head of the company, Paola Fendi, assured him secure employment with the company so long as he performed well. Incalza accepted a position in New York City, and moved to the United States after Fendi helped him secure an E-1 visa. Fendi renewed Incalza's visa several times from 1990 to 2000. In 2000, Incalza was promoted to manager of Fendi's Beverly Hills store. Although he consistently received good performance reviews, there was considerable evidence Incalza's supervisor, Robert King, did not like him and wanted to replace him.

In 2002 French nationals purchased a majority interest in Fendi. Due to this change, Fendi's immigration counsel advised that the E-1 visas that had been issued to Italian Nationals were no longer valid. Incalza and another Fendi employee, Mauricio Graziani, were both affected by this change. Immigration counsel, Lerner, informed Fendi that he thought he could obtain H1-B visas for both Incalza and Graziani, but that it may be easier to obtain one for Graziani due his level of education. Lerner informed Fendi that he, for a fee, could obtain a determination of whether both employees would qualify for the H1-B visa. Fendi did not ask Lerner to investigate any further, but instead requested he file an H1-B on behalf of Graziani, but not Incalza. Graziani was granted the visa and continued to work for Fendi.

Incalza was fired by King on January 20, 2003, in the presence of Fendi's Human Resources director, after falsely telling him that nothing could be done to remedy his visa problems. Incalza asked to be granted an unpaid leave of absence, as he was planning to marry his fiancée a month later, and would be eligible for a green card. King refused, reiterating that a leave of absence was not an option. At the end of February, 2003, Incalza wrote Fendi a letter asking that he be given his old job back once his visa issue was resolved. Fendi's Human Resources director told Incalza that Fendi would not rehire him.

Procedural History
Incalza filed an action in California Superior Court claiming that he was wrongfully terminated (1) in violation of an implied contract that he would only be terminated for good cause and (2) because of his Italian heritage, in violation of the Far Employment and Housing Act, CAL. GOVT. CODE. § 12900-12960. Fendi removed to the case to District Court. On summary judgment, Fendi argued that Incalza's claims lacked merit, and that it was compelled to terminate Incalza to comply with IRCA once it discovered that his E-1 visa was no longer valid. It further argued that California law, to the extent that it required a different result, was preempted. The District Court denied the motion. After a four day trial, the jury found for Incalza on the implied contact claim, but for Fendi on the discrimination claim. Fendi appealed.

Court's Rationale

1. California Law and IRCA

California law provides remedies to workers terminated in violation of an express or implied contract that they will not be discharged for good cause. The California legislature has made clear that this applies to illegal immigrants as well. Also, the legislature has provided that "for purposes of enforcing state labor, employment, civil rights, and employee housing laws, a person's immigration status is irrelevant to the issue of liability . . ." CAL. CIV. CODE § 3339(b); CAL. LAB. CODE § 1171.5 (b); CAL. GOVT. CODE § 7285(b).

Federal law forbids employers from knowingly employing unauthorized aliens. IRCA provides that it is "unlawful …after hiring an alien in accordance with the Act, to continue to employ the alien in the United States knowing the alien is an unauthorized alien with respect to such employment." 8. U.S.C. § 1324a(a)(2).

The Ninth Circuit explained that conflict preemption occurs when (1) it is not possible to comply with the state law without triggering federal enforcement action or (2) state law stands as an obstacle to …the full purposes and objectives of Congress. The Ninth Circuit also noted that "tension between federal and state law is not enough to establish conflict preemption."

The District Court had ruled that an employer can obey both state law and federal law by terminating an employee, and if the termination was motivated by reasons contrary to state law, paying damages as required by that law. However, the Ninth Circuit found it unnecessary to reach the question reached by the District Court. The Ninth Circuit found no conflict existed because Fendi could have taken action other than termination and been in compliance with IRCA.

2. Employer Does Not "Continue to Employ" If Unauthorized Worker Placed On Unpaid Leave

Although IRCA employers cannot "continue to employ" unauthorized workers once learning of their unauthorized status, the Ninth Circuit found that it does not bar an employer from placing an employee on leave while he corrects his deficiency in status. The Ninth Circuit reads the IRCA implementing regulations as deeming an individual employed only if he is working and receiving remuneration for that work. Thus, an entity does not "continue to employ" an alien unless that individual is working and receiving remuneration for that work.

3. Unpaid Leave Consistent With Congressional Purposes of IRCA
The Ninth Circuit noted that the Congressional purpose for enacting IRCA was to stop payments of wages to unauthorized workers which act as a "magnet …attracting aliens here illegally" and prevent those workers from taking jobs that would otherwise go to citizens. Therefore, IRCA's purposes are not contravened if an alien is not working and not being paid.

The Ninth Circuit also focused on furthering the secondary Congressional purpose of protecting lawful alien workers. Unpaid leave for an employee whose status is in question can afford employers a way of preserving seniority and other benefits. It may also protect employees whose employers might terminate employees first and ask questions later. Unpaid leave also allows for individuals who must obtain a new type of work permit and also to accommodate delays caused by agency backlog.

Fendi raised the argument that the Supreme Court's decision Hoffman Plastics Compounds v. NLRB requires that it terminate Incalza immediately. Fendi argued that the phrase "continue to employ" in Hoffman means "compelled to discharge immediately." The Ninth Circuit rejected this argument as it found the factual underpinnings of Hoffman distinguishable. Hoffman dealt with undocumented aliens working in a factory that had no basis for or prospects of obtaining legal status, not with employees with work authorization problems that could be expeditiously resolved.

What this means to employers:

Employers may consider granting an unpaid leave of absence, for a reasonable period, to employees who have status deficiencies that can be easily remedied. This is especially true for employers who have assisted their employees in obtaining work authorization. However, employers should consult counsel to determine what circumstances are appropriate to grant an employee an unpaid leave of absence. In sum, this case indicates a trend in protecting employees who are, or have been, making a good faith effort to comply with the complex and often unforgiving immigration requirements imposed upon them for work authorization.

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