Let's say you are buying a hotel. You have engaged the right legal and due diligence team. One of the items your team is investigating is whether the hotel employees are legally documented. Upon review of the hotel records, your team discovers that there is a fairly high turnover of hourly workers. You know the challenge of attracting and retaining enough good workers.

New focus on the employer, not the employees.

In the past, you may have risked hiring undocumented workers. In practice, only employees were targeted. In many cases, authorities would pull up to a worksite, round up dozens of employees and load them on a bus. However, this indictment in Kansas marked a significant turn of events, with hotel owners now charged with conspiracy to harbor undocumented immigrants for personal gain, five counts of harboring undocumented immigrants and wire fraud.

In other words, this new approach by the Feds suggests:

  • Forget the illegal workers
  • Bring criminal indictments against owners and
  • Seize the hotel where undocumented workers are employed

What are your concerns about your pending hotel purchase?

In this new environment, here are 3 key things you should be concerned about as the owner of a hotel with undocumented workers:

  • First, you worry about having documented workers or possibly going to prison and having your hotel or restaurant seized.
  • If there are too many undocumented workers, you could possibly have a shortage of workers and need constantly to find new ones. In many hotels, a significant number of employees can be undocumented. What could this cost be to you?
  • You have concerns about whether you can legally ask workers for documents without violating their rights of privacy or civil liberties or being accused of discrimination. What safe harbors do you have? Do you need to verify accuracy of any documents you receive? How far beyond the papers can you go/should you go to verify? Are you responsible for forged or phony papers?

What should you do? What can you do?

Under Federal law, employers are required to ensure that their employees are entitled to work in the US and complete form I-9 (Employment Eligibility Verification) published by the Department of Homeland Security. The purpose of form I-9 is to document that each new employee is authorized to work in the United States. Knowingly hiring or retaining an unauthorized alien violates the Immigration Reform Control Act (IRCA). For hiring violations (knowingly hiring or continuing to employ unauthorized alien), fines can run to $11,000 per unauthorized alien, plus additional fines up to $1,100 for failing to maintain necessary paperwork for the I-9 of $110 - $1,100 for each individual for whom the paperwork was not properly kept. There are also civil and potentially criminal penalties.

So you don't step into some problems you don't want when you buy a hotel, here are a few steps you should consider taking as a hotel buyer (and prospective employer):

  1. Require that the seller provide you with a complete list of the employees and their corresponding I-9 forms.
  2. Require that the purchase agreement contain adequate remedies if a certain number of hotel employees are undocumented. Such remedies could include a credit against the purchase price for the cost of hiring and training a certain number of employees.
  3. Prior to closing, smart buyers will typically require that the seller (or operator if the operator is the employer) terminate all its employees. Simply transferring the employees is risky because the buyer would have to trust that the seller correctly prepared form I-9s for all employees. In our experience, when performing due diligence, we rarely see a perfectly prepared set of form I-9s. If the employees are transferred to the buyer, the buyer cannot re-run form I-9s.

In re-hiring, the buyer must comply with IRCA and complete a new I-9 form for each employee. Any form not completed should be rejected. Any employee that cannot provide a completed I-9 form cannot legally be hired.

This all means that you need to pay more attention to the undocumented worker issue and do things right.

It's costly to replace and train an employee. Not having a sufficient number of properly trained employees can lead to loss of services and hurt the hotel's reputation, and hence, a loss of revenue. It can be even more costly and risky for any hotel employer to suffer potential civil and criminal penalties by employing undocumented works. A sophisticated hotel buyer will properly negotiate appropriate remedies in the hotel purchase agreement, perform adequate due diligence and follow appropriate employment procedures to ensure that it is complying with applicable law when re-hiring the seller's or hotel manager's employees.