Employment Practice Issues Surface As Immigration Policy Debate Rages

With Arizona's new immigration law fueling controversy and the federal government still grappling with reform for the estimated 11 million undocumented residents living in the United States, it's a good time to take a second look at immigration and hiring basics, audit and reporting trends, as well as the fine print in your EPLI policy. This review is especially critical for businesses operating in the border states–Florida, Texas, California and Arizona–and for industries that rely on less skilled workers, thus facing a potentially greater incidence of immigration-related issues in their employment practices.

Following a long history of controversial immigration policies, the U.S. government took a major stab at reform legislation with the Immigration Reform and Control Act of 1986 (IRCA). For the first time in modern history, it became illegal to knowingly hire undocumented immigrants, and employers were required to verify the immigration status of employees.

Although passage of the IRCA of 1986 increased enforcement, it also helped spawn a black market of fake IDs and other forged documents. These fake documents may be used to secure jobs, obtain drivers licenses and collect governments benefits, among other things, leaving companies that hire people under false pretenses particularly vulnerable to costly business and employment investigations by the U.S. Immigration and Customs Enforcement (ICE)–the federal agency in charge of enforcing the law.

Formerly known as the INS (Immigration and Naturalization Service), the ICE now operates under the Department of Homeland Security, with an annual $5.7 billion budget and more than 20,000 employees. It also oversees human trafficking and deportation, patrolling ports and borders, and combating document and benefit fraud.

Though the concept of conducting workplace raids has lost popularity during the last decade, onsite audits have become the new standard. Indeed, in recent years, worksite enforcements and audits have been on the rise.

According to ICE:

o Onsite employment eligibility verification (known as I-9 inspections after the I-9 form required for each new employee) more than doubled in 2009 versus the previous year to 1,069 cases.

o Notice of Intent to Fine (NIF) cases have also risen substantially, from 32 cases totaling $2.3 million in fines in 2008 to 142 cases totaling $15.8 million in fines in 2009.

Last year, in a case involving clothing manufacturer American Apparel, an ICE audit discovered discrepancies in nearly 25 percent the company's work force.

A common EPL policy claim trigger is an "administrative or regulatory proceeding." ICE audits and resulting NIFs, however, do not meet the above standard.

In response–and given the unending soft market–carriers have begun to offer a new type of coverage for this exposure for claims alleging violations of the IRCA of 1986 or any other similar federal or state laws or regulations. Often dubbed IRCA of 1986 coverage, carriers will pay defense costs defined by the policy that employers incur as a result of an ICE investigation.

Some carriers include token $25,000 sublimits at no cost; others underwrite IRCA coverage to provide sublimits up to $250,000. These limits, however, tend to be of a "defense-only" nature, simply because a company can't indemnify an insured who knowingly breaks the law.

Of note, another typical form of notification an employer might receive is called a "no-match" letter, which is issued by the Social Security Administration rather than the ICE. These letters are readily resolvable when caused by a change of last name after marriage or divorce or a simple clerical error.

Whatever the case, compliance with ICE and other regulatory inquiries is likely to increase due to technology. In 2008, President Barack Obama signed an executive order requiring anyone performing work on federal contracts to electronically verify employment eligibility.

Thus was born E-Verify, a free online service sponsored by the Department of Homeland Security that cross-references I-9 employment eligibility documentation with Social Security Administration databases. As of May 2010, nearly nine million checks had been performed year to date.

As well, some states have already enacted laws requiring all employers in their jurisdiction to use E-Verify. A prime example is South Carolina and bill H-4400. By this July, all employers can face the loss of their license to transact business if they do not properly verify that a new hire has the appropriate work authorization.

Just as important as making sure your EPL policy includes the IRCA enhancement to round out protection is taking steps to prevent garden-variety wrongful termination and discrimination claims. What that means is employers should follow a list of dos and don'ts, which includes the following:

o Don't stop hiring Latinos in order to avoid lawsuits.

o Don't overreact by firing affected employees.

o Don't request documentation not authorized by the I-9 form and potentially trigger a claim of harassment or discrimination.

o Do thoroughly train supervisors and management on how to properly deal with no-match letters.

o Most important of all, employers should never, ever take any action against an employee due simply to ethnic background, accent or birthplace.

Seth Brickman, AAI, RPLU, is senior underwriter at Windsor, Conn.-based Business Risk Partners, an established provider of professional and management liability solutions, including EPL insurance. He may be reached at sbrickman@businessriskpartners.com.