Illegal immigrant or independent contractor?

As the roofing industry becomes more reliant on an immigrant work force, reviewing and refamiliarizing yourself with immigration and employment laws can save you a great deal of headaches and possible exposure to liability. One aspect of immigration and employment law that can save you from trouble is learning your legal liability for, and how to deal with, your independent contractors and subcontractors.

The Immigration Reform and Control Act (IRCA) of 1986 requires employers to verify every employee they hire is legally entitled to work in the U.S. IRCA makes it illegal for any U.S. employer to hire, recruit or refer for a fee an alien known to be unauthorized to work; continue to employ an alien known to be unauthorized; and hire, recruit or refer for a fee any person (citizen or alien) without following the act's recordkeeping requirements.

If you knowingly hire illegal immigrants or permit illegal immigrants to work after discovering they are not legal, you face fines and penalties. Fines and penalties also are assessed against employers who fail to document compliance regardless of whether any of the employees are illegal. Fines range from $100 to $1,100 per employee for paperwork violations depending on the employer's size. Fines jump to $250 to $11,000 per each unauthorized alien employed. However, there are two exemptions.

The first exemption is known as the "grandfather" clause, which exempts those unauthorized aliens hired on or before Nov. 6, 1986, the date of the law's enactment.

The second exemption applies to "independent contractors."

Defining the role

Although you are not required to verify whether independent contractors and employees of independent contractors are authorized to work in the U.S., for this exemption to apply, you must be able to prove the relationship is one of a true independent contractor. The term "independent contractor" is defined as an individual entity that carries on independent business, contracts to do piece work according to his own means and methods, and is subject to control only related to results he provides.

As a result of the independent contractor exemption, companies never were responsible for verifying the legal status of employees of independent contractors. That responsibility belonged to the independent contractor. However, the days of turning a blind eye to employees of independent contractors are gone. Employers are beginning to rethink their approaches to independent contract labor, especially in the construction industry, because of a recent $11 million settlement the U.S. Immigration and Customs Enforcement (ICE) reached with Wal-Mart Stores Inc., Bentonville, Ark., over allegations of immigration violations (see "Wal-Mart: A tough lesson," page 46).

Subcontract clauses

The effects of the Wal-Mart case have reached the construction industry where owners are weary of entering into contracts without getting some assurance their subcontractors have legally employed labor. Many roofing contractors, particularly those contractors engaged in government contracting, have been asked by customers to verify and confirm all personnel on a particular project comply with all applicable legal requirements.

In light of the Wal-Mart settlement, if you subcontract any portion of your work, implement protective measures to ensure things will go smoothly in the event of an ICE audit. And the best place to do that is the subcontract agreement.

An effective clause for you to use in subcontracts reads as follows: "The subcontractor represents and warrants that it is in compliance with and agrees that it will remain in compliance with the provisions of the Immigration Reform and Control Act of 1986, including but not limited to the provisions of the Act prohibiting hiring and continued employment of unauthorized aliens, requiring verification and record keeping with respect to identity and eligibility for employment, and prohibiting discrimination on the basis of national origin, United States citizenship, or intending citizen status."

This clause should be followed with a specific indemnification clause where the subcontractor agrees to indemnify you and hold you harmless from all liability, including liability for interest and penalties, you incur as a result of your subcontractors failing to comply with any IRCA provision.

To further protect yourself, you could play an active, hands-on role in reviewing and verifying the legal status of subcontractors. Some roofing contractors implement this protective measure by including a subcontract clause requiring subcontractors to verify employment for all personnel who will work at a particular project. This clause can be particularly important if your work involves a federal project where there is a greater likelihood of being the subject of an audit by ICE, which is under the direction of the U.S. Department of Homeland Security.

Passing an audit

If you are the subject of an ICE audit, the law requires ICE to provide you with three days' notice before conducting a review of your and your subcontractor's I-9 forms and business records. Many roofing contractors are surprised to learn in an ICE audit on a construction project that they are responsible for producing employment verification records of their subcontractors' employees. In its audits, ICE seeks to review all of your employment records, payroll records, W-4 forms and I-9 forms, as well as those of your subcontractors. Having a subcontract clause that requires indemnification and hold-harmless language will assist you in getting cooperation from your subcontractors in responding to an ICE audit.

If all required paperwork is properly completed, there will be no liability even if it turns out some of your subcontractors' employees are not authorized to work in the U.S. This is because of the application of the "good-faith defense."

The premise of the good-faith defense requires employers to examine all employment verification documents to see whether the documents reasonably appear to be genuine and relate to the person presenting them. If the documents appear genuine and relate to the person presenting them, the documents must be accepted. Failure to accept facially genuine documents could be an unfair immigration-related employment practice, subjecting your company to liability for discrimination. If a document does not reasonably appear on its face to be genuine and related to the person presenting it, you cannot accept it. You cannot knowingly employ unauthorized workers.

Protection is best

I encourage you to protect yourself from a subcontractor's employment of illegal aliens. As mentioned, the proper and best mechanism to protect yourself from this liability is through subcontract agreements. Contact your attorney for contract language to include in subcontracts to protect you in the event of an ICE audit.

Philip J. Siegel is an attorney with the Atlanta-based law firm Hendrick, Phillips, Salzman & Flatt.

Is he independent?

Courts look at the following factors when deciding whether a true "independent contractor" relationship exists:

• Who supplies the tools/materials (an independent contractor will supply his own tools and materials)
  
  
• Whether work is done for other clients (independent contractors work for more than just one client)
  
  
• Whether there is an opportunity for profit or loss for the subcontractor as a result of the labor (A true independent contractor faces the possibility that the job will be performed at a loss as opposed to an employee who is paid wages and is not considered with profit and loss on the project.)
  
  
• Who determines order, sequence and time work is done (A true independent contractor will be able to determine his own order, sequence and time he decides to work as opposed to an employee, who is bound to his employer's demands.)

Wal-Mart: A tough lesson

Although the law states employers are not required to verify the legal status of legitimate independent contract labor, in the Wal-Mart case, U.S. Immigration and Customs Enforcement (ICE) alleged Wal-Mart Stores Inc., Bentonville, Ark., had direct knowledge of immigration violations involving its independent cleaning contractors at stores across the U.S. As part of its investigation, ICE agents engaged in a raid of the company's headquarters and 60 of its stores, arresting more than 250 employees of independent contractors in an immigration crackdown.

On March 18, 2005, Wal-Mart agreed to pay $11 million to settle allegations that it knowingly used illegal immigrants to clean its stores. As for the contractors that actually hired the illegal laborers? They pleaded guilty to various criminal charges and paid fines of about $4 million.