This feature is a part of "The Dotted Line" series, which takes an in-depth look at the complex legal landscape of the construction industry. To view the entire series, click here.

The U.S. construction industry, like agriculture and manufacturing, has a reputation for relying on undocumented workers. That's mostly because legal workers simply aren't available, and cost much more to employ when they are.

President Donald Trump's administration has vowed to get tough on companies that employ undocumented labor and recent Department of Homeland Security data shows stricter enforcement is underway.

The agency's Immigration and Customs Enforcement (ICE) is tasked with ensuring that employers maintain complete I-9 records, and the agency conducts audits throughout the year. In 2018, the number of audits rose to 5,981 from 1,360 the year before, according to the National Law Review. In July, 3,282 audits were noticed within three weeks. Targeted industries include hospitality, agriculture, food processing, landscaping, and construction. 

Penalties are on the rise as well, with ICE issuing some of the largest fines in its history over the past two years. Buoyed by $6.5 million of additional funding, the agency was expected to follow that up with another 3,000 audits, thanks in part to the hiring of 27 new compliance officers and the opening of new DHS offices in Charleston, Kansas City, Las Vegas, and Nashville.

Despite the increased threat of a crackdown, a massive shortage of skilled workers is making it difficult for some contractors to adhere to federal hiring requirements. 

Some businesses are able to bring workers into the country via H-2B visas, attorney Chad Blocker, a partner in the Los Angeles office of Fragomen, Del Rey, Bernsen & Loewy LLP, told Construction Dive, but those are designated for seasonal industries like landscaping and hospitality.

Also, attorney Samuel Newbold, chair of the immigration law group at Chiesa Shahinian & Giantomasi PC in New York, told Construction Dive that there has been resistance on the part of trade unions to the idea of a visa that would allow construction workers to enter the U.S. on a legal, temporary basis. In addition, laws related to undocumented workers vary from state to state. 

Nevertheless, allowing undocumented individuals to work on a jobsite, be it through direct hiring, labor brokers or subcontractors, poses several risks to contractors that can have a significant impact on their businesses for years to come.

Fines and penalties

Since 1986, employers have been required to complete and maintain Form I-9, also known as an Employment Eligibility Verification form, for each person they employ. As part of completing this form, the employer or authorized representative must verify, under penalty of perjury, that the employee has presented documents that prove he or she is eligible to work in the U.S.

Penalties for technical I-9 violations range from $230 to $2,292 per form. For those companies that knowingly hire someone without completing an I-9, which is impossible to do satisfactorily without the employee’s work documents, the fine can reach as high as $20,130 per form.

From the time ICE sends out a notice of audit, an employer has three days to collect its I-9s and prepare, according to Blocker. “That’s not a lot of time,” he said.

An employer can also be charged criminally if ICE determines that it engaged in a pattern of hiring or recruiting undocumented workers.

Smaller contractors, Blocker said, might be willing to take the risk that ICE will come knocking and still hire undocumented workers, but larger ones with more employees could be put out of business, depending on what the total fines per form turn out to be. “It would challenge their business survival.”

Subcontractors are also under the same obligation to maintain I-9 documentation for their employees, but, general contractors aren’t always off the hook if they don’t.

“The test is knowledge,” according to Newbold, who said that if GCs or even large subcontractors are aware that the company they’ve hired is using undocumented workers, they can be held responsible as well. However, that depends on the level of constructive knowledge, which is knowledge that a person is deemed to have of facts that he or she would have discovered had he or she made the proper inquiries.

Rumors and suggestions, for example, that a lower-tier contractor on the project is using undocumented workers is likely not enough to implicate a general contractor, Newbold said. However, if that general contractor has conspired with the subcontractor about ways to bring those workers on site, and there are texts, emails or other evidence to prove it, the general contractor could be in trouble.

Additional costs

The legal fees contractors are likely to incur when defending themselves against I-9 violations or other allegations that they’ve been facilitating the use of undocumented workers might be even higher than the fines ICE imposes, Newbold said.

An additional risk that some contractors take if they are found liable for I-9 violations, Blocker said, is being prohibited from participating in government projects.

However, it is more difficult for federal contractors to play fast and loose with I-9 or other hiring-related regulations, Newbold said, because they have to run all their hires through the E-Verify system, which confirms electronically whether or not an individual is eligible to work in the U.S. Many states, such as Pennsylvania, also require contractors to use E-Verify as well. Some make it mandatory only for construction companies when they are performing public work, while others do so for all new hires.

And contractors that hire undocumented workers with the intention of not paying them a fair wage or overtime might be in for a surprise on that front as well. The U.S. Fair Labor Standards Act, which sets minimum wage and other rules for overtime pay, applies to undocumented workers as well, so employers that try to underpay those employees could find themselves in hot water with the Department of Labor.

Contractors can make even more trouble for themselves by misclassifying undocumented workers as independent contractors. It is possible that ICE will request a roster of independent contractors if they decide to audit, and wrongly categorizing workers as independent contractors could also summon the wrath of the Internal Revenue Service, as well as agencies in states like California, which have very specific rules about who can be treated as an independent contractor.

Workers’ compensation woes

In many states, undocumented workers are entitled to workers’ compensation benefits just like any other employee. In the construction industry, however, some lower-tier contractors’ use of professional employer organizations (PEOs), also known as employee leasing companies, could complicate matters.

Some contractors turn to PEOs because they offer lower workers’ comp premiums than these contractors can get on their own or because PEOs provide access to the kind of employee benefits —401Ks, health and life insurance — that a small contractor cannot provide. As part of the arrangement, all of the contractor’s workers become employees of the PEO and then are leased back to the contractor.

The contractor, however, is obligated to immediately report any new hires to the PEO. Unreported employees, even if they are injured, are not covered by the PEO’s workers’ comp policy. Depending on the state, said Eric Messer with nationwide insurance broker Marsh & McLennan Agency, the state workers’ comp pool might cover the injury and then go after the contractor for reimbursement. In other states, the hiring contractor would be responsible to provide workers’ comp coverage for the injured employee, which would likely result in higher premiums because of the additional exposure.

Reputation and job opportunities

It’s not hard to imagine that current and future clients would not be impressed with a contractor that had been held liable for I-9 or other labor violations connected to undocumented workers, particularly since recent, high-profile cases have linked undocumented workers to exploitation and abuse.

This summer, a federal judge in California sentenced contractor Job Torres Hernandez to almost nine years in prison for forcing some undocumented individuals to work on projects in the San Francisco Bay Area and keeping others locked in a warehouse during their off hours. The warehouse had no sanitary facilities, and prosecutors said Torres threatened workers if they didn’t continue to work or if they complained to anyone about their living conditions.

When trying to win new work, Blocker said, contractors don’t want to be seen as companies that mistreat their employees, undocumented or not, because of these kinds of associations. “It’s not a good place to be.”

Contractors, Messer said, also could have difficulty securing work if their potential customers believe they could bring extra scrutiny or negative publicity to the jobsite. Even if there is nothing to find, this could be off-putting to a general contractor or owner that wants a trouble-free jobsite. “It’s about marketplace reputation,” he said.

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