A new storm rising?

By G. Phillip Shuler

Contractors are all too aware of the profit draining quandaries that can arise in the wake of a large scale natural disaster (see hurricanes Katrina, Rita, Andrew etc.), such as increased material costs and labor shortages that inevitably lead to bloated expenses and extended job delays.

However, as we approach the end of the 2006 hurricane season relatively unscathed, there is a different kind of storm brewing on the horizon that could pose an equally ominous risk to your bottom line.

The convergence of the upcoming congressional elections and the five-year anniversary of the Sept. 11, 2001, terror attacks have brought to the forefront - once again - the national debate over a solution (assuming there is a problem) to America's burgeoning population of illegal immigrants.

The federal government's past failures in enforcing immigration controls have become a hot topic of debate among politicians and voters on both the national and state scenes, giving rise to a new wave of proposed legislation that would, among other things, impose tighter regulations - and much tougher penalties - on employers who knowingly employ illegal immigrants.

Currently, under the Immigration Reform and Control Act of 1986 (IRCA) employers who knowingly hire or continue to employ illegal immigrants who are not authorized to work in the United States are subject to fines ranging from $100 for mundane paperwork violations to $10,000 per violation for a pattern or practice of hiring unauthorized workers (in addition to a possible criminal penalty of up to six months imprisonment for each pattern or practice).

In the past these regulations have rarely been enforced.

Given the lack of enforcement and the relatively insignificant fines imposed, many companies have simply considered the prospect of an occasional fine a cost of doing business.

Proposed federal legislation would seek to shift this paradigm by placing greater responsibilities on employers (such as requiring them to take enhanced measures to ensure that their employees are working in the United States legally), by imposing stiffer fines for violations and by increasing the potential for jail time for employers who knowingly violate the law.

For instance, the latest immigration reform bill passed in the U.S. House of Representatives would dramatically increase the number of employers that are required to use the (currently voluntary) electronic employment eligibility verification system (EEVS), also known as the Basic Pilot Program.

Additionally, under the House bill fines for violations by employers would range from $5,000 to $25,000, and criminal penalties for repeat offenders could include a minimum one-year jail sentence (up from a maximum sentence of six months under current law). A provision in the competing Senate bill would go as far as holding some employers liable for violations effected by their subcontractors.

Most importantly, the proposed bills would allocate sufficient government resources to aggressively enforce compliance with new immigration laws, likely leading to increased investigations, fines and penalties.

While proposed federal legislation will likely not come into fruition until after this year's congressional elections, some state and local governments have taken matters into their own hands, passing (or introducing) laws intended to reinforce the IRCA's current prohibitions on hiring illegal immigrants. Both Georgia and Colorado have passed tougher laws that require employers to verify the status of their employees, while the city of Hazleton, Pa., recently passed a law that would deny business permits to businesses that knowingly hire illegal aliens.

Though the constitutionality of these state and local laws is in doubt, the recent efforts of state and local officials to crack down on the hiring of illegal immigrants is another indicator of the impending changes in the way our government addresses these issues.

Perhaps even more significant than the prospect of more stringent governmental regulation is the recent crackdown on employers of undocumented immigrants by the Immigration and Customs Enforcement agency (ICE). ICE has taken a much more aggressive and proactive approach to enforcing provisions under current immigration laws, making more than 445 employer arrests from January to July (along with the apprehension of approximately 2,700 illegal workers).

This number is dramatically increased in comparison to the 176 employer arrests made by ICE in all of 2005, and the paltry 25 arrests made in 2002. ICE has additionally begun seizing the assets that employers derive from knowingly employing illegal workers in an effort to diminish the financial incentive to hire undocumented workers. It is clear that ICE has redoubled its efforts to target employers who hire undocumented aliens and is supporting current congressional measures to enhance worksite enforcement.

The impact on construction executives, of the current trend toward enhanced enforcement of immigration laws, may reach far beyond the mere prospect of higher fines and criminal penalties. For instance, sweeping new legislation as proposed (and passed) in the House of Representatives, if enacted, could have a sudden impact on the available labor pool, driving up labor expenses and causing costly delays on projects.

Moreover, under the proposed legislation contractors may possibly face hefty fines for the hiring practices of their subcontractors. Some of these potential problems may be avoidable through carefully drafted "change in law" provisions in contracts, as well as through the utilization of defense and indemnity agreements with subcontractors.

These are but a few of the considerations that should be addressed with your legal advisor in order to prepare your business to better navigate the future landscape of immigration law, and avoid any potentially costly pitfalls that could transpire.