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Undocumented Business Owners Under U.S. Immigration Law

Are Undocumented Employers Interpreted the Same as Undocumented Employees?

Everyone knows that businesses can suffer stiff penalties for knowingly employing undocumented foreign nationals. That is why upon hire all employers must ensure the proper completion of an I-9 Form in order to verify a new employee's work authorization and legal status. What is less clear, however, is whether or not undocumented business owners may also fall under the punitive purview of the law, it being possible that they too may be construed as undocumented employees of the company.

The question to be posed is this: is it a violation of the law for an undocumented immigrant to own a business?

Undocumented Business Owners

Such individuals are obviously deportable under the Immigration and Nationality Act (INA), but with around 11 or so million undocumented immigrants residing within the United States and immigrants as a whole estimated to be almost twice as likely to start a business than a native-born citizen (immigrants make up 27.5% of America's entrepreneurs, but only about 13% of the population), it remains that for most such undocumented employers this harshest type of penalty will never be realized. More so, even if such a removal were theoretically possible, a comprehensive action such as this would unarguably have devastating effects on American citizens if these job creators were to just vanish.  

What is more relevant to the current discussion of undocumented ownership's legality is the Immigration Reform and Control Act of 1986 (IRCA). This act subjects employers of undocumented workers to fines, asset forfeitures, and even criminal arrest in cases of repeat violations. However, and establishing the significance of the question to be discussed, is the fact that no undocumented immigrant has yet been sanctioned for owning a business. Therefore, it being that there then exists no specific litigation as a point of reference, the floor is open for debate on such a situation's legality. 

Are Employers Also Employees?

The real defining factor of whether or not IRCA bars undocumented immigrants from owning businesses is whether or not owners can also be considered employees of the business.

In some nontraditional business structure cases this question can become even more complicated. The efforts of "worker centers" and economic development activists have resulted in the creation of small worker-owned businesses where members are assigned jobs based on their participation in the co-op’s activities and paid an hourly wage by clients, in addition to contributing around 10% of their income to pay for the business's operating expenses. In other models hatched by nonprofits, owners may be paid through dividends on shares of stock in a "cooperative corporation” or, in an LLC, through a percentage of the monthly profit commensurate with the number of hours they work.

Deciding whether employers may also be construed as employees is a fraught question, especially with the described nontraditional business models. For example, though such a worker co-op's member may be assigned jobs with an hourly wage, they also pay the company's expenses and share in its management. 

The significance of this matter lies not only in the fact that, if such situations are truly illegal, that these businesses may be sanctioned. It is also an extremely relevant factor for the undocumented business owners themselves, for if they are breaking the law, they will be further hampered in the face of future immigration proceedings. However, as this discussion will demonstrate, to apply IRCA in this manner would be a grave misstep. The act's intention was the targeting of undocumented workers for the sake of protecting American jobs, an aim that pursuing undocumented business owners would in no way help accomplish, and would even prove substantially detrimental to job protection. Therefore, if there is any action that merits significant consideration, it should be one in which undocumented business owners are actually made in some way to be sheltered under the law, encouraging them to pay taxes, pay into workers’ compensation insurance and follow employment regulations.

As for present matters, it will be shown that, by logically following the laws and court decisions that are currently in place, businesses owned by undocumented immigrants should not be interpreted the same as those employing them, and thus should not face the derived penalties and implications.

The Narrow Definition of Unauthorized Employment and Caution as to not Burden Businesses

IRCA is conspicuously specific on its singling out of hiring undocumented workers and the compounding penalties involved, but it does not make much effort beyond that narrowly defined situation. It makes no mention of owners, silent partners or investors. In that the act only concerns itself with "hiring for employment," and there being no legal challenges thus far to turn to, it should be believed that the intention of the legislation is deliberately narrow.

Furthermore, when the bill was being passed, there was no recorded discussion between Congress members in concern to business and investment ownership, the deliberations solely focused on low-skilled undocumented workers. Supporting the narrow definition of unauthorized workers hired for employment, it would seem wholly inappropriate to attempt to broaden the law to include business owners and the like as well.

The act does not offer any guidance as to the scope of the phrase: "hire for employment." It is there that the debate enters as for whether or not a simple common sense interpretation should be broadened to include undocumented business owners. However, the standards set by the Supreme Court inform against such an approach. In cases such as this, the judicial body has stated that while Congress is free to define a term or phrase in an unexpected way, it would have to directly say so in order for that definition to be applied (see Lopez v. Gonzalez, 549 U.S. 47). Therefore, the common sense approach to interpreting "hire for employment" should not be tampered with.

IRCA regulations frame employment as the exchange of labor or services for wages or remuneration. "Hire" is defined as “the actual commencement of employment of an employee for wages or other remuneration," (8 C.F.R. §  274a.1(c)) and “employment” as “any service or labor performed by an employee for an employer within the United States.” (C.F.R. §  274a.1(h)) 

As aligned with any sort of common sense and logic, the situation of a business owner does not fit these descriptions. First, there is the traditional "no compensation rule," requiring that partners are not paid for their services to their firms, but are rather given their division of the profits as equally distributed among the partners. A portion of the profits does not fit within the purview of wages and remunerations, especially in that profits are not guaranteed and depend on the success of the business. 

The case with worker co-ops as have been described is a bit more murky, but its workers should still be considered owners, not employees. While co-op members do receive a wage of sorts, it does not fit the standard definition of an employee wage in that their situation is still derivative of the business's success and profits, like that of an owner. If for some reason a pay period was not profitable, the worker's would not receive any payment whatsoever. 

Furthermore, it must be remembered that IRCA was designed with the purpose of establishing a system of sanctions intended to protect American jobs while also not unduly burdening the nation's businesses. To do so would emphatically negate the point of the legislation in the first place. This even resulted in a somewhat lax view in judging the compliance of employers with the verification requirements of their hires, in that so long as they complete the verification and it “reasonably appears on its face to be genuine,” they are not held responsible for unintentionally employing unauthorized workers.

There are also many groups of workers explicitly set aside by Congress as to not be subject under IRCA's new provisions, including domestic workers and independent contractors. These exceptions are meant to further shield businesses from unnecessary burdens, as it would be exceptionally tedious to apply the paperwork requirements to all individuals and for such intermittent, sporadic work. Employers may only fall under penalty in these circumstances if these courses are taken for the deliberate skirting of IRCA hiring requirements. 

Due to these numerous efforts by Congress not to place significant additional burdens on businesses and the narrow definition of workers IRCA concerned itself with, it would be a mistake to broaden the bill's implications to include undocumented business owners. Furthermore, the bill's purpose was to protect and expand American jobs, an objective of which going after these individuals would prove directly contradictory.

Employers as Employees Under Federal Employment Law

In the past, the Office of the Chief Administrative Hearing Officer (OCAHO), the review authority of such immigration laws and their interpretations, has often turned to federal law in the absence of statutory explanation, and it may be assumed that it will do so again. This certainly fits the situation of undocumented business owners under IRCA. 

In an employment discrimination context, Clackamas Gastroenterology Associates v. Wells (538 U.S. 440 (2003)) typically serves as the benchmark for whether or not owners may also be construed as employees. Without diving too much into the specifics of the case, the court decided that just because an owner provides services to his or her business, that does not establish that one is also an employee. In its decision, the court stated that “as Darden reminds us, congressional silence often reflects an expectation that courts will look to the common law to fill gaps in statutory text, particularly when an undefined term has a settled meaning at common law.” (Clackamas, 538 U.S. at 447)

Moreover, in further establishing whether an individual may be considered an owner or an employee, the court adopted six factors from the EEOC Compliance Manual to help determine “whether the individual acts independently and participates in managing the organization, or whether the individual is subject to the organization’s control." Qualifying that these factors are not exhaustive or definitive, they included:

  • "Whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work."
  • “Whether and, if so, to what extent the organization supervises the individual’s work."
  • “Whether the individual reports to someone higher in the organization."
  • “Whether and, if so, to what extent the individual is able to influence the organization."
  • “Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts."
  • “Whether the individual shares in the profits, losses, and liabilities of the organization.”

Clackamus had a significant and widespread impact on federal employment law. Furthermore, the Restatement (Third) of Employment Law summarized the inquiry after Clackamas as: “Unless otherwise provided by law, an individual is not an employee of an employer if the individual either owns all of the enterprise or owns some other interest in the enterprise that provides the individual with ownership control over all or a substantial part of the enterprise.” (RESTATEMENT (THIRD) OF EMPLOYMENT LAW § 1.03)

It must also be affirmed that a large number of owners does not necessarily entail any lack of control. In fact, Ziegler v. Anesthesia Assocs. of Lancaster applied Clackamas in maintaining a determination that the doctor-shareholders of a large anesthesiology practice were not employees even though there were nineteen of them. Because each shareholder in the practice had an equal vote in making outside contracts, hiring and firing staff, and making offers of partnership in addition to their dependence of their compensation on profits, the court asserted that each shareholder nevertheless maintained a sufficient level of control.

The combination of this case law convincingly demonstrates that business owners are not simultaneously employees, and, when paired with the narrow constraints of IRCA, further maintains that business should not be penalized when their employers are undocumented.

The Need for Legislative Action

While it may be sufficiently inferred that undocumented business owners should not be made subject to the punitive measures of IRCA, it is still necessary that Congress step in to set the matter right once and for all. While incoming immigration reform is anything but a certainty at this current point in time, including such language as exempting undocumented undocumented business owners needs to be made an essential component.

While one can debate the utility of unskilled illegal workers as a component of the American economy, it is excruciatingly difficult to see how one may view undocumented business owners as not a verifiable good that should in virtually all cases be welcomed. These immigrants grow the economy and create jobs, in many cases the exact opposite of the worries held by many individuals who fear the competition that uninhibited immigration may bring. While Congress does not need to encourage these types of situations, it may take advantage of the ones already present by introducing guidance as to protect these business owners and thus encourage them to become even larger contributors to the good of the American people.