RICO and Its Burgeoning Relationship with Immigration Law

May 2008Newsletters Legally Speaking

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While many employers are now aware of the Department of Homeland Security’s increased efforts to strengthen immigration-related worksite enforcement, including increased civil and criminal penalties for hiring undocumented workers and/or failing to comply with I-9 procedures established by the Immigration Reform and Control Act of 1986 (IRCA), many may be surprised to learn that the violation of immigration laws also may hold employers liable under the federal Racketeer Influenced and Corrupt Organizations Act (RICO). Although RICO was originally aimed at organized crime, it has since been creatively applied in other contexts, including immigration law.

In 1996, without much publicity, Congress expanded RICO by adding violations listed in the Immigration and Nationality Act (INA). These additions have made RICO a new and potentially very strong tool for private parties to use against persons and companies that profit by violating U.S. immigration law. Pursuant to these RICO provisions, violations of certain INA provisions meet the definition of racketeering activity, also known as “predicate offenses,” if they are committed “for the purpose of financial gain.” Such predicate offenses include encouraging illegal immigration, employing illegal aliens, and harboring illegal aliens (including, for example, harboring employees who entered the U.S. legally, but have since fallen out of legal status).

Pursuant to RICO, a private party harmed by a group or person who commits criminal acts that violate the statute within a 10-year period with similar purpose or results may file a civil lawsuit for damages against the violating party for racketeering. A “person damaged in his business or property” can sue one or more “racketeers” under RICO; the plaintiff must prove the existence of a “criminal enterprise.”

An enterprise can be a legal entity, such as a partnership, corporation, or association; it also can be an individual or a relatively loose-knit group of people or legal entities.The latter groups are referred to as “association-in-fact” enterprises under the statute. Many courts will accept any informal group as an association-in-fact enterprise so long as the group possesses three characteristics: some continuity of structure and personnel; a common or shared purpose; and an ascertainable structure distinct from that inherent in the pattern of racketeering.

RICO requires that the defendant “conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs.” This generally includes not only executive-level employees, but also participants in the enterprise who are under the direction of upper management.

In the context of immigration law, former and current employees (including undocumented aliens in some instances) have brought class action suits against employers claiming that employers depressed their wages due to the practice of hiring illegal aliens in violation of RICO. Alleged violations have included conspiring with temporary worker agencies, recruiters, and other subcontractors to recruit and hire illegal workers in order to suppress the wages of legal workers. Tyson Foods is an example of a company that has faced such RICO claims. Companies that have been competitively injured by a competitor’s employment of unauthorized workers also can bring a claim under RICO based on business lost as a result of a competitor’s pattern of hiring illegal aliens that may, for example, enable the violator to reduce costs and underbid the plaintiff on contracts.

RICO lawsuits can be especially damaging to employers because of the associated potential costs: the statute allows successful plaintiffs to recover three times their compensatory damages and attorneys’ fees, not including the costs employers must bear in defending themselves against these types of lawsuits. Additionally, those found guilty of racketeering can be fined up to $25,000 and/or sentenced to 20 years in prison per racketeering count. The racketeer must also forfeit all ill-gotten gains and interest in any business gained through a pattern of “racketeering activity.”

In 2006, the U.S. Supreme Court for the first time agreed to hear an immigration-related RICO case, in which a class action suit brought by former and current employees of one of the nation’s largest carpet and rug manufacturers withstood a motion to dismiss their RICO claim. The claim stated that the employer engaged in racketeering activity by encouraging foreign workers to enter the U.S. and work in violation of the law (Mohawk Industries Inc. v. Williams). The suit alleged that the employer drove down wages by conspiring with recruiters and temporary agencies to recruit illegal aliens. Interestingly, shortly after the Supreme Court agreed to hear this case, a fruit grower in Washington, Zirkie Fruit Company, agreed to pay $1.3 million, as well as plaintiffs’ legal fees, to settle a RICO-based class action lawsuit that was factually and legally similar.

In a more recent example, on March 25, 2008, an Ohio federal judge refused to dismiss a RICO claim made by an employee against three freight airline executives at his company, accusing them of allegedly creating a racketeering enterprise by cooperating with a temporary worker agency to hire undocumented workers in order to reduce wages of legal workers (Hager v.ABX Air Inc.).

Judge John D. Holschuh of the U.S. District Court for the Southern District of Ohio rejected claims against ABX Air, Inc. and its parent company, DHL Express, holding that neither corporate entity could be held liable as an illegal “enterprise” under RICO for the allegations. However, the court held that corporate employees are separate from the corporation and therefore could be held liable for conducting the affairs of an enterprise (i.e., the corporation) through a pattern of racketeering activity. According to the court, the ABX employee successfully stated a RICO claim against ABX’s president and chief executive officer, vice president for human resources, and a human resources manager, who together allegedly “approved and implemented a policy within ABX and DHL to operate an illegal worker hiring scheme by using…ABX and DHL as [vehicles]” in order to hire 10 or more undocumented workers in violation of RICO. As part of his decision, Judge Holschuh stated that “a corporate employee is separate from the corporation and can conduct the corporation's affairs in violation of RICO.”

RICO claims in the context of immigration law are fairly new and continue to face various hurdles. For example, although some courts have held that the lost wages of employees constitute “injury to property” caused by the racketeering activity, several courts have disagreed, stating that the alleged injury is too remote to have been caused by the racketeering activity. Additionally, plaintiffs have faced difficulties establishing an “enterprise,” and courts have been divided as to whether a plaintiff must demonstrate a threat of future criminal enterprise in order to establish a “pattern of racketeering activity.” Nevertheless, in today’s increasingly stringent world of immigration law enforcement, the RICO suits that have emerged thus far emphasize the importance of employers’ compliance with IRCA and other U.S. immigration laws and regulations.

The author would like to thank Beatrice Caplan, an associate at Fox Rothschild LLP, for her contribution to this article.