Client Alerts
September 13, 2011

New state immigration laws are impacting the construction industry

Stites & Harbison, PLLC, Client Alert, September 13, 2011

by Stites & Harbison, PLLC

State Immigration Law Reform: it all started with Arizona’s controversial immigration bill, the “Legal Arizona Workers Act.” We watched while this law was hotly debated--chiefly because many view immigration enforcement as within the purview of federal law. Media outlets debated the provision allowing law enforcement officers to detain anyone who is otherwise stopped for a lawful reason if the officer has reasonable suspicion that the person may be an illegal immigrant. This provision heightened concerns of racial profiling. However, less newsworthy and potentially more controversial are the provisions in the law that permit Arizona to effectively shut down businesses that hire illegal workers.1 This provision survived challenge: the United States Supreme Court, in a 5-3 ruling in May of this year, gave state legislatures a green light to target those businesses who employ unauthorized workers by upholding Arizona’s “death penalty” law for employers who repeatedly hire undocumented workers. Possibly no single industry hires more immigrant labor than the construction industry.

This green light, and possibly the publicity that Arizona’s immigration law generated, motivated legislatures across the country to propose their own versions of the "death penalty" law. In 2011 alone, 30 states considered 53 omnibus immigration bills addressing immigration law enforcement, employment verification and verification of lawful status for public benefits.2 Six such laws have been enacted, 21 are pending and 26 have failed.3 Utah, Alabama, Georgia, Indiana and South Carolina have enacted laws with provisions similar to Arizona’s law—all of which were enacted before July 1, 2011.

It could be argued that no single industry is more at risk from state immigration laws that include "death penalties" for companies that hire unauthorized workers. Contractors, subcontractors and vendors on construction projects typically engage significant numbers of immigrant labor, and the risks attendant to federal immigration enforcement raids have been the concern of contractors and owners over the past ten years. Provisions requiring lower tiered subcontractors to indemnify and hold contractors and owners harmless from penalties, fines and other consequences of employing unauthorized labor have become the norm in construction contract documents. However, there is no means by which a corporation can contractually insulate itself from a state law that suspends or revokes the business license of a contractor or subcontractor for hiring an unauthorized worker.

In Alabama, for example, if a public contractor knowingly employs unauthorized workers, the Attorney General of the state may bring action to suspend the business license of the corporation for the first violation. The state can permanently revoke the license for a second violation.

In Georgia, a contractor or subcontractor may be prohibited from bidding future public work if an undocumented is discovered on a public project.

Likewise, in South Carolina, if a contractor employs unauthorized workers, the employer’s license may be suspended, and the employer may not seek reinstatement of the license for a period of five years. After five years, the state may grant reinstatement if the private employer goes on probation for three years, terminates the unauthorized worker and pays a reinstatement fee equal to the cost of investigating and adjudicating the matter.

There are 36 similar bills pending in other states including California, Florida, Iowa, Illinois, Kansas, Massachusetts, Michigan, North Carolina, Nebraska, Nevada, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee and Texas.

Bill Caton, spokesman for Alabama’s Associated General Contractors, expressed concern that “the law[s] could stifle business through legal fees and regulation.” AGC of America opines that these laws “make all businesses the scapegoat in the immigration debate.” These new immigration laws could indeed have a chilling effect upon the construction industry and contractors’ willingness to take the risk of doing business in states with these laws. As states continue to enact immigration laws with widely varying provisions that have potentially draconian impacts on a contractor’s ability to continue to business in that state, the construction industry is faced with escalating risks and uncertainty if they conduct interstate business.

Many of these laws also require that contractors and subcontractors use E-Verify with new hires. A large segment of the construction industry has been using E-Verify—either voluntarily or because they do business with owners that require it—for some time. It is unlikely that the E-Verify requirements will have significant impact on the industry. However, the varying nature of these state laws, together with the growing number of states adopting these laws with “death penalty” provisions are cause for concern. A prudent contractor or subcontractor will need to check the status of the immigration laws in states in which they do business, just as they would check licensing and lien laws in the ordinary course before beginning a project. It appears that this will be the new normal for the construction industry going forward.

1The Arizona law suspends or revokes licenses to do business in the state as a penalty against employers who knowingly hire unauthorized workers.

2National Conference of State Legislatures ("NCSL"), Immigration Bills 2011 Report.


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