Lachenmeier, Enloe & Rall - July, 2002 Publication

U.S. Supreme Court Rejects Back Pay Claim by Undocumented Worker
Decision Potentially Applicable to Injury Claims by Undocumented Workers
July, 2002

     A claimant is injured while employed by your insured, incurring a large workers’ compensation lien for lost income. Another claimant is injured in a motor vehicle accident, resulting in a large wage loss claim against your insured. You find out that these claimants are in the United States illegally. Must you reimburse the workers’ compensation lien? Do you owe the wage claim? Traditionally, trial courts have answered in the affirmative. However, a recent decision by the US Supreme Court indicates that the answer may be “no.”

     In Hoffman Plastic Compounds, Inc. v. NLRB, 122 S Ct 1275 (2002), the Supreme Court reviewed a decision of the National Labor Relations Board (NLRB) awarding back pay to an undocumented former employee of Hoffman. When hired by Hoffman, the employee, Castro, presented documents that appeared to verify that he was authorized to work in the United States. Castro was laid off after engaging in union organizing activities and Hoffman was accused of violating the National Labor Relations Act by doing so. During a hearing, Castro disclosed that he was in the United States illegally and that he had fraudulently obtained the identification he had used to gain employment with Hoffman. He was denied back pay at the hearing, but the NLRB reversed, and the Court of Appeals for the District of Columbia affirmed.

     The Supreme Court disagreed. It noted that Congress had enacted the Immigration Reform and Control Act of 1986 (IRCA) as a “comprehensive scheme prohibiting the employment of illegal aliens in the United States.” The IRCA “‘forcefully’ made combating the employment of illegal aliens central to ‘the policy of immigration law.” Section 1324a(a)2 of the IRCA requires an employer who unknowingly hires an unauthorized alien to discharge that worker upon discovery of the undocumented status. Section 1324c(a) also makes it a crime for an undocumented alien to “subvert the employer verification system by tendering fraudulent documents.” Aliens who attempt to use such documents are subject to fines and criminal prosecution.

     According to the Court: “Under the IRCA regime, it is impossible for an undocumented alien to obtain employment in the United States without some party directly contravening explicit congressional policies. Either the undocumented alien tenders fraudulent identification, which subverts the cornerstone of IRCA's enforcement mechanism, or the employer knowingly hires the undocumented alien in direct contradiction of its IRCA obligations.” The Court reasoned that awarding such pay “not only trivializes the immigration laws, it also condones and encourages future violations.” It then concluded “that allowing the Board to award backpay to illegal aliens would unduly trench upon explicit statutory prohibitions critical to federal immigration policy, as expressed in IRCA. It would encourage the successful evasion of apprehension by immigration authorities, condone prior violations of the immigration laws, and encourage future violations.” As for concerns that this ruling would encourage labor law violations by employers, the Court noted that Hoffman had already been subjected to significant statutory sanctions for such violations.

     Oregon courts have not yet addressed whether undocumented workers may recover lost wages or earning impairment damages generally, or the applicability of the IRCA specifically. The US Supreme Court’s clear articulation of the public policy implicit in the IRCA, however, indicates potential applicability to such claims, particularly since Congress has the authority to pre-empt state law with respect to immigration policy. See De Canas v. Bica, 424 US 351 (1976).

     A number of other jurisdictions have considered the applicability of the IRCA, mostly in the context of workers’ compensation or unemployment benefit claims, and all prior to the Hoffman decision. Some courts have held in favor of providing benefits, largely based upon specific statutory language. See Reinforced Earth Company v. Workers’ Compensation Appeal Board, 749 A2d 1036, 1038 (Penn. 2000) and Champion Auto Body v. Industrial Claim Appeals Office of the State of Colorado, 950 P2d 671 (Colo. 1998) (both allowing workers’ compensation claims because statute did not exclude illegal aliens). Other courts have denied benefits. See Granados v. Windson Development Corp., 509 SE 2d 290 (Virginia 1999) (undocumented alien was not an “employee” under workers compensation law since, under the IRCA, an undocumented alien could not lawfully contract for employment). Others have allowed some and denied other claims: See Mendoza v. Monmouth Recycling Corporataion, 672 A2d 221, 224 (N.J. 1996) (denying unemployment benefits to an illegal alien, since prohibited by law from accepting a job and is “unavailable for work” but allowing a workers’ compensation claim because it is an integral part of the contract of employment, is privately funded by employers and encourages employers to promote workplace safety); Tarango v. State Industrial Insurance System, 25 P3d 175 (Nevada 2001) (denying vocational rehabilitation benefits to an undocumented worker, but allowing workers’ compensation benefits).

     A recent Oregon decision of potential significance is State v. Pacheco, 180 Or App 81 (2002). In that case, Pacheco, an undocumented alien and Mexican citizen, was convicted of fraudulently obtaining more than $20,000 in public assistance. The trial court imposed restitution in that amount, at $100 per month. The Court of Appeals reversed, stating that there was no evidence that Pacheco could return to Mexico and earn income to pay the restitution. Nor was there evidence that Pacheco would ever be authorized to work legally in the United States. The court commented that “a court cannot base its ‘ability to pay’ determination on a premise that a defendant will continue to engage in unlawful conduct and that the proceeds of that conduct can be applied towards satisfying a restitution obligation. Indeed, fixing restitution on that basis could be regarded as implicitly sanctioning, and benefiting from, unlawful conduct.”

     Although decided in a different context, the clear implication of Pacheco is that the state should not encourage unlawful behavior in the form of employment of undocumented workers. This public policy holding would presumably be applicable to claims in which an undocumented worker attempts to collect wage loss and earnings impairment damages. Likewise, where an undocumented worker has been awarded workers’ compensation wage benefits, one could argue that the claim should not have been paid, and reimbursement of the lien not owed, due to the worker’s status.

     In summary, the US Supreme Court’s decision in Hoffman holds the potential for limiting or eliminating wage loss and impairment of earning capacity claims by undocumented workers, as well as workers’ compensation liens for wage loss. The clear public policy of denying employment to undocumented aliens articulated by the Court, and endorsed by the Oregon Court of Appeals in Pacheco, may convince a trial court to either dismiss or limit such claims in Oregon and other jurisdictions.

     If you have any questions about this subject, please feel free to contact the author, Tim Heinson, by telephone, (503) 768-9600, or by e-mail, tim@lerlaw.com.