Employee Identity Theft - Responses and Obligations

by Davis Brown Law Firm
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You have done all of your work, you have completed the I-9, carefully checked all of the appropriate documents, utilized e-verify, done your background checks and suddenly you have that sinking feeling in the pit of your stomach when an employee or an outside source comes to you and says one of your employees is working under a false identity. Assuming you haven’t recently won the lottery and can’t just bail once you have knowledge that an employee may have presented false identification, including a false social security number, what obligations do you have as an employer?

  • You should conduct a reasonable investigation.  Don’t just assume that because a report has come in that the employee may be working with a false identity that it is in fact accurate.  Plenty of times we have seen anonymous complaints or otherwise that an employee doesn't have proper documentation when in fact it’s some form of retaliation. 
  • As part of your investigation you should have a conversation with the employee.  Ask about the identification and make an attempt to determine whether or not the employee was originally truthful and accurate with you during the employment process.
  • You should also evaluate your processes including your I-9 and preliminary interviews and background checks to determine whether an error may have been made or if any of the documentation with your new knowledge appears to be false or inaccurate.
  • While you do not have an obligation to contact law enforcement, including Immigration Customs and Enforcement, regarding any potential false identification you do need to make a business determination as to whether or not this contact will occur.
  • If your investigation determines that the employee is in fact utilizing false identification you need to make an assessment as to whether or not the employee will be terminated.  Normally termination is recommended because the employee is in violation of your honesty policy, in violation of the law and you, as the employer, are now in violation of the law, including IRS rules.
  • Once a false identification has been determined, employers typically need to submit IRS forms W-2c and W-3c to correct any wages reported in error to someone else’s social security number.  
  • An amended employment tax return, such as the 941-X should be filed and you will need to advise the employee in writing that tax consequences may arise if the employee did not pay appropriate taxes on his/her own income and that the employee should seek professional advice regarding income tax or other issues.  You aren’t giving tax advice.  You are warning them they probably need tax advice.  This needs to be a letter which is kept in the personnel file to later show that due diligence occurred.
  • There are certain specialty circumstances such as where the employee worked in the healthcare field or was a healthcare license holder where you may have self reporting requirements to the Office of the Inspector General.  There may be other reporting obligations to the licensing boards and similar agencies if false identification is discovered.  There may also be a malpractice insurance issue which will need to be addressed.
  • Even if an employee was not authorized to legally work in the United States, you still owe the employee all wages for hours worked, including overtime.  See Lucas v. Jerusalem Café, LLC (W.D.MO. 2011).  But what happens if the employee has disappeared and you cannot find him/her?  Under Iowa Law the employer is required to hold a final payroll amount pursuant to the employer’s policy.  If there is no policy, unpaid wages that are unclaimed by the employee must be held for a year and after a year they are presumed abandoned.  When the property becomes abandoned, the employer must report to the state treasurer that the property itself has been abandoned.  See Iowa Code 556.9 & 556.11.

Identity theft is a complex issue which can take a significant amount of time, energy and money for an employer to address and correct.  It also opens the employer up to penalties and similar issues when identity theft is discovered. These business costs show that an employer investment in good quality and initial processes such as consistent I-9 review, I-9 audits, training for employees who complete I-9s, background checks and similar matters are an investment well worth the employer’s time and energy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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