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Hire an Illegal Worker, Lose Your Business


Arizona's tough new immigration law has companies running scared

In the 20-plus years since starting out as a cook, Jason LeVecke has built up one of the biggest restaurant chains in Arizona. He now boasts 1,200 employees manning 57 Carl's Jr.s across the state--ten of them added this year alone. But on Jan. 1, a new law takes effect in Arizona that would severely punish businesses caught hiring illegal immigrants. So LeVecke is looking for growth outside his home state, and will build 25 new restaurants in Texas. Unless the legal situation improves, he says: "We won't add any new sites in Arizona. It's too great a risk."

In the wake of the federal government's failure to reform immigration laws, Arizona joins the more than 100 states and municipalities that have taken matters into their own hands in hopes of stemming the tide of illegal immigrants. But Arizona's law is by far the harshest toward business. A company caught knowingly employing an undocumented worker has its license suspended for up to ten days. Get caught a second time, and a company loses its license to operate altogether--what Governor Janet Napolitano has called the "business death penalty."

LeVecke and others argue the law could shut a company down even for inadvertently hiring illegal workers with false papers. "The penalties are swift, absolute, and terminal," says John Doran, a Phoenix-based lawyer. Business fears similar measures could be enacted elsewhere. "This is a test case for how hard states will come down [on] employers," warns Angelo Amador, director of immigration policy for the U.S. Chamber of Commerce.

This fall a coalition of business groups filed suit to quash the law. On Dec. 7, U.S. District Judge Neil V. Wake threw the suit out on technical grounds. He also argued the suit was premature. Three days later the plaintiffs filed a new suit and have asked for a preliminary injunction.

Napolitano, who signed the bill, has nonetheless urged the state legislature to clarify the law so that companies aren't unfairly investigated. A spokesman for the governor also says that companies that do as the law requires and verify new employees' legal status with a federal database should not have a problem.

Still, companies are scrambling to prepare. Many have spent months going over old records to check the status of their workers. LeVecke says he has centralized all hiring rather than risk a local manager making a mistake that could put him out of business.

Julie A. Pace, of Ballard Spahr Andrews & Ingersoll, one of the lawyers in the employers' suit, says thousands of workers have already lost their jobs. As scrutiny increases, many of her clients worry that they won't find enough help. With a low state unemployment rate of 3.7%, sectors such as construction, hotels, restaurants, and agriculture could find the going tough. "Everyone who wants a job has one," says Glenn Hamer, the head of the Arizona Chamber of Commerce. "What we need are more workers, not less."

Meanwhile, more companies could bail. Curry Seed & Chili Co. stopped growing some crops in Arizona and may plant in Mexico, in part because it fears worker shortages will worsen once the law takes hold. And Pace says she gets a call every month from the CEO of an out-of-state company that was set to acquire an Arizona firm in October. The deal has been put off until January. But if the new law goes into effect, she says, it may never get done.

Sasseen is Washington bureau chief for BusinessWeek.

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