Fear is spreading among many L.A. companies as the federal government steps up its enforcement of immigration rules, raiding workplaces and issuing audit notices that require businesses to prove their employees are legal.

Companies in industries with high numbers of undocumented workers are re-interviewing workers, firing those who can’t produce adequate documentation and even considering importing workers from other states all in an effort to head off enforcement actions that can close down a business.

“You look at the apparel, restaurant, construction and agriculture industries, and there’s definitely more fear among employers now,” said Josie Gonzalez, partner at Pasadena-based immigration law firm Gonzalez & Harris LLP and chair of the American Immigration Lawyers Association’s worksite enforcement committee.

The stepped-up crackdown by the Immigration and Customs Enforcement branch of the Department of Homeland Security on undocumented workers has shut down operations of companies nationwide, including several poultry plants in the Midwest earlier this month.

But the concern is especially pronounced in Los Angeles County, which by far has the most undocumented workers of any metropolitan area in the nation, anywhere from 450,000 to nearly 1 million, depending on the count. Indeed, the county has more undocumented workers than all but three states: Texas, Illinois and New York.

The fear was heightened by the February raid on a Van Nuys maker of printer cartridges, in which 138 undocumented workers were rounded up. Just this month, ICE raided several distribution warehouses in the South Bay. These raids have prompted protests from L.A. political and business leaders.

L.A.-based clothing manufacturer American Apparel Inc. disclosed earlier this year it had received an audit notice to turn over its employee identity documents to the government.

Dov Charney, the company’s flamboyant chief executive, launched a “Legalize L.A.” campaign aimed at gaining amnesty for undocumented workers six years ago. He said the stepped-up enforcement could have dire local consequences.

“Something needs to be done about this or there could be disastrous consequences for our economy,” said Charney, the only local executive of a targeted company willing to speak on the record.

No-Match Letters

As home to the nation’s largest concentration of undocumented workers, Los Angeles County is widely considered to be the prime target of immigration enforcement officials.

According to a 2005 study from Los Angeles-based Economic Roundtable, a non-profit research organization, in the year 2000 there were an estimated 34,000 undocumented workers in the county’s restaurant industry alone. That was followed by 31,000 in the construction industry, 20,000 in the apparel manufacturing industry, 11,000 in “private households” and nearly 10,000 in landscaping services. These numbers are believed to have fluctuated only slightly since then.

While there has always been some concern among employers in these high-risk industries about immigration enforcement, recent events have cranked up the pressure.

“These raids have generated immense concern amongst both employers and employees throughout the region,” said Gary Toebben, president and chief executive of the Los Angeles Area Chamber of Commerce. “If you’re an employer, it’s very difficult to function after one of these raids. Even when you do manage to fill the vacancies, you run the same risk of future raids with the new hires.”

On top of this, the Bush administration last year proposed to toughen the requirements for employers who receive letters from the Social Security Administration or other agencies indicating that employee Social Security numbers don’t match those on file. These so-called “no match” letters have gone out to employers for decades, but under these new rules, businesses would be required to compel their workers to turn over adequate documentation or face immediate termination.

The issuance of these no-match letters has been put on hold pending the outcome of a federal lawsuit by immigrant rights advocates. However, the no-match program is expected to resume eventually.

All of these moves stem from a shift in the Bush administration’s approach to immigration enforcement after the defeat in Congress last year of a comprehensive immigration reform package. In the days after that defeat, Department of Homeland Security Secretary Michael Chertoff announced that the government would more vigorously enforce immigration laws at workplaces.

At the time, Chertoff told the Los Angeles Times that increased enforcement would cause “unhappy consequences for the economy. But employers who knowingly hire illegal workers are breaking the law.”

Yet this federal crackdown could not have come at a worse time for businesses, with employers reeling from the economic slowdown, and skyrocketing materials and energy costs. The prospect of companies having to terminate hundreds of workers or face massive disruption from a raid has so rattled local business leaders and elected officials that it was a central topic of discussion on their recent lobbying trip to Washington, D.C.

Indeed, L.A. Mayor Antonio Villaraigosa sent a letter last month to Chertoff, imploring him to stop the enforcement actions against local businesses. “I am gravely concerned that ICE’s current focus on non-exploitative employers in and around the City of Los Angeles could have severe and lasting effects on our local economy,” he wrote.

Toebben sent a similar letter to Chertoff on behalf of L.A.’s business community. So far, Chertoff and the immigration enforcement division have refused to budge, and ICE officials did not respond to calls for comment. But that stance has so unnerved employers that even those who maintain their workforce is legal were unwilling to speak on the record for this story. They also have been prompted to take action on their own.

Proper paperwork

Some companies are not waiting for the next batch of no-match letters to go out and are requiring workers to produce proper identification, particularly workers who were the subject of previous no-match letters.

“They are conducting due diligence with their employees and, in the course of their meetings with these employees, terminating those who cannot produce the documentation,” Gonzalez said.

At other companies, when confronted with a demand to produce accurate documentation, employees simply vanish before they can be terminated. It’s widely believed these employees go to businesses that work completely off the books and thus disappear into the underground economy.

Meanwhile, many companies going through this verification process are not replacing workers that are terminated or leaving, choosing instead to “shrink” their employee bases. “They’re in essence, purging their workforces,” Gonzalez said.

But this strategy carries considerable risk. Employees who have been terminated for failure to produce documentation can and have filed discrimination lawsuits if it turns out termination procedures were not followed to the letter of the law or were unwarranted.

“Employers are walking a very fine line here. They can’t keep people who appear to have improper documentation, but if they do terminate them, they risk a discrimination lawsuit or worse,” said Allen Erenbaum, a partner in Mayer Brown LLP’s Los Angeles office and a former counselor to the commissioner of the Immigration and Naturalization Service.

And, with nothing to lose, terminated workers can tip off immigration enforcement officials anonymously about the presence of workers with false documentation at their former companies, setting the stage for an immigration raid.

Meanwhile, other companies are dealing with a potentially more serious problem: They have received so-called I-9 audit requests, in which companies are required to turn over some or all employee identity documentation to immigration authorities. “I-9” refers to the identification verification form that all new hires must fill out before starting work.

Several local companies have received such requests for information in recent months, in addition to American Apparel, according to immigration attorneys.

“These I-9 audits have definitely been increasing in frequency over the last several months,” said Laura Worsinger, an immigration attorney with the Los Angeles office of the law firm Buchalter Nemer.

Large employers that receive these audit requests must spend considerable man hours gathering all the documents. Immigration enforcement officials then scrutinize the documents for any signs that they may be false or not filled out correctly.

“If you don’t dot every ‘I’ and cross every ‘t,’ you as the employer could be in for huge penalties,” Worsinger said.

Decimating raids

Worse still, I-9 audits are frequently preludes to raids, which can be incredibly disruptive and costly to businesses.

The February raid on the Van Nuys facility of Micro Solutions Enterprises, a maker of printer cartridges and related products, cost that company a total of $10 million in lost business and the replacement and training of workers, according to Peter Schey, a Los Angeles immigration attorney.

The raid, featured prominently on the local evening news, resulted in the detention of 138 Micro Solutions workers, all of whom saw their employment with the company terminated immediately. Almost all the detainees eventually were released and were not deported.

Schey, who has been in contact with top executives at Micro Solutions, said immigration enforcement officials followed up with notices to the company to terminate about 150 more employees. All told, the company lost nearly 300 of the 700 workers at the Van Nuys facility.

“Mass operations like this have major economic consequences on any company,” said Schey, also executive director of the Center for Human Rights and Constitutional Law.

Micro Solutions did not respond to a request for comment.

The high-profile nature and the scope of this raid sent shock waves through the local business community, prompting a flood of calls from panicked company executives to human relations consulting firms and to immigration attorneys.

Any notion that this was just a one-time publicity stunt vanished earlier this month with news of raids on a series of distribution warehouses, mostly in the Torrance area, including one owned by a unit of Samsung Electronics, and others owned by Imperial CSS and Nippon Express Inc. Up to 60 workers were detained.

To try to avoid such a calamity, some companies are considering a novel strategy: importing workers from other states where the labor pool does not have such a high proportion of applicants with questionable documentation.

“Three of my clients have been approached by recruiting agencies from other states,” said Lou Cappadona, an immigration attorney with Oxnard-based Nordman Cormany Hair & Compton LLP, who has clients throughout the region.

One client in L.A. County is “seriously considering” using a Michigan agency to bring in workers from that state, he said. “It’s gotten to the point where the employment community has completely lost faith in the government to fix this problem.”