I-9 Compliance Risks in Facilities and Residential Services M&A

The facilities and residential services sector is labor-intensive and heavily dependent on large workforces with frequent turnover. This dependence on manual labor, often sourced through subcontractors or staffing agencies, creates persistent vulnerabilities in employment eligibility verification. With immigration enforcement elevated as a priority under the current US administration, I-9 compliance has become a critical diligence issue in M&A transactions.

Audits and unannounced inspections have increased dramatically, and employers in high-risk industries are facing unprecedented scrutiny.

I-9 COMPLIANCE CHALLENGES IN LABOR-INTENSIVE SECTORS

• High-volume onboarding of new hires increases the likelihood of I-9 compliance errors
• Heavy reliance on staffing agencies creates risk that contractor I-9 deficiencies expose the customer to liabilities
• Large decentralized workforces make consistent compliance harder to enforce
• Reverification of foreign national workers with temporary work authorization can be complex and confusing

ESCALATING LEGAL AND FINANCIAL EXPOSURE

Civil penalties for I-9 violations can quickly compound:

• Substantive I-9 violations: $288–$2,861 per violation
• Knowingly employing unauthorized workers:
  • 1st offense: $716–$5,724
  • 2nd offense: $5,724–$14,308
  • 3rd+ offense: $8,586–$28,619

Because these fines are assessed per employee or per violation, even a mid-sized company can face multimillion-dollar liability.

REPUTATIONAL AND CONTRACT RISKS

Many facility and residential services companies operate in hospitals, schools, government buildings, and senior care settings.

An enforcement action exposing I-9 violations can tarnish reputation with institutional clients, threaten ongoing or prospective contracts with public entities, and undermine trust in competitive bids.

TRANSACTIONAL IMPLICATIONS FOR M&A

I-9 compliance is central to deal value:

• Preclosing: Identified I-9 issues may justify purchase price reductions, indemnities, or escrows.
• Postclosing: Discovery of violations can erode EBITDA, trigger penalties, and destabilize the workforce.
• Workforce continuity: Remediation may require significant terminations, straining service delivery capabilities.

MITIGATING RISK PREDEAL

Fortunately, I-9 risk can often be addressed before closing, including through following these practical steps:

• Conducting privileged self-audits and correcting deficient forms
• Negotiating targeted representations and warranties or indemnities
• Strengthening internal compliance policies and vendor oversight

KEY TAKEAWAYS FOR 2025 M&A

What Changed in 2025

• Increased I-9 audits and unannounced inspections
• Sectors with large manual workforces and staffing agency use—including janitorial, landscaping, and senior living—are priority targets

Why This Matters in Deals

• Penalties accrue per employee/per violation, quickly becoming seven-figure exposures
• I-9 issues can erode EBITDA, disrupt operations (terminations), and jeopardize sensitive contracts (such as with hospitals, schools, government)

Top Diligence Questions

• What’s the error rate on sampled I-9s (by site and supervisor)?
• How many workers came via staffing/subcontractors and are their I-9 controls tested?
• Any notices of inspection (NOIs), fines, or prior remediation?
• Are E-Verify and reverification processes consistent across locations?
• How is I-9 storage handled (segregation, completeness, retention, purge cadence)?
• Who “owns” I-9 compliance (policy, training, monitoring, and audits)?

Deal Terms to Consider

• Purchase price adjustments tied to quantified I-9 exposure
• Special indemnity with escrow/holdback sized to risk
• Targeted representations and warranties (I-9 accuracy, no unauthorized workers, no pending NOIs)
• R&W insurance carveouts or enhanced diligence requirements
• Postclose remediation plan (timelines, budget, responsible owner)

Red Flags

• Decentralized onboarding with no central QC
• Heavy third-party staffing with weak contract controls or audit rights
• Inconsistent reverification, missing Section 2/3 data, or bulk late completions
• Prior right-to-work inquiries or sudden spikes in corrections right before deal marketing

Fast Wins (Presign or Preclose)

• Privileged self-audit and prioritized corrections
• Contract amendments with staffing firms (audit rights, indemnities, documentation service level agreements)
• Site-led training, with simple checklists to standardize onboarding
• Stand up a postclose 90-day I-9 remediation sprint with weekly reporting to deal sponsors

HOW WE CAN HELP

Our M&A and compliance teams regularly advise investors and operators in the facilities and residential services industry on managing workforce-related risk. By integrating regulatory insight into the deal process, we help clients identify I-9 exposure early, structure protections into agreements, and preserve long-term value.