For Chipotle Mexican Grill Inc., an ongoing and far-reaching investigation into the company’s hiring practices started three years ago in Minnesota.
That’s where a 2010 audit of some of the chain’s restaurants by the Immigration and Customs Enforcement agency first raised questions about the validity of immigration documents on file proving work eligibility.
At the time, Chipotle let go 450 workers — almost half of its Minnesota workforce — because the employees in question could not provide suitable documents to prove work eligibility. Later, the investigation grew to include Chipotle units in Virginia and Washington, D.C., and more workers were lost.
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Today, the parent of the 1,458-unit fast-casual chain is facing a criminal and civil probe by the U.S. Attorney’s Office for the District of Columbia. And earlier this year, Chipotle said the U.S. Attorney’s civil division had requested employee lists, work authorizations and other documents for all employees going back to 2007.
In addition, the Securities and Exchange Commission last year also began looking into Chipotle’s hiring practices and related company disclosures.
In its annual report for 2012, Chipotle described the ongoing investigations as “expensive and distracting,” saying they could result in fines, reputational damage or other significant liabilities.
Throughout the probes, however, Chipotle has pledged to cooperate.
“We’ll continue to cooperate with the government and its investigation, which we believe will be ongoing for quite a while as it will take some time to comply with these most recent requests and will also take the government some time to digest the information we are providing,” said Monty Moran, the company’s co-chief executive, in a call with analysts following the March-ended first quarter.
Meanwhile, Chipotle has been working in earnest to improve its hiring practices.
Even before the investigations were launched, the chain “met or exceeded everything required by law,” said Chris Arnold, Chipotle spokesman. Following the audit, however, the chain beefed up its efforts.
Chipotle began using the federal E-Verify system to check the work eligibility of all new hires, starting in March 2011. Prior to that, Chipotle had only used the system in the handful of states where it was required.
Though there was initially concern that use of E-Verify could impact turnover rates or discourage high-quality workers from applying, Moran said that has not been the case.
Chipotle also switched to use of an electronic I-9 form, which must be led for all new hires to demonstrate eligibility to work in the U.S. The online system allows Chipotle to enter information for the I-9 and W-4 forms only once, lowering the risk of error.
A second level of document review is conducted by trained specialists at the chain’s Denver headquarters.
“With these changes we arguably have the most robust immigration compliance program in the industry,” Arnold said.
With the increased scrutiny, however, comes other risks.
The vigorous screening of applicants opens up the potential for discrimination charges, as the company pointed out in its annual report.
If Chipotle is determined to have wrongfully rejected work authorization documents, or if compliance procedures are found to have a disparate impact on a protected class such as racial minorities, the company could be found in violation of anti-discrimination laws, Chipotle said in SEC filings.
Moran in recent years reportedly met with lawmakers to advocate for comprehensive immigration reform.
“These guys need to know what’s going on,” he told the Wall Street Journal in late 2011. “Immigration is really messed up.”