As immigration enforcement intensifies, legal risks mount for construction firms

Imagine, it's daybreak on a job site in Southern California. Crews arrive, equipment hums to life and schedules are tight. But just beneath the surface of this familiar routine lies a growing set of challenges that extend far beyond manpower and materials. Across the country, contractors are grappling with not only a persistent labor shortage, but also a surge in legal and regulatory risk. Immigration enforcement is intensifying, I-9 penalties are climbing, and wage-and-hour litigation is on the rise. In 2025, workforce management isn't just about putting people to work -- it's about navigating a compliance landscape that's become more complex and consequential than ever before.

Federal and state agencies are paying closer attention to the construction industry. To help ease the ongoing labor shortage, the Department of Homeland Security and the Department of Labor have reportedly added more than 64,000 H-2B guest worker visas for the 2025 fiscal year. But using this program isn't simple. Employers must now make detailed legal attestations to qualify and are more likely to face audits after approval. While the added visas can help during peak construction seasons, they come with stricter oversight and increased risk of penalties if compliance isn't airtight.

At the same time, ICE has formally designated construction as a high-priority enforcement sector, driving a surge in Form I-9 audits. Civil penalties have grown more severe, now reaching nearly $29,000 per violation. Overlay this with state-level mandates like Florida's SB 1718, which requires private employers with 25 or more workers to use E-Verify, and contractors must now manage a complex, state-by-state compliance landscape to avoid license suspensions, fines and reputational damage.

Workforce enforcement: The new landscape

Construction employers are now contending with a triad of high-risk exposure: immigration enforcement, wage-and-hour litigation, and worker misclassification. These areas, once managed in parallel, are increasingly intertwined and demand a coordinated compliance approach.

The 2025 expansion of the H-2B program brings relief on paper but risk in practice. In order to access the additional visas, employers must certify that they would suffer "irreparable harm" without the labor, and they remain subject to intensified post-approval audits. This raises the bar for documentation and compliance, particularly for contractors operating in seasonal or peak-demand cycles.

ICE's increased focus on construction is just one piece of a broader enforcement landscape that's growing more complex by the day. Employers must now account for overlapping federal and state requirements, tighter scrutiny of worker eligibility, and heightened expectations around documentation and compliance. In this climate, even small administrative oversights can lead to significant financial and operational consequences, especially for contractors working across multiple jurisdictions.

The specter of litigation exposure

Construction companies are increasingly being targeted by both plaintiffs' attorneys and government regulators, with three primary areas emerging as litigation flashpoints.

First, under the Fair Labor Standards Act, employers continue to face collective actions alleging unpaid overtime and improper wage practices. These lawsuits are frequently brought on behalf of undocumented workers, whose immigration status does not prevent them from recovering lost wages. Separately, recent changes to the Department of Labor's six-factor "economic reality" test have made it easier for workers -- particularly those previously treated as independent contractors -- to qualify as employees under federal wage laws. This expanded classification increases the pool of workers eligible to bring claims and strengthens the basis for collective actions. While some courts have limited multi-state opt-in participation, forum shopping remains a tactic of choice. For construction firms, these risks demand proactive attention.

Second, several states -- including California -- impose significant penalties for worker misclassification. In California, fines typically range from $5,000 to $25,000 per violation, with additional wage-based penalties and increased liability for repeat or willful offenses. A single subcontracted crew paid on a 1099 basis can trigger parallel exposure under federal wage law, state labor codes, and private enforcement mechanisms like California's Private Attorneys General Act. In some cases, company officers may be held personally liable.

Third, litigation risk isn't confined to a contractor's direct hires. General contractors can be held liable for wage or classification violations committed by subcontractors or staffing firms -- particularly where contractual relationships or day-to-day oversight support a finding of joint employment. Federal enforcement agencies are increasingly pursuing claims against host employers, and recent Department of Labor actions have led to multimillion-dollar settlements based on these theories of shared liability.

Contractual controls: A frontline defense

To manage the legal risks that now accompany every hire or labor subcontract, leading contractors are overhauling their agreements. Subcontractors and labor vendors are typically required to affirm compliance with immigration and employment laws--including the Immigration Reform and Control Act and applicable E-Verify mandates. These warranties are often tied to payment obligations, with each pay application serving as a reaffirmation of compliance.

General contractor agreements now commonly include broad indemnification clauses that shift liability for civil fines, back wages, attorneys' fees, and related penalties arising from wage or immigration violations committed by subcontractors or vendors. These clauses are generally drafted to survive termination of the contract.

To mitigate joint-employer risk, many firms are also incorporating flow-down clauses that mirror key wage-and-hour obligations -- such as overtime pay, break periods, and timekeeping requirements -- and obligating subcontractors to pass those duties on to any lower-tier contractors.

Contractors are further reserving the right to audit I-9 and payroll records while taking care to avoid day-to-day HR oversight that could trigger joint-employer status under National Labor Relations Board standards.

Finally, staffing firm agreements increasingly require vendors to maintain adequate workers' compensation and employer liability insurance, name the general contractor as an additional insured, and provide indemnification for wage and classification claims. Provisions allowing immediate termination upon notice of non-compliance have also become widely adopted.

Risk management in practice

Construction companies that proactively address these issues are better positioned to maintain productivity, avoid litigation, and protect profitability. Best practices include:

• Mapping all labor relationships -- whether self-performed, subcontracted, or staffed -- and confirming who maintains employment documentation and records.

• Reviewing and updating contract templates to include immigration compliance language, indemnity provisions, and enforcement mechanisms that reflect current legal standards.

• Performing privileged audits of I-9 records and wage practices and requiring subcontractors and vendors to do the same.

• Implementing electronic I-9 platforms, certified payroll systems, and AI-enabled timekeeping tools that help establish reliable compliance records.

• Monitoring developments in federal and state labor law, especially changes to the joint-employer standard, and adjusting policies and procedures accordingly.

Conclusion

The confluence of workforce shortages, aggressive immigration enforcement, and wage litigation has created an environment where traditional hiring and subcontracting practices carry significant legal risk. In this new reality, labor procurement, compliance, and contract management must be integrated into a single, strategic framework. Failing to do so exposes construction firms to escalating liability -- not just for their own practices, but for those of every trade partner on the job.

In 2025, allocating risk effectively is more than a legal consideration, it's an operational necessity.