Chipotle Mexican Grill has a lot going for it — an upscale burrito concept, a hip and eco-friendly image, expansion plans galore and a 500 percent-plus stock price gain in just over two years.
And then it has something not going its way — a federal crackdown on its immigrant labor force that has so far forced Chipotle to fire hundreds of allegedly illegal workers in the state of Minnesota, perhaps more than half its staff there.
The probe is widening. Co-Chief Executive Monty Moran told Reuters on Friday that U.S. Immigration and Customs Enforcement (ICE) has also issued "notices of inspection" for restaurants in Washington D.C. and Virginia.
Investors in the Wall Street darling are taking note and one firm, Calvert Investments, plans to talk to Chipotle about the large number of undocumented workers uncovered.
Dependence on illegal labor is the elephant in the room for the U.S. restaurant business. And experts say the Chipotle ICE investigations are a wake-up call for an industry that is one of America's biggest employers and generates over $300 billion in annual sales, according to research firm IBISWorld Inc.
Chipotle — a Denver-based company whose motto is "Food With Integrity" — is one of the most well-known names caught in the immigration enforcement shift that began two years ago.
At that time, Barack Obama, a proponent of immigration reform to help manage the 11 million undocumented immigrants in the United States, became president. Also at that time, immigrant hiring by restaurants began to rebound.
Obama has had to walk a fine line on the issue. He must uphold the law and appease Americans resentful of illegal immigrants working as the unemployment rate stubbornly sits at 9 percent. But he needs to do it in a way palatable to Hispanic voters who will be key to his re-election in 2012.
Gone are the days of big raids that snared large numbers of workers, mostly from Mexico and Central America. Under Obama, immigration enforcement agents are cracking down on employers with so-called "I-9 audits" -- I-9 being the employment eligibility verification form.
ICE says that means companies' hiring practices could be subjected to the same degree of scrutiny as their bookkeeping is by the Internal Revenue Service.
"When you get a big name like Chipotle, it stands out and sends a message," said Jacqueline Longnecker, president of Reno-based Employment Verification Resources Inc.
"The onus is on employers now ... It sends the message that nobody is going to be excused from this," she said, adding that many companies — both large and small — do not recognize the potential liabilities they now face.
Chipotle believes it has not been singled out.
"ICE has vowed to increase pressure on employers to avoid employing undocumented workers ... We are one of a large and growing number of companies to go through this process," Moran told Reuters by e-mail.
But to date, the majority of audits that have come to light in the restaurant business have been limited to small operators or franchisees of big chains, like Subway.
The U.S. fast-food industry historically has offered relatively low pay and paltry benefits to legal workers and, as a result, has struggled with high employee turnover.
Longnecker and other experts said restaurant owners are attracted to illegal laborers because they work hard, are loyal and will go the extra mile to hold down a job.
It is hard to know the extent of hiring of illegal immigrants in restaurants. But immigrants -- both legal and illegal -- account for about a quarter of workers in the restaurant and food services industry and their numbers are up in recent years.
Their share fell from 24.5 percent in March 2006 to 21.4 percent in March 2008 — before and during the recession — but then recovered to 23.6 percent in March 2009 and March 2010, according to an analysis of the government's Current Population Survey (CPS) data conducted for Reuters by the Migration Policy Institute, a nonpartisan think tank.
The overall number of immigrants employed in the sector climbed from just over 1.7 million in 2008 to 1.8 million in 2010, according to this data, even as native employment fell from 6.4 million to 5.9 million.
The Pew Hispanic Center — whose demographic and labor market work is highly regarded — estimated in a 2009 report that 12 percent of the workforce in food preparation and serving in 2008 was undocumented.
Chipotle, which has more than 1,000 restaurants mostly in the United States and plans to open as many as 145 more in 2011, pays its workers more than the average burger flipper but its building binge has stoked its appetite for new hires.
Alejandro, one of the Chipotle workers fired in Minnesota who asked that his last name not be published for fear of reprisals, worked there for five years and earned $9.42 per hour, taking home $1,200 a month. That allowed him to send up to $800 per month to his daughters to keep studying in Mexico.
"I thought it was a good company," said Alejandro, who lost his job in December along with 10 of his 20 co-workers. "I was even going to get training to be promoted to kitchen manager."