After Tuesday, American businesses, from the loftiest Fortune 500 company to the smallest corner grocery, won't get just a warning the first time they're caught employing illegal immigrants. Companies tempted to look the other way when illegal aliens apply could face stiff fines, the real teeth in the landmark 1986 immigration reform bill that enters a new phase June 1. The Immigration and Naturalization Service will target key industries, looking for violators. It is a system that has worked in Europe, and many feel it offers the best hope to curb illegal immigration and transfer jobs from aliens to U.S. citizens. But others worry about possible exploitation of illegal workers, discrimination against foreign-appearing workers, the impact on the labor force and the dangers of turning employers into immigration police. Doris Meissner, a former acting INS commissioner, questions whether employer sanctions might ``put into our employment practices a bias toward looking at people's foreignness that never existed before.'' It may be too early to gauge whether that is true, but the monetary impact will certainly be felt right away. After Wednesday, the INS need no longer issue an initial warning citation to employers who hire undocumented workers. The law now requires employers to obtain documents from workers showing they are legally in this country. Employers face fines of up to $1,000 for improper documentation, up to $2,000 per alien for a first offense of knowingly hiring an illegal alien, up to $5,000 per alien for the second offense, $10,000 for subsequent offenses, and $3,000 or six months in jail for a ``pattern or practice'' of violation. Over the past year, INS fined 80 businesses $350,000 and gave 2,000 citations. The agency thus views the new phase not as a dramatic crackdown, but as a nudge to employers. The fines went to companies that got warnings but continued ignoring the law. ``Our intent is not to indiscriminately run around fining employers. The intent is to encourage employers to validate their work force,'' says INS spokesman Duke Austin. ``It'll be a deliberate implementation of the law.'' Although INS is beefing up its investigative force, agents will not be able to inspect every business. Austin says the agency will use its resources ``judiciously,'' targeting the construction, garment and hotel and service industries that have traditionally been repositories of illegal workers. In Europe, where many countries adopted employer sanctions a decade ago, the system did not trigger widespread job discrimination against foreigners, according to a 1987 study by the Center for Immigration Studies, a private think tank that researches immigration trends. The study concluded that cooperation by employers is vital for such a system and said employers would cooperate if the paperwork wasn't burdensome and if enforcement was consistent and certain. ``It's got to take on the aura of the IRS,'' says Vernon M. Briggs Jr., a labor economist at Cornell University. ``Most people are probably reasonably honest in doing their income tax because there's a fair chance they're going to get caught. Everybody worries about the IRS but I don't think anybody is worried about the INS yet.'' Businesses were skeptical last year about the I-9 forms they were required to fill out for workers, a new and costly level of paperwork. Now, they seem less resistant, if still wary. Virginia Lamp Thomas, labor attorney for the U.S. Chamber of Commerce, says businesses are ``afraid that the law has significant teeth in it.'' The chamber is conducting a survey to determine how the law is working. Some experts have made preliminary assessments. ``Employer sanctions will probably work best in the larger firms and will work least effectively as you get down to the mom and pop enterprises that don't pay much anyhow and need the cheap (illegal) labor to survive,'' says David Simcox, director of the Center for Immigration Studies. Briggs, the labor economist, says employer sanctions probably will not be very effective because employers really don't have to verify the worker's documents. ``Anything that a worker shows an employer that appears to be reasonable essentially takes the employers off the hook. I think it's likely to make a mockery out of the ability to enforce the bill,'' he says. The amnesty phase of the law, in which illegal aliens who came to the United States before 1982 could apply for temporary residency, enlarged the pool of legal workers available for low-paying jobs. Employers ``have got the windfall of having additional pools of low-wage workers, which means they don't have to modernize or raise wages in order to make jobs more attractive,'' Briggs says. The potential for worker exploitation concerns civil liberties advocates. The law ``grandfathered'' in workers who had jobs on Nov. 6, 1986, the date it was passed. That means that employers did not have to ask those workers for documents, although illegal workers in that category remain subject to deportation if caught by INS. Now, the worry is that those workers can be trapped in their jobs with no redress against an unscrupulous employer. ``Obviously for these employees it totally removes their ability to make any kind of changes. If there is a bad employment situation they'd be very reluctant to change jobs because they don't have documents. It sets up a situation amenable to exploitation,'' says Meissner, now with the Carneigie Endowment for International Peace, which studies foreign policy issues. There is also the issue of job discrimination. The law bars employers from refusing to hire someone because of their national origin or, in the case of someone who has taken steps to become a citizen, his citizenship status. It sets up a special Justice Department counsel to prosecute complaints. So far, 139 discrimination allegations have been filed with that office. Forty-eight have been resolved or are being investigated. Of those, 15 have resulted in formal complaints and 10 have been settled by requiring back pay with offers of employment. But that may not tell the whole story. The law also allows employers to hire U.S. citizens over non-citizens ``if the two individuals are equally qualified.'' ``That's going to make it even more difficult to prove discrimination. `Equally qualified' is to a certain degree subjective,'' says Mario Moreno, of the Mexican-American Legal Defense and Educational Fund, which provides legal assistance to Mexican-Americans and others involved in employment discrimination suits or complaints. The General Accounting Office, an investigative branch of Congress, last fall found little evidence that employers were discriminating against foreign-looking job applicants because of the new law. But those findings are only preliminary. The law was intended to discourage illegal immmigration by drying up the job prospects for such aliens. Whether that will happen remains to be seen. ``There will be some job market for illegals because there will be employers who won't comply,' says Meissner. ``The question then becomes to what extent over time does the government's effort bring about real voluntary compliance on the part of employers and some deterrence.''