Employing Immigrants

Finding a Safe Harbor in the Immigration Storm

C. Matthew Schulz and Ute Krudewagen

650 856 5528 / 650 856 5577

matthew.schulz@bakernet.com / ute.krudewagen@bakernet.com

The federal government's latest efforts to create a safe harbor for American employers who have made good-faith compliance efforts to avoid the employment of undocumented workers has been halted, at least temporarily, leaving workers and employers all at sea. Will the government appeal, wait for a final ruling or aggressively enforce existing law with no safe-harbor protection? Here is what employers need to know now.

Since 1986, U.S. law has required employers to verify the identity and employment eligibility of all employees and to retain a record of such verification on Form I-9. The Department of Homeland Security's Immigration and Customs Enforcement agency was created in 2003 to enforce these laws, and there are civil and criminal penalties for violations.

U.S. employers file employee earning reports on Form W-2 annually with the Social Security Administration. If the employee name and Social Security number fail to match government records, the agency notifies employers with a "no-match" letter.

The government has sent no-match letters since 1994. This is a common problem, with $255 million in unallocated earnings created by mismatches. A letter may be generated by incorrect information in the government's database, an error by the employer in transmitting the data, an honest mistake by the employee, or the employee submitting false information. A no-match letter also may be generated by an employee who gives a false name or a false Social Security number.

Traditionally, no-match letters expressly stated that receipt of the letter did not make "any statement about an employee's immigration status." But the Department of Homeland Security issued new regulations on Aug. 15, 2007, that tied no-match letters to immigration enforcement. The revised 8 C.F.R. Section 274a.1(l)(1) is one of the central measures in the government's campaign to crack down on employers engaging undocumented workers.

That section makes it unlawful to hire an alien for employment in the U.S. while knowing that the alien is unauthorized for such employment. The old regulation defined "knowing" to include both actual and constructive knowledge. Constructive knowledge was defined broadly in the old regulation and included situations in which the employer had information that would indicate the alien was not authorized to work. The government could use the old regulation to take the position that receipt of a no-match letter gave an employer constructive knowledge and subjected an employer to penalties if employment did not cease immediately.

The Department of Homeland Security created "Safe-Harbor Procedures for Employers Who Receive a No-Match Letter," published at 72 Federal Register 45611 (Aug. 15, 2007). The revised section redefined constructive knowledge expressly to include situations in which the employer fails "to take reasonable steps after receiving information that the employee may be an alien who is not employment authorized." The receipt of a no-match letter is cited in the regulation as an example.

The route that leads an employer to the safe harbor is detailed at Section 274a.1(l). The employer has 30 days to check its records for the source of the mismatch. If the mismatch is not because of an error in the employer's records, then the employer must request that the employee confirm his or her name and Social Security number, and the employer must advise the employee to resolve the discrepancy with the government within 90 days of the date the employer received the no-match letter. If the discrepancy is not resolved within 90 days, the employer must complete a new form I-9. The employer cannot rely on any document that contains a disputed Social Security number or Department of Homeland Security-issued alien registration number listed in the no-match notice.

After the new regulation was published, the Social Security Administration revised its no-match letter, attached a Department of Homeland Security letter with information about the new regulation and prepared to send out a mass mailing to 140,000 employers regarding 8 million employees.

On Oct. 10, 2007, Judge Charles R. Breyer of the U.S. District Court for the Northern District of California in AFL-CIO v. Chertoff, C07-04472 (N.D. Cal.), granted a preliminary injunction barring the agency from sending the mailing.

The plaintiffs argued that the no-match letters and accompanying Department of Homeland Security guidance letter would result in mass firings of legal workers based on their nationality, in violation of the Immigration Reform and Contract Act's anti-discrimination provisions.

The court granted the preliminary injunction based on three grounds.

First, the judge held that the plaintiffs raised a serious question about whether the regulation was arbitrary and capricious under the Administrative Procedure Act. He found that because the Department of Homeland Security did not supply a reasoned analysis for the change.

Second, the court found that the Department of Homeland Security appeared to have exceeded its authority. The safe-harbor provisions of the regulation suggest that the new regulation protect employers from the anti-discrimination provisions of the Immigration Reform and Control Act by following the guidelines. But the anti-bias provisions are enforced by the Department of Justice's Office of Special Counsel and are beyond the authority of the Department of Homeland Security to regulate.

Third, the plaintiffs were able to show serious concerns about whether the rule was promulgated in violation of the Regulatory Flexibility Act, because there was no final flexibility analysis delineating the potential costs to employers.

Today, the turbulence caused by the preliminary injunction creates confusion for employers and their employees over the law and the existence of the safe harbor. Although the preliminary injunction does not prevent the Social Security Administration from sending out its traditional no-match letters for tax purposes, as the agency has for over a decade, the government could bring an appeal to stay the preliminary injunction.

Further, Department of Homeland Security Secretary Michael Chertoff indicated in an Oct. 10 press release that the Department of Homeland Security is reviewing all of its options, including appeal. Regardless, regular reports of work-site raids make clear that the Department of Homeland Security is moving forward with its enforcement actions without waiting for the no-match issue to be resolved.

Throughout the past two years, the Department of Homeland Security, through Immigration and Customs Enforcement, has increased immigration audits and sanctions against both employers and employees. These actions have been widely perceived as a response to the criticism that the government has not done enough to deter unlawful immigration.

In fiscal year 2005, it made only 176 criminal and 1,116 administrative arrests. The numbers jumped to 716 and 3,667, respectively, in 2006. For 2007, Immigration and Customs Enforcement arrests further increased, to 863 criminal and 4,077 administrative arrests in work-site enforcement investigations. Immigration and Customs Enforcement cites the new arrest statistics as the best measure of the new strategy to target unscrupulous employers of illegal aliens. Arrests likely will increase.

Arrests are not the only penalty levied. Historically, administrative fines were assessed when employers were cited for I-9 violations. Immigration and Customs Enforcement turned more recently to criminal penalties to better deter employers from treating fines as the cost of doing business. Not only arrests have multiplied - criminal fines, restitutions, civil judgments and forfeitures also show a pattern of increase, from $6,500 in 2005 to $30 million in the first three quarters of fiscal year 2007.

Immigration and Customs Enforcement's own list of notable operations is revealing and is published at www.ice.gov/pi/news/factsheets/worksite_cases.htm. Company owners, their managers and even a union official have been arrested in connection with hiring illegal aliens, providing false identification documents to employees and harboring illegal aliens. Business assets have been seized by Immigration and Customs Enforcement. Multimillion-dollar fines have been levied.

Even employers who partner with Immigration and Customs Enforcement are not guaranteed calm sailing. Immigration and Customs Enforcement work-site enforcement actions disrupt normal business operations. Publicity surrounding enforcements can damage a company's reputation and stock value, even if the investigation concludes that the employer is in compliance.

When first issued, the Department of Homeland Security regulations were widely seen as a sign that aggressive enforcement actions would increase. They have, and this pattern of enforcement is unlikely to be affected by AFL-CIO v. Chertoff.

Employers, therefore, should not be complacent in the wake of the court's preliminary injunction. The law against employing unauthorized aliens remains and is being enforced.

Employers should anticipate Immigration and Customs Enforcement actions and conduct semi annual affirmative audits of their I-9 practices. Attorneys can provide training on how to complete the I-9, follow record-retention requirements, conduct independent audits and explain how to respond in the event of an audit. Attorneys can help employers identify errors. Any defects should be corrected promptly. Records of regular audits should be retained as evidence of the employer's good-faith compliance efforts.

Employers also should be aware of Immigration and Customs Enforcement's "best practices." These include implementation of internal I-9 compliance policies, internal trainings on how to complete the I-9 and detect fraudulent use of documents, semi annual I-9 audits by an external auditing firm or trained employee, and enrollment in E-Verify (formerly "Basic Pilot"). A full description is available at www.ice.gov/partners/employers/worksite/besthire.htm.

Finally, employers should consider carefully enrollment in IMAGE, the Immigration and Customs Enforcement Mutual Agreement between Government and Employers program. IMAGE is not for the faint of heart. IMAGE requires participating employers first to submit to an I-9 audit by Immigration and Customs Enforcement, then to verify the Social Security numbers of their employees by using the Social Security number verification system.

Baker & McKenzie provides trainings to employers on how to comply with these rules. The scope of our practice encompasses a wide range of legal disciplines to meet client needs in this area, including immigration, employment and litigation capabilities.  We offer affirmative audit services to review existing records and make recommendations on corrective action and best practices.  The firm represents employers in Social Security Administration, Department of Labor, and Immigration and Customs Enforcement agency audits and raids, as well as any litigation that may ensue.  We help employers and employer organizations shape public policy through the legislative and regulatory process. 

This article was also published in the Daily Journal on Wednesday, November 15, 2007.