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LABOR & EMPLOYMENT LAW — 4/07/08

DHS announces supplemental proposed rule on "no-match" letters

Without conceding any of the issues in the pending litigation, on March 26, 2008, the Department of Homeland Security (DHS) published a supplemental proposed rulemaking in the Federal Register addressing the concerns raised by Judge Charles Breyer of the Northern District of California when he enjoined the release of the agency's no-match regulation in October 2007 (AFL-CIO v Chertoff, NDCal, No 3:07-cv-04472-CRB). The supplemental rulemaking does not alter any of the steps or time frames, called safe harbor procedures, employers can take in response to receiving a no-match letter, but instead: (1) clarifies DHS s policy on no-match letters; (2) alters the regulation's anti-discrimination language; and (3) provides an initial regulatory flexibility analysis. Upon publication, DHS will seek to have Breyer's preliminary injunction dissolved. Interested parties are invited to submit comments on the rulemaking by no later than April 25.

Background. Each year, employers submit employee wages to the Social Security Administration (SSA) on the Form W-2 -- Wage and Tax Statements. When the SSA is unable to match an employee's name and Social Security Number (SSN) from the W-2 with its own records, that employee's earnings are posted to SSA's Earnings Suspense File until they can be matched with SSA records. Since 1994, the SSA has attempted to correct mismatched records by sending out "no-match" letters to employers requesting corrected information. DHS's August 2007 regulation, which amended 8 CFR Part 274a, describes the legal obligations of an employer under the Immigration Reform and Control Act of 1986 (IRCA) when receiving a "no-match" letter from the SSA or a "notice of suspect documents" letter from US Immigration and Customs Enforcement (ICE), DHS's, largest investigative arm. The regulation also describes "safe-harbor" procedures that employers can follow in response to receiving such letters and thereby be certain that DHS will not use the letter as any part of an allegation that the employer had constructive knowledge that the employee referred to in the letter was an alien not authorized to work in the United States. Under the safe harbor provisions, upon receipt of a "no-match" letter, employers would have 30 days to verify that the mismatch was not the result of a recordkeeping error on the employer's part. Employees would have 90 days from the date the employer received the "no-match" letter to resolve the matter with the SSA. The failure to respond to a "no-match" letter altogether would be construed as a "knowing" violation of IRCA in any later action against the employer.

In an odd alliance, labor unions and business groups, including the AFL-CIO, ACLU, National Immigration Law Center, US Chamber of Commerce, among others (plaintiffs), were successful in obtaining a preliminary injunction stopping DHS from implementing the regulation, including mailing or otherwise sending to employers SSA "no-match" letter packets that have DHS guidance letters explaining the regulation. The preliminary injunction, requested by the plaintiffs, bars the regulation from coming out until the district court decides the case on the merits or until a higher court overrules Breyer's order. Those packets were scheduled to mail to approximately 140,000 employers beginning September 4.

Stay and appeal. On December 14, 2007, Breyer granted DHS's request to stay the lawsuit so the agency could conduct additional rulemaking actions to address issues raised by the court when issuing the preliminary injunction. He stayed the lawsuit until March 28, 2008, when the agency had expected to complete the supplemental rulemaking. Now that the rulemaking is completed, DHS will move the court to lift the injunction, which has remained in effect throughout the stay. In a separate move, on December 4, 2007, the US Department of Justice (DOJ) filed a notice of appeal on the agency’s behalf seeking to overturn the October 10, 2007 preliminary injunction.

What has changed? When enjoining the "no-match" regulation, Breyer raised serious questions about three aspects of regulation. Specifically, he questioned whether DHS had: (1) supplied a reasoned analysis to justify what the court viewed as a change in agency position -- that a "no-match" letter may be sufficient, by itself, to put an employer on notice, and thus impart constructive knowledge, that employees referenced in the letter may not be work authorized; (2) exceeded its authority (and encroached on the authority of the DOJ) by interpreting the anti-discrimination provisions of IRCA; and (3) violated the Regulatory Flexibility Act by not conducting a regulatory flexibility analysis.

"No-match" policy. As to the first question, which goes to DHS's policy on the use of "no-match" letters, the agency clarified that: (1) SSA "no-match" letters do not, by themselves, establish that an employee is unauthorized; (2) there are both innocent and non-innocent reasons for "no-match" letters; but (3) an employer may not safely ignore the letters; and (4) an employer must be aware of and comply with the anti-discrimination provisions of IRCA. DHS explained that such a policy remained the government's position after the reorganization of the functions of the former Immigration and Naturalization Service into DHS. The original "no-match" regulation described an employer's existing obligations under US immigration laws, explained DHS. It also provided specific step-by-step actions that can be taken by employers that will always be considered by DHS to be a reasonable response to receiving an SSA "no-match" letter or DHS "notice of suspect documents" letter -- a response that will eliminate the possibility that either letter can be used as any part of an allegation that an employer had constructive knowledge that it was employing an alien not authorized to work in the US. Accordingly, DHS disagreed with Breyer's position that there was a change in the agency's formal position.

Assuming that the court correctly identified a change in the agency's formal position, DHS stated that it had strong reasons for adopting the "change" found by the district court. Specifically, DHS said the "change" occurred to "eliminate ambiguity regarding an employer's responsibilities upon receipt of a 'no-match letter.'" The original rule was designed to remedy "this confused situation" by reminding employers of their obligation under IRCA to conduct due diligence upon receipt of a "no-match" letter and by formally announcing DHS's view that employers that fail to perform reasonable due diligence upon receipt of a "no-match" letters or DHS "notice of suspect document" letters risk being found to have constructive knowledge of listed employees' illegal work status. The regulation seeks to provide greater predictability through a clear set of recommended actions for employers to take and assures employers that they would not face charges of constructive knowledge based on SSA "no-match" letters or DHS letters that had been handled according to DHS's guidelines, explained the agency. In addition, DHS confirmed that it was also justified in promulgating the regulation given the amount of fraud in SSA earnings suspense file data for various tax years.

Accordingly, DHS's position in the original regulation -- that an employer's failure to conduct reasonable due diligence upon receipt of an SSA "no-match" letter can, in the totality of the circumstances, establish constructive knowledge of an employee's unauthorized status -- was a reasonable "change" from the statements in prior informal agency correspondence.

Anti-discrimination provisions. Even though DHS believes that "a statement by one agency about the authority of another agency does not, in and of itself, encroach on the authority of that other agency," in light of the Breyer's concerns about DHS's possible encroachment into the authority of DOJ, the agency will rescind statements in the preamble of the regulation describing employers' obligations under anti-discrimination law or discussing the potential for anti-discrimination liability faced by employers that follow the safe-harbor procedures. For example, DHS is rescinding conclusive statements from the preamble of regulation like "employers who follow the safe harbor procedures. . .will not be found to have engaged in unlawful discrimination." DHS will also revisit the language in its insert letter after the rule is finalized. These rescissions do not change existing law or require any change to the rule text, the agency explained. Employers seeking guidance regarding their anti-discrimination obligations in following the safe harbor procedures should follow the direction provided by DOJ on the website of the Office of Special Counsel for Immigration-Related Unfair Employment Practices at: website.

Regulatory Flexibility Act analysis. While DHS continues to believe that a Regulatory Flexibility Act analysis is not warranted, the agency's supplemental proposed rulemaking contains a supporting economic analysis describing the costs that may be incurred by employers who choose to adopt the safe harbor procedures set forth in the "no-match" regulation. The analysis, which is initial, revealed that given employers' evident confusion regarding how to respond to "no-match" letters, DHS will need to clarify employers' duties under US immigration laws and set forth guidance for employers who seek to fulfill their obligation not to hire or employ aliens who are not authorized to work in the United States. While DHS does not currently have the data necessary to determine the precise number of small entities expected to receive a "no-match" letter, companies that choose to adopt the safe-harbor procedures in the regulation would reasonably be expected to incur costs related to administering and implementing those procedures. Company-level costs could include the labor cost for human resources personnel, certain training costs, legal services, and lost productivity. The expected costs of adopting the safe harbor procedures in the regulation are relatively small on an average cost per firm basis, but does not reflect the termination or replacement costs of unauthorized workers, the data revealed. Employers with over 500 employees and 20% unauthorized workers would spend $31,660 to adopt the safe-harbor procedures. Employers with 100-499 employees would spend $22,488; employers with 50-99 employees would spend $7,517; and employers with 20-49 employees would spend $5,786.

To the extent that some small entities incur direct costs that are higher than the average estimated costs, however, those employers could reasonably be expected to face a significant economic impact. However, DHS does not consider the cost of complying with preexisting immigration statutes to be a direct cost of the "no-match" rulemaking. Thus, while some employers may find the costs incurred in replacing employees that are not authorized to work in the United States to be economically significant, those costs of complying with IRCA are not direct costs attributable to the no-match regulation.

Comments. In response, the ACLU asserted that DHS's supplemental proposed regulation was simply a reissuance of its original regulation that included no substantial changes. Lucas Guttentag, Director of the ACLU’s Immigrants' Rights Project and one of the attorneys in the lawsuit, stated: "The so-called supplemental publication changes not a single word or comma in the proposed rule. This is a desperate attempt to justify a fundamentally flawed database without actually fixing any problems. It's a Rube Goldberg approach that tries to paper over the fundamental flaws in the social security database."

For more information on this and other topics, consult CCH Employment Practices Guide or CCH Labor Relations.

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