News & Information

LABOR & EMPLOYMENT LAW — 08/27/09

Federal court upholds E-Verify federal contractor rule, scheduled to take effect September 8

Paving the way for its full implementation on September 8, 2009, Judge Alexander Williams, Jr., of the US District Court for the District of Maryland upheld the Department of Homeland Security’s (DHS) E-Verify federal contractor rule, which requires certain federal contractors and subcontractors to register for and use the federal government’s Internet-based electronic verification system called E-Verify (Chamber of Commerce v Napolitano, No AW-08-3444, 8/26/09).

Starting September 8, federal contracts awarded and solicitations with a period of performance longer than 120 days and a value above $100,000 must include a clause requiring federal contractors to use E-Verify. The same clause will also be required in subcontracts over $3,000 for services or construction that flow from those prime contracts. These contractors and subcontractors must confirm that all new hires and existing employees directly performing work under federal contracts are authorized to work in the United States.

Background. The E-Verify federal contractor rule implements Executive Order 12989 (EO), as amended by President George W. Bush on June 6, 2008, which directs all federal departments and agencies to require contractors, as a condition of each future federal contract, to agree to use an electronic employment eligibility verification system designated by the Secretary of Homeland Security to verify the employment eligibility of all persons hired during the contract term and for all persons performing work within the United States on that federal contract.

At a June 9, 2008, press conference, then Secretary of Homeland Security Michael Chertoff, designated E-Verify as the electronic employment eligibility verification system that all federal contractors must use. DHS proposed a rulemaking implementing the EO in the Federal Register. The proposed rule sought to amend the Federal Acquisition Regulation (FAR), the principal set of rules in the Federal Acquisition Regulations System that governs the “acquisition process” through which the federal government purchases goods and services.

In a final rule published in the November 14, 2008, Federal Register, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council amended the FAR to require that certain federal contractors and subcontractors use the federal government’s E-Verify program to verify that all new hires and current employees directly performing work under federal contracts must be authorized to work in the United States. Specifically, the final rule inserts a clause into prime federal contracts with a period of performance longer than 120 days and a value above $100,000 requiring the use of E-Verify. For subcontracts that flow from those prime contracts, the rule extends the E-Verify requirement for services or for construction with a value over $3,000.

In December 2008, a coalition of business groups, led by the Chamber of Commerce’s National Chamber Litigation Center, filed suit challenging the legality of an Executive Order and related federal procurement regulations. According to the Chamber’s complaint, the Illegal Immigration Reform and Responsibility Act of 1996 (IIRIRA), which created the E-Verify program by Congress, states that “the Secretary of Homeland Security may not require any person or other entity to participate in the pilot program.” The Act, which created the program, clarified that the program is voluntary, not mandatory. Therefore, pleads the complaint, the requirements imposed by the EO and final rule are “illegal and must be set aside” because they violate IIRIRA’s express prohibition against requiring forced participation in the program. The complaint also alleges, among other things, that requiring re-verification of existing employees also exceeds the IIRIRA’s mandate.

The Obama Administration delayed the effective date of the rule four times in total before completing its review of the rule and announcing in July 2009 that the rule would go forward.

Holding. “The decision to be a government contractor is voluntary and…no one has a right to be a government contractor,” wrote Judge Williams, rejecting all the arguments made by the plaintiffs. Though federal contractors are required to participate in the E-Verify system, because “[p]otential government contractors have the option not to contract with the government,” no person or entity is really required to participate in the system, confirmed Williams.

Williams also rejected the plaintiffs’ argument that E-Verify limits the use of the system to employment verification of new hires. “Nothing in IIRIRA explicitly prohibits the Executive Branch from using E-Verify for current employees. Though there is administrative guidance saying that E-Verify should not be used for that purpose, that guidance does not legally prohibit the President from so requiring,” wrote Williams. If Congress intended it to be illegal to use E-Verify for current employees, then Congress should have made that clear under IIRIRA.

In the wake of the court’s ruling, the Society for Human Resource Management (SHRM), one of the parties to the litigation, is reviewing its public policy options. According to an August 26 press release from SHRM, “absent an additional delay, the rule is scheduled to go into effect on September 8, 2009. This deadline means that most federal contracts awarded, as well as solicitations issued after September 8, 2009, must include a clause mandating use of E-Verify for all employees hired during the contract period and all existing employees assigned to perform work under the contract.”

E-Verify scheduled to sunset on September 30, 2009. The E-Verify program is currently due to sunset at the end of the fiscal year on September 30, 2009, although it is expected to be extended under the final version of the $42.9 billion FY 2010 Homeland Security Appropriations bill (H.R. 2892). The Senate has already passed an amendment that would permanently reauthorize the program and require federal contractors and subcontractors to use the program in order to verify that all new hires and existing employees directly performing work under the terms of the contract be authorized to work in the United States. The amendment was introduced by Senator Jeff Sessions (R-Ala). The House approved a two-year extension of E-Verify when it passed the Homeland Security Appropriations bill in a 389-37 vote. However, the bills have to be reconciled in a conference committee. The FY 2010 Homeland Security Appropriations bill funds DHS’s budget starting October 1.

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

Visit our News Library to read more news stories.