No-Match Letter Compliance Nightmare for Employers Continues

By Ronald G. Guerra

On October 23, 2008, the Department of Homeland Security ("DHS") issued its long awaited supplemental final rule for employers who receive a no-match letter from the Social Security Administration ("SSA") or a Notice of Suspect Documents letter from the DHS. The supplemental final rule is the same as the prior August 2007 version but for two minor changes. The August 2007 rule stalled when a consortium of unions and business groups obtained a preliminary injunction in the U.S. District Court for Northern California. The supplemental final rule was published in the Federal Register on October 28, 2008 and became effective upon publication. However, DHS acknowledges that it must obtain the court's approval before it may implement the supplemental final rule. For this reason, it is unlikely that the preliminary injunction will be lifted before a new president takes office.

Reason for the Preliminary Injunction

The U.S. District Court found that DHS 1) failed to provide a reasoned analysis for a perceived change in DHS policy regarding the use of no-match letters to put an employer on notice that an employee is not authorized to work in the U.S., 2) DHS exceeded its authority when it made statements purporting to interpret the anti-discrimination provisions of the immigration laws and which such authority is delegated to the Department of Justice, and 3) failed to conduct a detailed Regulatory Flexibility Analysis ("RFA").

Changes Made by Supplemental Final Rule

Two minor changes were made to the August 2007 final rule in the October 2008 supplemental final rule. First, the proposed supplemental final rule required that an employer notify affected employees within five business days. In the supplemental final rule published in the Federal Register on October 28, 2008, this was changed to "promptly" but DHS did suggest that generally five days would be considered to have complied with the rule of prompt notice.

Second, DHS made clear that any person hired prior to November 6, 1986, and for which a SSA no-match letter was received, are not covered by the no-match rule. DHS stated that these workers are not subject to the Immigration Reform and Control Act of 1986 which established the Form I-9 procedures.

Continuation of Employment During Employer's Administration of No-Match Letter Process

Employees for whom a SSA no-match letter is received may continue to work during the entire period of time necessary to complete the no-match letter process. The employer may terminate the employee at the end of the 93 days if the employee is unable to provide legal authorization to work in the U.S. However, an employer should follow the same process for all persons for whom it receives such notices to avoid any charges of violating the anti-discrimination provisions of the INA.

DHS Response to Court Raised Issues In Supplemental Final Rule

Change in Policy

DHS provided an extensive review of DHS and Immigration and Nationality Act ("INA") "non-precedential correspondence and public reports relating to the value of SSA no-match letters as an indicator that an individual listed in a letter may not be authorized to work in the U.S." This review showed that DHS expressed a consistent, but informal, view that 1) SSA no-match letters "do not, by themselves, establish that an employee is unauthorized," 2) "there are innocent and non-innocent reasons for no-match letters, but" 3) "an employer may not safely ignore SSA no-match letters," and 4) "an employer must be aware of and comply with the anti-discrimination provisions of the INA."

DHS concluded and stated that "the supplemental notice of proposed rulemaking set forth the reasoned analysis sought by the court and identified four significant reasons for the issuance of the rule." These four reasons are: 1) the need to resolve ambiguity and confusion among employers regarding their obligations under the INA following receipt of an SSA no-match letter, 2) the growing evidence and consensus within and outside government that SSA no-match letters are a legitimate indicator of possible illegal work by unauthorized aliens, 3) DHS's view that SSA's criteria for sending employee no-match letters helps to focus those letters on employers that have potentially significant problems with their employees' work authorization, and 4) the established legal principle that employers may be found to have knowingly employed unauthorized alien workers in violation of INA section 274A based on a constructive knowledge theory.

Lawful Authority

DHS explained that both the Homeland Security Act of 2002 ("HSA") and the INA authorize DHS to investigate and pursue sanctions against employers that knowingly hire or continue to employ unauthorized aliens. This authority includes the power to "decide the probative value of the available evidence, and the conditions under which DHS will commit not to rely on certain evidence." But the rule "does not affect the authority of SSA to issue no-match letters, or the authority of the Internal Revenue Service ("IRS") to impose and collect taxes, or the authority of the Department of Justice ("DOJ") to enforce the anti-discrimination provisions of the INA or adjudicate notices of intent to fine employers.

Regulatory Flexibility Analysis

DHS views the August 2007 final rule and this supplemental final rule as "interpretive, and does not believe that these rulemakings bear any of the hallmarks of a legislative rule." Although DHS is not invoking "its legislative rulemaking authority" but is informing the public of its "discretion in enforcing the INA's prohibition on knowing employment of unauthorized aliens" it sill prepared a "Final Regulatory Flexibility Analysis." DHS then concluded that it "has demonstrated a reasonable, good-faith effort to fulfill the procedural and substantive requirements of the RFA."

Additional DHS Comments About the Rule

The August 2007 final rule was originally issued to provide employers with a "clear set of recommended actions for employers to take, and assured 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." This recommended set of actions is to assist employers because a bright-line rule is not possible in applying the constructive knowledge standard under a totality of the circumstances test.

SSA does not send a no-match letter to every employer with a no-match. SSA will only send letters to an employer who "submits a wage report reflecting at least 11 workers with no-matches, and when the total number of no-matches in a given wage report represents more than 0.5% of the employer's total Form W-2 in the report." Electronic filing of Forms W-2 has "risen from 53% of all employee reports in FY2003 to over 80% in FY2007." This substantially reduces the likelihood of SSA errors, and reduces the number of no-match letters that would meet the SSA criteria for sending such letters to employers.

SSA has also improved its error-checking through the use of algorithms, with approximately 60% of no-matches in recent tax years' wage reports being corrected. "DHS believes that, taken together, these efforts better direct no-match letters to employers that have potentially significant problems with their employees' work authorization. Employers with stray mistakes or de minimis inaccuracies are much less likely to receive no-match letters."

DHS rescinded its statements in the preamble of the August 2007 final rule discussing the potential for anti-discrimination liability faced by employers that follow the safe procedures. DHS also revised the language in its insert letter that will accompany SSA no-match letters.

The U.S. Department of Justice ("DOJ") published an interpretive notice in the Federal Register, October 28, 2008, the same day the supplemental final rule was published by DHS. DOJ published the notice "to clarify when DOJ, through the Civil Rights Division's Office of Special Counsel for Immigration-Related Unfair Employment Practices ("OSC"), may find reasonable cause to believe that employers following the safe harbor procedures have engaged in unlawful discrimination in violation of the INA. OSC stated that "an employer that receives a SSA no-match letter and terminates employees without attempting to resolve the mismatches, or who treats employees differently or otherwise acts with the purpose or intent to discriminate based upon national origin or other prohibited characteristics, may be found by OSC to have engaged in unlawful discrimination. However, if an employer follows all of the safe-harbor procedures outlined in DHS's no-match rule but cannot determine that an employee is authorized to work in the United States, and therefore terminates that employee, and if that employer applied the same procedures to all employees referenced in the no-match letter(s) uniformly and without the purpose or intent to discriminate on the basis of actual or perceived citizenship status or national origin, then OSC will not find reasonable cause to believe that the employer has violated section 1324b's antidiscrimination provision, and that employer will not be subject to suit by the United States under that provision."

DHS Response to Public Comments to the Supplemental Final Rule

Authority to Promulgate the Rule

Many questioned the authority of DHS to promulgate the rule. DHS responded that "the INA does not absolve employers of any further responsibility once they have completed the initial Form I-9 verification process. The concept of constructive knowledge — and employers' responsibility to conduct reasonable due diligence in response to information that could lead to knowledge of their employees' illegal status — flows from the INA as interpreted in long-standing case law and federal regulations; it is not an invention of this rulemaking."

Rule Undercuts the Good Faith Compliance Defense

One argument was that the rule would undercut the good faith compliance defense and is, therefore, contrary to the INA. DHS responded that the "affirmative defense the INA provides to employers that comply with the Form I-9 process in good faith remains available as protection against a charge of knowingly hiring unauthorized employees in violation of [the] INA, but it has no force by the statute's plain language, as a defense against an allegation of knowingly continuing to employ an unauthorized alien in violation of [the] INA."

Safe Harbor Procedure

Some argued that the safe-harbor was a mandatory requirement and constituted a change to requirements of the INA. DHS responded that "the procedures of the safe harbor rule are not a "requirement"; employers are encouraged to follow these procedures to limit their legal risk, but they are not compelled to do so... the safe harbor rule helps employers to avoid violating the prohibition against knowingly continuing to employ unauthorized workers."

Failure to Provide Reasoned Analysis

Many commenters argued that DHS did not provide an adequate "reasoned analysis" the district court suggested was necessary to support the perceived change in the agency's position. However, DHS responded that "the comments suggesting that DHS must base the rule on evidence that an SSA no-match [letter] is near-conclusive proof of a listed person's illegal status misunderstand the nature of this rulemaking... This rulemaking announces DHS's view that a no-match letter, and an employer's response to it, may be used as evidence, evaluated in light of "the totality of the circumstances," of an employer's constructive knowledge... DHS does not claim, and need not prove, that a no-match letter will always be sufficient evidence to demonstrate constructive knowledge."

SSA Database Errors

Many commenters suggested that the SSA database was fraught with errors and, therefore, too unreliable to support the evidentiary weight that DHS seeks to place on them. DHS responded that "the effective accuracy of the SSA data from which no-match letters are derived is estimated to be 99.5%." DHS also noted that since SSA limits the issuance of "no-match letters to employers whose wage reports contain a certain level of mismatches as a useful means for separating employers whose reports contain a certain non-trivial number of errors that might reasonably indicate possible illegal employment or systematic problems in the employers' recordkeeping from employers with trivial errors in their wage reports."

DHS also has made it clear that the "SSA notice to which the safe harbor rule applies is the "EDCOR" letter listing multiple no-matches, rather than a "Request for Employee Information" or "DÉCOR" letter identifying a single employee with an SSN/name no-match."

Phased Implementation for Small Employers

Numerous commenters suggested that the final rule be phased in for small employers. However, DHS "concluded, after further review, that such an approach would still harm, not help, small employers. All employers, including small entities, are already subject to the legal obligation not to knowingly employ unauthorized workers and the constructive knowledge standard for employer liability, both of which flow from the INA."

Extension of Time to Resolve No-Match for Small Employers

Several commenters suggested that the time for small employers to respond and resolve no-match letter issues be extended to 180 days after receipt of the no-match letter. DHS acknowledged that the time for resolving the no-match had been significantly extended from 30 days to 90 days between the issuance of the proposed rule in June 2006 and the publication of the final rule in August 2007. DHS concluded that "no evidence or concrete support for the claim that the 90 days allotted under the rule would be insufficient."

DHS Resolution of No-Matches

One commenter suggested that DHS, rather than employers and employees, should resolve mismatches of small entities. DHS concluded that it "does not have access to the information contained in the no-match letters, nor does DHS have the personal information about individual employees that SSA needs to resolve mismatches."

What the Supplemental Final Rule Requires

The Immigration and Nationality Act ("INA) made it "unlawful for a person or other entity,... to continue to employ [an] alien in the United States knowing the alien is (or has become) an unauthorized alien with respect to such employment." 8 U.S.C. 1324a(a)(2). The amended rule published August 15, 2007, in the Federal Register, and the supplemental final rule published on October 28, 2008, in the Federal Register, makes clear that the "term knowing includes having actual or constructive knowledge" that an employee is unauthorized to work in the United States. 8 CFR § 274a(1)(l)(1).

"Actual knowledge" is first-hand information that the employee is not authorized to work in the U.S. Examples would include:

1. The employee tells the employer that he or she is not lawfully in the United States;
2. The employee tells the employer he or she does not have lawful work authorization documents;
3. The employee asks the employer where he or she can obtain work authorization documents; or,
4. The employer is aware that an employee's work authorization documents have expired and that that the employee has not obtained renewal documents.

"Constructive knowledge" is knowledge that may be inferred through notice of certain facts and circumstances that would lead a person, through the exercise of reasonable care, to know. This is a substantial change to the prior rule and adds two additional examples that may lead to a finding that an employee was not authorized to work in the U.S. These additional examples involve an employer's failure to take reasonable action in response to either of two events:

1. The employer receives an "Employer Correction Request", commonly known as a No-Match Letter, which is a written notice from the SSA that the combination of name and SSA account number submitted for an employee does not match agency records; or,
2. The employer receives a "Notice of Suspect Documents" letter from DHS/ICE that the immigration status or employment-authorization documentation presented or referenced by the employee in completing Form I-9 was not assigned to the employee according to DHS, or there is no record that the document was assigned to any person. This could also include a notice that the SSN is not properly issued, is in use by another or that the SSN was issued to a person now deceased.

With the addition of the two examples above to the definition of constructive knowledge DHS has shifted the burden of immigration enforcement to the shoulders of employers and made it easier to find that the employer knowingly continued the employment of unauthorized employees. However, the supplemental final rule does include a "Safe Harbor" procedure for employers that receive a No-Match letter from SSA or a Notice of Suspect Documents letter from DHS.

SSA is not changing its procedures for issuing no-match letters, and SSA guidance on how to correct SSA records is unchanged. DHS does not receive the names or SSN of no-match letter recipients from the SSA. This information may only be shared with DHS through legal processes, including court orders, a subpoena for records or a grand jury subpoena.

Under the supplemental final rule the no-match letter will be accompanied by a letter from DHS informing an employer how to respond to the no-match letter. According to one SSA official, about 140,000 no-match letters were to have been mailed to employers across the country for the 2006 tax year. It is anticipated that any no-match letters to be mailed to employers will begin with the 2008 tax year submission of wage reports, due on February 15, 2009. Generally, such no-match letters for tax year 2008 are ready for mailing in the April to June period of each year.

There are many reasons for a mismatch between employer and SSA records, including transcription errors, typographical errors and name changes due to marriage that are not reported to SSA. Employers may not assume that the mismatch is the result of any wrongdoing on the part of the employee. Likewise, an employer that takes adverse employment action against an employee simply because they have received a no-match letter may, in fact, violate the law.

Employers should treat everyone identified in the no-match letters alike. An employer's response to no-match letters should be consistent for each employee identified in the letters. Employers should not treat any workers differently because of his or her national origin, English-language ability, "foreign" appearance, or perceived citizenship status.

Safe Harbor Procedures

The amended and supplemental final rule describe with specificity what steps employers should take upon receipt of a no-match letter to take advantage of the safe harbor defense.

SSA Employer Correction Request ("EDCOR" or no-match letter)

1. The employer should verify within 30 days that the mismatch was not the result of a record-keeping error on the employer's part. A pro-active employer will also advise the employee of the no-match letter at the time of receipt.
2. If the employer's review does not discover a record keeping error, then the employer should request that the employee confirm the accuracy of the information in the employer's employment records.
3. If necessary, the employer should ask the employee to resolve the issue directly with the SSA. The employer should inform the employee that the employee has 90-days from the date the employer first received the no-match letter to resolve the issue with the SSA. DHS/ICE will use the postmark as a benchmark in the determination of the date the employer received a no-match letter. If the employer can document or offer a reasonable explanation for the receipt of the letter on a different date, DHS/ICE will consider all relevant information in the totality of the circumstances.
4. If these steps lead to resolution of the mismatch problem, follow instructions on the no-match letter itself to correct information submitted to the SSA. The employer should also verify that the mismatch error has been corrected by using the Social Security Number Verification Service ("SSNVS") administered by the SSA. The employer should retain a record of the date and time of verification with SSNVS. The SSNVS can be accessed through http://www.socialsecurity.gov/employer/ssnv.htm or by telephone at 1-800-772-6270.
5. Where the information could not be corrected within 90 days, then the employer must complete a new Form I-9 form within 3 days (between the 91st and 93rd day from receipt of the no-match letter) as if the employee in question is a new hire. The employer may not accept any document containing the questionable SSN to establish work authorization. The employer must also require the employee to present a document that contains a photograph in order to establish identity or both identity and employment authorization. The employer should attach this new Form I-9 to the original Form I-9 and retain for the required retention period (3 years from date of employment or 1 year after date of termination of employment, whichever is longer).

Employers who are unable to confirm employment eligibility through these procedures increases its risk of liability for violating the law by knowingly continuing to employ unauthorized persons. The best practice would be to consult legal counsel at this stage of the process to discuss how to properly separate the employee from employment.

DHS Notice of Suspect Documents Letter

The amended and supplemental final rule also identifies the procedure that an employer should follow upon receipt of a Notice of Suspect Documents letter from DHS. Although similar to steps that should be followed for no-match letters, DHS will not consider the receipt of written notice to be used as evidence of constructive knowledge of knowingly hiring or continuing to employ unauthorized workers, if the employer takes the following actions:

1. The employer contacts the local DHS/ICE office in accordance with the written notice's instructions and attempts to resolve the question(s) raised in the notice about the immigration status document or employment authorization document. This initial contact must be completed within 30 days of the receipt of the written notice (receipt of the notice is determined in the same way as for the no-match letter).
2. The employer should advise the employee of the receipt of the notice and request the employee resolve the matter with ICE by obtaining proof of immigration status or employment authorization document to substantiate the employee's claim. If the employer or employee believes that the employee is authorized to work in the United States, the employer should immediately telephone the ICE point of contact listed in the notice. The ICE agent will re-verify the information provided about the employee, including any new information provided by the employer or the employee. ICE will then notify the employer in writing of the employee's status. The employer should take no adverse employment action against the employee who is the subject of the notice until written notice of the employee's status is received. If the employer has not received written notice within 90-days of the receipt of the notice from ICE, the employer should contact ICE again.
3. If the employer is unable to verify the employee's status with DHS/ICE within 90-days of the receipt of the notice, the employer must complete a new Form I-9 form within 3 days (between the 91st and 93rd day from receipt of the written notice) as if the employee in question is a new hire. The employer may not accept any document containing the questionable document(s) to establish identity and employment eligibility. Employers should be cautious if the employee presents a new SSN or alien/administrative Numbers ("A" numbers) since the employer already has notice of DHS/ICE inability to confirm work authorization for the employee. The employer should attach this new Form I-9 to the original Form I-9 and retain for the required retention period (3 years from date of employment or 1 year after date of termination of employment, whichever is longer). Employers should make sure that the same procedures are applied to all employees and not treat employees differently based upon national origin or other prohibited characteristics. Such employer conduct could lead to a finding that the employer has engaged in unlawful discrimination.

The foregoing "Safe Harbor" procedures are intended to benefit employers that act in good faith in the hiring and retention of employees. However, an employer with actual knowledge that any of its employees is an unauthorized alien cannot avoid civil and criminal liability merely by following the safe-harbor procedures described in the amended and supplemental final rule. ICE, in conjunction with the mission of the DHS, will continue to investigate and prosecute employers that violate the INA. ICE has provided national guidance for its field offices.

Employer Liability for Violation of the INA

DHS/ICE has the authority to investigate and pursue sanctions against employers who knowingly hire or continue to hire unauthorized workers or who do not properly verify employees' employment eligibility. There are both criminal and civil sanctions which may be assessed against non-complying employers. The criminal penalty for any person or entity that violates INA 27A(a)(1) or (a)(2), 8 U.S.C. 1324a (a)(1)(A) or (a)(2) of the INA "shall be fined not more than $3,000 for each unauthorized alien, imprisoned for not more than six months for the entire pattern or practice, or both, notwithstanding the provisions of any other Federal law relating to fine levels." The employer may also face related criminal charges such as harboring aliens and money laundering, which are both felonies with 5 year prison terms and fines up to $250,000.

The civil penalty for knowingly hiring or continuing the employment of an unauthorized alien is:

1. First offense-not less than $375 and not exceeding $3,200, for each unauthorized alien with respect to whom the offense occurred occurring on or after September 29, 1999;
2. Second offense-not less than $3,200 and not exceeding $6,500, for each unauthorized alien with respect to whom the second offense occurred on or after September 29, 1999; or,
3. More than two offenses-not less than $4,300 and not exceeding $16,000, for each unauthorized alien with respect to whom the third or subsequent offense occurred on or after September 29, 1999.

In addition, employers that are determined by DHS/ICE to have failed to comply with the employment verification requirements as set forth in 8 C.F.R.274a.2(b), shall be subject to a civil penalty in an amount not less than $100 and not more than $1,000 for each individual with respect to whom such violation occurred before September 29, 1999, and not less than $110 and not more than $1,100 for each individual with respect to whom such violation occurred on or after September 29, 1999.

In FY 2008, ICE obtained criminal fines, restitutions, and civil judgments in worksite enforcement investigations in excess of $30 million. ICE made 5,173 worksite administrative arrests and 1,101 criminal arrests for violations of the INA during FY 2008.

Recommendations for Compliance

Employers are not required to be document experts or to hire document experts to verify the authenticity of documents presented by employees to establish identity and employment authorization. The employer should accept documents that appear to be genuine on their face.

Verification programs are available to employers. These include E-Verify, discussed below, and the IMAGE program. Employers interested in the IMAGE program should consult the ICE website, www.ice.gov for additional information. It is recommended that before participating in the E-Verify or IMAGE programs an employer consult legal counsel to discuss the potential risks associated with program participation.

E-Verify, formerly known as the Basic Pilot/Employment Eligibility Verification Program, is an internet based system operated by DHS in conjunction with the SSA. E-Verify allows employers to electronically verify the employment eligibility of its new hires. However, note that the safe-harbor protections do not apply to information employers receive from SSA or DHS through means other than the no-match letter or Notice of Suspect Documents letter process. Employers interested in the E-Verify program should consult the USCIS website, www.dhs.gov/E-Verify. It is recommend that before registering for the E-Verify program an employer should consult legal counsel to discuss the potential risks associated with program participation.

An employer who ignores no-match letters will not enjoy the safe-harbor protection offered and may substantially increase its risk for audit and the resulting consequences of civil and/or criminal prosecution. At the very least, the employer would lose the ability to claim that it did everything reasonably within its power to maintain a workforce authorized to work in the United States.

In light of the foregoing, a prudent employer will take the following steps:

1. Conduct an internal self-audit of Form I-9 procedures. Make corrections as necessary and in compliance with the regulations.
2. Review prior year no-match letters to determine if the employee is still employed. If so, begin the process of resolving the mismatch problem as outlined above. If the subject of the no-match letter is no longer employed no action is necessary.
3. Review with management the hiring, recruitment and management processes to determine if there is any other basis for imputing constructive knowledge to the employer that certain employees are not authorized to work in the United States. If so, take reasonable action to determine the eligibility status and, where necessary, consult legal counsel to advise what steps should be taken.
4. Consult your legal counsel if you have any questions about best practices to reduce the risk of hiring and continuing the employment of unauthorized employees.

The DHS Secretary, Michael Chertoff, in announcing the supplemental final rule on October 23, 2008, stated:

"The additional information in this supplemental rule addresses the specific items raised by the Court, and we expect to be able to quickly implement it. The No-Match Rule, along with E-Verify, will increasingly make the pleas of ignorance from businesses that seek to exploit illegal labor ring hollow, and equip their responsible competitors with the tools they need to hire and maintain a legal workforce."

Conclusion

While this may seem onerous, there is still nothing really new that we have not already heard or seen on this issue. The rule may be effective but it cannot be implemented until such time as the U.S. District Court for Northern California lifts the preliminary injunction. Although a status hearing is scheduled for November 21, 2008, it is doubtful that this rule will be implemented prior to a new president taking office next year. What is unknown now is whether a new administration will change the direction of DHS and worksite enforcement under this rule. Stay tuned for new developments.

Published Fall 2008

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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