The DHS No-Match Rule

The Long, Strange Trip Continues

It has been a long, winding road for the Department of Homeland Security’s (DHS) Social Security Number No-Match Rule. The Rule is DHS’ attempt to provide guidance to employers on how to respond to a No-Match letter from the Social Security Administration or a letter from DHS. Current federal law prohibits an employer from knowingly hiring or continuing to employ a worker who is not authorized to work in the U.S. In addition to actually knowing an employee is not authorized to work (referred to as “actual knowledge”), employers can also learn that the employee is not authorized to work through “constructive knowledge.” The No-Match Rule seeks to broaden the definition of such “constructive knowledge” by including the receipt of a Social Security No-Match letter as one of the ways such knowledge can be obtained. Accordingly DHS argues that a “reasonable person” should infer an employee’s unauthorized status through receipt of such a letter and forces the company to take steps to rectify the No-Match. If the company does not take such steps and the employee is found to be an unauthorized worker the company can be held liable. Conversely, DHS argues that if the employer follows the procedure outlined in the Rule (discussed below) then they will be provided a “safe harbor” from liability based only on receipt of the letter. The DHS No-Match trip started almost two years ago and has been forced by the business community and the courts to make many unanticipated stops along the way.

On March 21, 2008 DHS took control again and got back behind the wheel to continue their trip by releasing a supplemental proposed rulemaking. The Rule was published in the Federal Register on March 26 and comments are due thirty (30) days from the date of publication. We anticipate that this supplemental Rule will lead to a Supplemental Final Rule, which should be released sometime this summer. The actual date on which this Rule will be in effect is currently unknown. Employers should bear in mind that the No-Match Rule was originally due to take effect on September 14, 2007, but is currently enjoined from becoming effective by the U.S. District Court. Until the preliminary injunction is lifted the “safe harbor” provisions as well as the rest of the Rule cannot
take effect. In addition, the Social Security Administration (SSA) was instructed not to issue No-Match letters to companies until the injunction is lifted.

DHS states that the Proposed Supplemental Rule addresses the issues the U.S. District Court raised in its order granting the injunction. In DHS’ view, the Supplemental Proposed Rule sufficiently addresses the issues the Court raised, and the Agency will
now ask the Court to “dissolve” the preliminary injunction.

The No-Match rulemaking journey began on June 14, 2006, when DHS’s Immigration and Customs Enforcement (ICE) first published a proposed Rule purporting to create a safe harbor for employers who receive No-Match letters.¹ ICE received over 5,000 comments to the proposed Rule. It was not until August 15, 2007, that DHS published a Final Rule addressing the comments. That Rule was scheduled to take effect on September 14, 2007. However the Rule was run off the road by the lawsuit filed by the U.S. Chamber of Commerce, National Roofing Contractors Association, American Nursery & Landscape Association, the AFL- CIO, the ACLU and other members of the business community. The suit successfully challenged some of the procedural aspects of how the Rule was issued. A temporary restraining order was first issued by U.S. District Court Judge Maxine Chesney on August 31, 2007. The order was based on a finding that there was a substantial likelihood of success on the merits of the case and that irreparable harm would result if the Rule were allowed to go into effect. After a merits hearing on the request for an injunction, on October 10, 2007, United States District Judge Charles R. Breyer granted the Plaintiff’s motion for a preliminary injunction in American Federation of Labor, et. al. v. Chertoff.

The Three Reasons Why the Court Put the Brakes on the Rule

• First, that DHS did not supply a reasoned analysis justifying a change in its position that a No-Match letter, without more, would be sufficient to put an employer on notice that some of its employees may be unauthorized to work in the United States;
• Second, that DHS infringed on the authority of the Department of Justice (DOJ) by interpreting the antidiscrimination provisions of the Immigration Reform and Control Act of 1986 (IRCA); and
• Third, that DHS violated the Regulatory Flexibility Act by not conducting a regulatory flexibility analysis.

The judge did not necessarily rule on the substantive challenge to the rulemaking itself but rather enjoined the Rule from taking effect. On November 23, 2007, DHS requested the Court to delay proceedings, until March 1, 2008, in order to allow it to reissue the Rule in a new rulemaking effort. DHS, in effect, asked the Court to freeze the litigation to allow it to correct the record that serves as the basis for the Court’s order. The preliminary injunction remains in effect as of today’s date, and the issuance of the supplemental Rule does not change its impact in any way.

What is a “Supplemental Proposed Rule”?

All federal regulations make their way into the Code of Federal Regulations (CFR) via agency rulemakings. The Administrative Procedure Act governs these federal rulemakings. Generally, an agency rulemaking begins when an agency first publishes a proposed Rule in the Federal Register. The proposed Rule explains the agency’s proposed action and explains the proposed changes in sufficient detail to allow the public to comment on the proposal. A Proposed Rule does not change the regulations and does not have the force of law.

Proposed rules usually set a reasonable timeframe for comments, known as the “comment period.” After the closing of the comment period, the agency considers the comments and can either withdraw the rulemaking or, more likely, issue a Final Rule. The Final Rule discusses the comments received and may or may not be different from the original proposal. The Final Rule contains an effective date and after that date the Code of Federal Regulations is officially amended and the changes have the force of law. This collective process is known as a rulemaking.

The Proposed Rule in this rulemaking was published on June 14, 2006. It provided for a 60-day comment period that ended on August 14, 2006. As will be discussed in greater detail below, the proposed Rule did not contain what is known as an Initial Regulatory Flexibility Act Analysis. Whether such an analysis is required at all is an issue in the litigation over this rulemaking. When one is required it must address the costs of compliance with the rulemaking as well as less costly alternatives. Notwithstanding the lack of this analysis, DHS proceeded to issue a final Rule on August 14, 2007, which was slated to take effect on September 14, 2007.

As a result of the litigation over the August 2007 Final Rule, DHS has now published a Supplemental Proposed Rule. Procedurally, this document supplements the Proposed Rule issued on June 14, 2006. It provides an Initial Regulatory Flexibility Act Analysis and attempts to respond to other issues raised in the litigation. This document can be likened to an attempt to “go back in time” to the original Proposed Rule and correct the deficiencies in that document and in the rulemaking. In that regard, it is interesting to note that the Proposed Rule provided for a 60-day comment period while this Supplemental Proposed Rule allows only 30 days for comment.

While DHS states in the document that it intends to ask the court to “dissolve” the injunction preventing the Final Rule from taking effect, it would seem unlikely that the Court would do so during the 30-day comment period, or that DHS would have the audacity to even make this request. It would also seem that DHS should first consider any comments it receives in response to the Initial Regulatory Flexibility Act analysis it has now prepared. Moreover, as DHS could not finalize the original proposed Rule without addressing comments, logic would dictate that DHS’ consideration (and assumed dismissal) of any comments it receives to the Initial Regulatory Flexibility Act analysis (discussed below) should also be published in the Federal Register before the Final Rule can take effect. So perhaps we will see a Supplemental Final Rule in the future to complete this act of legal “time travel.”

The number and type of comments DHS receives may in essence create a delay for the effective date of the Final Rule. It thus seems likely that it may still be some time before employers are forced to respond to No-Match letters following what some would say are the unreasonable dictates of DHS. Thirty (30) days must pass before the comment period closes, and given the litigation on this rule, it is more likely than not that DHS will have to address whatever comments it receives. Also, DHS must return to the Court that issued the injunction and request that the injunction be lifted on the grounds that the issues leading to the injunction have been resolved. This would likely take place at a hearing that would have to be scheduled and probably briefed by the parties. If DHS were to be successful and the injunction were to be lifted, it is unlikely that the Court would allow the Rule to immediately go into effect but instead would allow time for employers to prepare. Thus, while it seems that DHS intends for this document to be a step towards the Rule taking effect, given the practical and procedural aspects of rulemaking combined with the litigation, it is highly unlikely that the Rule will take effect in the immediate future.

DHS’ Three Clarifications of the August 14, 2007 Final Rule

1. Reasoned Justification for DHS’ Change in Policy

Central to the District Court’s injunction was its finding that without justification, DHS changed its policy regarding the consequences for an employer who receives a No-Match letter for one of its employees. The supplementary information to the August 14 Rule asserts that the rule is consistent with a long line of legacy Immigration and Naturalization Service (INS) and DHS guidance, as well as correspondence stating that the mere receipt of a No-Match letter, without more, was not sufficient to place an employer on notice that an employee might not be authorized to work in the U.S. so as to require action on the part of the employer. However, the actual text of the regulation departed from this principle, and, as is well-known, imposed certain steps that an employer must take upon receipt of a No-Match letter in order to take advantage of the “safe harbor” the No-Match Rule created.

In the new supplement to the Rule, DHS disagrees with the Court’s finding that there was a change in policy, but nonetheless attempts to address the issues the Court raised and to justify the new policy.

2. The Antidiscrimination Provisions of IRCA

One of the grounds for the Court order was the Rule’s encroachment on the Department of Justice’s authority to enforce the anti-discrimination provisions of the Immigration Reform and Control Act (IRCA). The proposed and Final Rule made broad statements concerning the potential liability under IRCA’s antidiscrimination provisions of employers who took action following the DHS rule. The Proposed Rule states that employers who follow the safe harbor procedures uniformly “will not be found to have engaged in unlawful discrimination.” Notwithstanding that statement, the new Supplemental Proposed Rule states that “DHS recognizes the jurisdiction of DOJ over enforcement of the anti-discrimination provisions.” The Supplemental Proposed Rule also states that “DHS does not have the authority to obligate the DOJ or its Office of Special Counsel for Immigration-Related Unfair Employment Practices to a course of action and the August 2007 Final Rule did not purport to make any such obligation.” The new supplemental Rule then takes the rather extraordinary step of stating that “DHS hereby rescinds the statements in the preamble of the August 2007 Final Rule describing employers’ obligations under anti-discrimination law or discussing the potential for anti-discrimination liability faced by employers that follow the safe-harbor procedures set forth in the August 2007 Final Rule.”

It is curious to note that rather than reissuing a new proposed No-Match Rule as a joint rulemaking with DOJ, DHS instead chose to continue down the same pot-hole filled road. In fact, this route begs the question whether DOJ actually refused to be a part of the rulemaking or whether it was a strategic decision on the part of DHS to not involve DOJ. It seems that in “fixing” one issue DHS created another, making the uncertainty and confusion over discrimination liability even greater.

Perhaps for this reason, shortly after DHS’ publication, DOJ issued a statement of what appears to be its understanding of the interplay between an employer’s responsibilities under the anti-discrimination provisions of IRCA and the DHS rule. Office of Special Counsel (OSC) states that it will open an investigation into an alleged act of discrimination by an employer in applying the safe harbor procedures. The procedures of the investigation will include a review of whether the alleged victim is an authorized worker who is protected from discrimination. If so, then OSC will initiate an investigation to determine whether there is reasonable cause to believe that the employer has engaged in unlawful discrimination. DOJ also states that an employer that receives an 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, DOJ is quick to point out that 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 demonstrating that the employer violated anti-discrimination provisions of IRCA, and that employer will not be subject to suit by the United States under that provision. While this statement by DOJ may provide assurance to some and is essentially consistent with the language that DHS has stricken from the Proposed Rule, readers should note that the statement carries no legal weight and will not prevent litigation from terminated employees, whether successful or not the suits are bound to be costly.

3. The Regulatory Flexibility Act Analysis

The final issue raised by the Court in its preliminary injunction was DHS’ failure to conduct what is known as a “RegFlex” analysis. The Regulatory Flexibility Act (RFA) requires an Initial “RegFlex” analysis (IRFA) whenever a Rule is expected to “have a significant economic impact on a substantial number of small entities.” The IRFA should describe the action being taken and who will be impacted, as well the costs of compliance with the action. The IRFA should also explain alternatives the Agency considered that might minimize the impact on small entities. However, under the RFA, if the agency head certifies that the Rule will not have a significant economic impact on a substantial number of small entities, then he may avoid having to perform an IRFA. The certification must include a statement providing the factual basis for suchcertification.

The August 14th Rule contained exactly such a certification on the part of DHS. It was based on DHS’ belief that any impact the Rule might have, as suggested by commenters to the proposed Rule, was in fact speculative. DHS certified that the Rule would not impose significant compliance costs on small entities because it believed that the Rule was in fact not a change from existing policy. Thus, if the Rule enacted no change, there could be no new compliance costs. As language in the new Rule makes clear, “this conclusion was based on DHS’s view of the August 2007 Final Rule as one that clarified DHS’ interpretation of the INA, described how DHS would exercise its prosecutorial discretion, and set forth a voluntary safe harbor – not as a Rule that would create any new duties, mandate any new burdens, or impose any new or additional compliance costs on employers.”

The District Court did not agree with this assessment. In imposing the injunction, the Court did not accept DHS’ position that the Rule would not have an effect on small entities. To the contrary, the court found that the Rule created a mandate for the actions employers must take upon receipt of a No-Match letter. The court further found that compliance with this mandate would likely impose significant costs on small entities. Without conceding this point, in response to the Court’s stance, DHS has now conducted an IRFA, the results of which are available for public inspection. The new Rule merely summarizes the IRFA. The DHS claims that the cost is not burdensome to employers in its analysis. The IRFA was released on March 24th in the form of a 104-page document that includes several appendices. The report provides an economic analysis that attempts to justify DHS’ contention that small business are not significantly affected by the Rule. However the estimated costs, which range from $3,009 for an employer with five employees to $33,759 for an employer with 500+ employees, appear both arbitrary and, to a small employer, highly excessive. The scope of this article does not include an analysis of the IRFA but a cursory review suggests that the total compliance costs are not accurate. Additionally, at a time when small businesses are closing their doors because of economic turmoil, including commodity cost increases, impacting their ability to pay workers, a $3,000 compliance cost should be considered significant.

Other Forks in the Road

Five Days
The supplemental Rule attempts to further clarify two aspects of the August 2007 Final Rule. DHS clarifies the time frame in which an employer seeking the safe harbor should notify an affected employee after the employer has determined they are unable to resolve the mismatch. Originally the DHS stated notifying an employee “promptly” would be acceptable. DHS has now determined that the employer should contact the employee within five business days after the employer has completed its internal records review. In the Rule, DHS emphasizes that an employer does not need to wait until after completing an internal review to advise the affected individual that the employer has received the No-Match letter and request that the employee resolve the mismatch.

Grandfathered Employees
Curiously, the Supplemental Proposed Rule also purports to clarify a question relating to the “grandfather clause” of IRCA. IRCA does not apply to workers hired before the date of enactment, November 6, 1986. DHS clarifies that the No-Match provisions are also not applicable to these workers.

Neither of these two new clarifications are in the actual regulatory text itself. Remember, a “Rule” is a document that makes changes to the Code of Federal Regulations. The Rule is published in the Federal Register. A Rule has several parts. Chief among them are the preamble, which contains explanatory text, including what is known as the “supplementary information,” and the amendatory text itself, known as the “regulatory text.” The supplementary information provides clarification, background, explanations of authority, and the like for the rulemaking action. But it is not a regulation. The regulatory text is the only part of the rulemaking that actually makes it into the Code of Federal Regulations and has the force of law. Thus, while DHS’ statements of clarification in the supplementary information regarding the regulations that were amended demonstrate its intent regarding those regulations, those statements carry no legal weight because they were not inserted in the text of the regulations but rather only in the supplementary information to the Rule amending those regulations.

Where Was DHS Headed When They Started Out?

The No-Match regulation specifies the steps that an employer should take as a reasonable response to receiving a No-Match letter. While DHS states the totality of the circumstances should be reviewed, they state that if an employer takes the steps the Rule prescribes, an employer will be insulated from a finding of constructive knowledge of an employees’ unauthorized work status. The regulations recommend that upon receipt of No-Match letters, employers follow “safe-harbor” procedures to verify the employment eligibility of the employee in question:

Step 1
The employer must check its records within five (5) days of receipt of a No-Match letter to determine if it was the result of a clerical error. If the letter is the result of a clerical error, the employer should correct their records, inform the relevant agencies of the error and verify that the name and number as corrected, match the Agency’s records. DHS considers employers to have acted reasonably if they resolve the discrepancy with the relevant agency within thirty (30) days of receipt of a No-Match letter. In the supplemental Rule DHS emphasizes that an employer does not need to complete its review to notify an employee, the company may choose to notify employees immediately upon receipt of the No-Match letter.

Step 2
If after checking its records the employer cannot resolve the discrepancy, it must contact the employee and request confirmation that the employee’s information is correct. If the information is incorrect, the employer must correct the employee’s information in its records, inform the relevant agencies of the correction and match the corrected information with the Agency’s records. If the records are correct according to the employee, then the employer must ask the employee to pursue the matter personally with the SSA. Once again, DHS considers employers who take these corrective actions within thirty (30) days of receipt of a No-Match letter to have acted reasonably. Please note, that DHS will consider the discrepancy resolved only if the employer verifies with the SSA or DHS that the employee’s name matches in SSA’s records a number assigned to that name, and that the number is valid for work or work with DHS authorization. If the No-Match issue is not verified with ninety (90) days of receipt of the No-Match letter, the regulation outlines the procedure that employers have been grappling with since it was announced in June of 2006. Such a procedure involves re-I-9ing to reverify the employee’s identity and work eligibility.

This procedure requires the employer and employee to complete a new Form I-9 as if the employee was a new hire, with certain restrictions. These restrictions include:

• Require Section 1 and Section 2 to be completed within 93 days of receipt of the No-Match letter. Under current law, Employers are given 3 days to complete the Form I-9;
• Exclude any document that was the subject of the No-Match letter including a social security number and alien registration number from being used to establish employment eligibility; and
• Exclude any document without a photograph of the employee from being used to establish identity. While the requirements focus on documentation, employers are reminded not to over-document new Form I-9s, as that could subject them to additional liability for discrimination.

If the procedure described above is completed and it is determined that the employee is unauthorized, DHS will not consider the employer to have constructive knowledge of an unauthorized worker’s status.

What Can We Do Now?

The DHS released its Regulatory Flexibility Analysis on March 26th. Comments on the Analysis and on the Supplemental Proposed Rule are due on April 25th. While the Rule is not currently in effect and no one is compelled to act because of the Rule until the injunction is lifted, all employers should have an interest in commenting on the Rule and specifically on the Regulatory Flexibility Analysis. The analysis is widely available on the internet, but a copy of it can also be found on GT’s Business Immigration and Compliance page at http://immigration.gtlaw.com.

Where Are We Headed?

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This Business Immigration and Compliance Alert was written by Efren Hernandez III and Dawn M. Lurie. Questions about this information can be directed to the authors at hernandeze@gtlaw.com or luried@gtlaw.com.

Footnotes:

¹ Employers annually send the SSA millions of W-2 forms; in numerous cases the employee names and Social Security Numbers (SSNs) do not match. When this occurs, the SSA sends out letters to employers throughout the United States listing the names and SSNs of employees whose names do not match the social security numbers provided to the employer. Often these letters are the result of clerical errors or name changes. Nevertheless, ICE argues that these are sometimes indicators that employees are unauthorized to work in the United States and should be used as one of the triggers for an investigation. DHS considers No-Match to also be letter sent to employers by ICE following an inspection of the employer’s Form I-9s. If ICE is unable to successfully confirm the employee’s immigration status or work authorization from the Form I-9, ICE will generate a type of DHS No-Match letter informing the employer of the discrepancy.