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A Federal Judge Extends Prohibition on Implementing the Department of Homeland Security's No-Match Letter Regulation

On October 10, 2007, a federal court in California prohibited the Department of Homeland Security (DHS) and Social Security Administration (SSA) from enforcing the recently issued no-match letter regulation. In issuing the preliminary injunction, the Court found that a consortium of labor, civil rights and business groups had proven that there was a substantial likelihood that: (1) the regulation was arbitrary and capricious under the Administrative Procedure Act; (2) DHS exceeded its authority; and (3) DHS promulgated the regulation in violation of the Regulatory Flexibility Act. The preliminary injunction will prevent enforcement unless and until a full blown trial lifts the ban. DHS is currently considering whether to appeal the decision or simply proceed to trial.

The Court also found (based on historical empirical evidence) that the SSA “no-match” letters (formally known as an “Employer Correction Request”) and accompanying DHS guidance would result in mass firings of legal workers based on their nationality, in violation of the anti-discrimination provisions of the Immigration Reform and Control Act of 1986 (IRCA). It also found that there would be significant financial costs to employers and that employees legally authorized to work in the United States -- but who are singled out in “no-match” letters due to clerical or other errors -- face the risk of being fired because of SSA’s inability to correct its own information during the 90-day period prescribed in the regulation.

The Regulation Would Provide Employers With A Safe-Harbor

Broadly speaking, the regulation provides that an employer must determine within 30 days of receipt of the no-match letter whether the mismatch was the result of an internal mistake. If there was no internal error, an employee then has 90 days from the date of the employer’s receipt of the no-match letter to resolve the discrepancy with the SSA. The regulation also provides that following its procedures will insulate an employer from charges of national origin discrimination.

Complying with these steps also would qualify an employer for “safe harbor” against DHS alleging (based on receipt of the no-match letter) that it continued to employ an individual knowing that that person was not authorized to work in the United States. Significantly, an employer’s failure to respond to the letters could be construed as a “knowing” violation of immigration law if there was a later action against that employer. In the Court’s view, the new regulation would present an employer with the Hobson’s choice of complying with the safe harbor procedures or confronting liability for knowingly employing unauthorized workers.

Administrative Procedure Act Problems

The Court found that in the past, DHS had taken the position that a no-match letter did not indicate, by itself, that the target of the letter was not authorized to work in the United States. DHS now, however, has taken the position that receipt of the no-match letter, coupled with failure to take certain actions, can lead to a charge of knowingly employing an illegal alien. While the Court noted that an agency may change its position on an issue such as this, it held that the agency must “supply a reasoned analysis” for doing so. Failure to provide a reason for the change indicated to the Court that the regulation may be arbitrary and capricious and, thus, invalid under the Administrative Procedures Act.

The Regulation Overstepped DHS’s Authority

The Court also was concerned about the regulation’s suggestion that it could protect employers from the anti-discrimination provisions of IRCA. As the Court explained, Congress tasked the Justice Department’s Office of Special Counsel -- and not DHS -- with enforcing IRCA’s anti-discrimination provisions. Thus, the Court found that DHS may have impermissibly exceeded its authority by interpreting anti-discrimination provisions to preclude enforcement where employers follow the safe-harbor framework.

Regulatory Flexibility Act

The Court also expressed concern regarding whether DHS had satisfied the Regulatory Flexibility Act, as DHS failed to conduct a final flexibility analysis. The Court found this important on the ground that the new regulation could cause employers to incur training and compliance expenses.

Conclusion

The SSA draft 2007 no-match letters (which address mismatches from tax year 2006) incorporate language from the new regulation. SSA had planned to start sending these letters to approximately 140,000 employers (which would have covered approximately 8 million workers) as early as September 4, 2007. While the Court held that the SSA may still send out no-match letters, it also held that the letters cannot reference the new regulation. As a result, employers have not received no-match letters for tax year 2006. Moreover, employers are not expressly required to take any action upon receipt of no-match letters from last year. Employers should stay tuned to this issue as it works its way through the judicial process.

For more information please contact a member of Greenebaum's Labor and Employment Team.   Click here for a complete roster.

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