Government Contract Andrews Litigation Reporter VOLUME 22 h ISSUE 25 h April 20, 2009 Expert Analysis Federal Contracting Under the Government s New E-Verify Program By Jeff Belkin, Esq., and Donald Brown, Esq. The E-Verify program, an online database operated jointly by the Department of Homeland Security and the Social Security Administration, allows employers to check the employment eligibility of their workers. The voluntary program, formerly called the Basic Pilot Program, was set to expire in November, at the close of the Bush administration. In an effort to give the program expanded scope and greater longevity, President Bush issued Executive Order 13,465 in June 2008, mandating, in addition to the general requirement that all employers complete and retain a Form I-9 for all employees, that certain federal contractors confirm the employment eligibility of their workers. 1 Acting on the order, the DHS secretary selected the E-Verify program as the required verification system, 2 and federal agencies announced a proposed rulemaking to amend the Federal Acquisition Regulations accordingly. 3 The proposed rule was adopted and cleared for implementation by the Office of Management and Budget Oct. 31. The final rule was published in the Federal Register in November, mandating the incorporation of the new E-Verify requirements in all affected federal contracts beginning Jan. 15. Despite the rapid progress the new E-Verify requirements experienced in the lead-up to the November presidential election, the requirements have yet to be implemented. The delay is largely due to a suit filed by the U.S. Chamber of Commerce and five other interested parties, challenging the government s authority to implement the new requirements. As a result of the suit, the effective date for the final rule was initially suspended to Feb. 20. 4 However, a memorandum released by the Obama administration on Inauguration Day recommended that the effective date for any pending regulations be suspended for 60 days to allow for further review. The Chamber of Commerce requested that the suspension be applied to the new E-Verify regulations, and the final rule is now operating under a May 21 effective date. 5
government contract Litigation Reporter The delays in the implementation of the E-Verify requirements have bought federal contractors a temporary reprieve. If the final rule is ultimately implemented, contractors will face significant new responsibilities to participate in the program. This commentary introduces the E-Verify program and provides a summary of the key provisions of the final rule so contractors can prepare to implement the program with their workers. The legal challenges are presented as well to provide companies with some perspective on the Chamber of Commerce s effort to completely dismantle the final rule. How the E-Verify Program Works Contractors new to E-Verify may be unfamiliar with the practicalities of the program. To formally enroll, a contractor signs the memorandum of understanding, which is filed with U.S. Citizenship and Immigration Services. The terms of the MOU are non-negotiable and prohibit the contractor from using its E-Verify obligations as a means to discriminate against potential employees in the hiring process. Violation of the MOU is grounds for termination from participation in E-Verify, which in turn can lead to termination of the contractor from affected federal contracts. After enrollment, the contractor checks the employment eligibility of employees as outlined above. If E-Verify confirms the employee s eligibility, the contractor need only record the verification number and the result obtained from the program on the employee s Form I-9. If E-Verify cannot initially confirm the employee s eligibility, a tentative nonconfirmation notice will be generated from either USCIS or the Social Security Administration. The contractor must then provide the worker with a notice to employee of tentative nonconfirmation. 6 The employee must then note whether she affirms or contests the notice, which is then signed by the contractor and worker. In the event of contest, a referral letter is submitted to USCIS or the SSA, depending on which agency generated the initial notice. Following submission of the referral letter, the employee is given eight business days to visit an SSA office to try to resolve the discrepancy that generated the tentative nonconfirmation. The employee s work status with the contractor may not be altered during this protest period. 7 Failure to resolve the discrepancy within the eight-day timeframe leads to a final nonconfirmation, at which point the employee must be terminated. Critical Aspects of the Final Rule The final rule responds to Executive Order 13,465 and the secretary of DHS designation by amending the FAR to require certain federal contractors and subcontractors to begin using the E-Verify system, which was formerly voluntary. To ensure compliance, the FAR amendment mandates the insertion of a clause in most federal prime contracts valued at more than $100,000, with a performance term of at least 120 days, requiring the contractor to participate in the program. 8 Contractors would additionally be required to include a flow-down provision imposing the participation requirement on any of its subcontractors performing construction or services on a federal contract valued at more than $3,000. The final rule would apply to all affected FAR-based contracts entered after its effective date. In addition, existing contracts for indefinite-delivery or indefinite-quantity for which the performance period extends at least six months after the effective date would also be amended to incorporate the E-Verify requirements. The final rule s requirements can only be waived by the head of the contracting activity. Contractors will face significant new responsibilities when participating in the program. Once incorporated into affected contracts, the new E-Verify requirements impose an obligation on contractors to confirm the employment eligibility for any employee, including an existing employee, directly performing work under an affected federal contract. 9 An employee is not considered to be directly performing work where he or she normally performs support work, such as indirect or overhead functions and does not perform any substantial duties applicable to the contract. 10 The final rule further requires that the federal contractor check the employment eligibility of all newly hired employees working in the United States, regardless of whether the new hire is directly performing work on an affected contract. 11 2
VOLUME 22 h ISSUE 25 h April 20, 2009 The timing of the requirements under the final rule depends on the contractor s enrollment history. After the effective date, companies not previously enrolled in E-Verify must register within 30 days of entering an affected contract. Ninety calendar days after entering the contract, the contractor must begin checking the employment eligibility of new hires and existing employees, as outlined above. After 90 days have passed, the employment eligibility of any existing employee previously unregistered with E-Verify, who is newly assigned to directly perform work on the affected contract, must be confirmed within 30 days, and the eligibility of all new hires must be confirmed within three business days of hire. Contractors previously enrolled in E-Verify are not given as much time to begin establishing employees employment eligibility in accordance with the final rule after the effective date. Where the contractor was already enrolled in E-Verify for 90 calendar days or more, all new hires must be cleared with E-Verify within three business days of hire. For existing employees assigned directly to the affected contract, eligibility must be confirmed within 90 calendar days after the date of the contract award or 30 days after assignment, whichever is later. The short confirmation window for newly hired employees is extended for contractors enrolled in E-Verify for less than 90 calendar days as of the effective date. Those contractors are not required to meet the final rule s requirements regarding newly hired employees until 90 calendar days after enrollment. Previously enrolled contractors can buy more time to confirm the employment eligibility of existing employees by agreeing to confirm the eligibility for all existing employees, regardless of whether they are directly performing work on an affected federal contract. 12 To exercise this option, the contractor must notify DHS and begin implementing the approach to its entire workforce within 180 calendar days of such notice. Federal contractors who violate the new E-Verify requirements by retaining employees who have not been properly cleared or who have received final nonconfirmation notices may face an increased likelihood of suspension or debarment. Executive Order 12,989 has held since 1996 that contracting agencies should not contract with employers that have not complied with Section[s] 274(a)1(A) and 274(a)(2) of the Immigration and Nationality Act. 13 While this ground has rarely been used to debar corporations, the final rule ensures that federal contractors must more actively seek verification of their employees employment eligibility and create a significant paper trail in the process, leaving little room to hide if violations are alleged. Contractors would be required to impose participation on subcontractors performing on a contract valued at more than $3,000. While the final rule imposes greater burdens on the human resources departments of federal contractors, participating companies do gain some advantages for their trouble under the final rule. Employment eligibility confirmations from E-Verify create a rebuttable presumption that the contractor is not criminally liable under Section 274(a)(1)(A) of the Immigration and Nationality Act. In addition, a general exemption from civil or criminal liability brought by a participating agency is granted to any contractor for actions taken in good-faith reliance on an E-Verify eligibility report, such as where a contractor terminates a newly hired employee based on a report that is ultimately proven to be faulty. 14 The Chamber of Commerce Action The suit brought by the Chamber of Commerce and other parties seeks to undo the entirety of President Bush s effort to create an immigration enforcement legacy out of the E-Verify program. The prayer for relief in the Chamber of Commerce s action asks the U.S. District Court for the District of Maryland to [d]eclare Executive Order 13,465 and the final rule [implementing E-Verify in certain FAR-base contracts] illegal and void and [p]ermanently enjoin [the government] from enforcing the requirements imposed by Executive Order 13,465 and the final rule. 15 Thus, the implementation of the E-Verify requirements in the federal contracting arena hinges, for the moment, on the outcome of the case, which could block even the Obama administration from affirming the regulations. The Chamber of Commerce contends that Executive Order 13,465, the selection of the E-Verify program
government contract Litigation Reporter by DHS and the mandatory participation requirement set forth in the final rule are contrary to the law that created E-Verify in the first instance. E-Verify was created as a pilot program for employment eligibility confirmation under the Illegal Immigration Reform and Immigrant Responsibility Act of 1996. Under IIRIRA, the pilot programs were only to be used to check the employment records for newly hired employees. 16 IIRIRA further limits the reach of pilot programs like E-Verify, stating that the secretary of Homeland Security may not require any person or other entity to participate in a pilot program. 17 The Chamber of Commerce argues that the terms of the final rule violate both of these express limitations. As mentioned above, the program no longer would be voluntary for federal contractors performing under affected contracts. Further, the final rule does not limit its reach to newly hired employees, instead requiring federal contractors to check the eligibility for all existing employees directly performing work on affected contracts and providing companies with the option of checking the eligibility of all existing employees without limitation. These issues were addressed in the comments to the final rule, which stated that IIRIRA s prohibition against expanding the scope of E-Verify and making the program mandatory only applied to the secretary of Homeland Security. The comments stated that the U.S. president and FAR councils were actually the parties that instituted the new requirement, and they are not bound by IIRIRA. The comments went further by noting that the final rule actually does not require participation in E-Verify, as nothing in the final rule requires an employer to become a federal contractor. 18 The Chamber of Commerce anticipated these defenses and argues in its complaint that they are immaterial. The organization directly attacks the contention that attribution of the final rule to the president, rather than the secretary of DHS, preserves the final rule. The Chamber of Commerce argues that Executive Order 13,465 and the final rule constitute lawmaking. While recognizing that the executive branch is charged with executing the laws of the United States pursuant to Article II of the Constitution, The organization cites to the seminal case of Youngstown Sheet & Tube Co. v. Sawyer, which held that the president s power to see that the laws are faithfully executed refutes the idea that he is to be a lawmaker. 19 Aside from this constitutional argument, the Chamber of Commerce highlights the significant economic impact that the final rule would have on federal contractors, arguing that the president and FAR councils have violated the law by enacting the final rule. With regard to the president, the Chamber of Commerce says Executive Order 13,465 runs afoul of the Procurement Act 20 because there does not exist a manifestly close nexus between the Procurement Act s criteria of efficiency and economy on the one hand, and the requirements imposed by Executive Order 13,465 and the final rule. 21 As to the FAR Councils, the Chamber of Commerce says they violated the Regulatory Flexibility Act. 22 The RFA requires the FAR councils to evaluate the adverse economic effects on its actions and consider less harmful alternatives. It argues that the FAR councils did not properly consider the significant costs to employers who, although they have previously complied in good faith with all existing immigration laws, must replace workers who become unauthorized to work solely by operation of the requirements imposed by Executive Order 13,465. 23 While E-Verify imposes burdens, contractors do gain some advantages for their trouble. In support of these economic arguments, the Chamber of Commerce cites the not insignificant financial burden that participation in the E-Verify program will impose on contractors. The proposed rule initially estimated that the startup and training costs of complying with the new requirements would be about $61.6 million. The final rule estimated that these costs in fiscal year 2009 alone would be closer to about $188 million more than three times the initial estimate. A final complaint by the Chamber of Commerce in their suit against the final rule is related to a technical rulemaking requirement under the Office of Federal Procurement Policy Act, 24 which the organization alleges was not followed in the rulemaking process that led to the new E-Verify requirements.
VOLUME 22 h ISSUE 25 h April 20, 2009 Pursuant to 41 U.S.C. 418b(a), forms relating to the expenditure of appropriated funds that have (1) a significant effect beyond the internal operating procedures of the agency issuing the procurement policy, regulation, procedure or form or (2) a significant cost or administrative impact on contractors or offerors must be published in the Federal Register for at least 60 days before taking effect, unless impracticable. The Chamber of Commerce takes issue with the revised memorandum of understanding, which would come into use as the contractor s formal enrollment document under the final rule. The revised MOU, which the organization argues is a form for purposes of Section 418b(a), was never published in the Federal Register. Instead, the government simply made the form available online during the rulemaking period. The Chamber of Commerce says publication of the MOU in the Federal Register was not impracticable, making the final rule s adoption procedurally invalid. The organization moved for summary judgment on all these legal issues Jan. 14. A hearing on the motion was originally scheduled for Feb. 19 before U.S. District Judge Alexander Williams Jr. However, the Chamber of Commerce and the Obama administration agreed to a 90-day stay in the proceedings to allow the newly inaugurated administration of President Obama to review the final rule at issue in the Chamber of Commerce s action. The government has yet to file a response to the motion. 25 Conclusion The ultimate disposition of the final rule is far from resolved. Since the Bush administration initiated the process that led to its adoption last year, a lawsuit alleging constitutional, statutory and regulatory violations has been filed to block the final rule s requirement that certain contractors participate in E-Verify on a mandatory basis. President Obama s Democratic administration has also led to a further prolonging of the effective date for the final rule as it evaluates all policy changes in the context of an unprecedented economic crisis. While the final rule s implementation remains in doubt, it may yet fundamentally change how federal contractors confirm the employment eligibility of their workers. Notes 1 Participation in the program is otherwise voluntary. A number of states, however, moved to expand the E-Verify program, requiring state contractors to participate in the program as well. Currently, eight states require certain state contractors to participate: Arizona, Colorado, Georgia, Mississippi, Missouri, Minnesota, Oklahoma and Utah. Julia Preston, Employers Fight Tough Measures on Immigration, N.Y. Times, July 6, 2008, at A1. 2 Notice of Designation of the Electronic Employment Eligibility Verification System Under Executive Order 12,989 ( E-Verify designation notice ), 73 Fed. Reg. 33,837 (June 13, 2008). 3 Proposed Employment Eligibility Verification Rule, 73 Fed. Reg. 33,374 (June 12, 2008). 4 The case is Chamber of Commerce of the United States of America et al. v. Chertoff et al., No. cv-03444/aw, complaint filed (D.D.C. Dec. 23, 2008), available at http://www.ailf.org/lac/chdocs/coc-cmpl.pdf. The other parties to the suit are Associated Builders & Contractors Inc., Society for Human Resource Management, American Council on International Personnel and HR Policy Association. 5 In the lead-up to passage of the $787 billion stimulus package by both houses of Congress, the House of Representatives initially proposed a stimulus bill containing E-Verify requirements, which were not present in the Senate s version. The final package, approved Feb. 17, omitted the House bill s E-Verify requirements. 6 A tentative nonconfirmation may be generated for a variety of reasons. For example, the contractor may simply have entered the employee s information incorrectly on the E-Verify Web site. Changes in the employee s name or immigration status that have not been updated in the SSA database may also lead to tentative nonconfirmation. 7 Among many logistical issues unanswered by the final rule are how an employer should deal with an employee who has only been hired to perform work that will begin and end within the protest period. 8 See FAR 22.1802. Specifically exempted under the final rule are contracts for commercially available off-the-shelf items. Off-the-shelf items are items that would be COTS items but for minor modifications. See FAR 22.1803(c). 9 It should be noted that pursuant to 8 U.S.C. 1324a(b), contractors are still required to complete and retain an Employment Eligibility Verification Form (Form I-9) for all new hires, even where employment eligibility is confirmed with E-Verify. 10 48 CFR 22.1801. 11 Institutions of higher education, defined under 20 U.S.C. 1001(a), state and local governments, federally recognized Indian tribes and sureties performing under a takeover agreement entered into with a federal agency in accordance with a performance bond, are permitted to only confirm the eligibility of newly hired employees directly performing work on the affected contract, rather than all new hires. 12 The final rule does not require confirmation of the employment eligibility for employees holding active confidential, secret or top-secret security clearances. Also exempted are any employees for whom a background investigation has been completed and credentials issued pursuant to the Homeland Security Presidential Directive. 13 This language remains unaffected by Executive Order 13,465, which amended Executive Order 12,989. 5
government contract Litigation Reporter 14 Contractors could still face liability from other plaintiffs. For example, an otherwise eligible employee wrongfully terminated based on a faulty E-Verify report might still file a discrimination complaint against the contractor under Title VII with the Equal Employment Opportunity Commission. 15 Chamber, supra note 4, at 26. 16 IIRIRA 402(c)(2)(A), 403(a). 17 Id. at Section 402(a). There is an exception to this limitation at IIRIRA Section 402(e), mandating participation in E-Verify for employees hired by federal agencies, the legislative branch and certain immigration law violators. 18 Final Rule, 73 Fed. Reg. at 67,656. 19 343 U.S. 579, 587 (1952). 20 40 U.S.C. 101. 21 Chamber, supra note 4, at 21 (citing Liberty Mut. Ins. Co. v. Friedman, 639 F.2d 164, 170 [4th Cir. 1981]). 22 5 U.S.C. 601-612 (2000). 23 Chamber, supra note 4, at 25. 24 41 U.S.C. 401. 25 Chamber, supra note 4. The defendants consented to emergency motion for a stay of proceedings to permit the newly inaugurated administration an opportunity to review the final rule at issue, Jan. 27, 2009, p.1. Jeff Belkin is a partner at Alston & Bird in Atlanta, where he leads the firm s government contracts practice. Donald Brown is an associate in the firm s Atlanta office, where he is a member of the construction and government contracts group.. This publication was created to provide you with accurate and authoritative information concerning the subject matter covered, however it may not necessarily have been prepared by persons licensed to practice law in a particular jurisdiction. The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional. For authorization to photocopy, please contact the Copyright Clearance Center at 222 Rosewood Drive, Danvers, MA 01923, USA (978) 750-8400; fax (978) 646-8600 or West s Copyright Services at 610 Opperman Drive, Eagan, MN 55123, fax (651) 687-7551. Please outline the specific material involved, the number of copies you wish to distribute and the purpose or format of the use. For subscription information, please visit www.west.thomson.com.