Secretary of Homeland Security Janet Napolitano recently introduced a new campaign called “I E-Verify” to recognize the approximately 170,000 businesses nationwide currently using the federal E-Verify program. The campaign is designed to highlight employers’ commitment to maintaining a legal workforce and reducing the use of fraudulent work documents.
While the “I E-Verify” campaign certainly marks the growing use of E-Verify by private employers, a large percentage of those companies are using it because they are required to—either because they operate as employers in a jurisdiction where it is legally required or because they are federal contractors or subcontractors. Until very recently, the vast majority of employers in the U.S., for whom E-Verify is optional, had shown little interest in signing up for the program.
After all, for many employers E-Verify has the potential to increase business costs as well as legal liability. However, with more than 1,200 employers per week registering for the new program and approximately 83 percent of them saying they are basically satisfied with its performance, E-Verify is quickly becoming a routine part of the hiring process for many companies.
Ever since Congress passed the Immigration Reform and Control Act of 1986, the federal government has sought to curb illegal immigration by penalizing employers for employing aliens whom they know to be unauthorized to work in the United States. To comply with the law, U.S. employers must verify the employment eligibility and identity of all newly hired employees by completing a Form I-9. Employers that hire or continue to employ individuals knowing that they are ineligible to work in the U.S. may face civil or criminal penalties. Like it or not, since 1986 employers have been de facto federal deputies in the frontline battle against illegal immigration. Accompanying this obligation is a corresponding duty to verify employees’ documents in a manner that is nondiscriminatory.
With millions of people entering the U.S. to work without authorization just in the past decade or so, the effectiveness of the employer-mandated I-9 process is not immediately obvious. Many observers have noticed a dramatic increase in the use of fraudulent work documents since 1986 and no discernible decrease in the number of unauthorized aliens since that time. On the other hand, the Department of Homeland Security rightfully points out that unauthorized employment is a form of unfair competition that must be addressed. Whatever the public policy implications, the main problem with the I-9 program is that employers often lack the expertise to detect fraudulent work documents. Moreover, because of the nondiscrimination provisions in Immigration Reform and Control Act they are understandably deterred from being overly demanding during the I-9 process. In response to this problem, the government created the E-Verify program to operate alongside the I-9 procedure and make the verification process more effective.
For most employers in the U.S., the program remains strictly voluntary. In order to participate, an employer must enroll online and have its human resources staff complete an online tutorial. Voluntary registrants must begin using it for all new hires immediately. However, federal contractors have 30 days from the date of their contracts to enroll in the program and an additional 90-180 days to begin using it. E-Verify supplements the I-9 process; it does not replace it. In fact, an employer is not even permitted to initiate an E-Verify query for a new hire until AFTER the I-9 process is complete—at which time and before the end of the third day of employment, the employer must enter the I-9 data into E-Verify system to confirm the person’s identity and work authorization.
The data entered into E-Verify is checked against databases maintained by DHS and the Social Security Administration. In most cases, work authorization is confirmed in a matter of seconds. However, in about 3 percent of cases, a tentative non-confirmation occurs and the employer is legally obligated to provide certain notices to the employee and to continue the employment until a final determination is made by E-Verify.
The purpose of this article is to discuss which companies are required to use E-Verify and which are not. For those that are not legally required to use it, the article further discusses the potential advantages and disadvantages of voluntary enrollment. Employers generally fall into one of five categories with respect to E-Verify.
Based on your company’s particular circumstances, you can simply skip ahead to the section that best describes your situation. Also, you can consult the quick-reference chart that accompanies this article:
The default position at the federal level is that an employer is generally not required to use E-Verify unless it has a qualifying federal contract or subcontract that contains the E-Verify clause. However, some states have gone beyond the federal government in making E-Verify mandatory within their jurisdictions. At present the most dramatic examples are Arizona, Mississippi and South Carolina. Since 2008, Arizona has had a general E-Verify requirement in effect for all employers, public and private. Noncompliance can lead to the loss of an Arizona business license. In Mississippi, a state law requires E-Verify for all employers, but implementation of the law has been phased in slowly, with large Mississippi employers enrolling in 2008 while smaller companies have until 2011 to sign up. South Carolina has a similar law mandating E-Verify for all large companies starting in July 2009 while smaller companies have until July 2010.
If you are operating as an employer in one of these three states, you must use E-Verify in accordance with state requirements. If your company operates in many locations it might make sense to use E-Verify only in the jurisdictions where it is required. On the other hand, for consistency some employers are deciding to register the entire company.
While these are currently the only three jurisdictions with a general E-Verify requirement for all employers, a handful of other states have E-Verify requirements that are limited to state contractors and public employers. These include Colorado, Georgia, Idaho, Minnesota, Missouri, North Carolina, Oklahoma, Rhode Island and Utah. The specific requirements vary by state. Employers in these jurisdictions are strongly encouraged to consult with their immigration or employment counsel to make sure they are in compliance. The stakes for noncompliance can be surprisingly high, including in some cases the loss of your state contracts. The field is rapidly evolving and employers are advised to watch for continuing changes at the state level. One particularly good source for specific state requirements is the National Conference of State Legislatures Web site.
No discussion of E-Verify at the state level would be complete without mentioning Illinois, the only state that has tried to restrict private employers from using the federal program. A new Illinois law places significant state requirements on employers that use E-Verify. To ensure compliance, the law gives aggrieved employees a private right of action in state court with the possibility of sizable civil damages.
The remaining categories are for the broad majority of employers who are not under a state obligation to use E-Verify. For most employers, deciding whether to enroll will depend largely on whether you have or soon will have a federal contract or subcontract that contains the E-Verify clause, since this is the only national basis on which E-Verify is compulsory for private employers.
A federal acquisition rule requires federal contractors to agree to use E-Verify through language inserted into the contracts. This is known as the “E-Verify clause.” The rule applies only to contracts awarded after September 8, 2009. The E-Verify clause will come from the contracting agency, not the Department of Homeland Security. Contracts that were awarded prior to September 8, 2009, will not contain the E-Verify clause and therefore will not trigger the E-Verify requirement.
There is an exception for existing indefinite delivery/indefinite quantity contracts. Because of the potentially unending nature of these contracts, federal contracting officers have been authorized to negotiate the insertion of the E-Verify clause on a bilateral basis for future orders if the remaining period of performance extends to at least March 18, 2010, and the amount of work or number of orders expected under the remaining performance period is substantial.
The rule also “flows down” to federal subcontractors if the prime contract includes the E Verify clause and the subcontract is for services or construction in excess of $3,000 for work performed in the United States. Prime contractors must provide notice of the E-Verify requirement to their subcontractors as well as provide general oversight to make sure they meet the E Verify requirement. Subcontractors will not receive notice of the E-Verify clause from the government. Contracting with or continuing to work with a subcontractor whom a prime contractor knows to be out of compliance with the E-Verify requirement can result in fines and penalties to the prime contractor. Prime contractors are not required to verify the work eligibility of their subcontractors’ employees, but they are required to make certain that the E-Verify clause is inserted into every tier of their subcontracts and that all of their subcontractors are using the E-Verify system.
Federal contractors whose contracts contain the E-Verify clause are required to use E-Verify on new hires and on all employees assigned to work directly on the contract. Alternatively, they may elect to verify their entire workforce. As a practical matter, most companies choose to verify their entire workforce rather than spend resources tracking which employees are assigned to work directly on qualifying federal contract projects at any given time. This is particularly true for large companies with multiple contracts and relatively fluid workforces.
A company that chooses to use E-Verify for its whole workforce will first need to make sure that every employee’s Form I-9 is in order. That’s because the data from the I-9 is used during the E Verify process. U.S. Immigration and Customs Enforcement provides two options for carrying out the I-9 re-verification process. One option is to complete a new I-9 for every employee as if he or she were a new hire. The second option, which is even more labor-intensive, involves sifting through every I 9 for your current workforce and re-verifying only those employees whose forms would no longer be in compliance if they were completed today. Whichever option is selected, after the employer has completed the I-9 portion for every employee, it must then run that data through the E-Verify system.
The decision to “cleanse” your entire workforce should not be taken lightly, as it will take considerable time and resources and could lead to the realization that despite your company’s best efforts, some members of your workforce are unauthorized to work. Even if just 1 to 2 percent of your workforce turns out to be unauthorized, that could represent a formidable challenge to your business operations: Their employment would have to be terminated immediately. Also, in certain industries the percentage of unauthorized workers could be significantly higher. One option to mitigate the impact on your business might be to use a controlled rollout of the E-Verify program.
It is crucial to develop a strategy before you register for E-Verify. Employers are strongly encouraged to consult with their immigration and employment counsel before taking any action with respect to enrolling in E-Verify. After they have enrolled in the program, some employers outsource their E-Verify function to third-party vendors, known as designated agents. For many, this is a cost-effective alternative to maintaining a trained HR staff steeped in E-Verify. It might also reduce the risk of privacy and discrimination claims by employees. However, third-party vendors have a strong financial interest in persuading companies to enroll in the E-Verify program. Thus, when deciding whether to enroll, it is better to consult with an independent professional who can help you objectively weigh the costs and benefits.
It is important to understand that not all federal contractors and subcontractors will have the E-Verify clause in their contracts, and therefore will not be federally required to use E-Verify. There are two ways this could happen (not counting a simple error or oversight by the contracting agency). First, as discussed above, federal contracts awarded before September 8, 2009, do not trigger the E-Verify clause. Thus, if you have an older federal contract, it is grandfathered in without the E-Verify requirement. The E-Verify clause will not be inserted until the next time the contract comes up for renewal. The only exception, again, is with indefinite delivery/indefinite quantity contracts, and even those must be renegotiated bilaterally before the new E-Verify clause can be inserted for future orders. Second, a federal contract awarded after September 8, 2009, could qualify for an exemption from the E-Verify requirement. In that case, the clause would not be inserted and the employer would not be required to enroll.
There are four exemptions under the E-Verify Rule for federal contractors:
• Contract is for fewer than 120 days.
• Contract is valued at less than $100,000 under the simplified acquisition threshold.
• All work is performed outside the United States.
• Contract is for commercially available off-the-shelf items and related services.
The fourth exemption is the most significant one for most federal contractors. A commercially available off-the-shelf item is one that is sold in substantial quantities in the commercial marketplace and is offered to the government in the same form that it is available in the commercial marketplace, or with only minor modifications. For example, a contract to supply NASA with 10,000 “AAA” household batteries per month would qualify for what is called a COTS exemption since household batteries are sold in substantial quantities in the marketplace and the supplier isn’t doing anything to make the make the batteries unique. But a second contract with NASA to design and develop a new battery for use in the next lunar rover would not qualify for the COTS exemption because it isn’t sold in substantial quantities and because it was designed specifically for NASA.
What should you do when E-Verify is optional for your company today but will become mandatory in the near future because you are on the verge of getting a qualifying federal contract or subcontract? The basic federal contractor rule is simple enough: Get the contract first. If it contains the federal acquisition rule E-Verify clause, you must sign up within 30 days. If it isn’t in the contract, then signing up is optional.
But many companies are asking what should be done now to prepare for federal contractor status in the future. Let’s say you are currently competing for federal contracts but you don’t have any that qualify for the E-Verify requirement at the moment, perhaps because your current contracts were grandfathered in before September 8, 2009, or because they qualified for one of the exemptions. In that case, the analysis shifts away from the legal requirements and toward a more traditional business analysis. Specifically, you must decide whether and to what extent you will expend resources preparing your company for E-Verify compliance when it is not yet legally required.
There are basically three options available to a company in this scenario:
• Sign up now: The upside is that you will only be required to use it for new hires, since non-federal contractors are not permitted to use it for existing employees. Later, if you get a federal contract with the E-Verify clause, you can simply change the designation in your company profile and then decide whether to verify all your existing employees or just the ones working on the federal contract. Meanwhile, you can market your company to government agencies, prime contractors and customers as being compliant with E-Verify. And if you don’t get the federal contract you’re competing for, you can always withdraw from the E-Verify program with 30 days’ notice. On the other hand, as discussed below, the downside to registering for E-Verify voluntarily is that it adds significant new burdens to your company in terms of time, training and legal liability.
• Prepare now, sign up later: The second option is to fully prepare your company for E Verify but stop short of actually registering for it. Implementing E-Verify in a strategic way that maximizes your specific circumstances while minimizing your obligations and legal risks takes some effort. You will need to decide which hiring sites will participate and how to roll them out for E-Verify purposes. You will also need to develop and implement a written company policy. Finally, you must decide which members of your HR staff will be responsible for the E-Verify function and train them accordingly. If you operate as an employer in Illinois, you will need to take some additional steps. Depending on your company’s situation and the likelihood of future federal contracts, it might make sense to get things in order ahead of time.
• Do nothing and wait: The third option is to do nothing until you receive a decision on your bid for a federal contract/subcontract. If you win the bid, then you can focus on enrolling in E-Verify and getting your internal policies and procedures in place. If you don’t get the bid, you can carry on not using E-Verify for as long as it remains voluntary for non-contractors. The do nothing-and-wait-approach is an attractive option for companies that are not as likely to get a federal contract or for companies that conclude now is simply not a good time to introduce a complicated new hiring system like E-Verify.
Let’s assume that your company is not a federal contractor, doesn’t expect any federal contracts anytime soon and doesn’t operate as an employer in one of the mandatory jurisdictions discussed above. In that case, E-Verify is strictly optional. Determining on a voluntary basis whether E-Verify is right for your company will depend on a variety of factors. Here are the basic pros and cons of E-Verify:
E-Verify can help your company avoid the mistake of hiring and training someone only to find out later that he or she is not authorized to work. For this same reason, E-Verify also gives executives and HR managers a measure of confidence and peace of mind about the lawfulness of their workforce. It virtually eliminates Social Security mismatches (although an employer could use the Social Security Administration’s program, called the Social Security Number Verification Service, to check for Social Security mismatches at the time of hire without all the hassle and potential liability of E-Verify). E-Verify also helps to improve the accuracy of wage and tax reporting because it reduces identity mismatches. Furthermore, although using E-Verify does not provide a safe harbor from prosecution for knowing unauthorized employment, it does create a legal presumption in your favor if you end up in court. As a practical matter, this would likely receive a substantial amount of weight in the event of an audit or investigation by Immigration and Customs Enforcement. It could mean the difference between getting a warning versus a fine, or, for more serious cases, a civil fine versus a criminal charge.
Finally, if your company hires many foreign nationals fresh out of college or graduate school, signing up for E-Verify can make the foreign national eligible for an additional 17 months of immigration status if his or her degree is in a field relating to science, technology, engineering or mathematics. As this is a significant new immigration benefit, many of the best foreign national students with highly sought-after advanced degrees are targeting E-Verify-compliant companies as potential employers.
However, E-Verify is not for everyone. There are serious reasons why some employers may decide to wait as long as possible before getting involved with it. The biggest downside of E-Verify is that it increases a company’s legal liability. Because your hiring data is stored electronically in a government database, it makes it much easier for the government to sort through the data for simple hiring errors that previously would have gone undetected. For example, if an HR manager forgets to complete the I-9 process and initiate the E-Verify query until the fourth day of employment—a likely scenario—that would constitute a technical/paperwork violation with the possibility of a civil fine. The odds of detection for such a low-level, innocent mistake under the traditional I-9 process are relatively low compared with the odds of detection under E-Verify. In theory, an accumulation of such small, innocent errors could be sufficient to trigger an audit or investigation.
The second major problem with E-Verify is that it does not replace the I-9 procedure. It merely adds an additional and significant burden to the process. The Department of Homeland Security promotes the E-Verify system as being free of charge, meaning only that the government does not charge for the right to use its databases. But viewed from a wider perspective, E Verify is anything but cost-free for a company. It actually requires significant investments in implementation, training and vigilant internal oversight.
A third problem with E-Verify is its potential for creating unintended privacy and discrimination violations. Employers that use E-Verify are under various federal and state obligations to safeguard the data contained on the Form I-9 and in the E-Verify databases. Once an employer enrolls in E-Verify, it must make certain that employees with access to the company’s E-Verify account are properly trained and supervised so as not to use it at the wrong time, for the wrong purpose or on the wrong person.
A poorly trained or poorly supervised HR worker can create significant liability for a company through misuse of the E-Verify system. Employers are also obligated by anti-discrimination laws to treat all similarly situated employees alike and not to ask employees for more documentation than is legally required. The use of E-Verify may create certain situations that are likely to lead well-meaning employers into trouble because of the problem of false negatives. Namely, employers that are otherwise scrupulous in carrying out their E-Verify obligations may falter when the system returns a false negative for someone they know or strongly believe to be work-authorized. This problem is most likely to occur when the person operating E-Verify knows the employee personally. Ignoring what is called a “final nonconfirmation” can seem like a reasonable thing to do when someone is certain that the system has made a mistake. But if a company overlooks it for one employee and not for others, it may have inadvertently created the basis for a discrimination claim.
E-Verify is a relatively new system that aims to address the needs of hundreds of thousands of employers and millions of employees. It is inevitable that such a large-scale system will encounter many problems along the way. The good news is that the federal government appears to be dedicated to properly funding E-Verify and addressing the most pressing questions. The bad news is that there are still many unanswered questions. Today it is largely optional for most employers, but if present state and federal trends continue it seems likely that E-Verify will become mandatory for all employers in the United States.
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The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.