The rule was issued in its final form on November 14 and was set to go into effect January 15. But several business groups—including the U.S. Chamber of Commerce, the Society for Human Resource Management and the HR Policy Association—filed a suit in late December to block implementation.

The government agreed to push back the advent of the new rule to February 20. In the Friday, January 30, Federal Register, implementation was delayed to May 21.

The interval will allow new Department of Homeland Security Secretary Janet Napolitano to take another look at the rule. She was confirmed by the Senate last week.

“I think it is a positive sign that they’re rethinking whether this is the best way to go,” says Nancy Hammer, SHRM manager of regulatory and judicial affairs.

Under the regulation, companies that win a federal contract of more than $100,000—and subcontractors with contracts of greater than $3,000—would have to enroll in E-Verify, the electronic verification mechanism, within 30 days of being awarded the work.

The firms would have to check the eligibility of existing and new employees who directly work on federal contracts. The regulation was first issued as an executive order by President George W. Bush in June. E-Verify was the centerpiece of his administration’s efforts to step up work-site enforcement.

Currently, about 100,000 companies use E-Verify. The contractor rule could add at least 150,000 employers.

The business groups sued to stop the rule because they assert that the homeland department lacks authority to make E-Verify mandatory when Congress established it as a voluntary program.

They also claimed that it was unconstitutional to reverify employees who had already been cleared to work through the I-9 process. Contractors would essentially be forced to check all employees because any of them might be assigned to federal contracts, according to Larry Lorber, a partner at Proskauer Rose in Washington.

In the E-Verify system, new-hire information from I-9 forms is electronically compared with Social Security and DHS databases.

Employer groups criticize E-Verify for being inaccurate, inefficient and unable to detect identity theft. They argue that the 4.1 percent error rate in the Social Security database could lead to millions of people being incorrectly ruled ineligible for work. Supporters say that the system confirms 96 percent of queries instantly and has an error rate of less than 1 percent.

The E-Verify regulation is one of many promulgated at the end of the Bush administration that the White House wants to reassess. E-Verify policy is further complicated by the fact that the system is up for renewal.

At the end of the last Congress, the House and Senate agreed to extend it only until March 6. A provision in the House economic recovery bill requires that companies receiving stimulus money sign up for E-Verify.

Although that measure may not survive a conference committee, it gives the Obama administration another reason to pause.

“They’ve got to see what happens legislatively,” Lorber says.

It’s not clear yet what approach Obama will take toward worksite enforcement. As the former governor of Arizona, Napolitano has had her own experiences with E-Verify. The system is mandatory for companies operating in the state.

Eric Bord, a partner at Morgan Lewis & Bockius in Washington, foresees Napolitano concentrating on “egregious violations” of the law, such as transporting illegal workers, forging work documents and maintaining “sweat shop” working conditions.

“I don’t expect her to take steps that would undercut or reduce the footprint of E-Verify,” Bord says.

Unlike her predecessor, Michael Chertoff, Napolitano has had to respond to constituents who use E-Verify.

“She understands the complexity of the issue from dealing with it on the state level,” Hammer says.

Although it will take a while for Congress and the Obama administration to sort out E-Verify policy, Bord says companies should prepare for its expansion.

“Prudent employers should be exploring ways to automate and improve existing I-9 procedures,” Bord says. “They should view this as a legal compliance obligation and not as one more HR administrative function.”

—Mark Schoeff Jr.

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