Federal District Court Upholds Mandatory E-Verify Rule for Federal Contractors

Posted: August 28, 2009

Paving the way for full implementation on September 8, 2009, a federal District Court in Maryland has dismissed a lawsuit challenging the implementation of the E-Verify rule for federal contractors. Chamber of Commerce of the USA v. Napolitano, No. AW-08-3444 (D. Md. Aug. 25, 2009). The Rule would require federal contractors to use the federal E-Verify program to verify the legal status of all new hires and certain existing employees assigned to work on federal contracts. A federal contractor will not be required to begin using E-Verify on September 8, 2009, unless it wins a new contract(s) on or after the effective date which contains the E-Verify provision or unless any of its current federal contracts are modified/amended on or after September 8 to include such a provision.

Judge Alexander Williams, Jr., rejected all arguments made by a coalition of business groups opposing the rule, holding, “The decision to be a government contractor is voluntary and…no one has a right to be a government contractor.” Hence, no person or entity is actually required to participate in the system, the Judge stated. Also rejected was the plaintiffs’ argument that the E-Verify statute limits the use of the system to employment verification of new hires. The court stated, “Nothing in IIRIRA [Illegal Immigration Reform and Immigrant Responsibility Act] explicitly prohibits the Executive Branch from using E-Verify for current employees. Though there is administrative guidance saying that E-Verify should not be used for that purpose, that guidance does not legally prohibit the President from so requiring….”

About E-Verify

E-Verify is Department of Homeland Security’s voluntary electronic system that permits employers to verify the employment eligibility of new hires against DHS and Social Security Administration databases. To date, DHS estimates that over 134,000 employers have enrolled in the voluntary E-Verify program, although some were required to use it under state and local legislation.

The Federal Contractor E-Verify rule would require federal contractors and awardees to conduct immigration verification of all new hires and employees, whether or not assigned to the contract, and all existing employees assigned to the contract. Moreover, primary contractors would be required to oversee subcontractors’ compliance with the E-Verify program and would be subject to vicarious liability for their subcontractors’ failure to comply. Contractors are not required to verify the employment eligibility of individuals whose employment eligibility has been previously confirmed through E-Verify, who have been granted active U.S. security clearances, or who have completed DHS background checks.

Federal contractors not yet enrolled in E-Verify must:

enroll in the E-Verify program within 30 days of a contract award;
within 90 days of enrollment, verify newly hired employees within 3 business days after their start date;
within the later of 90 days after enrollment or 30 days after the assignment of existing employees to the contract, verify existing employees assigned to the contract; and
continue using E-Verify for the duration of the contract.

Federal contractors already enrolled in E-Verify for 90 days or more must verify newly hired employees within 3 business days after their start date. Federal contractors enrolled in E-Verify for less than 90 days must, within 90 days after enrollment, verify newly hired employees within 3 business days after their start date.

All federal contractors already enrolled in E-Verify must, within the later of 90 days after contract award or 30 days after the assignment of existing employees to the contract, verify existing employees assigned to the contract. All federal contractors already enrolled in E-Verify must continue using E-Verify for the duration of the contract.

Federal contractors have the option of verifying employment eligibility of all of their existing employees. However, a contractor which is an institution of higher education, a state or local government or the government of a federally-recognized tribe, or a surety performing under a takeover agreement with a federal agency, does not have this option and is limited to E-Verifying existing employees assigned to the contract and all new employees.

The Final Rule applies to prime federal contracts with a period of performance longer than 120 days and valued above $100,000 for employees working in the United States. The Rule applies to subcontractors only if the prime contract includes the E-Verify clause. For subcontracts that flow from such prime contracts, E-Verify is required for services or construction above $3,000.

The Rule also applies to existing indefinite-delivery/indefinite-quantity contracts for future orders if the remaining period of performance extends past July 15, 2009, and the amount of work or number of orders expected under the remaining performance period is substantial. In exceptional circumstances, the Rule allows the head of the contracting agency to waive the requirement to include the clause in the federal contract.

The Final Rule exempts certain contracts from E-Verify:

Contracts for commercially available off-the-shelf (COTS) items or items that would be COTS items but for minor modifications and related services;
Contracts with a value of less than $100,000;
Contracts with performance terms of less than 120 days; and
Contracts for work to be performed outside the U.S.

Before an employer enrolls in the E-Verify program, the employer must enter into a Memorandum of Understanding (MOU) with DHS and SSA, agreeing to continue hiring employees lawfully and to ensure that “no employee will be unfairly discriminated against” as a result of the employer's participation in the E-Verify program. Violation of the MOU by an employer can lead to termination of its participation in the E-Verify program, and thus, participation in federal contracts.

Employers participating in the E-Verify program must continue to complete and retain I-9 Forms for each newly hired employee. However, employers must now require new employees to provide identity documents with photos for verification purposes.

Extension Expected

While the authority for the E-Verify program will sunset on September 30, 2009, it is anticipated that Congress will extend its validity under the final version of the $42.9 billion FY 2010 Homeland Security Appropriations bill (H.R. 2892). The Senate’s version of the bill (S. 1298) includes an amendment offered by Senator Jeff Sessions (R-Ala.) to reauthorize permanently the E-Verify program and essentially impose the same requirements as the Rule to take effect on September 8, 2009, i.e., it will require federal contractors to verify all new hires and existing employees directly performing federal contract work. The House’s bill will authorize an extension for only two years. The two bills will be reconciled in a conference committee.

Next Steps

Because of the potential financial risks posed by the E-Verify requirements, federal contractors should assess the impact of the new federal contractor E-Verify rule on their operations as well as their internal procedures for compliance. They should also perform the following in advance of the September 8 effective date:

(i) determine if an existing or anticipated federal contract is subject to the Rule;
(ii) determine which, if any, current employees will be subject to the Rule;
(iii) determine if any exemptions apply or can be obtained;
(iv) review or create companywide E-Verify and I-9 programs, policies and procedures; and
(v) institute corrective actions where needed, particularly with regard to employees with unconfirmed employment authorizations.

Jackson Lewis attorneys in our Global Immigration and Affirmative Action and OFCCP Diversity Planning practice groups are available to answer inquiries regarding the E-Verify rule and assist employers in achieving compliance with its requirements.

Related Links
Chamber of Commerce v. Napolitano