On October 28, 2008, the Department of Homeland Security (DHS) published a Supplemental Final Rule that according to the comments reaffirmed and clarified the Final Rule published on August 15, 2007. The rule, titled "Safe Harbor Procedures for Employers Who Receive a No Match Letter," unfortunately clarifies nothing for corporate counsel and employers but does reaffirm the continuing confusion and leaves us adrift in an unsafe harbor without moorings.
Background
The newly published rule gives guidance to employers as to their obligations under the Immigration and Nationality Act when they receive a No Match letter from the Social Security Administration (SSA). Each year, SSA receives approximately 245 million wage reports on Forms W-2 from employers, covering approximately 153 million workers. If the combination of name and Social Security Number (SSN) on a Form W-2 cannot be matched to an SSA record, SSA cannot post the earnings to a worker's record, thereby creating a no-match situation. There are a number of reasons why reported information may not agree with SSA records, including typographical errors, unreported name changes, inaccurate or incomplete employer records or misuse of an SSN.
After SSA processes the wage reports submitted by the employers, it attempts to resolve the unmatched earnings by sending No Match letters to the affected employees and employers. The purpose is to obtain corrected information to help SSA identify the individual to whom the earnings belong so that the earnings can be posted to the individual's earnings record.
Currently, No Match letters are sent to any employer that reported more than 10 no-matches that represented more than 0.5 percent of the W-2s submitted by that employer. The notices may list up to 500 SSNs (without names) that could not be matched. The employer is asked to prepare Forms W-2c (Corrected Wage and Tax Statement) for each of the SSNs listed in the employer notice that the employer is able to correct.
In recent years, an increase in the issuance of these letters has caused employers to question the effect of the receipt of a No Match letter on their obligations to ensure that their workforce is legally eligible to work in the United States. Until last March, there was no guidance from DHS as to how a No Match letter should be handled by an employer or how it would be viewed by DHS if questions arose as to employment authorization during an I-9 audit or other enforcement action.
These questions are more pressing than ever as employers grapple with responding appropriately to No Match letters while avoiding immigration-related discrimination claims.
"Anti-Ostrich Regulation"
In remarks to the press on October 24, 2008, announcing publication of the rule, Secretary of Homeland Security Michael Chertoff called the no-match regulation "kind of an anti-ostrich regulation. It says you need to look at the facts, you need to make a reasonable effort to determine the truth, and you need to take appropriate steps."
In other words, employers cannot keep their heads in the sand and ignore the letters as had often been corporate practice in the past. Prior to the DHS regulation, employers had no incentive to address the issues raised in No Match letters because there were no penalties or enforcement provisions backing up the letters (except for minor IRS fines levied for reporting erroneous Social Security Numbers on W-2 forms). Often employers feared that investigating or responding to the letters would subject them to discrimination and wrongful termination claims.
The basic provisions of the regulation issued in August 2007 remain unchanged in the October 2008 revision. The rule adds receipt of a No Match letter by an employer to the list of instances that create constructive knowledge that an employee is without legal work authorization. The employer may avoid a constructive knowledge finding if it takes reasonable steps to address the discrepancies raised in the No Match letter.
DHS will employ the totality of the circumstances test to determine whether the employer took reasonable steps to rectify the SSA discrepancy. The new law then provides that those employers that heed the following safe harbor procedures will be deemed to have taken reasonable steps under the new law. Those procedures are:
Step One: Within the first 30 days of the receipt of the No Match letter, the employer should check its records to determine whether the error is typographical or clerical in nature. If so, the employer must correct the error and inform the appropriate agencies of the corrected information.
Step Two: If Step One does not resolve the discrepancy, the employer must ask the employee to confirm that the employer's records are correct and take corrective action if necessary. If the employee confirms that the employer's records are correct, then the employer must recommend that the employee follow up with the SSA to resolve the mismatch. Employers are not required to assist employees in resolving the problem but may give them a time frame for resolution. The regulation suggests that 30 days is appropriate for this step.
In the best of all circumstances, the no match situation will have resolved itself by this point. Once the employer has the corrected information, it must do I-9 reverification for the employee. The procedure to reverify a worker who is the subject of a No Match letter requires preparing a new I-9 form within 93 days of receiving the letter. If the discrepancy has not been resolved during that time, the employee may not use any document containing the disputed Social Security Number to establish work authorization or identity.
Step Three: If 90 days have passed since the receipt of the No Match letter and no resolution has surfaced, the employer must decide what to do: reverify the employee using the unreliable documents; maintain the status quo of the employment; or terminate the employee.
If the employer is unable to receive corrected or verified information within the 90-day period, it must decide whether to terminate the employee and face possible discrimination claims or keep the employee and face the risk that DHS will find constructive knowledge or a lack of employment authorization if the employer is investigated.
To aid employers, the Department of Justice Civil Rights Division Office of Special Counsel for Immigration-Related Unfair Employment Practices issued guidance in the Federal Register to clarify the effect of the safe harbor procedures on national origin and citizenship discrimination claims. It states that in general, as long as an employer follows a uniform procedure while investigating discrepancies and is consistent while implementing its termination/no-termination policies, if those discrepancies cannot be resolved, the Office of Special Counsel will not find reasonable cause to believe that discrimination has occurred.
Court Challenge
A week after the first Final Rule was published in August 2007, the AFL-CIO and others filed suit to enjoin the implementation of the rule in the Northern District of California. A preliminary injunction was granted when the District Court concluded that the plaintiffs had three valid claims:
(1) DHS had not provided a reasoned analysis as to why it changed its position regarding the effect of a No Match letter on an employer's constructive knowledge;
(2) DHS exceeded its authority, encroaching on the authority of the Department of Justice when it interpreted anti-discrimination provisions in the INA; and
(3) DHS had not conducted a regulatory flexibility analysis, thereby violating the Regulatory Flexibility Act.
To address these concerns, DHS released a Supplemental Proposed Rule on March 21, 2008, in the hopes that the District Court would lift the injunction. This did not happen, leading the agency to release the final rule on October 28, 2008, anyway. In a statement released October 24, 2008, Michael Chertoff said, "We will be notifying the judge that we have taken action to address the courts' concerns on the original rule and will ask the court to lift the injunction and let us proceed with implementation of the rule immediately."
On November 6, 2008, DHS filed a motion to vacate the temporary injunction and for summary judgment in the AFL-CIO action pending in the Northern District of California. The basis of the motion is that the revised rule has addressed and resolved the concerns raised in the injunction. A hearing on the motion is scheduled for December 12, 2008.
Conclusion
Publication of the Supplemental Final Rule has caused confusion and uncertainty among stakeholders, as the rule on its face took effect upon publication. There has been no instruction otherwise to employers or as to how the pending injunction or lawsuit affects their ongoing compliance obligations. Attorneys question DHS's authority to issue such a rule while the injunction continues. Business and immigrant groups argue that DHS again has failed to consider the effects of the rule on the legal workforce, suggesting that due to high error rates in the Social Security database and the short 90-day time frame for resolution, thousands of legal workers may lose their jobs when employers fully implement the error correction process mandated by the regulation.
The next round of No Match letters is scheduled to be issued by SSA in April 2009. It is unlikely that anything will be resolved by then, as it is certain that whatever the outcome of the hearing in December, appeals will be taken. In the meantime, employers and their counsel are left to weather the storm alone.
Published December 1, 2008.
