United States: DHS Issues Supplemental Final No-Match Rule; Will Press Court To Lift Injunction Against Final Rule

On October 23, 2008, the Department of Homeland Security (DHS) published a 100-page Supplemental Final Rule intended to "clarify" how employers can resolve discrepancies identified in "no-match" letters they receive from the Social Security Administration (SSA) and otherwise ensure that they do not illegally employ unauthorized workers. The supplemental rule is the DHS' response to a preliminary injunction entered by a California federal district court shortly after the DHS issued its Final Rule on "no-match" letters in August 2007. The court order enjoined the DHS and SSA from implementing the Final Rule, titled "Safe-Harbor Procedures for Employers Who Receive a No-Match Letter."

Although the Supplemental Final Rule leaves the substance of the original rule virtually intact, the DHS contends that it provides "a more detailed analysis of how the Department developed the No-Match policy" and other background information and cost analyses aimed at allaying the court's concerns about the new rule. The DHS has already initiated efforts to have the injunction lifted.

The controversial Final No-Match Rule instructs employers on how to respond when they receive a "no-match" letter from the SSA informing them that specified employees' names and Social Security numbers provided on the employers' Form W-2 reports are inconsistent with SSA records, or they receive a "notice of suspect document" letter from the DHS. The rule further requires the SSA to inform employers via the no-match letters that if they do not resolve the discrepancy, they face (potentially significant) liability. Essentially, an employer who receives a no-match letter has 93 days to resolve any discrepancies.

The disputed Final Rule, in effect, provides employers a "safe harbor" – if an employer who receives a no-match letter in good faith follows the steps set forth therein, the DHS "guarantees" that U.S. Immigration and Customs Enforcement (ICE) will not use the employer's receipt of such a letter "as evidence to find that the employer violated the employment provisions of the Immigration and Nationality Act by knowingly employing unauthorized workers."

In forbidding the DHS and SSA from implementing the Final No-Match Rule last year, the federal court found that there were serious questions about the rule's legality, including whether it placed an onerous burden on employers and discriminated against workers who appeared to be lawful immigrants or U.S. citizens. According to some estimates, as much as four percent of the approximately 250 million wage reports the SSA receives each year turn up discrepancies between the wage forms submitted and the SSA's records. Critics of the rule, however, claim that the SSA's database is riddled with errors and therefore unreliable.

The DHS insists that only employers with more than 10 employees identified with discrepancies get SSA no-match letters and only if the percentage of no-matches exceeds .5 percent of the employer's workforce. Nevertheless, until the Final Rule was enjoined last year, the DHS and SSA were sending such letters to tens of thousands of employers annually. For Tax Year (TY) 2005, roughly 138,000 employers received no-match letters. In response to the preliminary injunction, the agency decided not to send letters for TY 2006.

The DHS reportedly is waiting for the district court's ruling regarding the Supplemental Final Rule prior to deciding whether to send no-match letters to approximately 140,000 employers for TY 2007. Notably, however, the injunction has not stopped the SSA from sending no-match letters directly to workers for Tax Years 2006 and 2007.

Click here to view the Supplemental Final Rule also available at www.dhs.gov/index.shtm.

Bottom Line

The next step in the saga of the No-Match Rule is the district court's evaluation of whether the Supplemental Final Rule adequately addresses all of the concerns that prompted the court to issue the injunction last year. Employers should bear in mind, however, that the injunction does not affect ICE's enforcement authority, as evidenced by the numerous raids conducted by the agency so far this year. Accordingly, employers should ensure that their verification policies and procedures are consistent with the DHS rules for responding to no-match letters. Employers also must make certain that their compliance measures are implemented in a fair and uniform manner and that they do not run afoul of anti-discrimination laws.

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