Business Challenges Immigration Rule

By Cindy Skrzycki
Tuesday, October 2, 2007

Business groups are hoping that a U.S. court will block an immigration rule that could affect millions of employers and workers, arguing that the government didn't consider the new regulation's impact on small business.

Business associations joined labor unions in suing the Department of Homeland Security over a plan that could lead companies to fire workers whose Social Security numbers don't match their names in a federal database.

"Agencies must do their homework, and DHS did not" by paying "lip service" to the required review, said Karen Harned, executive director of the National Federation of Independent Business's Legal Foundation, one part of the 600,000-member small-business trade group.

The case is being closely watched because of its potential impact on the economy and on a stalled federal policy aimed at preventing illegal immigration, as well as because of the unusual coalition opposing the rule.

The AFL-CIO and civil liberties groups filed the suit in San Francisco on Aug. 29, alleging that the regulation "would commandeer the Social Security tax system for immigration-enforcement purposes." Homeland Security was ready to mail thousands of alerts to employers about "no match" documentation problems with workers.

Business groups quickly joined the case. They contend that the rule, which aims to identify about 12 million illegal immigrants, would result in forced firings and more than $100 million in costs and liability for owners.

The San Francisco Chamber of Commerce and small-business trade groups representing roofers, landscapers, restaurateurs, franchisees and produce growers claimed the agency ignored the rule's financial impact on them.

Since 1980, federal agencies have been required to analyze how rules would affect small businesses and to consider alternatives.

More than 80 lawsuits since 1996 have claimed that the government did not review or inadequately reviewed a rule's impact on small business. About half the time, agencies were ordered to conduct reviews while the rule was allowed to go into effect, according to David Frulla, an attorney with Kelley Drye Collier Shannon in the District.

Frulla, who has argued a dozen review actions against agencies, said judges in at least four cases blocked rules because of the small-business review -- the outcome the employer groups are seeking.

The Bush administration has argued that the rule doesn't impose new obligations on employers because they already have to verify workers' eligibility to keep them on the job. The government has already used employers' responses in enforcement proceedings, the Department of Homeland Security said in court filings.

It also said a small-business analysis of the rule was unnecessary because it had no effect on such enterprises and clarified for all employers the meaning of its "no match" letters.

The administration cited letters from Tyson Foods, the Springdale, Ark., meat processor; Alston & Bird, an Atlanta law firm; and W.E. Welch & Associates, a mechanical contractor in Ijamsville, Md., asking about "appropriate employers' conduct" after receipt of a "no match" letter.

"The secretary properly concluded that there was no need to conduct a Regulatory Flexibility Analysis because the regulation does not change the existing obligations of employers -- small or large," when an employee's legal status is called into question, the government's court documents said.

Business groups said it would cost them at least $100 million to resolve the employment-verification discrepancies the government is expected to flag in its first mailing of 140,000 letters regarding 8.7 million workers.

"The idea this imposes no additional cost is absurd on its face judging by employers' concern about the regulation and the lawyers they are hiring," said Randel Johnson, vice president of labor, immigration and employee benefits at the District-based U.S. Chamber of Commerce, the nation's largest business lobby.

Finding discrepancies in Social Security numbers is a long-standing problem. The Social Security Administration has been sending "no match" letters since 1994 to alert employees and companies about mismatched documents that could be a result of misspellings, marriage, honest mistakes, or abuse of a Social Security number.

Mark Lassiter, a spokesman for Social Security, said that the agency has 264 million "no match" files and that the annual growth rate is increasing.

Before the Department of Homeland Security issued the rule, some employers regarded the notification as "purely advisory," according to the business groups' court filing. The Social Security Administration made it clear that the letters did not address workers' immigration status.

The new rule explains how employers can protect themselves from civil or criminal sanctions if a discrepancy can't be resolved in 90 days. After that, employers can terminate the worker or risk being charged with breaking immigration laws.

Opponents of the rule said employers would be forced to resolve the mismatch and incur the costs of tracking the letters. Employers could also face discrimination suits if they avoided hiring workers because of their national origin -- a point the Equal Employment Opportunity Commission raised during the rulemaking.

Robert Dolibois, executive vice president of the American Nursery & Landscape Association in the District, told the court the rule would affect his members' hiring during peak seasons, when landscapers and growers increase their payrolls.

The National Roofing Contractors Association, a trade group in Rosemont, Ill., said it would be "impractical and economically disruptive" to resolve discrepancies in 90 days, particularly because construction companies often don't have full-time administrative staff.

The Small Business Administration's Office of Advocacy provides guidance to Congress and agencies on the Regulatory Flexibility Act, which requires the review. In a Sept. 18 letter, it admonished the Department of Homeland Security for not making the review.

Business has to comply with the rule "or suffer the consequences" said Thomas Sullivan, the SBA's chief counsel for advocacy. "We believe this impacts small business."

Some members of Congress also are critical of the rule. Rep. Nydia Vel¿zquez (D-N.Y.), chairwoman of the House Small Business Committee, told the Department of Homeland Security in a Sept. 25 letter that it should complete a review and reconsider the rule.

And Rep. Jeff Flake (R-Ariz.), co-sponsor of a broad immigration bill, said recently that "no match" letters were never intended to be used for enforcement and that the rule could have "significant and negative unintended consequences."

Cindy Skrzycki is a regulatory columnist for Bloomberg News. She can be reached atcskrzycki@bloomberg.net.