Property owners may be breathing a sigh of relief now that a federal judge has barred the U.S. government from enforcing regulations requiring them and other employers to police the citizenship of their employees. Expect the federal government to appeal. If it wins and the so-called “no-match” rule is enforced, property owners could face high compliance costs and greater liability for failing to fire employees whose Social Security numbers aren't reflected in government records.

“We're not opposed to the federal government enforcing immigration rules via the employment relationship,” says Betsy Feigin Befus, vice president of employment policy and special counsel at the National Multi Housing Council in Washington, D.C., which opposed the regulations on behalf of apartment owners. “We're opposed to regulations that rely on flawed systems. The no-match rule could expose employers to liability based on a flawed federal database.”

The burden of compliance

The dispute began on Aug. 15, 2007, when the U.S. government announced it would attempt to enforce immigration laws through “no-match” letters. Under federal regulations, when employers submit W-2 employee wage reports to the U.S. Social Security Administration, employees' Social Security numbers are checked against the government's database. If Social Security numbers provided by employees aren't found in the database, the government notifies employers that no match could be found.

Under the August regulations, employers who receive no-match letters would have 30 days to verify that the failure to match isn't a record-keeping error or to ask employees to resolve the discrepancy. If the problem still isn't fixed after 90 days, employers must terminate the employees.

The U.S. Department of Homeland Security announced it may use no-match notifications as evidence in civil and criminal cases alleging that employers had knowledge that their employees were using fake Social Security numbers or couldn't legally work in the U.S.

Fatally flawed processes

In late August, the American Civil Liberties Union, the AFL-CIO labor union, the U.S. Chamber of Commerce, the San Francisco Building and Construction Trades Council, and others sued to halt enforcement of the August changes to the no-match rules. On Oct. 10, the court sided with them and barred enforcement of the rule until it issues a final decision after a trial.

The court agreed with the plaintiffs on their two main arguments. First, the government's database of Social Security numbers churns out hundreds of thousands of erroneous mismatches each year, which the court held could lead to the firing of lawfully employed workers. According to briefs filed in the case, the Social Security Administration receives between eight and 11 million W-2 forms annually that don't match agency records, and when those were reconciled, most mismatches involved U.S. citizens.

“Maybe the intent is to hone in on employers who hire undocumented individuals,” says Feigin Befus of the National Multi Housing Council. “But anybody could be caught up in this, including U.S. citizens. There are many reasons a no-match can occur, and probably the most prevalent reason is clerical errors.”

The court also held that the rules violated the Regulatory Flexibility Act, which requires that the government seek less onerous ways to enforce rules when the burden of compliance for small businesses is significant. The Department of Homeland Security “certified there would be no significant economic impact on small businesses, but it did no analysis,” says Robin Conrad, executive vice president of the U.S. Chamber of Commerce's National Chamber Litigation Center.

If the government wins in getting the court's decision reversed on appeal, property owners and managers will face increased costs in training employees and implementing and overseeing compliance with the rules. “A human resources department may be housed in a regional or corporate headquarters, and property managers may be on-site, and various people may be responsible for the screening requirements,” says Feigin Befus of the National Multi Housing Council.

Owners and managers may also face increased liability, she says. For example, what if a company is forced to terminate an employee who is later found to be a U.S. citizen or authorized to be in the country? Or might companies not hire certain employees to avoid problems, possibly running afoul of anti-discrimination employment laws? “It's particularly hard for small businesses that don't have full-bodied human resources departments that could handle this,” says Feigin Befus.

Though the court's ruling has halted enforcement of the rule for now, Feigin Befus doesn't expect this to be the last word on the government's attempt to enforce immigration laws through employers. Until Congress addresses comprehensive immigration reform, federal agencies will continue to push enforcement of immigration laws indirectly through regulations like the no-match rule — and employers may shoulder the burden.

G.M. Filisko is a reporter and attorney based in Chicago who writes regularly on legal and real estate issues. She can be contacted at gabifil@rcn.com.