In August 2007, the Department of Homeland Security's U.S. Office of Immigration and Customs Enforcement (ICE) announced new regulations detailing what employers should do when they receive "no-match" letters from the Social Security Administration (SSA). The proposed regulations increase the likelihood that employers will be found to have "constructive knowledge" that an employee is not authorized to work in the United States. Furthermore, these employers would be subject to fines if they do not follow prescribed steps, which in certain cases include terminating the employee. On August 31, 2007, the U.S. District Court for the Northern District of California issued a temporary restraining order to postpone the implementation of the no-match regulations. Pending the outcome of a hearing on October 1, 2007, the new regulations may still go into effect in their present form and, if so, will affect virtually every employer in the United States.

Why Are No-Match Letters Generated?

The SSA is charged with depositing social security payments from payroll taxes into each employee's social security account. When an employee starts a new job, he or she completes a Form W-4 that includes the individual’s name and social security number, which the employer uses to submit payroll tax payments that eventually are directed to the SSA. In order for the SSA to deposit the funds into the correct account, the name and social security number provided by the employer must match the SSA's records. When discrepancies arise, the SSA generates a no-match letter requesting that potential errors be corrected.

Before the SSA announced its new regulations, there were no clear-cut directives on what employers should do when they receive a no-match letter. But the new regulations, if enacted, will put employers on notice that unless they take the prescribed actions, the ICE—the government office responsible for enforcing federal immigration laws—could determine that the employer had “constructive knowledge” that certain employees are not authorized to work in the United States. Depending on the employer's history of violations, a “constructive knowledge” claim could result in fines up to $5,000 per employee.

According to the ICE regulations, employers who receive a no-match letter should take the following steps to obtain safe harbor from a “constructive knowledge” claim:

1. Within 30 days of receiving the no-match letter, an employer must determine if the discrepancy in name or social security number is the result of a typographical, transcription or similar internal error. If so, the employer must provide the SSA with the correct information and obtain verification that its records have been updated by calling the SSA at 800.772.6270 or by checking the organization's website at http://www.ssa.gov/employer/ssnvadditional.htm. An employer should carefully document all efforts to resolve the discrepancy and verify the update.

    

2. If the discrepancy is not the result of an internal error, the employer must promptly ask the employee to examine his or her own records for the discrepancy and then contact the SSA with the correct information. As described above, the employer must also obtain verification from the SSA that the employee’s data has been updated.

    

3. If the SSA does not provide verification within 90 days that its records have been corrected, the employer must complete a new Form I-9 for the employee in question within three more days. However, the employer is not allowed to accept the employee's social security card as evidence of eligibility to work as a List C document on the Form I-9, nor may it accept a receipt for an application for a new social security number. The employee must also present either a photo ID to establish his identity (from the List B documents) or a document establishing both identity and employment authorization (from the List A documents). The employer must keep the new Form I-9 on file alongside any prior forms.

Under the new regulations, employers who follow these procedures and document them well should not be subject to a fine, even if it turns out that the employee in question is an undocumented alien. However, if at any point during this process or at any other time an employee tells the employer that he or she is not authorized to work in the United States and the employer retains the employee with that knowledge, the employer risks a finding that it had actual knowledge of employing unauthorized persons as grounds to levy a fine. Similarly, if the employer takes all of these steps prescribed by the ICE but is unable to obtain the necessary verification directly from the SSA or through the I-9 process within the allotted time period, then according to the ICE, the employer should terminate the employee or risk a finding of "constructive knowledge" if the employee turns out to be an undocumented alien.

Potential Pitfalls

Even though the steps outlined in the proposed guidelines are designed to create a safe harbor for employers, there are potential pitfalls related to existing anti-discrimination laws. For example, because employers are prohibited from discriminating against employees based on their nationality or citizenship status, they could put themselves at risk by refusing to accept certain of the permitted identification documents for I-9 purposes. Likewise, an employer could encounter problems by terminating an employee just because his or her social security number appeared on a no-match letter (but without following the steps outlined above), or by applying the safe harbor procedures in an inconsistent or discriminatory manner.

If the new ICE regulations are indeed implemented, employers will likely have questions about how to apply them appropriately while also avoiding accusations of discrimination. For more information about no-match letters and the proposed regulations governing them, please contact your attorney.