The recently signed Legal Arizona Workers Act (HB2779; A.R.S. §§ 23-211 to 23-214) (the Act) imposes severe sanctions against employers found to have intentionally or knowingly employed an unauthorized alien, including the suspension or permanent revocation of authorization to do business in Arizona, three- or five-year probationary periods with quarterly reporting obligations, and public identification as a sanctioned business.

The Act also requires the Arizona Attorney General and county attorneys to investigate all complaints made against businesses and mandates bringing an action in state court on all complaints that are not found to be frivolous.

In addition to sanctions, the new law also mandates participation in the Internet-based federal Basic Pilot Program as part of the I-9 employment verification process. All Arizona employers will be required to supplement their compliance with existing federal I-9 requirements, with the additional step of verifying employment eligibility through the Basic Pilot Program. The law also makes it a felony to assume another person's identity with the intent of obtaining employment.

Affects All Employers With at Least One Arizona Employee

As of Jan. 1, 2008, any employer with at least one employee in the state of Arizona will be affected by the Act, which prohibits employers from intentionally or knowingly employing an unauthorized alien. An "unauthorized alien" is a person who does not have the legal right or authorization under federal law to work in the United States.

An employer may be found to have "intentionally" employed an unauthorized alien if the employer's objective in hiring the employee was to employ an unauthorized alien. An employer may be found to have "knowingly" employed an unauthorized alien if the employer: (1) employed or continued to employ an employee with knowledge that the person was an unauthorized alien; or (2) failed to comply with I-9 employment verification system requirements.

Court Decision Based Solely on Federal Determination of Status

Under the Act, the Arizona Attorney General and all county attorneys must investigate all complaints against employers by verifying employment authorization with the Department of Homeland Security. If a complaint is not deemed frivolous, the Attorney General or county attorney must bring an action against the employer for knowingly or intentionally employing an unauthorized alien and must also notify federal Immigration and Customs Enforcement and local law enforcement of the employee's potentially illegal status.

State courts may only use the federal government's determination of employment eligibility in deciding whether an employee is unauthorized. The federal government's determination creates a rebuttable presumption of the employee's unlawful status, and the burden of proof then shifts to the employer to prove lawful status.

An employer may also defend itself by establishing that it complied in good faith with its I-9 requirements and verified work authorization through the Basic Pilot Program. Proof of verification creates a rebuttable presumption that an employer did not intentionally or knowingly employ an unauthorized alien. Good faith compliance with I-9 requirements may be an affirmative defense under the Act.

Penalties for Violations: Probation and the Death Knell

An employer found guilty of a first-time violation based on "knowing" employment of an unauthorized alien is subject to a three-year probationary period in which the employer must file quarterly reports identifying all new employees at the location in which the unauthorized alien worked. In addition, an employer must file an affidavit that the employer has terminated employment of all unauthorized aliens (not limited by location) and that the employer will not intentionally or knowingly employ an unauthorized alien. If the affidavit is not filed within three days, the employer's right to do business in Arizona as well as all business licenses will be suspended until an affidavit is filed.

The court may also, in its discretion, order that the employer's authorization to do business and licenses be suspended for up to 10 days.

An employer found guilty of a first-time violation based on "intentional" employment is subject to a five-year probationary period in which it must file such quarterly reports. The employer must also file an affidavit and may also have its authorization to do business in Arizona suspended for a minimum of 10 days.

For a second violation during a probationary period, the Act requires permanent revocation of all business licenses and authorization to conduct business in Arizona. All court orders finding an employer guilty of violating the Act will be posted on the Attorney General's website.

Participation in Federal Basic Pilot Program Mandatory

Federal law requires confirmation of employment authorization through completion of Form I-9 paperwork for all new employees hired since Nov. 7, 1986. The Act now requires employers to complete an additional verification step via the federal Basic Pilot Program (also known as the Employment Eligibility Verification System), an Internet-based federal program jointly operated by the Social Security Administration and Department of Homeland Security.

Employers must register for the Basic Pilot Program at: https://www.vis-dhs.com/EmployerRegistration/StartPage.aspx?JS=YES. Participation also requires execution of a memorandum of understanding and complying with other program requirements.

Legal Challenges and Potential Revisions

A constitutional challenge to the Act has been filed in federal district court in Arizona, alleging violations of employers' federal and state procedural and substantive due process rights, the commerce clause, the supremacy clause, and separation of powers under Article III of the Arizona Constitution. Plaintiffs seek a declaratory judgment that HB2779 is unconstitutional and a permanent injunction enjoining actions to enforce or implement the new law.

The Act contains a number of ambiguities and serious issues for employers. Arizona Governor Janet Napolitano has indicated that she will likely call a special legislative session in the fall to correct the following perceived flaws in the new law:

  • No exemption preventing closure of critical public facilities such as hospitals, power plants, and water and waste services;
  • anadequate funding for enforcement;
  • Overbroad language that could require a chain of businesses to be penalized for violations by one location; and
  • Lack of nondiscrimination language to prevent targeting based on national origin, citizenship, race or ethnicity.

Concerns have been expressed about the accuracy of the Basic Pilot Program database and its ability to accommodate the estimated 150,000 new Arizona employers who must register by January (approximately 17,000 employers are currently registered nationwide), and the problems that inaccurate responses will cause for employers. It has been estimated that the system has a 15-30 percent incorrect query response rate.

What's Next?

Although the Act may ultimately be revised or even found unconstitutional, employers should begin action to become fully compliant with the law before it takes effect. Employers may also consider the following measures:

Become familiar with the Basic Pilot Program and its requirements, educate human resource employees on proper and improper practices, prepare for mandatory registration by Jan. 1, 2008 and anticipate a longer I-9 employment verification process.

Review current I-9 practices to ensure compliance with requirements, modify hiring procedures as necessary to comply with the Act, and train appropriate personnel responsible for future compliance.

Establish company policies for dealing with governmental inquiries, responding to complaint investigations, handling information regarding an employee's illegal immigration status, and train hiring, administrative and management personnel regarding these policies.

Prepare for potential business disruption (and higher operating costs) caused by mandatory state (or federal) investigations, possible state (or federal) court proceedings, or the loss of company employees or a reduced new employee pool.