Yesterday, the U.S. Supreme Court upheld (5-3 vote) an Arizona law mandating all employers in that state to use E-Verify. The law also revokes business licenses for employers who knowingly hire unauthorized workers.

Opponents of the Arizona law, including the Obama administration (interestingly, current DHS Secretary Napolitano is the former Arizona governor who, in 2007, signed the Arizona law), argue that state laws imposing sanctions on immigration-related activity trespass on an area of traditional federal oversight.

E-Verify is an Internet-based employment verification system administered by DHS. Under federal law, use of the system is voluntary except for certain federal contractors. The Supreme Court , however, held that “[t]he fact that the Federal Government may require the use of E-Verify in only limited circumstances says nothing about what the States may do.” According to the Supreme Court, only DHS is precluded from mandating the use of E-Verify.

Further, the Supreme Court noted that the “consequences of not using E-Verify under the Arizona law are the same as the consequences of not using the system under federal law. In both instances, the only result is that the employer forfeits the otherwise available rebuttable presumption that it complied with the law.”

The Supreme Court specifically noted that the Arizona law had since been amended to include other consequences of failing to use E-Verify, but because the suit was brought prior to that amendment, those consequences were not before the Court. Therefore, the Court’s reasoning leaves open the possibility that if other consequences were imposed by state law, it might think differently.

Because the penalties imposed by the Arizona law involve business licenses, the Supreme Court held that the Arizona law meets the licensing exception to federal immigration provisions specifically preempting any state or local law that imposes civil or criminal sanctions on those who employ illegal immigrants. 8 U.S.C. § 1324a(h)(2). Specifically, the Legal Arizona Workers Act suspends or revokes the business licenses of state employers who knowingly or intentionally employ unauthorized aliens.

For employers, there is one main difference – penalties imposed at the federal level may include fines, debarment and possible prison time; whereas, the state penalties include revocation of an employer’s business license. The effects of the state law may be more immediate and severe to an employer. It may be a death sentence – completely shutting down the business throughout the state.

The Supreme Court’s ruling is the first high court challenge to myriad state laws recently imposed to crack down on illegal immigration, and a victory for those pursuing immigration reform at the state level. It is likely that many states that have been letting Arizona lead the way, will join in with their own versions of the Arizona law tied to business licenses.

With the Supreme Court’s endorsement, the Arizona law will become the blueprint for other states that wish to mandate the use of E-Verify, and also to impose their own set of penalties on employers who knowingly hire unauthorized workers. Several states have already passed such legislation, but many more are now expected to follow suit.

Another Arizona law that requires police officers to investigate the immigration status of those they suspect are illegal immigrants is still pending in lower courts. The effect of yesterday's decision on this law is unclear, as the decision was based on a state licensing exception created by relevant federal law. No such exception exists for the exercise of other state powers.