Before the recent headlines about Arizona’s new and comprehensive immigration law known as SB 1070, litigation was already underway about an earlier Arizona immigration statute—a statute that punishes employers for knowingly employing undocumented workers. The potential sanctions are grave, including what some have called the “business death penalty”— the complete revocation of an employer’s ability to do business within the state. With broad support from both the business community and civil rights organizations, the U.S. Chamber of Commerce and other groups brought suit to challenge this law, arguing that it is preempted by federal employment-related immigration laws. The case ultimately reached the Supreme Court—which has now rejected the challenge and upheld the statute.

The prospect of employment is often what draws an undocumented immigrant to the United States. With that in mind, Congress adopted the Immigration Reform and Control Act (“IRCA”), which made combating the employment of illegal aliens a central aspect of federal immigration law. IRCA subjects employers to sanctions if they knowingly employ workers who are not properly authorized to work, and it created the I-9 process for verifying that authorization. Congress enhanced the verification process in the mid-1990s by creating an internet-based system known as “E-Verify.” In enacting IRCA, Congress made clear that it intended employment-related immigration law to be “uniform” throughout the country. To that end, it expressly preempted “any State or local law imposing civil or criminal sanctions (other than through licensing and similar laws) upon those who employ, or recruit or refer for a fee for employment, unauthorized aliens.” 8 U.S.C. § 1324a(h)(2).

Several states have recently enacted their own laws designed to punish employers for employing unauthorized aliens, in an effort to address the issue of undocumented workers within their own borders. Arizona is among them. The Arizona statute provides that if an employer knowingly or intentionally employs an unauthorized worker, its business licenses—and even its articles of incorporation—can be suspended or even revoked. Although the Arizona law depends on federal law and verification systems, it involves its own system of enforcement. It also differs from federal law in some respects. Among other things, the state law ties its definition of work authorization to immigration status, rather than “employment authorization” or “employment eligibility,” as federal law does.

In a fractured 5-3 decision (Justice Kagan was recused), the Court concluded that the Arizona statute is not preempted. Writing for the majority, Chief Justice Roberts concluded that Arizona’s law fell within the “savings clause” in IRCA’s express preemption provision. In a parenthetical, that clause carves out state “licensing and similar laws,” which have traditionally been the business of the states. According to the majority, the fact that Arizona’s scheme punishes employers by suspending or revoking articles of incorporation, certificates of partnership, grants of authority to foreign corporations, and traditional business “licenses” makes it a “licensing” or “similar” law, which Congress expressly declined to preempt.

Four of the five justices in the majority (Justices Roberts, Scalia, Kennedy, and Alito) went on to conclude that the state law is not impliedly preempted either—because it falls within the savings clause, does not conflict with federal law, and does not otherwise interfere with a federal program in an area of uniquely federal interest. Justice Thomas declined to join this part of the analysis, presumably because he is skeptical about implied preemption analysis generally.

The majority also addressed Arizona’s requirement that all employers use the E-Verify system and concluded that it, too, is not preempted. The federal statute that created E-Verify does not include an express preemption provision, and the majority found no implied preemption because there was no conflict between the state and federal schemes. The majority acknowledged one important difference between them: the federal government requires employers to use E-Verify only under certain circumstances (where the employer has already violated the law), whereas Arizona requires E-Verify for all employers. Still, the majority concluded that the limits on the federal government’s requirements did not prevent the states from requiring more.

This decision has serious implications for any business with employees in Arizona or in any other state that has enacted laws in this area. As explained by the many groups who presented amicus briefs in support of the Chamber’s challenge, compliance with federal immigration law is no easy matter, and the burden on employers will only increase as they are subject to different state-level requirements and schemes of regulation. It remains possible, however, that Congress will address this problem by amending the relevant federal statutes to prevent states from creating their own parallel schemes of regulation.