On November 14, 2008, the Department of Defense, NASA, and General Services Administration issued a final rule amending the Federal Acquisition Regulation (FAR) to require that contractors and subcontractors doing business with the U.S. government use the E-Verify program to check the employment eligibility of all new hires and employees directly performing work under federal contracts, unless an exemption applies. The government estimates that up to 168,000 federal contractors will begin verifying the eligibility of their 3.8 million employees once the rule takes effect on January 15, 2009. Although the final rule extends the time period to review employees’ eligibility status from 30 to 90 days, many contractors are still concerned that the new verification requirements will increase administrative burdens on human resource staff, delay the hiring of critical employees, or result in people being laid off until potential problems with the system are resolved.  

Background  

Congress authorized the creation of E-Verify during the mid-1990s as a pilot program to develop an electronic employment verification system. It began as a voluntary, Internet-based system that allowed participating employers to validate information provided on their employees’ Employment Eligibility Verification Forms (I-9 Form) against records maintained by the Department of Homeland Security (DHS) and Social Security Administration (SSA). Employers who use E-Verify must still complete I-9 Forms for employees and maintain the records for inspection in accordance with the applicable U.S. immigration laws and regulations. However, the program creates a “safe harbor” for employers who follow the specified verification procedures, enabling them to avoid liability resulting from “constructive” knowledge of a person’s lack of employment authorization (if the employer has actual knowledge that a particular person is not authorized to work in the United States, the use of E-Verify does not shield the employer from liability).  

Participation in E-Verify has dramatically increased over the past two years. In August 2007, the Office of Management and Budget issued a memorandum requiring all executive departments and agencies to begin verifying new federal employees’ eligibility status through the program. The memorandum also instructed agencies to affirmatively encourage that contractors begin using E-Verify. The program further expanded on June 6, 2008, when President Bush signed Executive Order 13465 requiring federal contractors and subcontractors to electronically verify employment eligibility for all new hires and those individuals that work on federal contracts.

Final Rule, FAR Case 2007-013, Employment Eligibility Verification  

The final rule amends the FAR to require that contractors and subcontractors use the E-Verify program to check that all new hires and existing employees directly performing work under Federal contracts are authorized to work in the United States. The new provisions apply to all solicitations and contracts awarded after January 15, 2009, that exceed the $100,000 simplified acquisition threshold, except those that involve work that will only be performed outside the United States, have a period of performance less than 120 days; or involve commercially available off-the-shelf (COTS) items and associated services. The final rule also covers service and construction subcontracts over $3,000.  

Although the new verification requirements will likely have a broad effect on the hiring practices of many companies that do business with the U.S. government, the final rule alleviates some of the concerns with the proposed rule. (To view our alert on the proposed rule, click here.) Following its release on June 12, 2008, the government received more than 1,600 public comments from individuals, contractors, trade associations, and government entities expressing both their concerns and support for the new policy. Based on issues raised in the comments, the drafters made a number of significant changes in the final rule including:  

  • Extending the timelines for non-participating employers to begin using E-Verify for new and existing employees from 30 calendar days from enrollment to 90 calendar days from enrollment;
  •  Granting both non-participating contractors and those already enrolled in the program an additional 30-day period to begin verifying existing employees;  
  • Raising the prime contractor threshold from $3,000 to $100,000 (however, the subcontract threshold remains at $3,000);  
  • Excluding prime contracts with periods of performance less than 120 days;
  •  Exempting employees holding security clearances or Homeland Security Presidential Directive (HSPD)-12 credentials from the verification requirements;  
  • Limiting the new hire E-Verify requirements only to those new employees who will be working on a covered contract (and not all new hires), when the contractors are institutions of higher education, Indian tribes, state and local governments, and sureties; and
  • Limiting the existing employee requirement to those individuals “directly” performing work under the contract by excluding personnel who perform general support, administration, and indirect or overhead functions that do not have substantial duties applicable to a covered contract.  

Practical Impact of the New Verification Requirements  

The final rule presents several important issues. First, the uncertainty over the E-Verify program’s future raises some concerns. The new provisions take effect on January 15, 2009, which means early next year large numbers of contractors will begin enrolling in the program and processing employees. As the contractors verify the status of new and existing employees they will likely face delays hiring eligible individuals due to expected database errors. Presently, the E-Verify program is only authorized to continue through March 6, 2009. The contentiousness surrounding the immigration debate, along with the uncertainties about whether the new administration and Congress will continue to embrace the system, raise questions about the program’s future. In the meantime, it appears that contractors may be required to invest a significant amount of time and money into compliance even though the long-term prospects of the program are uncertain.  

Second, there are still a number of unresolved concerns regarding E-Verify’s scalability. Although the drafters note that the system underwent “vigorous load testing” in July 2007, there is a possibility that it will not be able to support the volume of requests that will accompany the shift to a mandatory regime. Such an increase in scale could potentially exacerbate problems voluntary users have already experienced. The Government Accountability Office has found that it will require a considerable amount of manpower, time, and funding to sustain the E-Verify program once the rule takes effect.  

Third, when the contractors start using E-Verify to confirm employment eligibility of new hires and certain existing employees, the errors in the SSA and/or DHS databases could result in temporary delays that will cause employees to miss work while resolving the issue with the respective agencies. When the employer obtains a tentative non-confirmation after using E-Verify for a particular employee, the employee can contest such a result and the employer would have to afford him or her time to resolve the discrepancy with SSA or DHS. As a result, contractors may experience temporary unavailability of certain employees who are legally authorized to work in the United States, but who need to resolve the discrepancy in the government’s records.  

Fourth, the flow-down requirements can potentially make prime contractors liable for subcontractor non-compliance. In response to a number of comments regarding this issue, the drafters emphasized that prime contractors are responsible for all aspects of contract performance including subcontractor performance. While they are not expected to ensure that subcontractors at all tiers have properly verified the eligibility of their employees, prime contractors are required to include the E-Verify requirements in their subcontracts (unless the subcontract qualifies for an exemption) and to perform general oversight by whatever means appropriate to make sure the clause is flowed down. Accordingly, prime contractors should ensure that future subcontracts specifically address the new verification requirements.