[Federal Register Volume 73, Number 59 (Wednesday, March 26, 2008)]
[Proposed Rules]
[Pages 15944-15955]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-6168]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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 

  Federal Register / Vol. 73, No. 59 / Wednesday, March 26, 2008 / 
Proposed Rules  

[[Page 15944]]



DEPARTMENT OF HOMELAND SECURITY

8 CFR Part 274a

[DHS Docket No. ICEB-2006-0004; ICE 2377-06]
[RIN 1653-AA50]


Safe-Harbor Procedures for Employers Who Receive a No-Match 
Letter: Clarification; Initial Regulatory Flexibility Analysis

AGENCY: U.S. Immigration and Customs Enforcement, DHS.

ACTION: Supplemental proposed rule.

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SUMMARY: The Department of Homeland Security (DHS) is proposing to 
amend its regulations that provide a ``safe harbor'' from liability 
under section 274A of the Immigration and Nationality Act for employers 
who follow certain procedures after receiving a notice--from the Social 
Security Administration (SSA), called a ``no-match letter,'' or from 
DHS, called a ``notice of suspect document''--that casts doubt on the 
employment eligibility of their employees. The prior final rule was 
published on August 15, 2007 (the August 2007 Final Rule).
    Implementation of that rule was preliminarily enjoined by the 
United States District Court for the Northern District of California on 
October 10, 2007. The district court based its preliminary injunction 
on three findings. This supplemental proposed rule clarifies certain 
aspects of the August 2007 Final Rule and responds to the three 
findings underlying the district court's injunction.

DATES: Comments must be submitted not later than April 25, 2008.

ADDRESSES: You may submit comments, identified by DHS Docket No. ICEB 
2006-0004, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Marissa Hernandez, U.S. Immigration and Customs 
Enforcement, 425 I St., NW., Suite 1000, Washington, DC 20536. To 
ensure proper handling, please reference DHS Docket No. ICEB-2006-0004 
on your correspondence. This mailing address may also be used for 
paper, disk, or CD-ROM submissions.
     Hand Delivery/Courier: Marissa Hernandez, U.S. Immigration 
and Customs Enforcement, 425 I St., NW., Suite 1000, Washington, DC 
20536.

FOR FURTHER INFORMATION CONTACT: Marissa Hernandez, U.S. Immigration 
and Customs Enforcement, 425 I St., NW., Suite 1000, Washington, DC 
20536. Telephone: 202-307-0071 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Public Participation
II. Background
    A. History of the Rulemaking
    B. Purpose of the Rulemaking
    C. Authority To Amend the Regulation
    D. Clarification of DHS Policy on the Use of No-Match Letters
    E. Anti-Discrimination Provisions of the INA
    F. Regulatory Flexibility Analysis
    G. Further Interpretation in the August 2007 Final Rule
III. Statutory and Regulatory Reviews
    A. Administrative Procedure Act
    B. Regulatory Flexibility Act
    (1) Reasons why the rule is being considered
    (2) Objectives of, and legal basis for, the proposed rule
    (3) Description of, and where feasible, an estimate of the 
numbers of small entities to which the rule would apply
    (4) Proposed reporting, recordkeeping, and other compliance 
requirements
    (5) Significant alternatives considered
    (6) Duplicate, overlapping or conflicting rules
    C. Unfunded Mandates Reform Act of 1995
    D. Small Business Regulatory Enforcement Fairness Act of 1996
    E. Executive Order 12,866 (Regulatory Planning and Review)
    F. Executive Order 13,132 (Federalism)
    G. Executive Order 12,988 (Civil Justice Reform).
    H. Paperwork Reduction Act

I. Public Participation

    Interested persons are invited to comment on this rulemaking by 
submitting written data, views, or arguments on all aspects of the 
rule. DHS invites comments related to the Initial Regulatory 
Flexibility Analysis for this rule, including comments suggesting 
significant alternatives that might limit any significant economic 
impact the rule might have on small entities or comments related to the 
Small Entity Impact Analysis underlying the rule, available on the 
docket at ICEB-2006-0004-0232. Comments that will most assist DHS will 
reference a specific portion of this analysis and explain the reason 
for any recommended change. Include data, information, and the 
authority that supports the recommended change. Comments previously 
submitted to this docket do not need to be submitted again.
    Instructions for filing comments: All submissions received must 
include the agency name and DHS docket number ICEB-2006-0004. All 
comments received (including any personal information provided) will be 
posted without change to http://www.regulations.gov. See ADDRESSES 
above, for methods to submit comments. Mailed submissions may be paper, 
disk, or CD-ROM.
    Reviewing comments: The Small Entity Impact Analysis and public 
comments may be viewed online at http://www.regulations.gov or in 
person at U.S Immigration and Customs Enforcement, Department of 
Homeland Security, 425 I St., NW., Room 1000, Washington, DC 20536, by 
appointment. To make an appointment to review the docket you must call 
telephone number 202-307-0071.

II. Background

A. History of the Rulemaking

    DHS first published a proposed rule in June 2006 that would have 
provided means for employers to limit the risk of being found to have 
knowingly employed unauthorized aliens after receiving a letter from 
the SSA--known as a ``no-match letter''--notifying them of mismatches 
between names and social security numbers provided by their employees 
and the information in SSA's database or after receiving a letter from 
DHS--called a ``notice of suspect document,'' that casts doubt on the 
employment eligibility of their employees. 71 FR 34281 (June 14, 2006). 
A sixty-day public comment period ended on August 14, 2006.
    DHS received approximately 5,000 comments in response to the 
proposed rule from a variety of sources, including labor unions, not-
for-profit advocacy organizations, industry trade groups,

[[Page 15945]]

private attorneys, businesses, and other interested organizations and 
individuals. The comments varied considerably; some commenters strongly 
supported the rule as proposed, while others were critical of the 
proposed rule and suggested changes. See www.regulations.gov, docket 
number ICEB-2006-0004.
    DHS published a final rule on August 15, 2007, setting out safe 
harbor procedures for employers who receive SSA no-match letters or 
notices from DHS calling into question the information previously 
provided by their employees when establishing their work eligibility. 
72 FR 45611 (Aug. 15, 2007). Each comment received was reviewed and 
considered in the preparation of the August 2007 Final Rule. The August 
2007 Final Rule addressed the comments by issue rather than by 
referring to specific commenters or comments.
    On August 29, 2007, the American Federation of Labor and Congress 
of Industrial Organizations, and others, filed suit seeking declaratory 
and injunctive relief in the United States District Court for the 
Northern District of California. AFL-CIO, et al. v. Chertoff, et al., 
No. 07-4472-CRB, D.E. 1 (N.D. Cal. Aug. 29, 2007). The district court 
granted plaintiffs' initial motion for a temporary restraining order 
against implementation of the August 2007 Final Rule. AFL-CIO v. 
Chertoff, D.E. 21 (N.D. Cal. Aug. 31, 2007) (order granting motion for 
temporary restraining order and setting schedule for briefing and 
hearing on preliminary injunction). On October 10, 2007, the district 
court granted the plaintiffs' motion for preliminary injunction. AFL-
CIO v. Chertoff, D.E. 135 (N.D. Cal. 2007) (order granting motion for 
preliminary injunction).
    The district court concluded that the plaintiffs had raised serious 
questions about three aspects of the August 2007 Final Rule. 
Specifically, the court questioned whether DHS had: (1) Supplied a 
reasoned analysis to justify what the court viewed as a change in the 
Department's position--that a no-match letter may be sufficient, by 
itself, to put an employer on notice, and thus impart constructive 
knowledge, that employees referenced in the letter may not be work-
authorized; (2) exceeded its authority (and encroached on the authority 
of the Department of Justice (DOJ)) by interpreting the anti-
discrimination provisions of the Immigration Reform and Control Act of 
1986 (IRCA), Public Law 99-603, 100 Stat. 3359 (1986), 8 U.S.C. 1324b; 
and (3) violated the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., 
by not conducting a regulatory flexibility analysis. See AFL-CIO v. 
Chertoff, D.E. 135 (N.D. Cal. Oct. 10, 2007) (order granting motion for 
preliminary injunction) at 8.
    DHS proposes this supplemental rule to address the issues raised by 
the court in the preliminary injunction order. After addressing these 
three issues, DHS will seek to have the preliminary injunction 
dissolved. DHS continues its defense of the case, and this simultaneous 
rulemaking--which is intended to lead to the rule becoming effective as 
quickly as possible--is not a concession of any issue pending in the 
litigation.
    In developing this supplemental proposed rule, DHS has considered 
the administrative record of the August 2007 Final Rule and the record 
of proceedings in the pending litigation. AFL-CIO v. Chertoff, D.E. 129 
(N.D. Cal. Oct. 1, 2007) (certified administrative record); D.E. 146-2 
(N.D. Cal. Dec. 4, 2007 (errata)) (hereafter AFL-CIO v. Chertoff, D.E. 
129). Accordingly, DHS provides the following clarification to the 
August 2007 Final Rule and publishes an initial regulatory flexibility 
analysis.

B. Purpose of the Rulemaking

    DHS, and its predecessor agencies, has been aware for many years 
that employment in the United States is a magnet for illegal 
immigration, and that a comparison of names and social security numbers 
submitted by employers against SSA's data provides an indicator of 
possible illegal employment:

    Reducing the employment magnet is the linchpin of a 
comprehensive strategy to deter unlawful immigration. Economic 
opportunity and the prospect of employment remain the most important 
draw[s] for illegal migration to this country. Strategies to deter 
unlawful entries and visa overstays require both a reliable process 
for verifying authorization to work and an enforcement capacity to 
ensure that employers adhere to all immigration-related labor 
standards.
* * * * *
    The Commission concluded that the most promising option for 
verifying work authorization is a computerized registry based on the 
social security number; it unanimously recommended that such a 
system be tested not only for its effectiveness in deterring the 
employment of illegal aliens, but also for its protections against 
discrimination and infringements on civil liberties and privacy.
* * * * *
    The federal government does not have the capacity to match 
social security numbers with [Immigration and Naturalization Service 
(INS)] work authorization data without some of the information 
captured on the I-9. Congress should provide sufficient time, 
resources, and authorities to permit development of this capability.

U.S. Commission on Immigration Reform, Becoming an American: 
Immigration and Immigrant Policy 113-14, 117 (1997) (emphasis in 
original); AFL-CIO v. Chertoff, D.E. 129 at 139-140, 143.
    Similarly, DHS has been aware of the potential for abuse of social 
security numbers by aliens who are not authorized to work in the United 
States. The abuse of social security numbers has been the subject of 
numerous public reports of the Government Accountability Office and the 
Inspector General of the Social Security Administration, as well as 
congressional hearings. See, e.g., AFL-CIO v. Chertoff, D.E. 129, at 
35-661; Government Accountability Office, Report to the Subcommittee on 
Terrorism, Technology and Homeland Security, Committee on the 
Judiciary, U.S. Senate, Estimating the Undocumented Population: A 
``Grouped Answers'' Approach to Surveying Foreign-Born Respondents (GAO 
Rept. No. GAO-06-775, Sept. 2006) (describes alternative means of 
gathering interview data from undocumented aliens to reduce the 
``question threat'' to some respondents because they fear that a 
truthful answer could result in negative consequences); Subcommittee on 
Oversight and Subcommittee on Social Security, Committee on Ways and 
Means, U.S. House of Representatives, Social Security Number and 
Individual Taxpayers Identification Number Mismatches and Misuse, 108th 
Cong., 2nd Sess., Serial No. 108-53 (March 10, 2004).
    The illegal alien population in the United States and the number of 
unauthorized workers employed in the United States are both 
substantial. See, e.g., J. Passel, Pew Hispanic Center, The Size and 
Characteristics of the Unauthorized Migrant Population in the U.S. 
(March 2006), found at http://pewhispanic.org/files/factsheets/17.pdf 
(approximately 11.2 million illegal aliens in the United States; 
approximately 7.2 million illegal aliens in the workforce); with M. 
Hoefer, N. Rytina & C. Campbell, Office of Immigration Statistics, 
Policy Directorate, U.S. Department of Homeland Security, Estimates of 
the Unauthorized Immigrant Population Residing in the United States: 
January 2006 (August 2007) found at http://www.dhs.gov/xlibrary/assets/statistics/publications/ill_pe_2006.pdf (estimating unauthorized 
population of 11,550,000 as of January 2006).

[[Page 15946]]

    The scale of the problem the rule seeks to address--employment of 
aliens not authorized to work in the United States--has become more 
well-defined through the course of the rulemaking and related 
litigation. The comments submitted in response to the initial proposed 
rule in 2006 by organizations such as Western Growers, and the public 
statements by representatives of such organizations, have been 
bracingly frank:

    In the midst of the combustive debate over immigration reform, 
we in agriculture have been forthright about the elephant in 
America's living room: Much of our workforce is in the country 
illegally--as much as 70%.

T. Nassif, ``Food for Thought,'' The Wall Street Journal, Nov. 20, 
2007, at A19. See also, Docket ICEB-2006-0004-0145 (August 14, 2006), 
AFL-CIO v. Chertoff, D.E. 129 at 1306 (comments of the National Council 
of Agricultural Employers, suggesting over 76% of agricultural workers 
are not authorized to work in the United States). DHS recognizes this 
critical fact--that many employers are aware that large proportions of 
their workforce are illegal--and has therefore taken steps within the 
Department's existing authorities to assist employers in complying with 
the law.
    Public and private studies in the administrative record of this 
rulemaking make clear that social security no-match letters identify 
some portion of the population of aliens without work authorization who 
are illegally employed in the United States. One private study 
concluded that ``most workers with unmatched SSNs are undocumented 
immigrants.'' C. Mehta, N. Theodore & M. Hincapie, Social Security 
Administration's No-Match Letter Program: Implications for Immigration 
Enforcement and Workers' Rights (2003) at i; AFL-CIO v. Chertoff, D.E. 
129 at 309, 313.
    Based on the rulemaking record and the Department's law enforcement 
expertise, DHS finds that there is a clear connection between social 
security no-match letters and the lack of work authorization by some 
employees whose SSNs are listed in those letters. DHS's (and legacy-
INS's) interactions with employers who receive no-match letters have 
consistently shown that employers are also aware that an employee's 
appearance on a no-match letter may indicate the employee lacks work 
authorization. Nevertheless, as Mehta, Theodore & Hincapie found, SSA's 
no-match letters currently ``do[] not substantially deter employers 
from retaining or hiring undocumented immigrants. Twenty-three percent 
of employers retained workers with unmatched SSNs who failed to correct 
their information with the SSA.'' C. Mehta, N. Theodore & M. Hincapie, 
supra at ii; AFL-CIO v. Chertoff, D.E. 129 at 314.
    Some employers may fail to respond to no-match letters because they 
have consciously made the illegal employment of unauthorized aliens a 
key part of their business model or because they conclude that the risk 
of an immigration enforcement action is outweighed by the cost of 
complying with the immigration laws by hiring only legal workers. See 
C. Mehta, N. Theodore & M. Hincapie, supra at 2, 20-30; AFL-CIO v. 
Chertoff, D.E. 129 at 314, 316, 334-44 (noting employer ``complaints'' 
over loss of their illegal workforce when employees are asked to 
correct their SSN mismatches, as well as the practice by some employers 
of encouraging workers to procure new fraudulent documents to provide 
cover for their continued employment). DHS's interactions with 
employers have also shown, however, that many law-abiding employers are 
unsure what their obligations are under current immigration law when 
they receive an SSA employer no-match letter, and that some employers 
fear accused of having violated anti-discrimination laws if they react 
inappropriately to no-match letters.
    In light of these facts, DHS has concluded that additional employer 
guidance on how to respond to SSA no-match letters will help law-
abiding employers to comply with the immigration laws.\1\ Accordingly, 
in the August 2007 Final Rule and in this supplemental proposed 
rulemaking, DHS outlines specific steps that reasonable employers may 
take in response to SSA no-match letters, and offers employers who 
follow those steps a safe harbor from ICE's use of SSA no-match letters 
in any future enforcement action to show that an employer has knowingly 
employed unauthorized aliens in violation of INA section 274A, 8 U.S.C. 
1324a.
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    \1\ United States citizens and aliens authorized to work in the 
United States would also receive an ancillary benefit from improved 
employer compliance with the bar to employment of aliens not 
authorized to work in the United States and of correction of records 
with the Social Security Administration. Correction of the SSA's 
records to properly credit wages to a citizen or alien authorized to 
work may increase authorized workers' benefits under the Social 
Security Act and other laws, and improved employer compliance with 
the laws barring employment of unauthorized alien workers will 
likely expand the employment opportunities of those authorized to 
work in the United States.
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C. Authority To Amend the Regulation

    The supplemental proposed rule responds to the district court's 
injunction while remaining true to the agency's rulemaking powers. In 
enacting section 103(a) of the Immigration and Nationality Act of 1952, 
as amended, 8 U.S.C. 1103(a), and section 102(a)(3), (b)(1), and (e) of 
the Homeland Security Act of 2002, Public Law 107-296, 110 Stat. 2135 
(Nov. 25, 2002) (HSA), as amended, 6 U.S.C. 112(a)(3), (b)(1), and (e), 
Congress has delegated to the Department of Homeland Security the 
authority to promulgate rules that interpret and fill in the 
administrative details of the immigration laws. Under Chevron U.S.A. 
Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-45 (1983), 
the courts afford due deference to agency interpretations of these laws 
as reflected in DHS's rules. The Executive may, as appropriate, 
announce or change its policies and statutory interpretations through 
rulemaking actions, so long as the agency's decisions rest on a 
``rational connection between the facts found and the choice made.'' 
Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. 
Auto. Ins. Co., 463 U.S. 29, 43 (1983).
    DHS's authority to investigate and pursue sanctions against 
employers who knowingly hire or continue to employ unauthorized aliens 
necessarily includes the authority to decide what evidence it will rely 
upon in such enforcement efforts. It also includes the authority to 
decide the probative value of the available evidence, and the 
conditions under which DHS will commit not to rely on certain evidence. 
Under the prior regulations, an employer who had received an SSA no-
match letter or DHS letter and was charged with knowing employment of 
unauthorized aliens could defend against an inference that the employer 
had constructive knowledge of the workers' illegal status by showing 
that the employer had concluded, after exercising reasonable care in 
response to the SSA no-match letter or DHS letter, that the workers 
were in fact work authorized. 8 CFR 274a.1(l)(1) (2007). Those 
regulations, however, provided no detailed guidance on what steps by 
the employer would constitute the exercise of reasonable care. In the 
August 2007 Final Rule--as supplemented by this proposed rule--DHS 
limits its law enforcement discretion by committing not to use an 
employer's receipt of and response to an SSA no-match letter or DHS 
letter as evidence of constructive knowledge for those employers who 
follow the

[[Page 15947]]

procedures outlined in the rule. This limitation on DHS's enforcement 
discretion is well within the rulemaking powers of the Secretary of 
Homeland Security. See, e.g., Lopez v. Davis, 531 U.S. 230, 240-41 
(2001) (upholding categorical limitation of agency discretion through 
rulemaking). The rule does not affect the authority of the SSA to issue 
no-match letters, or the authority of the Internal Revenue Service 
(IRS) to impose and collect taxes, or the authority of DOJ to enforce 
the anti-discrimination provisions of the INA or adjudicate notices of 
intent to fine employers.
    The ongoing litigation involving the August 2007 Final Rule does 
not constrain DHS's power to amend the rule. The Executive's amendment 
to regulations in litigation is a natural evolution in the process of 
governance. As the United States Court of Appeals for the District of 
Columbia has noted:

    It is both logical and precedented that an agency can engage in 
new rulemaking to correct a prior rule which a court has found 
defective. See Center for Science in the Public Interest v. Regan, 
727 F.2d 1161, 1164-65 (D.C. Cir. 1984); Action on Smoking and 
Health v. CAB, 713 F.2d 795, 802 (D.C. Cir. 1983). Where an 
injunction is based on an interpretation of a prior regulation, the 
agency need not seek modification of that injunction before it 
initiates new rulemaking to change the regulation.

NAACP, Jefferson County Branch v. Donovan, 737 F.2d 67, 72 (D.C. Cir. 
1984). See generally Thorpe v. Housing Auth. of Durham, 393 U.S. 268, 
281-82 (1969).
    Finally, the district court enjoined implementation of the August 
2007 Final Rule and the issuance of SSA no-match letters containing an 
insert drafted by DHS. AFL-CIO v. Chertoff, D.E. 137 (N.D. Cal. 2007) 
(preliminary injunction). The injunction did not prohibit further 
rulemaking by DHS, and indeed the district court subsequently stayed 
further proceedings in the litigation to allow for further rulemaking. 
AFL-CIO v. Chertoff, D.E. 142 (motion for stay); 144 (statement of non-
opposition); 149 (minute order staying proceedings pending new 
rulemaking) (N.D. Cal. 2007).

D. Clarification of DHS Policy on the Use of SSA No-Match Letters

    As indicated in the preamble of the August 2007 Final Rule, 
employers annually send the Social Security Administration (SSA) 
millions of earnings reports (W-2 Forms) in which the combinations of 
employee name and social security number (SSN) do not match SSA 
records. 72 FR 45612. In certain cases, SSA sends a letter that informs 
the employer of the combinations that cannot be matched. SSA sends such 
letters, commonly referred to as employer ``no-match letters,'' to 
employers whose wage report contains more than ten no-matches and where 
the no-matches represent more than 0.5% of the total W-2s included in 
the employer's wage report.
    There can be many causes for a mismatch, including clerical error 
and name changes. One potential cause may be the submission of 
information for an alien who is not authorized to work in the United 
States and who may be using a false SSN or an SSN assigned to someone 
else. Because an SSA no-match letter calls into question the accuracy 
of the identifying information an employer received and submitted for 
employees, a no-match letter places an employer on notice of the 
possibility that some of its employees whose SSNs are listed in the 
letter may not be who they claimed, and may be unauthorized to work in 
the United States.
    U.S. Immigration and Customs Enforcement (ICE) sends a similar 
letter (currently called a ``notice of suspect documents'') after it 
has inspected an employer's Employment Eligibility Verification forms 
(Forms I-9) during an investigation audit and has been unable to 
confirm the validity of an immigration status document or employment 
authorization document presented or referenced by the employee in 
completing the Form I-9. Like an SSA no-match letter, a ``notice of 
suspect documents'' calls into question the validity of an employee's 
identifying information, and thus places employers on notice that the 
subject employees might be unauthorized to work in the United States. 
Because a ``notice of suspect documents'' is issued upon ICE's 
investigation and review of the specific employment authorization 
documents, receipt of such a notice provides an employer with clear 
cause to investigate the work authorization status of the employees 
identified in the notice.
    Section 274A(a)(2) of the Immigration and Nationality Act (INA), 8 
U.S.C. 1324a(a)(2), states:

    It is unlawful for a person or other entity * * * to continue to 
employ [an] alien in the United States knowing the alien is (or has 
become) an unauthorized alien with respect to such employment. 
[Emphasis added.]

The interaction between SSA's no-match letters and the INA's 
prohibition on ``knowing'' employment of unauthorized aliens--and the 
statement in DHS's (and legacy INS's) regulations that employers may be 
found to have ``constructive notice'' of their workers' unauthorized 
status--has been the subject of repeated inquiries from employers and 
other interested parties over the past decade. Prior to the release of 
the August 2007 Final Rule, legacy INS responded through private 
correspondence to questions about the responsibilities of employers who 
receive SSA no-match letters by explaining that the INS:

would not consider notice of this discrepancy [between the name and 
SSN reported by an employee and SSA's records] from SSA to an 
employer by itself to put the employer on notice that the employee 
is unauthorized to work, or to require reverification of documents 
or further inquiry as to the employee's work authorization. Whether 
an employer has been put on notice of an unauthorized employment 
situation is, however, an individualized determination that depends 
on all the relevant facts, and there may be specific situations in 
which SSA notice of an SSN irregularity would either cause, or 
contribute to, such a determination.

Letter to Littler Mendelson, from D. Martin, General Counsel, 
Immigration and Naturalization Service (Dec. 23, 1997) (emphasis 
added), AFL-CIO v. Chertoff, D.E. 129 at 3.
    This early recorded interpretation was followed by a series of 
further non-public and non-binding letters. For example, the agency was 
asked about the significance of an employee's presentation of documents 
bearing a different name and social security number from that offered 
during the initial employment verification process, accompanied by a 
request that the employer correct the employer's records. In response, 
an attorney for the INS noted that such behavior is ``not necessarily'' 
an indication that the employee is not authorized to work in the United 
States, but that it ``constitutes notice to the employer that requires 
further inquiry by the employer before the employer can accept'' the 
new documentation and make changes in the employment verification 
record. Letter to Alston & Bird, LLP, from D. Carpenter, Chief, 
Employer Sanctions and Civil Document Fraud Division, Office of the 
General Counsel, INS (date illegible), AFL-CIO v. Chertoff, D.E. 129 at 
6. The letter further advised the employer to inquire further when 
faced with material changes affecting the core employment verification 
information, such as the social security number, and noted that the 
extent of the inquiry would depend on the nature of the change.

Because a complete change in name and number calls into question the 
identity of the individual presenting the document to be

[[Page 15948]]

verified by the employer at the initial completion of the Form I-9, 
the employer may need to make additional inquiries of the employee 
in order to make its determination as to the card's genuineness and 
whether it appears to relate to the employee.

Id. at 7. The letter also pointed out that questions regarding the 
anti-discrimination provisions of the INA should be addressed to the 
DOJ Office of Special Counsel. Id.
    Because such guidance was provided in response to specific 
questions or to address particular circumstances, the advice offered by 
DHS and INS officials over the years has varied somewhat in tone and 
emphasis. Thus, in one letter, the INS Acting General Counsel indicated 
that mere receipt of a Social Security no-match letter, without any 
``additional evidence that an employee may not be work authorized,'' 
``does not impose any affirmative duty upon the employer to investigate 
further into the employee's eligibility to work in the United States.'' 
Letter to California Farm Bureau Federation, from Michael J. Creppy for 
Paul W. Virtue, Acting General Counsel, INS, February 17, [illegible], 
AFL-CIO v. Chertoff, D.E. 129 at 9. And in a 1998 letter to a Member of 
Congress the INS General Counsel noted that there are ``many reasons'' 
for mismatches and observed that a ``SSA notice of a mismatch does not 
trigger by itself an obligation to reverify work authorization,'' while 
at the same time emphasizing that employers ``should take [steps] to 
reconcile the mismatch with respect to SSA and IRS reporting.'' Letter 
to Hon. Robert F. Smith, United States House of Representatives, from 
Paul W. Virtue, General Counsel, INS, Nov. 19, 1998, AFL-CIO v. 
Chertoff, D.E. 129 at 11.
    More recently, one employer sought clarification from DHS on the 
appropriate course of action in response to a no-match letter. The 
employer had established a policy instructing their employees to 
correct mismatches directly with SSA and terminated employees who 
failed to do so, but had faced objections from ``third party 
organizations'' who asked the employer to change this policy and to 
instead leave any correction of mismatches to the discretion of the 
employee, See Letter from Tyson Foods, Inc. to Hon. Tom Ridge, 
Secretary, DHS, Dec. 30, 2004, AFL-CIO v. Chertoff, D.E. 129 at 21. In 
response, DHS reiterated the same core points from prior 
correspondence, and suggested that employer should take ``reasonable 
steps'' such as reverification if an employee was unable to resolve a 
discrepancy to the employer's satisfaction, and that ``[i]f the 
employer remains unsatisfied that the employee is authorized to work, 
termination may be appropriate.'' Letter to Tyson Foods, Inc. from 
Daniel Brown, Deputy Associate General Counsel, DHS, March 16, 2005, 
AFL-CIO v. Chertoff, D.E. 129 at 23. See also Letter to W.E. Welch & 
Associates, Inc. from Daniel R. Brown, Deputy Associate General 
Counsel, DHS, March 30, 2005, AFL-CIO v. Chertoff, D.E. 129 at 25 
(suggesting that employers could take steps similar to those set forth 
in the safe harbor rule in response to no-match letters).
    The common theme running through the agency's correspondence is 
that while the mere receipt of an SSA no-match letter may not obligate 
employers to repeat the full I-9 employment verification process, 
employers cannot turn a blind eye to SSA no-match letters and should 
perform reasonable due diligence. See Redacted letter from Paul W. 
Virtue, General Counsel, INS, April 12, 1999, AFL-CIO v. Chertoff, D.E. 
129 at 16, 17 (``We emphasize that although it is incorrect to assume 
that an SSA discrepancy necessarily indicates unauthorized status, it 
would be equally incorrect for an employer to assume that in all cases 
it may safely ignore any possible INA relevance or consequence of SSA 
discrepancies. * * *. [A]n employer who discovers that its employee has 
lied on a Form I-9 about any fact is fully entitled to take reasonable 
steps * * * to ensure that the employee has not also lied about his or 
her work authorization or anything else on the form, and * * * if it 
continues the employment without doing so, it is taking a risk that it 
may be held liable if in fact the employee is not authorized.''). The 
view that (1) SSA no match letters do not, by themselves, establish 
that an employee is unauthorized, (2) there are both innocent and non-
innocent reasons for no-match letters, but (3) an employer may not 
safely ignore SSA no-match letters, and (4) an employer must be aware 
of and comply with the anti-discrimination provisions of the INA, 
remained the government's position after the reorganization of the 
functions of the INS into DHS. See, e.g., Letter to Hon. John N. 
Hostettler, from Pamela J. Turner, Assistant Secretary for Legislative 
Affairs, DHS, August 9, 2004, AFL-CIO v. Chertoff, D.E. 129 at 19.
    In light of this history, and of the continuing inquiries regarding 
employers' obligations under current immigration law upon receipt of 
SSA no-match letters, DHS decided to provide a more comprehensive and 
public statement of its interpretation of the INA, and to offer a safe 
harbor for employers who took specific reasonable steps in response to 
no-match letters. The August 2007 Final Rule describes an employer's 
existing obligations under the immigration laws, and the evidentiary 
use that DHS will make of such letters found in employers' files from 
either SSA or DHS. The August 2007 Final Rule also specifies step-by-
step actions that can be taken by the employer that will always be 
considered by DHS to be a reasonable response to receiving an SSA no-
match letter or DHS letter--a response that will eliminate the 
possibility that either letter can be used as any part of an allegation 
that an employer had constructive knowledge that it was employing an 
alien not authorized to work in the United States.
    In entering its injunction against the August 2007 Final Rule, 
however, the district court found that DHS had changed its position on 
the significance of SSA no-match letters when promulgating that August 
2007 Final Rule. While the court acknowledged that the preamble to the 
August 2007 Final Rule remained consistent with DHS's and INS's prior 
informal guidance by ``assur[ing] employers that `an SSA no-match 
letter by itself does not impart knowledge that the identified 
employees are unauthorized aliens,' '' AFL-CIO v. Chertoff, D.E. 135 at 
13 (N.D. Cal. Oct. 10, 2007) (quoting 72 Fed. Reg. 45616), the court 
nevertheless concluded that ``DHS decided to change course'' in the 
text of the August 2007 Final Rule by ``provid[ing] that constructive 
knowledge may be inferred if an employer fails to take reasonable steps 
after receiving nothing more than a no-match letter.'' Id. Having 
identified what it believed to be a change in agency position, the 
court found the prior August 2007 Final Rule to be arbitrary and 
capricious for failing to provide a ``reasoned analysis'' supporting 
that change.
    DHS disagrees with the district court's interpretation of both the 
correspondence from INS and DHS and the August 2007 Final Rule. DHS 
also believes the legal test applied by the district court was 
incorrect. Assuming, however, that the court correctly identified a 
change in the agency's formal position and that the Administrative 
Procedure Act imposes a ``reasoned analysis'' requirement on such 
changes in agency position above and beyond the ordinary requirements 
that agency rulemaking reflect a rational connection between the facts 
found and the agency's decision, DHS has strong reasons for adopting 
the change in agency policy found by the district court.

[[Page 15949]]

    The most basic justification for issuance of this rule--and for the 
``change'' in policy found by the district court--is to eliminate 
ambiguity regarding an employer's responsibilities upon receipt of a 
no-match letter. As one organization with nationwide membership 
commented in response to the initial publication of the proposed rule 
in 2006:

[d]isagreement and confusion [of an employer's obligations upon 
receipt of a no-match letter] are rampant and well-intended 
employers are left without a clear understanding of their compliance 
responsibilities. [Organization] members have had substantial 
concerns regarding whether mismatch letters put them on notice that 
they may be in violation of the employment authorization provisions 
of the immigration law, since the Social Security card is one of the 
most commonly used employment authorization documents.

AFL-CIO v. Chertoff, D.E. 129 at 1295, (comment from National Council 
of Agricultural Employers, Aug 14, 2006). See also, id. at 849 (comment 
by the National Federation of Independent Business: ``Clarification of 
the employer's obligation on receiving a no-match letter and the safe 
harbor provided for in the proposed rule is critical.'').
    As noted above, all previous agency guidance took the form of 
letters responding to individual queries from employers, Members of 
Congress, or other interested parties; neither the INS nor DHS had ever 
released any formal statement of agency policy on the issue. In 
addition, the agency's correspondence over the years had been heavily 
caveated, at times even equivocal, and although more recent letters 
from DHS had more clearly articulated employers' obligations upon 
receiving a no-match letter, those letters did not purport to supplant 
prior statements by legacy INS. In the absence of a clear, 
authoritative agency position on the significance of no-match letters, 
employers and labor organizations had been left free to stake out 
positions on the question that best served their parochial interests, 
in some cases misconstruing statements in the SSA employer no-match 
letter aimed at preventing summary firings or discriminatory practices 
as instead commanding employers to turn a blind eye to the widely-known 
fact that unauthorized alien workers would often appear on SSA no-match 
letters. In the face of this ambiguity, well-meaning employers' 
responses to SSA no-match letters were also affected by concern about 
falling afoul of the antidiscrimination provisions of the INA. Thus, 
employers concluded that the risks of inaction in the face of no-match 
letters--with the possibility of being found to have knowingly employed 
unauthorized workers in violation of INA 274A--was outweighed by the 
risks of embarking on an investigation after receiving a no-match 
letter only to face charges of discrimination.
    The August 2007 Final Rule was designed to remedy this confused 
situation, by reminding employers of their obligation under the INA to 
conduct due diligence upon receipt of SSA no-match letters and by 
formally announcing DHS's view that employers that fail to perform 
reasonable due diligence upon receipt of SSA no-match letters or DHS 
suspect document notices risk being found to have constructive 
knowledge of listed employees' illegal work status. Furthermore, 
because the constructive knowledge standard applies a ``totality of the 
circumstances'' analysis to the facts of a particular case, and so is 
not reducible to bright-line rules, the August 2007 Final Rule sought 
to provide greater predictability through a clear set of recommended 
actions for employers to take, and assured employers that they would 
not face charges of constructive knowledge based on SSA no-match 
letters or DHS letters that had been handled according to DHS's 
guidelines.
    DHS's position on the evidentiary value of SSA no-match letters in 
the August 2007 Final Rule, and in this supplemental proposed 
rulemaking, is also justified by the growing evidence and consensus 
within and outside government that SSN no-matches are a legitimate 
indicator of possible illegal work by unauthorized aliens. The SSA 
Office of the Inspector General (SSA IG) noted that fraud was a 
significant cause of SSA no-matches, after reviewing earnings suspense 
file data for tax years 1999-2000:

    [OIG] identified various types of reporting irregularities, such 
as invalid, unassigned and duplicate SSNs and SSNs belonging to 
young children and deceased individuals. While * * * there are 
legitimate reasons why a worker's name and SSN may not match SSA 
files * * * the magnitude of incorrect wage reporting is indicative 
of SSN misuse * * * SSA's ability to combat SSN misuse is hampered 
because employers do not routinely use the Agency's Employee 
Verification Service (EVS) * * *

Office of the Inspector General, Social Security Administration, Social 
Security Number Misuse in the Service, Restaurant, and Agriculture 
Industries, Report A-08-05-25-23, at 2-3 (April 2005), AFL-CIO v. 
Chertoff, D.E. 129 at 453. See generally id. at 35-661.
    DHS's view--that no-match letters regularly identify unauthorized 
alien workers--was also overwhelmingly affirmed by those who submitted 
comments on the proposed rule in 2006. See, e.g., AFL-CIO v. Chertoff, 
D.E. 129 at 866 (comment by U.S. Chamber of Commerce: ``It is estimated 
that annually 500,000 essential workers enter the U.S. to perform much 
needed labor without work authorization. * * * The proposed regulation 
will strip needed workers from employers without providing employers 
with an alternative legal channel by which to recruit to fill the gaps 
* * *.''); Id., at 874 (comment by Essential Workers Immigration 
Coalition including same statement); Id., at 850 (comment by National 
Federation of Independent Business: ``a substantial number of workers 
identified by no-match letters are undocumented immigrants who are 
unable to provide legitimate social security numbers''); Id., at 858 
(comment by Western Growers opposing the rule on grounds that ``it 
would have a most devastating effect on California and Arizona 
agriculture, where an estimated 50 to 80 percent of the workers who 
harvest fruit, vegetables and other crops are illegal immigrants''); 
Id., at 887 (comment by American Immigration Lawyers Association: 
``[T]he proposed regulation admittedly will `smoke out' many 
unauthorized workers.''); Id., at 1306 (comment by National Council of 
Agricultural Employers suggesting that, as a conservative estimate, 76% 
of agricultural workers are not authorized to work in the United 
States, that ``employers would likely lose a significant part of their 
workforces,'' and that ``a substantial number of workers would not 
return to work'' when faced with the requirement to verify work 
authorization ``because they would be unable to do so''). See also AFL-
CIO v. Chertoff, D.E. 135 at 12 (N.D. Cal., Oct. 10, 2007) (preliminary 
injunction order, noting that ``th[e] Court cannot agree with 
plaintiffs' fundamental premise that a no-match letter can never 
trigger constructive knowledge, regardless of the circumstances'').
    SSA's criteria for sending employer no-match letters also inform 
DHS's position in the August 2007 Final Rule and in this supplementary 
rulemaking. The SSA does not send employer no-match letters to all 
employers whose tax filings turn up employees with SSN no-matches. 
Rather, these letters are only sent to employers whose wage reports 
reveal at least 11 workers with no-matches, and where the total number 
of no-matches represents more than 0.5%

[[Page 15950]]

of the employer's total Forms W-2 in the report. These criteria were 
adopted by SSA in an effort to balance the efforts to improve the wage 
reporting process with available agency resources. Taken together, 
however, DHS believes these criteria limit the recipients of employer 
no-match letters to employers who have potentially significant problems 
with their employees' work authorization. Employers with stray mistakes 
or de minimis inaccuracies in their records do not receive employer no-
match letters. As a result, DHS finds that employers who receive no-
match letters cannot reasonably assume the problems with their payrolls 
are merely trivial clerical errors, and therefore cannot reasonably 
simply ignore those letters.
    Both pre-existing regulations and consistent case law demonstrate 
that an employer can be found to have violated INA section 274A(a)(2), 
8 U.S.C. 1324a(a)(2), by having constructive rather than actual 
knowledge that an employee is unauthorized to work. The concept of 
constructive knowledge appeared in the first regulation that defined 
``knowing'' for purposes of INA section 274a, 8 CFR 274A.1(l)(1) 
(1990); 55 FR 25,928. As noted in the preamble to that original 
regulation, that definition of knowledge is consistent with the Ninth 
Circuit's holding in Mester Mfg. Co. v. INS, 879 F.2d 561, 567 (9th 
Cir. 1989) (holding that when an employer who received information that 
some employees were suspected of having presented a false document to 
show work authorization, such employer had constructive knowledge of 
their unauthorized status when the employer failed to make any 
inquiries or take appropriate corrective action). See also New El Rey 
Sausage Co. v. INS, 925 F.2d 1153, 1158 (9th Cir. 1991).
    Here, the rulemaking record demonstrates that it is widely 
understood by employers that the appearance of employees' SSNs on an 
SSA no-match letter may indicate that the employees lack work 
authorization, the SSA's practice of generating no-match letters 
focuses those letters on employers that DHS believes have non-trivial 
error levels in their payrolls, and existing law clearly establishes 
that employers may be charged with constructive knowledge when they 
fail to conduct further inquiries in the face of information that would 
lead a person exercising reasonable care to learn of an employee's 
unauthorized status. In light of this record, the position DHS 
articulated in the August 2007 Final Rule--that an employer's failure 
to conduct reasonable due diligence upon receipt of an SSA no-match 
letter can, in the totality of the circumstances, establish 
constructive knowledge of an employee's unauthorized status--was a 
reasonable ``change'' from the statements in prior informal agency 
correspondence.

E. Anti-Discrimination Provisions of the INA

    The preamble to the August 2007 Final Rule explains that employers 
who adopt the safe-harbor procedures to verify the employee's identity 
and work authorization must apply them uniformly to all of their 
employees who appear on employer no-match letters. Failure to do so, 
the preamble warns, may violate the anti-discrimination provisions of 
the INA. The preamble further notes that employers who follow the safe 
harbor procedures set forth in the August 2007 Final Rule uniformly and 
without regard to perceived national origin or citizenship status will 
not be found to have engaged in unlawful discrimination. 72 FR 45613-
14. The DHS insert prepared to accompany the no-match letter had 
similar language. AFL-CIO v. Chertoff, D.E.7, Exh. C. (N.D. Cal. Aug. 
29, 2007).
    The district court questioned DHS authority to offer what the court 
viewed as interpretations--rather than mere restatements--of settled 
anti-discrimination law, noting that authority for interpretation and 
enforcement of the INA's anti-discrimination provisions has been 
entrusted not to DHS but to the DOJ, and concluded that DHS appeared to 
have exceeded its authority. See AFL-CIO v. Chertoff, D.E. 135 at 16 
(N.D. Cal. Oct. 10, 2007) (order granting motion for preliminary 
injunction).
    DHS recognizes the jurisdiction of DOJ over enforcement of the 
anti-discrimination provisions in section 274B of the INA (8 U.S.C. 
1324b). As stated in the preamble to the August 2007 Final Rule, 
``DOJ--through its Office of Special Counsel for Immigration-Related 
Unfair Employment Practices--is responsible for enforcing the anti-
discrimination provisions of section 274B of the INA, 8 U.S.C. 1324b.'' 
72 FR 45,614. The August 2007 Final Rule also stated that DHS's rule 
``does not affect * * * the authority of DOJ to enforce the anti-
discrimination provisions of the INA or adjudicate notices of intent to 
fine employers.'' Id. DHS does not have the authority to obligate the 
DOJ or its Office of Special Counsel for Immigration-Related Unfair 
Employment Practices to a course of action and the August 2007 Final 
Rule did not purport to make any such obligation. Whether an employer 
has engaged in unlawful discrimination in violation of INA 274B is a 
determination that is made by DOJ through the Office of Special 
Counsel.
    A statement by one agency about the authority of another agency 
does not, in and of itself, encroach on the authority of that other 
agency, and DHS's statements in the August 2007 Final Rule were 
reviewed through an interagency process that was created to improve the 
internal management of the Executive Branch. Executive Order 12866, 58 
FR 51735 (Oct. 4, 1993), as amended by Executive Order 13258, 67 FR 
9385 (Feb. 28, 2002), as amended by Executive Order 13422, 72 FR 2763 
(Jan. 23, 2007). Nevertheless, in light of the district court's 
concerns about DHS's possible encroachment into the authority of DOJ, 
DHS hereby rescinds the statements in the preamble of the August 2007 
Final Rule describing employers' obligations under anti-discrimination 
law or discussing the potential for anti-discrimination liability faced 
by employers that follow the safe-harbor procedures set forth in the 
August 2007 Final Rule. For example, DHS is rescinding conclusive 
statements from the preamble of the August 2007 Final Rule such as 
``employers who follow the safe harbor procedures * * * will not be 
found to have engaged in unlawful discrimination.'' 72 FR 45613-14. DHS 
will also revisit the language in its insert letter after this rule is 
finalized. These rescissions do not change existing law or require any 
change to the rule text. The language added by the August 2007 Final 
Rule to 8 CFR 274a.1(l)(3) clarifies that a written notice from SSA or 
DHS calls into question the validity of an employee's identity or work 
authorization documents, such that those documents may not any longer, 
``on their face reasonably appear to be genuine and to relate to the 
individual.'' That assessment of the presumptive reliability of 
documents associated with SSA no-match letters or with DHS notices of 
suspect documents is squarely within the regulatory expertise and 
authority of DHS.
    Employers seeking guidance regarding their anti-discrimination 
obligations in following the safe harbor procedures in the August 2007 
Final Rule, as modified by this supplemental rule, should follow the 
direction provided by DOJ on the Web site of the Office of Special 
Counsel for Immigration-Related Unfair Employment Practices. See http://www.usdoj.gov/crt/osc/index.html. Employers may also seek advice on a 
case-by-case basis through OSC's toll-free employer hotline at: 1-800-
255-8155. DOJ's public guidance on employers' anti-discrimination

[[Page 15951]]

obligations will also be published in a Federal Register notice when 
DHS promulgates this rule as a final rule.

F. Regulatory Flexibility Analysis

    As discussed in the preamble of the August 2007 Final Rule, a 
number of commenters suggested that the rule would have a substantial 
economic impact on the economy, and on small entities in particular. 
The preamble indicated, however, that the suggested impact was 
speculative and that there was no evidence in the record to 
substantially support the conclusion that the rule would impose 
significant compliance costs on small entities. This conclusion was 
based on DHS's view of the August 2007 Final Rule as one that clarified 
DHS's interpretation of the INA, described how DHS would exercise its 
prosecutorial discretion, and set forth a voluntary safe harbor--not as 
a rule that would create any new duties, mandate any new burdens, or 
impose any new or additional compliance costs on employers. 
Accordingly, DHS certified that the August 2007 Final Rule would not 
have a significant economic impact on a substantial number of small 
entities, and therefore declined to provide a Regulatory Flexibility 
Analysis. See 72 FR at 45,621 and 45,623.
    The district court nevertheless concluded that the safe harbor in 
the rule amounted to a mandate that effectively created compliance 
obligations for employers that received no-match letters. Having found 
the rule to be a mandate rather than a voluntary safe harbor rule, the 
court found it likely that small businesses would incur significant 
costs associated with complying with the safe harbor rule:

    Because failure to comply subjects employers to the threat of 
civil and criminal liability, the regulation is the practical 
equivalent of a rule that obliges an employer to comply or to suffer 
the consequences; the voluntary form of the rule is but a veil for 
the threat it obscures. The rule as good as mandates costly 
compliance with a new 90-day timeframe for resolving mismatches. 
Accordingly, there are serious questions whether DHS violated the 
RFA by refusing to conduct a final flexibility analysis.

See AFL-CIO v. Chertoff, D.E. 135 at 19 (N.D. Cal., Oct. 10, 2007) 
(order granting preliminary injunction) (internal quotations and 
citations omitted). In light of the district court's conclusion that a 
regulatory flexibility analysis would be required, DHS is providing an 
initial regulatory flexibility analysis (IRFA) in this supplemental 
proposed rule, based on economic analysis that is being published in 
the docket of this rulemaking (ICEB-2007-00xx-0002), and which is 
summarized below in section III.B.
    DHS's decision to publish an IRFA in this supplemental rulemaking 
is not a concession that the rulemaking is a ``legislative rule.'' DHS 
continues to view the August 2007 Final Rule and this supplemental rule 
as interpretive rules, and does not believe that these rulemakings bear 
any of the hallmarks of a legislative rule. See Hemp Industries Ass'n 
v. Drug Enforcement Admin., 333 F.3d 1082, 1087 (9th Cir. 2003) 
(identifying three circumstances in which a rule is legislative); 
Syncore Int'l Corp. v. Shalala, 127 F.3d 90, 94 (DC Cir. 1997) 
(interpretive rule ``typically reflects an agency's construction of a 
statute that has been entrusted to the agency to administer'' and a 
statement of policy ``represents an agency position with respect to how 
it will treat--typically enforce--the governing legal norm. By issuing 
a policy statement, an agency simply lets the public know its current 
enforcement or adjudicatory approach''). DHS is not invoking its 
legislative rulemaking authority to mandate a specific action upon a 
certain event; rather this rulemaking informs the public of DHS's 
interpretation of Section 274A of the INA and describes how DHS will 
exercise its discretion in enforcing the INA's prohibition on knowing 
employment of unauthorized aliens. Moreover, although the district 
court questioned whether DHS has changed its position on the 
evidentiary force of no-match letters in enforcement proceedings 
against employers, neither the August 2007 Final Rule nor this 
supplemental rulemaking departs from any prior legislative rule. See 
Oregon v. Ashcroft, 368 F.3d 1118, 1134 (9th Cir. 2004). As noted 
above, the only record of the agency's previous position lies in 
correspondence between the agency and individuals and employers seeking 
advice on their specific questions.
    Thus, although DHS continues to believe that the Regulatory 
Flexibility Act does not mandate the analysis that has been undertaken 
here, see Central Texas Tel. Coop. Inc. v. FCC, 402 F.3d 205, 214 (D.C. 
Cir. 2005), the Department has decided to publish the IRFA and its 
supporting economic analysis, in response to the preliminary injunction 
entered by the Northern District of California and in order to allow 
for public review and comment on the costs that may be incurred by 
employers who choose to adopt the safe harbor procedures set forth in 
this rule.

G. Further Interpretation in the August 2007 Final Rule

    DHS is proposing to further clarify two aspects of the August 2007 
Final Rule. First, the rule instructs employers seeking the safe harbor 
that they must ``promptly'' notify an affected employee after the 
employer has completed its internal records checks and has been unable 
to resolve the mismatch. After reviewing the history of the rulemaking, 
DHS believes that this obligation for prompt notice would ordinarily be 
satisfied if the employer contacts the employee within five business 
days after the employer has completed its internal records review. DHS 
emphasizes that an employer does not need to wait until after 
completing this internal review to advise affected employees that the 
employer has received the no-match letter and request that the 
employees seek to resolve the mismatch. Immediately notifying an 
employee of the mismatch upon receipt of the letter may be the most 
expeditious means of resolving the mismatch.
    Second, plaintiffs in the litigation before the Northern District 
of California raised a question as to whether under the August 2007 
Final Rule an employer could be found liable on a constructive 
knowledge theory for failing to conduct due diligence in response to 
the appearance of an employee hired before November 6, 1986 in an SSA 
no-match letter. When Congress enacted INA section 274A as part of the 
1986 Immigration Reform and Control Act, it included a grandfather 
clause in that legislation exempting workers hired before IRCA's date 
of enactment from the provisions of section 274A(a)(1) and (a)(2). See 
Public Law 99-603, section 101(a)(3), 100 Stat. 3359 (1986). Because 
those statutory bars against hiring or continuing to employ individuals 
without work authorization do not apply to workers within that 
grandfather clause, the August 2007 Final Rule, as published and as 
supplemented by this rulemaking, does not apply to any such workers 
that may be listed in an SSA no-match letter.

III. Statutory and Regulatory Reviews

A. Administrative Procedure Act

    DHS is publishing this proposed rule as a proposed rule in the 
Federal Register as a discretionary request for public comment. The 
rule is not a legislative rule governed by the notice and comment, or 
by the delayed effective date provisions of 5 U.S.C. 553.

[[Page 15952]]

B. Regulatory Flexibility Act

    On the basis of the analysis in section II.F of this preamble, DHS 
provides below its Initial Regulatory Flexibility Analysis, as 
described under the Regulatory Flexibility Act, 5 U.S.C. 603(b), (c). A 
small entity impact analysis is included in the docket and summarized 
here. This section also describes the alternatives to the proposed rule 
that DHS has identified and considered in this supplemental rulemaking. 
As noted above, DHS invites comments related to this Initial Regulatory 
Flexibility Analysis and the accompanying Small Entity Impact Analysis, 
including comments on the assumptions underlying that analysis.
(1) Reasons Why the Rule Is Being Considered
    As discussed more fully in section I.D, DHS, as well as private 
employers in general, have become increasingly aware of the potential 
for abuse of social security numbers by aliens who are not authorized 
to work in the United States. DHS is responsible for the enforcement of 
the statutory prohibition against the hiring or continued employment of 
aliens who are not authorized to work in the United States. INA section 
274A(a)(1), (2), 8 U.S.C. 1324a(a)(1), (2); HSA section 101, 6 U.S.C. 
111. Given employers' evident confusion regarding how to respond to SSA 
no-match letters, DHS has concluded that it needs to clarify employers' 
duties under the immigration laws, and set forth guidance for employers 
who seek to fulfill their obligation not to hire or employ aliens who 
are not authorized to work in the United States.
(2) Objectives of, and Legal Basis for, the Proposed Rule
    The objective of the August 2007 Final Rule and this supplemental 
proposed rule is to provide clear guidance for employers on how to 
comply with the statutory bar against hiring or continuing employment 
of aliens who are not authorized to work in the United States. INA 
section 274A(a)(1), (2), 8 U.S.C. 1324a(a)(1), (2). The objective of 
this statute is to eliminate the ``magnet'' effect of employment 
opportunities that induces aliens to enter or remain in the United 
States illegally. DHS exercises investigative and prosecutorial 
discretion in enforcing this statute, and this interpretive rule 
explains how DHS will exercise that discretion, and provides guidance 
to employers who wish to limit their risk of liability under the 
immigration laws.
(3) Description of, and Where Feasible, an Estimate of the Numbers of 
Small Entities to Which the Rule Would Apply
    To estimate the small entities affected, DHS uses the generally 
accepted Office of Management and Budget, Economic Classification 
Policy Committee, North American Industrial Classification (NAIC), 
pursuant to 44 U.S.C. 3504(e), and the size determinations by the Small 
Business Administration (SBA) for SBA and other programs. 13 CFR 
121.101(a); 121.201; 121.902 (size standards promulgated for SBA 
programs and applicable to other agency programs). The definition of 
what constitutes a small business varies from industry to industry and 
generally depends on either the number of employees working for a 
business or the amount of annual revenue a business earns.
    DHS requested information from SSA to assist in better identifying 
the number of small entities that could be expected to establish safe-
harbor procedures. Specifically, DHS requested that SSA provide the 
names and addresses of the companies already identified by SSA in its 
preparation to release no-match letters in September 2007. This raw 
data would have permitted DHS to conduct research to determine the 
North American Industry Classification System industry to which the 
specific companies belonged, to research the annual revenue and/or the 
number of employees of these companies through standard sources, and 
thus to apply the appropriate small business size standards. With these 
analyses, DHS anticipated that it would be able to provide a rough 
estimate of the number of employers expected to receive a no-match 
letter that met the SBA's definitions of small businesses.
    However, SSA informed DHS that it was unable to provide DHS with 
the names and addresses of the employers expected to receive a no-match 
letter, citing the general legal restrictions on disclosure of taxpayer 
return information under section 6103 of the Internal Revenue Code of 
1986, 26 U.S.C. 6103. DHS also approached the Government Accountability 
Office (GAO) and the Small Business Administration, Office of Advocacy, 
to seek any data that these agencies might be able to provide, and to 
consult about the analysis to be included in this IRFA. GAO supplied 
some additional data, but SBA informed DHS that it had no data--other 
than general small business census data--that was relevant to this 
rulemaking and that could assist in our analysis for purposes of this 
IRFA. Consequently, DHS does not have the data necessary to determine 
the precise number of small entities expected to receive a no-match 
letter.
    Nevertheless, SSA was able to provide some general information. SSA 
provided a table showing a distribution of the number of employers that 
were slated to receive a no-match letter for Tax Year 2006, according 
to the number of Form W-2s filed by the employer. As this data did not 
exclude small entities, DHS believes that the universe of small 
entities that would have received a no-match letter for Tax Year 2006 
is contained within the table that SSA provided. Even though this data 
did not provide the number of small entities, this data was useful to 
DHS while conducting the small entity impact analysis contained in the 
docket. See ICEB-2006-0004-0232, Exhibit A.5. DHS was not able to 
determine whether the affected small entities will include small 
businesses, small non-profit organizations, and/or small governmental 
jurisdictions. Unless there is reason to believe small non-profits or 
public employers might implement the rule's safe harbor procedures 
differently from private employers, the cost structure for such 
entities would be no different from small firms. DHS is unaware of any 
data to suggest there would be a difference.
(4) Proposed Reporting, Recordkeeping, and Other Compliance 
Requirements
    The proposed rule suggests, but does not require, that employers 
retain records of their efforts to resolve SSA no-match letters. This 
suggestion is based on the possible need of an employer to demonstrate 
the actions taken to resolve a Social Security no match if and when ICE 
agents audit or investigate that employer's compliance with INA section 
274A, 8 U.S.C. 1324a. While the rule encourages employers seeking to 
establish eligibility for the safe-harbor to keep a record of their 
actions, the rule does not impose any requirement for an employer to 
make or retain any new documentation or records.
    Companies that choose to adopt the safe-harbor procedures in the 
rule would reasonably be expected to incur costs related to 
administering and implementing those procedures. Company-level costs 
could include the labor cost for human resources personnel, certain 
training costs, legal services, and lost productivity. A detailed 
analysis of safe-harbor-related costs that companies may incur is 
available in the docket of this rulemaking. While several commenters to 
the rule proposed in 2006 expressed concerns about the costs to 
businesses

[[Page 15953]]

relating to the termination and replacement of unauthorized workers, 
DHS finds that those costs cannot properly be considered costs of this 
rule. The INA expressly prohibits employers from knowingly hiring or 
knowingly continuing to employ an alien who is not authorized to work 
in the United States. If an employer performs the due diligence 
described in the rule, and loses the services of unauthorized employees 
as a result, those costs of terminating and/or replacing illegal 
workers are attributable to the INA, not to this rule.
    Table 1 below, summarizes the average cost per firm that DHS 
estimates will be incurred by businesses that receive a no-match letter 
and choose to adopt the safe harbor procedures set forth in this rule. 
Because DHS does not have adequate data to estimate the percentage of 
unauthorized employees whose SSNs are listed on no-match letters, for 
the purpose of this analysis, DHS estimated costs based on various 
ratios of authorized to unauthorized workers (i.e. 20% unauthorized--
80% authorized). As Table 1 shows, the expected costs of adopting the 
safe harbor procedures in this rule are relatively small on an average 
cost per firm basis. In interpreting these costs, these estimates were 
based on a series of assumptions which are explained in detail in the 
small entity impact analysis included in the docket. Consequently, the 
costs a specific firm incurs may be higher or lower than the average 
firm costs estimated in Table 1.

                             Table 1.--Total Costs per Firm by Employment Size Class
----------------------------------------------------------------------------------------------------------------
                                                            Percentage of current no-match employees assumed to
                                                                              be unauthorized
                  Employment size class                   ------------------------------------------------------
                                                              10%        20%        40%        60%        80%
----------------------------------------------------------------------------------------------------------------
5-9......................................................     $3,737     $3,633     $3,425     $3,217     $3,009
10-19....................................................      4,020      3,891      3,634      3,376      3,119
20-49....................................................      5,786      5,568      5,132      4,695      4,259
50-99....................................................      7,517      7,214      6,606      5,998      5,391
100-499..................................................     22,488     21,148     18,469     15,789     13,110
500+.....................................................     33,759     31,660     27,462     23,265     19,067
----------------------------------------------------------------------------------------------------------------

    Table 1 does not reflect the termination or replacement costs of 
unauthorized workers. The termination and replacement of unauthorized 
employees will impose a burden on employers, but INA section 
274A(a)(1), (2), 8 U.S.C. 1324a(a)(1), (2), expressly prohibits 
employers from knowingly hiring or knowingly continuing to employ an 
alien who is not authorized to work in the United States. Accordingly, 
costs that result from employers' knowledge of their workers' illegal 
status are attributable to the Immigration and Nationality Act, not to 
the August 2007 Final Rule or this supplemental proposed rule, and its 
provision of a safe harbor. Similarly, any costs incurred by seasonal 
employers who face difficulties in hiring new employees in the place of 
unauthorized workers whose SSNs were previously listed on SSA no-match 
letters are attributable to the Immigration and Nationality Act bar to 
knowingly hiring workers who are not authorized to work in the United 
States.
    In summary, DHS does not believe that this safe harbor rule imposes 
any mandate that forces employers to incur ``compliance'' costs for 
purposes of the Regulatory Flexibility Act. Even assuming that the safe 
harbor rule requires certain action on the part of employers that 
receive no-match letters, DHS does not believe that the direct costs 
incurred by employers who choose to adopt the safe harbor procedures 
set forth in this rule would create a significant economic impact when 
considered on an average cost per firm basis. To the extent that some 
small entities incur direct costs that are higher than the average 
estimated costs, however, those employers could reasonably be expected 
to face a significant economic impact. As discussed above, DHS does not 
consider the cost of complying with preexisting immigration statutes to 
be a direct cost of this rulemaking. Thus, while some employers may 
find the costs incurred in replacing employees that are not authorized 
to work in the United States to be economically significant, those 
costs of complying with the Immigration and Nationality Act are not 
direct costs attributable to this rule.
(5) Significant Alternatives Considered
    DHS has considered several alternatives to the proposed rule. For 
the most part, however, the alternatives would not provide employers 
with necessary guidance and assurances against liability under the INA, 
nor would the alternatives improve employers' compliance with INA 
section 274A, 8 U.S.C. 1274a.
    (a) No action. Taking no action to clarify employers' 
responsibilities under INA section 274A, 8 U.S.C. 1324a, was 
considered. Taking no action, however, would not resolve any of the 
problems identified and addressed by this proposed rule. Employers will 
remain confused and unlikely to act to resolve no-match letters in a 
manner consistent with their responsibilities under current immigration 
law, and will continue to face possible liability based in part on 
their failure to respond to no-match letters. Employers would continue 
to employ unauthorized aliens in violation of the INA.
    (b) Specific industry or sector limitations. DHS considered 
limiting the proposed rule to specific industries previously noted to 
be at high-risk of abuse of social security numbers in employment, 
including agriculture, services and construction. See, e.g., Social 
Security Number Misuse in the Service, Restaurant, and Agriculture 
Industries, supra; AFL-CIO v. Chertoff, D.E. 129 at 400 (GAO analysis 
of SSA data noting 17% of ESF filings by eating and drinking places; 
10% by construction, and 7% by agriculture), and industry comments, 
supra. DHS also considered promulgating a rule that applied only to 
critical infrastructure employers because of the increased need to 
prevent identify fraud by employees in high-risk facilities. None of 
these alternatives were acceptable because none addresses the larger 
population of aliens working without authorization. These alternatives 
would also offer unfairly selective assurances to employers in certain 
sectors against liability under INA section 274A, while depriving other 
employers of the same protection. Nor would any of these alternatives 
reduce the impact specifically on small businesses.
    Focusing on the three economic sectors with the most egregious 
violators of the INA might have had an impact on a significant portion 
of the alien

[[Page 15954]]

population that comes to the United States to work. As discussed more 
fully in the small entity impact analysis in the docket, the degree to 
which specific industry sectors violate the bar to employment of 
unauthorized aliens is, however, speculative. DHS does not have access 
to the data files indicating the number of employers by industry sector 
who would receive no-match letters under current SSA policies. DHS 
requested industry sector specific data from SSA but was informed that 
SSA does not possess this data. Non-empirical, anecdotal evidence, such 
as the admissions of the President of the Western Growers' Association, 
supra, that between 50 to 80% of their employees are unauthorized 
aliens serves as a less reliable indicator than empirical evidence. 
Even if such anecdotal evidence is sufficient to guide decisions about 
investigation and enforcement priorities, it is not an adequate basis 
for limiting the effect of formal agency guidance to a specific sector 
of the economy.
    Partial enforcement tends, moreover, as a matter of experience, to 
have the effect of redirecting unauthorized workers into un-enforced or 
under-enforced sectors. And limiting the applicability of the rule to 
specific industries or sectors would not mitigate the rule's impact on 
small business. Accordingly, DHS rejected the industry-specific 
approach as insufficient to accomplish the goal of improving overall 
employer compliance and reducing the population of aliens illegally 
working in the United States.
    A critical-infrastructure approach provided other benefits, 
focusing on high-risk facilities and organizations. Critical 
infrastructure encompasses, however, segments of industries that are 
not entirely discrete. Focusing on critical infrastructure would have 
had salutary effects in certain areas, but not overall. Moreover, DHS 
has already taken, and continues to take, other steps in working with 
critical infrastructure partners to improve employer compliance with 
the INA and reduce the employment of aliens not authorized to work in 
the United States.
    (c) Phased implementation for small employers. DHS considered 
phasing in the implementation of the rule by delaying its applicability 
to small entities, but concluded that such an approach would harm, not 
help, small employers. Because employers' obligation not to knowingly 
employ unauthorized workers and the constructive knowledge standard for 
employer liability flow from the INA, all employers, including small 
entities, are already subject to those legal requirements. DHS cannot 
exempt small entities from the INA, and so delaying the applicability 
of this rule for small entities would not excuse small employers from 
their existing legal obligations. Instead, delaying implementation of 
this rule for small entities would deny them access to the safe harbor 
protection offered to employers who follow the procedures set forth in 
this rule, effectively leaving small employers exposed to greater 
liability risk while offering protection to larger employers.
    (d) Extended time allowance for small employers. DHS also 
considered extending the time periods in the rule for employers who 
wish to obtain the protection of the safe harbor to check their 
internal records to confirm the no-matches were not the result of some 
administrative error by the employer. The time allotted for this 
procedure was extended from 14 days to 30 days in the August 2007 Final 
Rule, in response to comments from large and small employers. DHS is 
unaware of any evidence that small businesses, with smaller payrolls, 
would need more time to review their records than would large 
organizations with thousands of employees, and DHS concluded that a 
further extension would not provide small employers with a meaningful 
benefit.
    (e) Mandatory steps without assurances of safe harbor. DHS also 
considered requiring all employers to take specific actions whenever 
they received a no-match letter and their records indicated that a 
social security number was used as a verification document in Form I-9 
processing. Requiring employers to take affirmative steps to resolve 
social security no-match letters (as outlined as discretionary steps in 
the proposed rule) could result in fuller compliance with the bar to 
employment of aliens who are not authorized to work in the United 
States. But such a mandatory scheme implies that the steps set forth in 
the rule are the only reasonable response to a SSA no-match letter, a 
conclusion that cannot be supported by the evidence currently before 
DHS. Furthermore, the relative gains from a mandatory scheme, in the 
absence of additional statutory authority to impose sanctions for 
violations of that mandate, are likely to be very small. Employers that 
consciously or recklessly violate the INA will not alter their behavior 
under either a mandatory or voluntary safe-harbor regime, while 
responsible employers who want to comply with the INA will benefit from 
the guidance provided in the proposed safe harbor rule and will improve 
their hiring and employment practices to ensure compliance with the 
INA.
    (6) Duplicate, overlapping or conflicting rules.
    DHS is unaware of any duplicate, overlapping, or conflicting 
Federal regulations on this subject. DHS would welcome specific 
comments identifying any such regulations, including specific citations 
to provisions of Federal regulations that are duplicative, overlap or 
conflict, with reasons why the commenter believes that such 
duplication, overlap or conflict exists.

C. Unfunded Mandates Reform Act of 1995

    This rule will not result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in one year, and it would not significantly or uniquely 
affect small governments. Therefore, no actions were deemed necessary 
under the provisions of the Unfunded Mandates Reform Act of 1995, 
Public Law 104-4, 109 Stat. 48 (1995), 2 U.S.C. 1501 et seq.

D. Small Business Regulatory Enforcement Fairness Act of 1996

    This rule is not a major rule as defined by section 804 of the 
Small Business Regulatory Enforcement Act of 1996, Public Law 104-121, 
804, 110 Stat. 847, 872 (1996), 5 U.S.C. 804(2). This rule has not been 
found to be likely to result in an annual effect on the economy of $100 
million or more; a major increase in costs or prices; or significant 
adverse effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based companies to 
compete with foreign-based companies in domestic or foreign markets.

E. Executive Order 12,866 (Regulatory Planning and Review)

    Because this rule affected a number of different agencies and 
provides guidance to the public as a statement of policy or 
interpretive rule, the final rule was referred to the Office of 
Management and Budget pursuant to Executive Order 12866, as amended. 
Multiple agencies reviewed and considered the draft and substantial 
consultation between agencies occurring during that process. This 
supplemental proposed rule reflects that consultation.

F. Executive Order 13,132 (Federalism)

    This rule does not have substantial direct effects on the States, 
on the relationship between the National Government and the States, or 
on the distribution of power and

[[Page 15955]]

responsibilities among the various levels of government. Therefore, in 
accordance with section 6 of Executive Order No. 13,132, 64 FR 43,255 
(Aug. 4, 1999), this rule does not have sufficient federalism 
implications to warrant the preparation of a federalism summary impact 
statement.

G. Executive Order 12,988 (Civil Justice Reform)

    This rule meets the applicable standards set forth in sections 3(a) 
and 3(b)(2) of Executive Order No.12,988, 61 FR 4729 (Feb. 5, 1996).

H. Paperwork Reduction Act.

    Under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501, et seq., 
all Departments are required to submit to OMB, for review and approval, 
any reporting requirements inherent in a rule. While employers seeking 
to establish eligibility for the safe-harbor are encouraged to keep a 
record of their actions, this rule does not impose any additional 
information collection burden or affect information currently collected 
by ICE.

List of Subjects in 8 CFR Part 274a

    Administrative practice and procedure, Aliens, Employment, 
Penalties, Reporting and recordkeeping requirements.

    Accordingly, for the reasons stated in the preamble to the proposed 
rule at 71 FR 34281 (June 14, 2006) and the preamble to the final rule 
at 72 FR 45611 (Aug. 15, 2007), and as further explained in the 
preamble to this supplemental proposed rule, the Department of Homeland 
Security proposes to repromulgate, without change, the regulations 
published at 72 FR 45611, as 8 CFR 274a.1(l).

Michael Chertoff,
Secretary.
 [FR Doc. E8-6168 Filed 3-25-08; 8:45 am]
BILLING CODE 4410-10-P