• Federal Judge Enjoins Implementation of Homeland Security's "No-Match Letter" Regulation
  • October 29, 2007
  • Law Firm: Bingham McCutchen LLP - San Francisco Office
  • On October 10, 2007, a federal judge issued an injunction barring the Department of Homeland Security (DHS) from implementing its new rule: “Safe-Harbor Procedures for Employers Who Receive A No-Match Letter.” The court ruling prevents the Social Security Administration (SSA) from sending supplemental “no-match” letters to 140,000 employers, affecting an estimated eight million employees identified as having provided a Social Security number that does not match Social Security records.

    As we explained in our August 20, 2007 alert, “Department of Homeland Security Finalizes Regulations on No-Match Letters,” DHS published a rule that would subject employers to civil and criminal penalties if they receive “no-match” letters from the SSA and continue to employ individuals who are the subject of the letters unless they follow the “safe harbor” procedures set forth in the rule. Under the rule, employers receiving “no-match” letters have 30 days to determine whether the discrepancy is due to an error in the company’s records. If no error is found the employer must then require the employee to resolve the discrepancy within 90 days of receipt of the “no-match” letter. The rule requires employers to terminate employees who are not able to resolve the discrepancy within 90 days or establish authorization to work in the U.S. by meeting the requirements of the I-9 re-verification procedures.

    In issuing the injunction the court noted that “the magnitude of the DHS’s safe harbor rule is staggering.” The court identified potential harm to both employers and innocent employees. The court found that if the new rule were implemented thousands of employers would incur significant expense to develop costly human resource systems to comply with the safe harbor provisions. Further, many innocent workers would likely be terminated as a result of the rule as there is a strong likelihood that employers may simply fire employees who are unable to resolve the discrepancy within 90 days. The court stated, “the new rule presents employers with the Hobson’s choice of complying with DHS’s ‘safe harbor’ procedures or confronting liability for knowingly employing unauthorized workers.”

    Judge Breyer found “the balance of hardships tips sharply in plaintiffs’ favor and plaintiffs have raised serious question going to the merits.” The court concluded that plaintiffs would be irreparably harmed if DHS were permitted to enforce the new rule, while the government would suffer significantly less harm as a result of a delay in the rule’s implementation. The court noted that the government had waited an entire year after the rule was originally promulgated before issuing the final rule, thus rejecting DHS’ urgency argument. The judge also noted that the order in no way prevented SSA from sending out its traditional "no-match" letters for tax purposes, as the agency has done for over a decade.

    Examining the merits of the case Judge Breyer found that a serious question had been raised as to whether the safe harbor rule is "arbitrary and capricious." Noting that the rule represents a sharp change in DHS’s historical policy that "no-match" letters cannot, by themselves, put an employer on notice that a worker is not authorized to work in the U.S., the court found that the government provided no reasoned analysis for the change. The court held, “DHS may well have the authority to change its position, but because DHS did so without a reasoned analysis, there is at least a serious question whether the agency has ‘casually ignored’ prior precedent in violation of the APA [ Administrative Procedure Act].”

    In August, a consortium of unions, business and civil rights groups, led by the American Federation of Labor and Congress of Industrial Organizations moved for a temporary restraining order (“TRO”), seeking to prevent DHS from taking any action to implement the new rule. Two days later, on August 31, 2007, a federal district court judge granted the TRO concluding that the plaintiffs had “raised serious questions as to whether the new Department of Homeland Security rule is consistent with statute and beyond the statutory authority of the Department of Homeland Security and the Social Security Administration.” On October 1, 2007, U.S. District Judge Breyer held a two-hour hearing on plaintiff’s motion for preliminary injunction. The decision on the request for preliminary injunction was issued on October 10, 2007. The ruling effectively halts the implementation of the DHS regulation until the case is finally decided on the merits, likely months in the future. In the meantime, DHS is expected to appeal Judge Breyer’s ruling to the Ninth Circuit Court of Appeals in San Francisco. An appellate ruling could take at least until the end of the year.

    We will keep you apprised of further developments.