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< Back to current issue of Immigration Daily < Back to current issue of Immigrant's Weekly

[Federal Register: October 28, 2008 (Volume 73, Number 209)]
[Rules and Regulations]               
[Page 63843-63867]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28oc08-1]                         


========================================================================
Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
week.

========================================================================



[[Page 63843]]



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; Final Regulatory Flexibility Analysis

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

ACTION: Supplemental final rule.

-----------------------------------------------------------------------

SUMMARY: The Department of Homeland Security (DHS) is finalizing the 
Supplemental Proposed Rule published on March 26, 2008 and reaffirming 
regulations providing a ``safe harbor'' from liability under section 
274A of the Immigration and Nationality Act for employers that follow 
certain procedures after receiving a notice--either a ``no-match 
letter'' from the Social Security Administration (SSA), or a ``notice 
of suspect document'' from DHS--that casts doubt on the employment 
eligibility of their employees. DHS is also correcting a typographical 
error in the rule text promulgated in August 2007.

DATES: This final rule is effective as of October 28, 2008.

ADDRESSES: The comments on the supplemental proposed rule and the 
proposed rule on docket DHS Docket No. ICEB-2006-0004, may be reviewed 
by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov.
     In person at U.S. Immigration and Customs Enforcement, 500 
12th St., SW., 5th Floor, Washington DC 20024. Contact Joe Jeronimo, 
U.S. Immigration and Customs Enforcement, Telephone: 202-732-3978 (not 
a toll-free number) for an appointment.

FOR FURTHER INFORMATION CONTACT: Joe Jeronimo, U.S. Immigration and 
Customs Enforcement, 500 12th St., SW., 5th Floor, Washington DC 20024. 
Telephone: 202-732-3978 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Docket
II. Background
    A. History of the Rulemaking
    B. Purpose of the Rulemaking
    C. Supplemental Final Rule
    1. Authority to Promulgate the Rule
    2. ``Reasoned Analysis'' Supporting Perceived Change in Policy 
Reflected in the Final Rule
    3. Anti-Discrimination Provisions of the INA
    4. Regulatory Flexibility Analysis
III. Public Comments and Responses
    A. Authority To Promulgate the Rule
    B. ``Reasoned Analysis'' Supporting Perceived Change in Policy 
Reflected in the Final Rule
    C. Anti-Discrimination Provisions of the INA
    D. Regulatory Flexibility Analysis
    1. Scope of Regulatory Flexibility Act Review
    2. Direct and Indirect Impact
    3. Baseline Costs, Unauthorized Alien Workers, and the 
Immigration Reform and Control Act of 1986
    4. Variability of SSA Criteria for Issuing No-Match Letters
    5. Base Assumptions Made in the IRFA and SEIA
    6. Opportunity and Productivity Costs
    7. Human Resources and Employee Tracking
    8. Other Costs
    9. Rehiring Seasonal Employees
    10. Conclusions
    E. Further Interpretation of the August 2007 Final Rule
    F. Other Comments Received
IV. Changes Made in Republishing the Final Rule
V. Statutory and Regulatory Reviews
    A. Administrative Procedure Act
    B. Regulatory Flexibility Act
    1. Need for, Objectives of, and Reasons Why the Rule is Being 
Considered
    2. Significant Issues Raised in Public Comments
    3. Description of and 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. Minimization of Impact
    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
PART 274a--CONTROL OF EMPLOYMENT OF ALIENS

I. Docket

    Comments on the supplemental proposed rule, the proposed rule, and 
the Small Entity Impact Analysis may be viewed online at http://
www.regulations.gov (docket ICEB-2006-0004), or in person at U.S. 
Immigration and Customs Enforcement, Department of Homeland Security, 
500 12th St., SW., 5th Floor, Washington, DC 20024, by appointment. To 
make an appointment to review the docket, call telephone number 202-
732-3979 (not a toll-free number).

II. Background

A. History of the Rulemaking

    DHS published a proposed rule in June 2006 that proposed a method 
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 their 
employees' eligibility to work. 71 FR 34281 (June 14, 2006). A sixty-
day public comment period ended on August 14, 2006.
    DHS received approximately 5,000 comments on the proposed rule from 
a variety of sources, including labor unions, not-for-profit advocacy 
organizations, industry trade groups, private attorneys, businesses, 
and other interested organizations and individuals. The comments varied 
considerably; some commenters strongly supported the rule as proposed, 
and others were critical of the proposed rule and suggested changes. 
See http://www.regulations.gov, docket number ICEB-2006-0004.
    DHS published a final rule on August 15, 2007, setting out safe 
harbor procedures for employers that receive SSA no-match letters or 
DHS notices. 72 FR 45611 (Aug. 15, 2007). Each comment received was 
reviewed and considered in the preparation of the August 2007 Final 
Rule. The August

[[Page 63844]]

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 to enjoin 
implementation of the August 2007 Final Rule in the United States 
District Court for the Northern District of California. AFL-CIO v. 
Chertoff, 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, 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), 
and on October 10, 2007 granted plaintiffs' motion for preliminary 
injunction. AFL-CIO v. Chertoff, 552 F.Supp.2d 999 (N.D. Cal. 2007) 
(order granting motion for preliminary injunction).
    The district court concluded that 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. 552 F.Supp.2d at 
1006. Following its entry of the preliminary injunction, the district 
court stayed proceedings in the litigation. See AFL-CIO v. Chertoff, 
D.E. 149 (N.D. Cal. Dec. 14, 2007) (minute entry).
    DHS published a supplemental notice of proposed rulemaking in March 
2008 to address the specific issues raised by the court in the 
preliminary injunction order. 73 FR 15944, 45, 46-47 (March 26, 2008). 
In the supplemental proposed rulemaking, DHS reviewed past government 
communications about SSA no-match letters to clarify the history of the 
Department's policy on the significance of those letters, and supplied 
additional ``reasoned analysis'' in support of the policy set forth in 
the rule. 73 FR at 15947-50. DHS also clarified that the authority to 
interpret and enforce the anti-discrimination provisions of the IRCA 
rests with DOJ, 73 FR at 15950-51, and provided an initial regulatory 
flexibility analysis, 73 FR at 15951, 52-54, including a small entities 
analysis. Docket ICEB-2006-0004-0233.
    The public comment period on the supplemental proposed rule ended 
on April 25, 2008. DHS received approximately 2,950 comments on the 
supplemental proposed rule from a variety of sources, including labor 
unions, not-for-profit advocacy organizations, industry trade groups, 
private attorneys, businesses, and other interested organizations and 
individuals.
    A number of public comments were the product of mass-mailing 
campaigns, resulting in DHS receiving identical or nearly identical 
electronic filings during the comment period. Other comments included 
multiple-signature petition drives that presented a specific point of 
view. Many comments expressed opinions on immigration policy generally 
but provided little substantive information or supporting documentation 
that DHS could use to refine its judgment on the efficacy of the 
rulemaking or that was pertinent to the issues raised by the 
supplemental proposed rulemaking.
    DHS viewed every comment received from a different source as a 
separate comment, notwithstanding similarities in wording. When 
multiple comments were received from the same source but via different 
media (e.g. electronic and mail), DHS attempted to identify and 
correlate the comments. DHS reviewed the substance of every comment and 
considered the substance of the comments in formulating this final 
rule. We summarize the substance of the comments received below.
    During the public comment period, DHS received requests that the 
comment period be extended. DHS reviewed these requests and concluded 
that they presented no novel or difficult issues justifying an 
extension of the comment period, particularly in light of the 
rulemaking's extensive history, as well as the limited number of issues 
raised by the district court and addressed in the supplemental proposed 
rule. Accordingly, DHS declines to extend the comment period.
    In developing this supplemental final rule, DHS has considered the 
entire administrative record of the August 2007 Final Rule, as well as 
the record of proceedings in the pending litigation, including 
arguments made in the various motions and briefs, and orders of the 
district court, that were relevant to the issues addressed in this 
action. 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)) (hereinafter ``Administrative Record''). The docket of the 
United States District Court for the Northern District of California is 
a public record and the documents contained therein are available from 
the court clerk's office.
    After considering the full record, including the comments received 
in response to the supplemental notice of proposed rulemaking, DHS has 
made adjustments to the cost calculations in the Initial Regulatory 
Flexibility Analysis (IRFA) and prepared a Final Regulatory Flexibility 
Analysis (FRFA), finalized the additional legal analysis set out in the 
supplemental notice of proposed rulemaking, and determined that the 
rule should issue without change. Therefore this final rule reaffirms 
the text of the August 2007 Final Rule without substantive change and 
makes one typographical correction.

B. Purpose of the Rulemaking

    The Federal Government 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. In 1997, the U.S. Commission on Immigration Reform found 
the following:

    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. Comm'n on Immigration Reform, Becoming an American: Immigration

[[Page 63845]]

and Immigrant Policy 113-14, 117 (1997) (emphasis in original); 
Administrative Record at 139-140, 143.
    Similarly, the Federal Government has been long aware of the 
potential for abuse of social security numbers by aliens who are not 
authorized to work in the United States. Such abuse has been the 
subject of numerous public reports by the Government Accountability 
Office and the SSA's Inspector General, as well as congressional 
hearings. See, e.g., Administrative Record, 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., 
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 
(estimating approximately 11.2 million illegal aliens in the United 
States; approximately 7.2 million illegal aliens in the workforce); 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).
    The scale of the problem that this rule seeks to address--that is, 
the unlawful employment of aliens not authorized to work in the United 
States--has become more well-defined through 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), 
Administrative Record 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 a substantial portion 
of their workforce is unauthorized--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 unauthorized aliens 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; Administrative Record at 309, 313.
    Based on the rulemaking record and the Department's law enforcement 
expertise, DHS finds that there is a substantial connection between 
social security no-match letters and the lack of work authorization by 
some employees whose SSNs are listed in those letters. While social 
security no-match letters do not, by themselves, conclusively establish 
that an employee is unauthorized, DHS's (and legacy INS's) interactions 
with employers that 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; Administrative Record 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; Administrative 
Record at 314, 316, 334-44 (noting employer ``complaints'' over loss of 
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 that many law-abiding employers are unsure of their obligations 
under current immigration law after they receive a no-match letter, and 
that some employers fear allegations of anti-discrimination law 
violations 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. Accordingly, in 
this final rule, DHS outlines specific steps that reasonable employers 
may take in response to SSA no-match letters, and offers employers that 
follow those steps a safe harbor from ICE's use of SSA no-match letters 
in any future enforcement action to demonstrate that an employer has 
knowingly employed unauthorized aliens in violation of section 274A of 
the Immigration and Nationality Act (INA), 8 U.S.C. 1324a.

C. Supplemental Final Rule

1. Authority to Promulgate the Rule
    Congress has delegated to the Secretary of Homeland Security the 
authority to promulgate regulations that implement, interpret and fill 
in the administrative details of the immigration laws. INA section 
103(a), 8 U.S.C. 1103(a); Homeland Security Act of 2002, Public Law 
107-296, sections 102(a)(3), (b)(1), and (e), 110 Stat. 2135 (Nov. 25, 
2002) (HSA), as amended, 6 U.S.C. 112(a)(3), (b)(1), and (e). Under 
Chevron U.S.A. Inc. v. Natural Resources Defense 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 Branch may, as appropriate, announce or change its policies 
and statutory

[[Page 63846]]

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. Ass'n v. State Farm Mut. Auto. 
Ins., 463 U.S. 29, 43 (1983).
    DHS is authorized by the HSA and the INA to investigate and pursue 
sanctions against employers that knowingly hire or continue to employ 
unauthorized aliens or do not properly verify their employees' 
employment eligibility. HSA sections 102(a)(3), 202(3), 441, 442, 6 
U.S.C. 112(a)(3), 251, 252; INA section 274A(e), 8 U.S.C. 1324a(e). All 
persons or entities that hire, recruit or refer persons for a fee for 
employment in the United States must verify the identity and employment 
eligibility of all employees hired to work in the United States. INA 
section 274A(a)(1)(B), (b)(1), (b)(2) 8 U.S.C. 1324a(a)(1)(B), (b)(1), 
(b)(2). Under the INA, this verification is performed by completing an 
Employment Eligibility Verification form (Form I-9) for all employees, 
including United States citizens. INA section 274A(b)(1), (b)(2), 8 
U.S.C. 1324a (b)(1), (b)(2); 8 CFR 274a.2. An employer, or a recruiter 
or referrer for a fee, must retain the completed Form I-9 for three 
years after hiring, recruiting or referral, or, where the employment 
extends longer, for the life of the individual's employment and for one 
year following the employee's departure. INA section 274A(b)(3), 8 
U.S.C. 1324a(b)(3). These forms are not routinely filed with any 
government agency; employers are responsible for maintaining these 
records, and they may be requested and reviewed by DHS Immigration and 
Customs Enforcement (ICE). See 71 FR 34510 (June 15, 2006).
    DHS's authority to investigate and pursue sanctions against 
employers that knowingly hire or continue to employ unauthorized aliens 
necessarily includes the authority to decide the evidence on which it 
will rely 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 would 
constitute ``reasonable care.'' In the August 2007 Final Rule--as 
supplemented by this final rule--DHS announces its interpretation of 
INA section 274A and 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, if 
the employer follows the procedures outlined in the rule. This 
limitation on DHS's enforcement discretion--this safe harbor--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). This 
rule does not affect the authority of 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 authority to amend and reissue the rule. The 
Executive Branch's amendment of 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).
    As noted in the supplemental notice of proposed rulemaking, 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); 73 FR at 15947. The preliminary injunction did not 
prohibit further rulemaking by DHS. The district court subsequently 
stayed proceedings in the litigation to allow for further rulemaking. 
AFL-CIO v. Chertoff, D.E. 142 (stay motion); 144 (statement of non-
opposition); 149 (minute order staying proceedings pending new 
rulemaking) (N.D. Cal. 2007). Accordingly, not only does DHS continue 
to have the authority to revise and finalize this rulemaking but the 
orders of the district court contemplate such rulemaking action.
2. ``Reasoned Analysis'' Supporting Perceived Change in Policy 
Reflected in the Final Rule
    An agency action is arbitrary and capricious if the agency fails to 
examine relevant data and articulate a satisfactory explanation for its 
action including a ``rational connection between the facts found and 
the choice made.'' Motor Vehicle Mfrs. Ass'n v. State Farm Mutual Auto. 
Ins., 463 U.S. 29, 43 (1983). In its order granting the preliminary 
injunction, the district court found that ``DHS has sufficiently 
articulated a rational connection between the facts found and the 
choice made.'' 552 F.Supp.2d at 1010. The district court expressed 
concerns, however, that DHS had not sufficiently articulated a 
rationale for what the court saw as DHS's ``change'' in position on the 
significance of SSA no-match letters when promulgating that August 2007 
Final Rule. While the district court acknowledged that the preamble to 
the August 2007 Final Rule remained consistent with DHS's and legacy 
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,' '' 559 F.Supp.2d at 1009 (quoting 
72 FR 45616), the court 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 DHS's 
position, the court concluded that ``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.'' 552 
F.Supp.2d at 1010.
    DHS provided in the supplemental proposed rule an extensive review 
of the non-precedential correspondence and public reports relating to 
the value of SSA no-match letters as an indicator that individuals 
listed in a letter may not be authorized to work in the United States 
and the obligations of employers to respond to such letters. 73 FR at 
15947-48. That review showed that neither the former INS nor DHS had 
issued a formal or precedential

[[Page 63847]]

statement of agency policy regarding the significance of SSA no-match 
letters, and that, therefore, there was no agency precedent that had 
been ``casually ignored'' in DHS's promulgation of the August 2007 
Final Rule. It also showed that DHS's consistent, if informal, view of 
SSA no-match letters has been 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. The position reflected in the August 2007 Final 
Rule--that a no-match letter, and an employer's response to such a 
letter could, in the totality of the circumstances, constitute proof of 
an employer's constructive knowledge that an employee is not authorized 
to work in the United States--was consistent with the informal agency 
interpretations offered to employers over the past decade.
    Nevertheless, in light of the court's concerns that DHS had changed 
its position on these issues in the August 2007 Final Rule, the 
supplemental notice of proposed rulemaking set forth the ``reasoned 
analysis'' sought by the court and identified four significant reasons 
for the issuance of this rule: (1) The need to resolve ambiguity and 
confusion among employers regarding their obligations under the INA 
following receipt of an SSA no-match letter; (2) the growing evidence 
and consensus within and outside government that SSA no-match letters 
are a legitimate indicator of possible illegal work by unauthorized 
aliens; (3) DHS's view that SSA's criteria for sending employee no-
match letters helps to focus those letters on employers that have 
potentially significant problems with their employees' work 
authorization; and (4) the established legal principle that employers 
may be found to have knowingly employed unauthorized alien workers in 
violation of INA section 274A based on a constructive knowledge theory. 
73 F.R. 15949-50.
a. Need for Clear Guidance Regarding No-Match Letters
    As was noted in the supplemental notice of proposed rulemaking, one 
key justification for issuance of this rule is to eliminate ambiguity 
regarding an employer's responsibilities under the INA upon receipt of 
a no-match letter. As one business organization with nationwide 
membership commented in response to the initial publication of the 
proposed rule in 2006:

    Disagreement 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.

Administrative Record 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 was in 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, agency 
correspondence over the years was heavily caveated, at times even 
equivocal, and although more recent letters from DHS had articulated 
more clearly 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 
were left free to stake out positions that best served their parochial 
interests, by in some cases misconstruing language in the 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 be listed in those 
letters. In the face of this ambiguity, well-meaning employers' 
responses to SSA no-match letters were also affected by concern about 
running afoul of the INA's antidiscrimination provisions. 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 the illegal work status of employees whose names or SSNs 
are listed. Further, because the constructive knowledge standard 
applies a ``totality of the circumstances'' test to the facts of a 
particular case, and is therefore 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.
b. No-Match Letters Are Legitimate Indicators of Possible Illegal Work 
by Unauthorized Aliens
    DHS's reasoned analysis on the evidentiary value of SSA no-match 
letters in the August 2007 Final Rule, and in this supplemental 
rulemaking, also includes 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) has reported, after reviewing earnings 
suspense file data for tax years 1999-2001, that fraudulent use of SSNs 
\1\ was widespread in the service, restaurant, and agriculture 
industries and that such fraud was a significant cause of SSA no-
matches:
---------------------------------------------------------------------------

    \1\ See INA Section 274C, 8 U.S.C. 1324c.

    [OIG] identified various types of reporting irregularities, such 
as invalid, unassigned and duplicate SSNs and SSNs belonging to 
young children and deceased individuals. While we recognize there 
are legitimate reasons why a worker's name and SSN may not match SSA 
files, such as a legal name change, we believe the magnitude of 
incorrect wage reporting is indicative of SSN misuse. Employees and 
industry association representatives acknowledged that unauthorized 
---------------------------------------------------------------------------
noncitizens contribute to SSN misuse.

Office of the Inspector General, Social Security Administration, Social 
Security Number Misuse in the Service, Restaurant, and Agriculture 
Industries, Report A-08-05-25023, at 2 (April 2005), Administrative 
Record at 456. See generally Administrative Record at 35-661.

[[Page 63848]]

    SSA no-match letters have also formed a basis for multiple criminal 
investigations by ICE and prosecutions on charges of harboring or 
knowingly hiring unauthorized aliens.\2\
---------------------------------------------------------------------------

    \2\ See, e.g., United States v. Gonzales, 2008 WL 160636 (N.D. 
Miss. No. 4:07-CR-140, Jan. 18, 2008) (finding no-match letters 
admissible at trial, and upholding a search warrant obtained on the 
basis of information, including copies of social security no-match 
letters, received from a confidential informant, treating no-match 
letters as ``documentary evidence supporting the allegation'' of the 
confidential informant); United States v. Fenceworks, Inc., No. 
3:06-CR-2604 (S.D. Cal.), D.E. 16 (judgment of probation and 
forfeiture of $4,700,000 in case involving multiple Social Security 
no-match letters) (related cases Nos. 3:06-CR-2605 (probation and 
fine of $100,000); 3:06-CR-2606 (probation and fine of $200,000)); 
United States v. Insolia, No. 1:07-CR-10251 (D. Mass), D.E. 1 
(complaint; attachment, ]] 25-32, February 2007 probable cause 
affidavit detailing history of employer's no-match letters from 2002 
through 2005 and other investigative methods and facts); 34 
(indictment); United States v. Rice, No. 1:07-CR-109 (N.D.N.Y), D.E. 
1 (complaint; attached probable cause affidavit) (]] 64-66, 
detailing results of matching analysis and SSA letters received by 
defendant's employer), D.E. 17 (plea agreement).
---------------------------------------------------------------------------

    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., Administrative Record 
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, 552 F.Supp.2d at 1008 (``th[e] Court cannot agree with 
plaintiffs'' fundamental premise that a no-match letter can never 
trigger constructive knowledge, regardless of the circumstances'').
c. SSA's Procedures Better Target No-Match Letters to Employers With 
Potential Workforce Problems
    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. SSA does not send employer no-match letters to every 
employer with a no-match. Instead, SSA sends letters only when an 
employer submits a wage report reflecting at least 11 workers with no-
matches, and when the total number of no-matches in a given wage report 
represents more than 0.5% of the employer's total Forms W-2 in the 
report.
    In addition, SSA has continued to refine the wage reporting process 
in ways that help to reduce administrative error resulting in a no-
match letter. Employers filing more than 250 Forms W-2 are required to 
file electronically (see 42 U.S.C. 405(c)(2)(A); 20 CFR 422.114; 26 CFR 
301.6011-2), and electronic filing of Forms W-2 has risen from 53% of 
all employee reports in FY2003 to over 80% in FY2007--a 51% 
increase.\3\ This direct electronic filing substantially reduces the 
likelihood that SSA errors--such as during data entry of the 
information submitted on a paper Form W-2--would result in 
discrepancies in the wage reports. Employers also have access to SSA's 
system for identifying name-SSN mismatches at the time they file the 
wage reports. That system can only be used to verify current or former 
employees and only for wage reporting (Form W-2) purposes. Employers 
who use SSA's system are able to eliminate most no-matches in their 
reports and thereby significantly reduce their likelihood of receiving 
a no-match letter.
---------------------------------------------------------------------------

    \3\ Social Security Administration, Performance and 
Accountability Report, Fiscal Year 2007 at 67-8.
---------------------------------------------------------------------------

    DHS is also aware that SSA has developed a series of computerized 
error-checking routines to resolve certain common errors that result in 
unmatched name and SSN. These routines resolve name discrepancies 
caused by misspellings, typographical errors, first name and last name 
transpositions, and female surname changes (e.g. marriage or divorce). 
They can also resolve discrepancies from the use of a derivative 
nickname instead of a proper name or from scrambling compound or 
hyphenated surnames. The routines can also resolve SSN discrepancies 
such as numerical transpositions.
    GAO has reported that approximately 60 percent of no-matches in 
recent tax years' wage reports are corrected by SSA's algorithms. See 
Government Accountability Office, Social Security: Better Coordination 
among Federal Agencies Could Reduce Unidentified Earnings Reports (GAO 
Report 05-154, 2005), Administrative Record at 400. See also Office of 
the Inspector General, Social Security Administration, Effectiveness of 
the Single Select Edit Routine (Audit Report A-03-07-17065, Sept. 
2007). While these routines cannot resolve all discrepancies, they 
reduce the number of inadvertent no-matches that are reported to 
employers.
    DHS believes that, taken together, these efforts better direct no-
match letters to employers that have potentially significant problems 
with their employees' work authorization. Employers with stray mistakes 
or de minimis inaccuracies are much less likely to receive no-match 
letters.
d. The Longstanding Principle That Employers May Be Liable for INA 
Violations Based on Constructive Knowledge
    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 25928 (June 25, 1990). As noted in the preamble to the 
original regulation, that definition of knowledge is consistent with 
the Ninth Circuit's decision in Mester Mfg. Co. v. INS, 879 F.2d 561, 
567 (9th Cir. 1989) (holding that, after receiving information that 
employees were suspected of having presented false documents to show 
work authorization, the employer had constructive knowledge of 
unauthorized status because the employer failed to make inquiries or 
take appropriate corrective action). See also New El Rey Sausage Co. v. 
INS, 925 F.2d 1153, 1158 (9th Cir. 1991).
    The rulemaking record demonstrates that employers have continued to

[[Page 63849]]

demand clear guidance on appropriately responding to SSA no-match 
letters, consistent with their obligations under the INA. It also 
demonstrates a well-established consensus that the appearance of 
employees' SSNs on an SSA no-match letter may indicate lack of work 
authorization. The record also shows that SSA's practices in generating 
no-match letters helps to focus those letters on employers that, in 
DHS's view, have non-trivial levels of employees with SSN mismatches in 
their workforce, 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.
    This reasoned analysis supports DHS's position 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. Assuming, as did the district court, that this 
position constituted a change from prior statements in informal agency 
correspondence, DHS has now provided additional--and sufficient--
reasoned analysis to support that change.
3. Anti-Discrimination Provisions of the INA
    The preamble to the August 2007 Final Rule said that employers that 
adopt the rule's safe harbor procedures to verify employees' identity 
and work authorization must apply them uniformly to all employees who 
appear on employer no-match letters. Failure to do so, the preamble 
warned, may violate the INA's anti-discrimination provisions. The 
preamble further noted that employers that follow the safe harbor 
procedures 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's authority to offer what the 
court viewed as interpretations, rather than mere restatements, of 
settled anti-discrimination law, noting that DOJ, not DHS, has 
authority for interpretation and enforcement of the INA's anti-
discrimination provisions. The court concluded that DHS appeared to 
have exceeded its authority. 552 F.Supp.2d at 1011.
    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 the Office of Special Counsel, 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, DHS 
rescinds the statements in the preamble of the August 2007 Final Rule 
discussing the potential for anti-discrimination liability faced by 
employers that follow the safe harbor procedures set forth in the 
August 2007 Final Rule.\4\ DHS has also revised the language in its 
insert letter that will accompany the SSA no-match letters. These 
changes do not alter existing law or require any change to the rule 
text.
---------------------------------------------------------------------------

    \4\ For example, DHS rescinds 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.'' 73 FR at 15950, citing 72 FR 
45613-14.
---------------------------------------------------------------------------

    DHS recognizes the concerns raised by commenters that 
discrimination litigation may be brought against them. As expressed by 
one commenter:

    One of the greatest potential costs faced by employers as a 
result of this rulemaking is the increased likelihood of 
discrimination lawsuits brought about by the required termination of 
employees who cannot resolve ``mismatches.'' DHS' retraction of the 
assurances it attempted to provide in the proposed rule only 
increases the uncertainty that employers face. Moreover, even 
meritless claims brought by terminated employees will require 
significant expenses in legal fees and related costs to defend, and 
unless DHS can remove jurisdiction in all courts in which such 
actions might be brought, it cannot prevent these expenses. Our 
reality is that we will be ``attacked'' by numerous organizations * 
* * as we have been in the past.

ICEB-2006-0004-0498.1 at 1-2 (emphasis in original); see also ICEB-
2006-0004-0571.1 at 2; ICEB-2006-0004-0679.1 at 2.
    While DHS lacks the authority to announce interpretations of the 
anti-discrimination provisions of the INA, DOJ possesses such 
authority, and persons seeking guidance regarding employers' anti-
discrimination obligations in following the safe harbor procedures in 
the August 2007 Final Rule, as modified by this supplemental 
rulemaking, should follow the direction provided by DOJ published in 
today's edition of the Federal Register, and available on the Web site 
of the Office of Special Counsel for Immigration-Related Unfair 
Employment Practices, at http://www.usdoj.gov/crt/osc/htm/
Nomatch032008.htm. Employers may also seek advice on a case-by-case 
basis through OSC's toll-free employer hotline: 1-800-255-8155. The 
Department continues to urge employers to apply the safe harbor 
procedures in this rule to all employees referenced in an SSA no-match 
letter or a DHS notice uniformly and without regard to perceived 
national origin or citizenship status.
4. Regulatory Flexibility Analysis
    In its decision enjoining implementation of the August 2007 Final 
Rule, the district court construed the safe harbor in the rule as 
effectively creating compliance obligations for employers that received 
no-match letters. Doubting the voluntary nature of the safe harbor 
rule, the court found it likely that small businesses would incur 
significant costs to enter the safe harbor:

    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.

552 F.Supp.2d at 1013 (internal quotations and citations omitted). In 
light of the district court's conclusion

[[Page 63850]]

that a regulatory flexibility analysis would likely be required, DHS 
published an initial regulatory flexibility analysis (IRFA) in the 
supplemental proposed rule, 73 FR at 15952-54, and placed on the docket 
for public comment the Small Entity Impact Analysis, Supplemental 
Proposed Rule: Safe Harbor Procedures for Employers Who Receive a No-
Match Letter, ICEB-2006-0004-0233 (hereinafter, the ``SEIA'').
    DHS continues to view the August 2007 Final Rule and this 
supplemental rule as interpretive, 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 (D.C. 
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. Instead, 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. 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 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. v. FCC, 402 F.3d 205, 214 (D.C. Cir. 
2005), the Department provided an IRFA and supporting economic 
analysis, and has now prepared a Final Regulatory Flexibility Analysis 
(FRFA) in response to the district court's concerns.
    As the United States Court of Appeals for the Ninth Circuit has 
noted, the Regulatory Flexibility Act (RFA) ``imposes no substantive 
requirements on an agency; rather, its requirements are `purely 
procedural' in nature. * * * To satisfy the RFA, an agency must only 
demonstrate a `reasonable, good-faith effort' to fulfill its 
requirements.'' Ranchers Cattlemen Action Legal Fund v. USDA, 415 F.3d 
1078, 1101 (9th Cir. 2005). See also Envtl. Def. Ctr. v. EPA, 344 F.3d 
832, 879 (9th Cir. 2003) (``Like the Notice and Comment process 
required in administrative rulemaking by the APA, the analyses required 
by the RFA are essentially procedural hurdles; after considering the 
relevant impacts and alternatives, an administrative agency remains 
free to regulate as it sees fit.'').
    The RFA, by definition, does not apply to individuals. Where it 
applies, the RFA requires agencies to analyze the impact of rulemaking 
on ``small entities.'' Small entities include small businesses, not-
for-profit organizations that are independently owned and operated and 
are not dominant in their fields, and governmental jurisdictions with 
populations of less than 50,000. 5 U.S.C. 601(3), (5)-(6). Small 
businesses are defined in regulations promulgated by the Small Business 
Administration. 13 CFR 121.201.
    The RFA provides that an initial regulatory flexibility analysis 
(IRFA) shall contain:

    (1) A description of the reasons why action by the agency is 
being considered;
    (2) A succinct statement of the objectives of, and legal basis 
for, the proposed rule;
    (3) A description of and, where feasible, an estimate of the 
number of small entities to which the proposed rule will apply;
    (4) A description of the projected reporting, recordkeeping and 
other compliance requirements of the proposed rule, including an 
estimate of the classes of small entities which will be subject to 
the requirement and the type of professional skills necessary for 
preparation of the report or record;
    (5) An identification, to the extent practicable, of all 
relevant Federal rules which may duplicate, overlap or conflict with 
the proposed rule.

5 U.S.C. 603(b). Furthermore, an IRFA must also contain:

    a description of any significant alternatives to the proposed 
rule which accomplish the stated objectives of applicable statutes 
and which minimize any significant economic impact of the proposed 
rule on small entities. Consistent with the stated objectives of 
applicable statutes, the analysis shall discuss significant 
alternatives such as--
    (1) The establishment of differing compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
    (2) The clarification, consolidation, or simplification of 
compliance and reporting requirements under the rule for such small 
entities;
    (3) The use of performance rather than design standards; and
    (4) An exemption from coverage of the rule, or any part thereof, 
for such small entities.

5 U.S.C. 603(c). The RFA does not require that these elements be 
considered in a specific manner, following a prescribed formula or 
content. Given the nature of rulemaking, and its diversity, agencies 
develop IRFAs in a manner consistent with the statute and the 
rulemaking itself.\5\
---------------------------------------------------------------------------

    \5\ The Small Business Administration had provided additional 
guidance. See Office of Advocacy, Small Business Administration, A 
Guide for Government Agencies: How to Comply with the Regulatory 
Flexibility Act (2003). It states, in pertinent part:
    The RFA requires agencies to conduct sufficient analyses to 
measure and consider the regulatory impacts of the rule to determine 
whether there will be a significant economic impact on a substantial 
number of small entities. No single definition can apply to all 
rules, given the dynamics of the economy and changes that are 
constantly occurring in the structure of small-entity sectors.
    Every rule is different. The level, scope, and complexity of 
analysis may vary significantly depending on the characteristics and 
composition of the industry or small entity sectors to be regulated.
    Id. at 14.
---------------------------------------------------------------------------

    The IRFA provided with the supplemental notice of proposed 
rulemaking contained the elements listed in 5 U.S.C. 603(b) as well as 
the discussion of significant regulatory alternatives required by 5 
U.S.C. 603(c). The supplemental proposed rule explicitly requested 
comments on the economic aspects of the analysis and on the discussion 
of regulatory alternatives. Publication of the supplemental proposed 
rule received significant media coverage. The U.S. Small Business 
Administration Office of Advocacy (Advocacy) hosted a small business 
roundtable shortly after publication of the supplemental proposed rule 
to collect comments from interested small businesses and submitted a 
public comment letter based on this input. The comments provided by 
Advocacy are addressed in the analysis below. As noted above, the 
supplemental proposed rule and accompanying IRFA received nearly 3,000 
comments from the public, including a significant number of comments 
specifically addressing the IRFA and the underlying SEIA.
    DHS has reviewed the comments received on the IRFA and has 
concluded that the IRFA complied with the statutory standards for such 
an analysis and provided the public sufficient information to submit 
informed comments regarding the possible impact of this rule.

[[Page 63851]]

    In light of comments that identified plausible regulatory 
alternatives or areas needing further clarification or adjustments in 
the economic model underlying the SEIA, DHS has revised the analysis 
and assembled a FRFA. The RFA requires that a FRFA contain:

    (1) A succinct statement of the need for, and objectives of, the 
rule;
    (2) A summary of the significant issues raised by the public 
comments in response to the initial regulatory flexibility analysis, 
a summary of the assessment of the agency of such issues, and a 
statement of any changes made in the proposed rule as a result of 
such comments;
    (3) A description of and an estimate of the number of small 
entities to which the rule will apply or an explanation of why no 
such estimate is available;
    (4) A description of the projected reporting, recordkeeping and 
other compliance requirements of the rule, including an estimate of 
the classes of small entities which will be subject to the 
requirement and the type of professional skills necessary for 
preparation of the report or record; and
    (5) A description of the steps the agency has taken to minimize 
the significant economic impact on small entities consistent with 
the stated objectives of applicable statutes, including a statement 
of the factual, policy, and legal reasons for selecting the 
alternative adopted in the final rule and why each one of the other 
significant alternatives to the rule considered by the agency which 
affect the impact on small entities was rejected.

5 U.S.C. 604(a). The discussion below and in the final SEIA on the 
docket addresses specific comments received on the IRFA and, together 
with the FRFA summarized in this supplemental final rule, provides the 
statutorily required agency assessment of comments received, 
projections of the number of affected small entities, description of 
the anticipated reporting and compliance burdens, and discussion of 
steps taken to limit any impact of the rule on small entities. In this 
way, DHS has ``demonstrated a `reasonable, good-faith effort' to 
fulfill'' the procedural and substantive requirements of the RFA.

III. Public Comments and Responses

A. Authority To Promulgate the Rule

    A number of commenters challenged DHS's authority to promulgate 
this rule. DHS has reanalyzed its jurisdiction and authority in light 
of these comments, and concludes that it has the necessary authority to 
promulgate this final rule.
    Several commenters suggested that the rule imposes an affirmative 
due diligence obligation on employers that does not exist in the INA 
once employers complete the Form I-9 process. As is explained in 
section II.C, supra, the INA's prohibition on ``knowing'' hiring or 
continued employment of unauthorized workers extends to employers that 
have constructive 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 decision 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). Contrary to the apparent view of some commenters, the INA does 
not absolve employers of any further responsibility once they have 
completed the initial Form I-9 verification process. The concept of 
constructive knowledge--and employers' responsibility to conduct 
reasonable due diligence in response to information that could lead to 
knowledge of their employees' illegal status--flows from the INA as 
interpreted in long-standing case law and federal regulations; it is 
not an invention of this rulemaking.
    One commenter argued that the rule would undercut the good faith 
compliance defense available to employers that complete the Form I-9 
employment eligibility verification process, and is therefore contrary 
to the INA. DHS disagrees. The affirmative defense the INA provides to 
employers that comply with the Form I-9 process in good faith remains 
available as protection against a charge of knowingly hiring 
unauthorized employees in violation of INA section 274A(a)(1)(A), but 
it has no force, by the statute's plain language, as a defense against 
an allegation of knowingly continuing to employ an unauthorized alien 
in violation of INA section 274A(a)(2). This rulemaking explains the 
evidentiary weight DHS may place on SSA no-match letters and DHS 
suspect document notices in identifying, investigating, and prosecuting 
employers suspected of continuing to employ unauthorized aliens in 
violation of section 274A(a)(2). The commenter's concern over the 
continuing viability of the good faith I-9 compliance defense is 
misplaced.
    One comment also suggested that DHS could not promulgate this rule 
because it violates the congressional notification and review 
requirements of INA section 274A(d)(3), 8 U.S.C. 1324a(d)(3). That 
section provides that the President must notify Congress before he may 
make any ``changes in (including additions to) the requirements of 
subsection (b)'' of INA section 274A, which established the I-9 
employment verification system. INA section 274A(d)(1)(B), 8 U.S.C. 
1324a(d)(1)(B) (emphasis added).
    The August 2007 Final Rule instructs employers that elect to follow 
the safe harbor procedures set out in the rule to confirm identity and 
work eligibility by filling out a new Form I-9 for any employees unable 
to resolve their mismatch through the 90-day process. This does not, 
however, constitute a change to ``the requirements of subsection (b)'' 
of INA section 274A. The procedures of the safe harbor rule are not a 
``requirement''; employers are encouraged to follow these procedures to 
limit their legal risk, but they are not compelled to do so. Moreover, 
while the I-9 reverification option in the safe harbor procedures is 
based on the I-9 process used at the time of hire, it is neither part 
of, nor an addendum to, the I-9 process that all employers must follow 
at the time of hire. Rather, the safe harbor rule helps employers to 
avoid violating the prohibition against knowingly continuing to employ 
unauthorized workers. INA section 274A(a)(2), 8 U.S.C. 1324a(a)(2).

B. ``Reasoned Analysis'' Supporting Perceived Change in Policy 
Reflected in the Final Rule

    Many commenters argued that DHS had not provided an adequate 
``reasoned analysis'' the district court suggested was necessary to 
support the perceived change in agency position. Several comments 
suggested that DHS must establish with certainty, or with some degree 
of confidence beyond a rational basis, that a Social Security no-match 
letter establishes that the indicated employee was an alien not 
authorized to work in the United States. Some argued that the rule 
would be arbitrary and capricious unless DHS could refute the claim 
``that the SSA database is not a certain indicator of one's right to 
work'' in the United States. ICEB 2006-0004-0732.1 at 3.
    The comments suggesting that DHS must base the rule on evidence 
that an SSA no-match is near-conclusive proof of a listed person's 
illegal status misunderstand the nature of this rulemaking action. DHS 
has consistently stated that an SSA no-match letter,

[[Page 63852]]

standing alone, does not conclusively establish that any employee 
identified in the letter is an unauthorized alien. Nor does an 
employer's receipt of, and response to, an SSA no-match letter always 
prove that the employer had constructive knowledge that any listed 
employees were unauthorized to work in the United States. Rather, this 
rulemaking announces DHS's view that a no-match letter, and an 
employer's response to it, may be used as evidence, evaluated in light 
of ``the totality of the circumstances,'' of an employer's constructive 
knowledge. This rulemaking also announces DHS's commitment that an 
employer that follows the safe harbor procedures set forth in the rule 
will always be found to have responded reasonably to the no-match 
letter.
    As the district court noted in the pending litigation, DHS does not 
claim, and need not prove, that a no-match letter will always be 
sufficient evidence to demonstrate constructive knowledge:

    The flaw in plaintiffs' argument is their assumption that 
receipt of a no-match letter triggers a finding of constructive 
knowledge in every instance. In fact, the regulation is written such 
that whether an employer has constructive knowledge depends `on the 
totality of relevant circumstances.' Depending on the circumstances, 
a court may agree with plaintiffs that receipt of a no-match letter 
has not put an employer on notice that his employee is likely to be 
unauthorized. But this Court cannot agree with plaintiffs' 
fundamental premise that a no-match letter can never trigger 
constructive knowledge, regardless of the circumstances.

552 F.Supp.2d at 1008.
    This safe harbor rule is a rational response to DHS's regulatory 
finding that a no-match letter can be evidence of such knowledge--a 
finding amply supported in record of this rulemaking and fairly 
conceded even by the rule's opponents.
    Some commenters argued that the SSA database was fraught with 
errors, and that even if SSA no-match letters were an indicator of 
possible illegal employment, they are too unreliable to support the 
evidentiary weight DHS seeks to place on them. DHS disagrees with the 
commenters' suggestion that SSA's records are so substantially 
incorrect that DHS can not rely on no-match letters generated from 
those records. When attempting to post wages to its Master Earnings 
File, SSA compares the employee names and SSNs provided by employers on 
Forms W-2 to the names and SSNs recorded in the Agency's NUMIDENT file. 
``No-matches'' may result from the number holder's failure to provide 
SSA updated information, such as a legal name change resulting from 
marriage. Other ``errors'' result from typographical mistakes annotated 
on the W-2s by employers. These types of errors are being reduced by a 
variety of programmatic efforts, and, with direct electronic reporting 
of over 80% of wage data, the potential for errors resulting from the 
government's handling of the information is reduced.\6\ As discussed in 
more detail below, the effective accuracy of the SSA data from which 
no-match letters are derived is estimated to be 99.5 percent. Moreover, 
as noted above, DHS views SSA's policy of limiting issuance of no-match 
letters to employers whose wage reports contain a certain level of 
mismatches as a useful means for separating employers whose reports 
contain a certain non-trivial number of errors that might reasonably 
indicate possible illegal employment or systematic problems in the 
employers' recordkeeping from employers with trivial errors in their 
wage reports.
---------------------------------------------------------------------------

    \ 6\ Social Security Administration, Performance and 
Accountability Report, supra n.2, at 190.
---------------------------------------------------------------------------

    Other commenters noted that the supplemental proposed rule did not 
explicitly limit the applicability of the safe harbor procedures to the 
SSA's ``Employer Correction Request'' or ``EDCOR'' letter. DHS is also 
aware that the rule text does not explicitly identify the ``EDCOR'' 
letter from SSA--addressed to employers and containing more than ten 
no-match social security numbers--as the notice from SSA to which the 
safe harbor procedures apply. The rule text is written in general terms 
to allow the safe harbor procedures to apply to notices that SSA may 
issue in the future. DHS has made it clear, however, that the SSA 
notice to which the safe harbor rule applies is the ``EDCOR'' letter 
listing multiple no-matches, rather than a ``Request for Employee 
Information'' or ``DECOR'' letter identifying a single employee with an 
SSN/name no-match. First, the text of the rule clearly states that the 
procedures may apply where an employer receives ``written notice to the 
employer from the Social Security Administration reporting earnings on 
a Form W-2 that employees' names and corresponding social security 
account numbers fail to match Social Security Administration records.'' 
The reference to plural no-matches and to W-2 reports distinguishes the 
``EDCOR'' letters addressed to employers that list multiple no-matches 
from any notice unrelated to a W-2 report or from ``DECOR'' letters 
addressed to a single employee or to an employer regarding a single no-
match. Second, DHS explained above and in the preamble to the 
supplemental proposed rule that the letter listing multiple employees 
with SSN and name no-matches is the notice to which the rule's safe 
harbor applies.

C. Anti-Discrimination Provisions of the INA

    A significant number of commenters repeated concerns, previously 
summarized and addressed in the August 2007 Final Rule, that employers 
would engage in illegal discrimination in reaction to this rulemaking. 
Such comments regarding the consistency of this regulation with 
existing anti-discrimination law and regarding employers' continued 
anti-discrimination obligations were addressed in detail in the August 
2007 Final Rule, 72 FR at 45620-21, and DHS declines to revisit those 
issues in this supplementary rulemaking.
    Other commenters objected to DHS's rescission of the statements in 
the preamble to the August 2007 Final Rule explaining that employers 
will not be engaged in unlawful discrimination under the anti-
discrimination provisions of the INA if they follow the safe harbor 
procedures uniformly for all employees, without regard to perceived 
national origin or citizenship. In their view, the removal of those 
assurances greatly reduced the value of the safe harbor being offered 
in this rule, and left employers exposed to potential litigation 
accusing them of illegal discrimination as a result of their efforts to 
follow the safe harbor procedures set forth in this rulemaking.
    DHS agrees that guidance on anti-discrimination compliance is 
important to the successful implementation of the safe harbor 
procedures. As DHS noted in the August 2007 Final Rule, the Department 
of Justice is responsible for enforcing the anti-discrimination 
provisions of the INA. DHS believes that the commenters' concerns are 
addressed in the anti-discrimination guidance from the DOJ Office of 
Special Counsel published in today's edition of the Federal Register.

D. Regulatory Flexibility Analysis

    Commenters were divided on whether an initial regulatory 
flexibility analysis, and by implication a final regulatory flexibility 
analysis, was required. In light of the district court's conclusion 
that a regulatory flexibility analysis would likely be required, DHS 
has conducted such an analysis, supported by the small entity impact 
analysis (SEIA) accompanying this rulemaking. Both are summarized in 
greater detail in Section V.B.
    The bulk of the comments regarding the RFA argued that the analysis 
in the

[[Page 63853]]

IRFA and in the SEIA was flawed. Commenters argued that the scope of 
the analysis conducted by DHS was too narrow, that the analysis 
incorrectly omitted certain costs from the equation, or that the 
analysis was based on inaccurate assumptions about the behavior of 
employers and employees that might be impacted by the rule. These 
comments regarding the SEIA and IRFA are addressed below.
1. Scope of Regulatory Flexibility Act Review
    A number of commenters conflated the requirements of the Regulatory 
Flexibility Act, 5 U.S.C. 601 et seq. (RFA), with the requirements of 
other statutory and administrative reviews. For example, commenters 
suggested that the RFA analysis should include reviews called for by 
the Congressional Review Act, 5 U.S.C. 801, the federal data quality 
standards guidelines, Executive Order 12866, and other statutes and 
executive orders. No law requires that DHS combine all of the elements 
of these separate reviews, and DHS declines to do so.
    One commenter conceded that these additional reviews are not 
required by the RFA:

    The DHS Safe-Harbor Rule IRFA presents estimates of costs to 
employers associated with following the safe-harbor procedures set 
forth in the proposed rule. It excludes certain costs that are not 
cognizable under the Regulatory Flexibility Act but are crucial for 
estimating the full social impact of the rule--most notably, costs 
borne by employees. These costs are not exempt from being counted 
under Executive Order 12,866 or the Congressional Review Act.

ICEB-2006-0004-0637.1 at 4. Notwithstanding this admission, the 
commenter repeatedly drew from standards outside the RFA to criticize 
the content of the IRFA. The law is clear that no other analysis is 
bootstrapped into the RFA. It is the case that the RFA permits agencies 
to prepare IRFAs in conjunction with, or as a part of, other analyses 
required by law, so long as the RFA's requirements are satisfied. 5 
U.S.C. 605(a) (``Any Federal agency may perform the analyses required 
by [the RFA] in conjunction with or as a part of any other agenda or 
analysis required by any other law if such other analysis satisfies the 
provisions of such sections.'') The fact that the RFA's requirements 
may be managed through other analyses, however, does not expand the 
requirements of the RFA or compel agencies to conduct such other 
analyses as part of an IRFA or a FRFA. These analyses are not required 
by the RFA, nor are they, for the reasons set forth below, mandated for 
this rule under any other provision of law.
a. Executive Order 12866 and OMB Circular A-4
    Executive Order No. 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), directs agencies 
subordinate to the President to assess all costs and benefits of 
available regulatory alternatives and, when regulation is necessary, to 
select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health and safety, and other 
advantages, distributive impacts, and equity). In implementing 
Executive Order 12866, the Office of Management and Budget has provided 
further internal guidance to agencies through OMB Circular A-4 (Sept. 
17, 2003), found at http://www.whitehouse.gov/omb/circulars/a004/a-
4.pdf. OMB Circular A-4 states that it ``is designed to assist analysts 
in the regulatory agencies by defining good regulatory analysis * * * 
and standardizing the way benefits and costs of Federal regulatory 
actions are measured and reported.'' OMB Circular A-4, at 3.
    Executive Order 12866 is an exercise of the President's authority 
to manage the Executive Branch of the United States under Article II of 
the Constitution. The implementation of the Executive Orders and OMB 
Circulars, and other internal guidance, is a matter of Executive Branch 
consideration and discretion. The Executive Branch may utilize its 
standards under Executive Order 12866 in analyzing regulations under 
the RFA because the standards of the RFA and Executive Order 12866 do 
not conflict, but the RFA does not require use of those standards 
internal to the Executive Branch. The comments invoking Executive Order 
12866 and OMB Circular A-4 standards to identify alleged deficiencies 
in the IRFA are therefore misplaced.
    The fact that preparation of a regulatory impact analysis (RIA) 
under Executive Order 12866 is a matter of Executive Branch discretion 
is underscored by the terms of Executive Order 12866, section 11:

    Nothing in this Executive order shall affect any otherwise 
available judicial review of agency action. This Executive order is 
intended only to improve the internal management of the Federal 
Government and does not create any right or benefit, substantive or 
procedural, enforceable at law or equity by a party against the 
United States, its agencies or instrumentalities, its officers or 
employees, or any other person.

(emphasis added). The internal, managerial nature of this and other 
similarly-worded Executive Orders has been recognized by the courts, 
and actions taken by an agency to comply with the Executive Order are 
not subject to judicial review. Cal-Almond, Inc. v. USDA, 14 F.3d 429, 
445 (9th Cir. 1993) (citing Michigan v. Thomas, 805 F.2d 176, 187 (6th 
Cir. 1986)).
b. Congressional Review Act
    Some comments argued that this rule is a ``major rule'' for 
purposes of the Congressional Review Act, 5 U.S.C. 801 (CRA). The CRA 
delays implementation, and provides a mechanism for congressional 
disapproval, of regulations designated as ``major rules'' by the 
Administrator of the Office of Management and Budget. Such a 
designation is made where OMB finds the rule has resulted in or is 
likely to result in (a) An annual effect on the economy of $100,000,000 
or more; (b) a major increase in costs or prices for consumers, 
individual industries, Federal, State, or local government agencies, or 
geographic regions; or (c) significant adverse effects on competition, 
employment, investment, productivity, innovation, or on the ability of 
United States-based enterprises to compete with foreign-based 
enterprises in domestic and export markets. 5 U.S.C. 804(2). 
Determinations by OMB under the CRA are not subject to judicial review. 
5 U.S.C. 805. OMB has not determined that this rule is a major rule 
and, therefore, the CRA does not apply.
2. Direct and Indirect Impact
    A number of comments on the supplemental proposed rule objected 
that the cost estimates presented in the IRFA did not include estimates 
for costs other than for direct compliance with the rule. Examples of 
costs commenters urged DHS to take into account included potential lost 
wages for individuals who take time away from work to visit an SSA 
office or another government office to resolve the no-match, travel 
expenses for employees attempting to resolve a no-match, and other 
costs incurred by employers, such as legal fees associated with 
lawsuits that could be filed by work-authorized employees terminated in 
response to a no-match letter.
    In addition, many commenters suggested that DHS's RFA analysis 
should include a number of other general indirect costs that allegedly 
could be borne by society in general--higher cost of food resulting 
from the

[[Page 63854]]

disruption of the agricultural labor force where illegal employment is 
common, depressed wages from employers shifting from direct employment 
to greater reliance on temporary employment agencies, social and 
economic cost of unauthorized workers becoming unemployed, general 
impact of the rule on the ``macro economy,'' economic impact of 
employers moving operations to Mexico or other foreign countries in 
search of reduced labor costs and less regulation, and possible growth 
in the underground economy and reduction in tax revenues.
    DHS disagrees. All of these comments overstate the scope of the 
costs that are to be considered under the RFA. The RFA requires 
consideration only of the direct costs of a regulation on a small 
entity that is required to comply with the regulation. Mid-Tex Electric 
Coop. v. FERC, 773 F.2d 327, 340-343 (D.C. Cir. 1985) (holding indirect 
impact of a regulation on small entities that do business with or are 
otherwise dependent on the regulated entities not considered in RFA 
analyses). See also Cement Kiln Recycling Coalition v. EPA, 255 F.3d 
855, 869 (D.C. Cir. 2001) (In passing the RFA, ``Congress did not 
intend to require that every agency consider every indirect effect that 
any regulation might have on small businesses in any stratum of the 
national economy * * * [T]o require an agency to assess the impact on 
all of the nation's small businesses possibly affected by a rule would 
be to convert every rulemaking process into a massive exercise in 
economic modeling, an approach we have already rejected.'').
    No judicial precedent supports the commenters' view that indirect 
economic or social impacts must be considered under the RFA. These 
costs can be considered under other analyses and reviews that DHS and 
other agencies may conduct in reaching decisions on regulatory matters, 
but they fall outside the RFA. See, e.g., Regulatory Flexibility 
Improvements Act, Hearing before the Subcommittee on Commercial and 
Administrative Law, Committee on the Judiciary, on H.R. 682, 109th 
Cong., 2nd Sess. (2006), at 13 (Statement of Thomas Sullivan, Chief 
Counsel for Advocacy, Small Business Administration, criticizing the 
RFA by noting that ``the RFA * * * does not require agencies to analyze 
indirect impacts.'').
3. Baseline Costs, Unauthorized Alien Workers, and the Immigration 
Reform and Control Act of 1986
    A number of commenters asserted that DHS should include in the IRFA 
and FRFA the cost of firing unauthorized alien workers and replacing 
those unauthorized alien workers who voluntarily resign or are 
terminated by employers when the workers are unable to confirm their 
identity and work authorization in accordance with the safe harbor 
procedures in this rule. In particular commenters criticized the 
exclusion from the IRFA of the costs of complying with section 
274A(a)(2) of the INA. That section provides:

    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.

The commenters suggested that the cost of terminating and replacing 
workers who an employer learns are not authorized to work in the United 
States should be accounted for as a cost of the rule, since that 
knowledge (or constructive knowledge) results from the no-match 
letters, and the termination and replacement costs must be borne 
regardless of whether they are counted as a cost of the INA or of the 
rule. These comments fundamentally misunderstand the requirements of 
the RFA, as well as the INA's longstanding prohibition against 
employment of unauthorized aliens.
    The RFA explicitly requires DHS to ``describe the impact of the 
proposed rule on small entities'' in an initial regulatory flexibility 
analysis. 5 U.S.C. 603(a) (emphasis added). The Act also states that a 
final regulatory flexibility analysis ``shall contain * * * a 
description of the projected reporting, recordkeeping and other 
compliance requirements of the rule.'' 5 U.S.C. 604(a)(4) (emphasis 
added). The RFA does not require that DHS analyze the impact of the 
underlying statutory provisions in either the initial or final 
regulatory flexibility analysis. And it would be particularly 
irrational to do so here, since termination and replacement costs are 
already being incurred by employers attempting to comply with the INA 
even before this safe harbor rule goes into effect. The comments 
themselves make this clear: such terminations have been documented 
since at least 2003--three years before this rule was first proposed. 
C. Mehta, N. Theodore & M. Hincapie, supra, at 13-14, Administrative 
Record at 327-8 (approximately 53.6 percent of surveyed employers 
terminated workers with listed no-matches). See also ICEB-2006-0004-
0688.1 at 2 (``To date, the misuse of SSA's no-match letters by 
employers has already resulted in countless, unjust suspensions and/or 
firings of low-wage, immigrant workers''); ICEB-2006-0004-0652.1 at 8 
(comment by NFIB, citing Mehta, Theodore & Hincapie, supra.).
    As DHS explained in the supplemental notice of proposed rulemaking, 
the Immigration and Nationality Act expressly prohibits employers from 
knowingly hiring or knowingly continuing to employ an alien who is not 
authorized to work in the United States. INA section 274A(a)(1), (2), 8 
U.S.C. 1324a(a)(1), (2). Employers that have actual or constructive 
knowledge of their employees' illegal work status are statutorily 
obligated to cease their employment, and any costs that result are 
attributable to the INA, not to this safe harbor rule.
    While the cost of terminating or replacing unauthorized workers 
cannot properly be considered a cost of this rule, some turnover 
involving legal workers that are unable or unwilling to resolve their 
mismatches through the procedures outlined in this rule could be 
counted as a cost of the rule for any employer that elects to follow 
the safe harbor procedures. Such turnover costs for legal workers were 
estimated in the IRFA, and are discussed in more detail below.
    Several comments also suggested that employers may summarily 
discharge workers rather than giving them an opportunity to correct 
records, and argued that the impact on work-authorized employees who 
leave their jobs or are terminated by their employers should be 
included in the RFA analysis as a cost of the rule. As mentioned above, 
the RFA instructs agencies to examine costs and impacts to ``small 
entities''--defined by statute as ``hav[ing] the same meaning as the 
terms `small business,' `small organization' and `small governmental 
jurisdiction' ''--and which does not include individuals. Therefore, 
the commenters misread the RFA. We also note that, if an employer were 
to summarily terminate legal workers, the impact on such workers would 
be caused not by the rule but by their employer's violation of the safe 
harbor procedures. Any legal workers who choose not to correct their 
records would effectively be voluntarily resigning, perhaps calculating 
that the opportunity cost of correcting their records was greater than 
the cost of finding alternate work.
4. Variability of SSA Criteria for Issuing No-Match Letters
    A number of commenters suggested that the criteria used by SSA in 
determining whether to issue a no-match letter was subject to future 
change, and that increased costs could

[[Page 63855]]

be incurred if SSA issues more no-match letters. DHS recognizes that 
the impact on small entities could vary if SSA alters its matching 
processes or changes its criteria for issuing no-match letters. But the 
RFA does not require DHS to speculate about every contingency that 
could have some impact on small entities, such as the potential for 
another agency to exercise its discretion differently. Since DHS is 
unaware of any plans to change SSA's policies for issuing ``EDCOR'' no-
match letters, any attempt in the IRFA or FRFA to analyze hypothetical 
changes in SSA policy would be mere speculation.
    Some commenters also suggested that the IRFA and FRFA must cover 
historical data to account for the existing variability in the number 
of no-match letters issued from year to year, even absent any change to 
SSA's policies on issuing no-match letters. While such variability 
exists, it is largely irrelevant to the calculation under the FRA of 
the ``impact'' that may result to an average ``small entity'' that 
chooses to follow the safe harbor procedures in the rule. Changes in 
the number of no-match letters sent to employers in a given year may 
change the aggregate costs incurred by all employers that choose to 
follow the safe harbor procedures, but DHS has no data (and commenters 
have provided none) that would lead DHS to conclude that such 
variations would alter either the share of all no-match letters in a 
given year that would be received by small entities or the impact felt 
by a specific small entity that receives a no-match letter and decides 
to follow the safe harbor procedures. DHS's reliance on 2007 statistics 
regarding employers whose reports would have generated no-match letters 
for the analysis in the IRFA and SEIA was reasonable.
5. Base Assumptions Made in the IRFA and SEIA
    A number of commenters disagreed with assumptions made in the IRFA 
and SEIA regarding the impact of the rule on small entities. DHS sought 
to catalog all of the assumptions underlying the analysis to make the 
methodology, calculations, and findings of the SEIA transparent, 
reproducible, and accessible for public review and comment. One 
commenter catalogued over thirty assumptions underlying the economic 
analysis provided by DHS, and noted that even this list was a subset of 
the analytical assumptions openly disclosed by DHS. See ICEB-2006-0004-
07321.1 at 23-25. Notwithstanding DHS's transparency about the 
analytical underpinnings of its analysis, commenters who objected to 
the substance of DHS's assumptions provided little information to call 
into question the reasonableness of those assumptions or even to assist 
DHS to evaluate the strength of the commenters' objections.
    The analysis required by the Regulatory Flexibility Act need not 
produce statistical certainty; the law requires that the DHS 
``demonstrate a `reasonable, good-faith effort' to fulfill [the RFA's] 
requirements.'' Ranchers Cattlemen Action Legal Fund, 415 F.3d at 1101. 
See also Associated Fisheries of Maine v. Daley, 127 F.3d 104, 114-15 
(1st Cir. 1997). The IRFA and SEIA produced by DHS in this rulemaking 
meet that standard. The assumptions underlying the SEIA are reasonable, 
and DHS has utilized the best data available to produce the IRFA and 
the SEIA. Where data was unavailable, DHS consistently made 
analytically conservative assumptions regarding the cost to employers 
that choose to follow the safe harbor procedures in this rule. With one 
exception, the public comments did not provide better data or identify 
additional sources for empirical data within the scope of the RFA. In 
analyzing the comments received and in preparing the FRFA, DHS 
attempted once again to ensure that the best available data is used. 
Individual comments regarding specific assumptions in DHS's analysis 
are addressed in detail below.
a. Assumptions Regarding Impact on Legal Workers
i. Accuracy of SSA Records
    A number of commenters suggested that the SSA data used to generate 
no-match letters (the Earnings Suspense File, or ``ESF'' database) is 
generated from an SSA database (the ``NUMIDENT'' database) that the 
commenters allege contains a large number of errors that will cause 
work-authorized employees to appear as no-matches, and to have to 
correct their discrepancies.\7\ Many of these comments cited a report 
by the SSA Office of the Inspector General regarding errors in SSA's 
NUMIDENT database,\8\ to argue that the data used for the no-match 
letters has an error rate of 4.1 percent. Some commenters suggested 
that DHS not use information derived from that database for immigration 
enforcement purposes until the database achieves a 99.5% accuracy 
level. Referring to the same SSA OIG report, another commenter alleged 
that SSA now maintains 17.8 million mismatched records that could 
result in no-match letters to employers.
---------------------------------------------------------------------------

    \7\ While the Earnings Suspense File is an electronic repository 
for wage items that cannot be matched to an individual worker's 
earnings record, the database that SSA uses to match a wage item to 
a worker is the Numident database.
    \8\ Social Security Administration, Office of the Inspector 
General, Congressional Response Report: Accuracy of the Social 
Security Administration's Numident File (No. A-08-06-26100, Dec. 
2006).
---------------------------------------------------------------------------

    DHS does not agree with the commenters' inference that the overall 
4.1% data discrepancy rate estimated by SSA OIG is relevant to this 
rulemaking, or to SSA no-match letters generally, in the way suggested 
by the commenters. The SSA OIG's report reviewed the accuracy of four 
different data fields in SSA's system--``Name,'' ``Date of Birth,'' 
``Death Indication,'' and ``Citizenship Status''--and the study's 
projected 4.1% data discrepancy rate was based on the cumulative data 
discrepancies in all four data fields sampled. But SSA no-match letters 
are generated only when an employee's name and SSN submitted by an 
employer cannot be matched to SSA records; discrepancies in the ``Date 
of Birth,'' ``Death Indication,'' and ``Citizenship Status'' fields do 
not cause an employee to be listed on a no-match letter because the 
Forms W-2 from which no-match letters are generated do not contain this 
information. The SSA OIG report showed that only 0.24% of native-born 
U.S. citizens had a name and number mismatch, while naturalized 
citizens and non-citizens had a 0.49% and 1.7% mismatch rate, 
respectively. This yields a projected overall name and SSN mismatch 
rate of 0.4% (weighted average) for all records in the NUMIDENT system. 
Based on the SSA OIG report cited by commenters, it appears that the 
database that generates no-match letters already exceeds the 99.5% 
accuracy level proposed in the comments.
ii. Turnover Rates
    The SEIA assumed that employers that follow the safe harbor 
procedures may face increased turnover of employees authorized to work 
in the United States. To the extent that a work-authorized employee 
resigns or is terminated for failing to resolve the no-match, the 
employer could be reasonably expected to incur the cost of replacing 
that employee. For purposes of the SEIA, DHS estimated that 2% of 
authorized employees identified in no-match letters might resign or be 
terminated due to failure to resolve a no-match, and therefore the SEIA 
included those turnover costs as a cost of an employer's adoption of 
the safe harbor procedures in the rule.
    It is important to note that this figure is not, as some commenters 
have incorrectly claimed, an estimate of the

[[Page 63856]]

number of legal workers that ``will be fired'' as a result of this 
rule. Nothing in the August 2007 Final Rule or in this supplemental 
rulemaking requires an employer to terminate an employee at the end of 
the 93-day no-match resolution and reverification schedule if a no-
match remains unresolved. Should an employer learn in the course of 
that process that an employee lacks work authorization, the INA 
requires--as it has for over 20 years--that the employment relationship 
be terminated. While the regulatory safe harbor is only available if 
the rule's procedures are completed with 93 days, an employer may still 
be seen to have acted reasonably if an employee has taken longer than 
93 days to resolve a no-match, depending upon the particular 
circumstances.
    Moreover, the SEIA's estimate includes turnover caused by voluntary 
departures of employees who decide to seek employment elsewhere rather 
than resolve the no-match with SSA. Neither the government nor 
employers can compel employees to correct no-matches, and DHS does not 
have sufficient data to conclude that 100% of all legal employees will 
correct their no-matches within the 93-day schedule set out in the 
rule. DHS recognizes that it will cost employers something to replace 
workers if (1) some of their employees decided to leave employment 
after day 90, and/or (2) some employees (a) attempted but failed to 
complete the process of resolving their no-matches in 90 days; (b) 
those employees would not or could not produce alternative documents to 
complete a new Employee Verification Form I-9; and (c) an employer took 
a strict approach to terminate every person with unresolved no-matches 
after 93 days. DHS has, therefore, included these turnover costs in the 
SEIA.
    Several commenters suggested that this projected turnover rate of 
2% for legal workers is too low. DHS disagrees. As section III.J of the 
SEIA explains, there are significant economic incentives for both the 
employer and employee to resolve a no-match. A work-authorized employee 
has an incentive to both keep his or her current employment and to 
ensure that his or her name and SSN properly match SSA's records so 
that he or she will receive full credit for contributions made into 
Social Security and maximize the amount of Social Security benefits he 
or she will receive in retirement or in case of disability. At the same 
time, an employer has an incentive to ensure that employees resolve 
their no-match issues to avoid turnover in the workforce, and the SEIA 
assumed that employers would pay for human resources staff to assist 
employees to resolve a no-match, given the cost to the employer of 
replacing those employees. In light of these incentives, DHS's estimate 
of 2% was reasonable.
    Although the commenters did not provide a basis for changing this 
assumption, DHS has added an alternative scenario in an appendix to the 
SEIA to examine how these turnover costs could change if the legal 
worker replacement rate were doubled from 2% to 4%. That additional 
analysis did not result in a material change in the SEIA's estimate of 
the rule's impact on small entities or in the reasonable regulatory 
alternatives that DHS could consider in this rulemaking.
iii. No-Match Resolution Process
    Some commenters also suggested that DHS should reconsider the 
SEIA's assumption that 66% of authorized employees will be able to 
resolve no-matches without visiting an SSA office. DHS continues to 
believe that this assumption is reasonable for purposes of the analysis 
required by the RFA.
    The SEIA made specific assumptions regarding how the employer and 
employee would resolve a no-match in order to estimate the costs on a 
per employer basis. DHS believes the cost that an employer would bear 
to correct a no-match typically depends on the reason for the no-match. 
For example, if an employer were able to determine that the no-match 
resulted from an internal clerical error by the employer, the employer 
would likely be able to correct this discrepancy quickly and 
inexpensively. If the employer determined that there was no clerical 
error, the SEIA assumed that the employer would meet with the employee 
to verify that the employer's records show the correct name and social 
security number. If the employee then determined that the employer had 
submitted the correct name and social security number, the employee 
would need to visit SSA to resolve the no-match. If the employee needs 
to visit SSA, the employer may incur a lost productivity cost for the 
time the employee was away from work.
    The SEIA stated that no specific data was available to show what 
percentage of no-match issues were clerical errors, incorrect 
information submitted by the employee to the employer, or an issue that 
required a visit to SSA. Accordingly, the SEIA assumed one-third of the 
authorized employee no-matches would be clerical errors, one-third of 
the authorized employee no-matches would be resolved when the employer 
identified an error in an employer's records, and one-third of 
authorized employees would visit SSA to attempt to correct the no-
match. None of the comments provided data that could improve on the 
SEIA's estimates.\9\
---------------------------------------------------------------------------

    \9\ One commenter suggested that a DHS-funded study of the Basic 
Pilot or E-Verify program shows that a larger share of individuals 
listed in no-match letters will need to visit SSA, claiming that 
``only in 30% of the time were tentative non-confirmations caused by 
either solely an error with the date of birth or the name.'' ICEB-
2006-0004-07321.1 at 27 (citing to Westat, Findings of the Web Basic 
Pilot Evaluation, supra at 51). After re-reviewing the Westat 
report, DHS disagrees. The passage of the Westat report cited by the 
commenter examines the approximately 5% of individuals who receive a 
final non-confirmation from the E-Verify system and breaks that 
population down by the type of mismatch that caused the system to 
flag each person with an initial tentative non-confirmation. That 
analysis is graphically represented in Exhibit III-6 of the Westat 
report, which shows that 17% of those found unauthorized to work who 
claimed U.S. citizenship were flagged as ``DOB not matched'' and 13% 
of those found unauthorized to work who claimed U.S. citizenship 
were flagged as ``Name not matched.'' It appears that the commenter 
added 17% to 13% to arrive at the claim that ``30%'' of tentative 
non-confirmations are caused solely by errors in date of birth or 
name. The comment misses the mark for a number of reasons. First, 
the passage of the Westat report cited by the commenter looks at 
individuals who received a final non-confirmation stating that they 
were not authorized to work, and sorts individuals not by actual 
citizenship status but by citizenship status claimed by the 
individual. The population of unauthorized workers includes large 
numbers of individuals who falsely claim U.S. citizenship. By 
definition, the population relevant to the SEIA's calculation of no-
match resolutions is entirely different, since it is limited to 
work-authorized persons. The comment also assumes, without 
explanation, that the workers with either a mismatched date of birth 
or a mismatched name correlate to the population that will be able 
to resolve the mismatch without visiting SSA. The passage of the 
Westat report cited by the commenter does not shed any light on the 
question of how many employees listed on a no-match letter will need 
to visit a Social Security office to resolve their mismatches. E-
Verify and SSA's no-match letter program are distinct programs that 
rely on different input data sources and that examine different 
things. And the data summarized in Exhibit III-6 of the Westat 
report is simply not related to the subset of authorized employees 
that will choose to visit SSA.
---------------------------------------------------------------------------

    Even though DHS does not have hard data on how many mismatches may 
be resolved at each step of the safe harbor procedures, we can 
reasonably expect that a significant number of no-matches will be 
corrected internally by the employer without requiring the employee to 
visit SSA. For example, several comments suggested that work-authorized 
employees of Latin American and Asian descent appear on no-match 
letters because of compound naming conventions or inconsistent 
transliteration that sometimes results in inadvertent errors or 
discrepancies in employer records. Employers can easily resolve such 
inadvertent errors. In addition, electronic filing of W-2

[[Page 63857]]

reports limits SSA staff intervention in wage report data processing 
and increases the likelihood that mismatches originated with--and can 
be most readily resolved by--the employer.
    Commenters did not provide information that would lead DHS to 
conclude its estimate was not reasonable. Nevertheless, as with the 
turnover rates discussed above, DHS has provided an alternative 
scenario in an appendix to the SEIA to model how the no-match 
resolution costs would change if the percentage of authorized employees 
that must visit a SSA office increases from 33% to 50%. We conclude 
that this alternative assumption does not materially change the SEIA's 
estimate of the impact on small entities or point to additional 
regulatory alternatives that DHS could consider in this rulemaking.
b. Percentage of No-Matches Relating to Unauthorized Aliens
    One commenter suggested that the SEIA was inadequate because it 
assumed that the general employee turnover rate would be the same for 
authorized and unauthorized employees. The commenter believed that this 
is significant because the SEIA concludes that 57% of employees listed 
in no-match letters already have left their jobs by the time the 
employer receives the no-match letter. The commenter suggested that the 
turnover rate is likely to be much higher for unauthorized employees, 
meaning that authorized employees are more likely to be still employed 
when a no-match letter arrives and, thus, authorized employees are more 
likely to be impacted by the no-match letter and the safe harbor rule.
    DHS is not aware of any Department of Labor, Bureau of Labor 
Statistics (BLS), or other data that presents separate turnover rates 
for authorized and unauthorized employees. Consequently, DHS is using 
the best data available for turnover rates. BLS provides turnover data 
for the non-farm sectors and is based on all employees on the payroll, 
without distinguishing between those authorized and unauthorized to 
work in the United States. Therefore, DHS believes the BLS industry 
turnover rates presented in the SEIA should be considered to be 
weighted averages of an authorized employee turnover rate and the 
unauthorized employee turnover rate.\10\ DHS has clarified the SEIA to 
address this point. DHS has not found, and the commenters have not 
provided, any empirical evidence that supports a specific turnover rate 
or range other than the weighted average in the BLS composite rate.
---------------------------------------------------------------------------

    \10\ See SEIA, Appendix C: Estimation of Weighted Average 
Turnover Rates.
---------------------------------------------------------------------------

    Another commenter suggested that the errors in the NUMIDENT data 
relating to United States citizens would be less likely to appear in 
no-match letters, and that few U.S. citizens would be affected by no-
match letters or face the possibility of termination. Another commenter 
noted that the SEIA assumed it is possible that only 10% of employees 
appearing on no-match letters are not work-authorized, and suggested 
that any particular no-match letter identifying 11 employees would 
likely list only lawful employees.
    These comments highlight that DHS estimated costs based over a 
broad range: assuming that between 10% to 80% of employees on no-match 
letters were unauthorized. DHS cannot determine with certainty the rate 
at which authorized and unauthorized employees appear in no-match 
letters. Even if DHS could, the percent of unauthorized workers on any 
given no-match letter would likely vary by employer and by industry. 
Consequently, using a broad range, such as the one in the SEIA, remains 
the best way to present the potential economic impact of the rule on 
small entities.
c. Specific Wage and Occupational Assumptions
i. Replacement Costs
    One commenter noted that all employment decisions in small 
businesses are made by the principals, who must take time to search 
for, interview, hire, and train new employees. According to this 
commenter, those same principals must process the employment paperwork 
and resolve any no-matches, resulting in distraction from other 
managerial duties. The comment suggests that the SEIA's replacement 
costs estimate does not account for the possible effect on the 
principals' ability to manage, and is therefore too low.
    DHS disagrees. The SEIA estimated that replacing an authorized 
employee would cost approximately $5,000. In arriving at this estimate, 
we reviewed studies that quantified turnover costs for businesses large 
and small, and we found that $5,000 was a reasonable estimate of the 
cost incurred by the employer to replace each legal employee. Several 
of the economic studies on which this estimate relies are discussed in 
section III.J. of the SEIA. DHS believes this estimate includes 
reasonable estimations of the costs of hiring, training new employees, 
and processing paperwork.
ii. Occupational Categories
    Another commenter suggested that mismatch resolution requires time 
and effort from more than the five occupational categories stated in 
the analysis, and that the SEIA underestimated the response level of 
companies that receive no-match letters. The commenter suggested that 
the more serious consequences articulated by the no-match rule would 
likely cause employers to involve additional occupations in the 
process, including the Chief Operating Officer, Chief Financial 
Officer, Chief Executive Officer, as well as Company Compliance 
Officers, senior human resources managers, paralegals, secretaries, and 
other clerical employees.
    The SEIA does not attempt to capture every occupational title that 
possibly could be involved with a specific Social Security no-match 
letter or DHS notice of suspect document or the implementation of steps 
to adopt a safe harbor procedure. Rather, the intent of the SEIA is to 
capture levels of effort for different activities and wage levels. Each 
listed occupation is representative of multiple occupations at the 
equivalent wage. For example, the activities listed for the human 
resources assistant may actually be carried out by a payroll assistant.
    Nevertheless, the comments correctly noted that the SEIA assumed 
that the most senior person that would participate in responding to no-
match letters would be a senior human resources manager, and that more 
senior management with broad company-wide oversight responsibilities 
would not be involved. DHS agrees that employers that appreciate the 
seriousness of no-match letters may choose to include very senior 
managers in planning for the appropriate response, and so the final 
SEIA adds additional hours for a senior manager with broad company-wide 
oversight responsibilities.
    One commenter also suggested that union representatives and union 
attorneys might be involved because provisions in many collective 
bargaining agreements prevent the termination of employees without 
following prescribed steps. The RFA requires DHS to consider the direct 
costs of the supplemental final rule. There are no requirements within 
the rule for the employer to follow any additional steps that may be 
contained within a collective bargaining agreement. Consequently, to 
the extent any additional costs are incurred due to the existence of 
collective bargaining

[[Page 63858]]

agreements, such costs are indirect and outside of the scope of the 
FRFA.
    One comment also pointed out that the BLS wage data was based upon 
surveys almost five years old--surveys conducted in November 2003, 
2004, 2005 and May 2004, 2005 and 2006. Additionally, the commenter 
pointed out that the May 2006 Occupational Employment Statistics (OES) 
Estimates Technical Notes indicate that the data was collected as a 
result of mailing forms to 200,000 establishments, and questioned 
whether the BIA survey contained enough samples of the five occupations 
whose wages were included in the SEIA's cost calculations to provide a 
reliable estimate of the prevailing wage for each of those five 
occupations.
    DHS is not persuaded by these challenges to the reliability and 
relevance of the BLS data. As specified in the OES Technical Notes, the 
OES survey consists of six panels that are surveyed over a three-year 
period. Each panel includes 200,000 establishments, for a total of 1.2 
million establishments surveyed. In addition, the wage data obtained 
from the five earliest panels are all adjusted for inflation to the 
current period, so that the average wage computed from the 1.2 million 
establishments represents a wage for the latest period that was 
surveyed.\11\ DHS continues to believe that the BLS data is the most 
reasonable data to use in the SEIA; the commenter did not suggest an 
alternative source of data for consideration.
---------------------------------------------------------------------------

    \11\ See Technical Notes for May 2006 OES Estimates, 
``Estimation methodology'' at http://www.bls.gov/oes/2006/may/oes_
tec.htm.
---------------------------------------------------------------------------

d. Sources of Advice Other Than Legal Counsel
    Some commenters, including an association of immigration attorneys, 
suggested DHS underestimated the share of employers that would seek 
legal services in implementing the safe harbor rule. DHS disagrees. DHS 
assumed that one-half of employers would seek professional legal advice 
in implementing the safe harbor rule, and that employers that did not 
seek legal counsel would rely on information available from trade 
associations or other advocacy groups. Trade associations, in 
particular, are a common source for small employers seeking guidance on 
best business practices, as an alternative to seeking formal legal 
advice. Even a cursory search of the Internet and review of trade 
publications unearths a number of professional human resource 
associations, publishers, law firms, and others providing advice on 
responding to no-match letters that is generally consistent with the 
steps outlined in the rule. Further, as the district court noted in the 
ongoing litigation involving this rule, business organizations ``such 
as the Chamber of Commerce of the United States of America, already 
have begun to develop costly programs and systems for ensuring 
compliance with the safe harbor framework,'' AFL-CIO v. Chertoff, 552 
F.Supp.2d at 1014, and it is reasonable to assume that a significant 
number of small businesses will follow the advice available from such 
organizations instead of retaining legal counsel.
6. Opportunity and Productivity Costs
    Several commenters suggested that DHS include the time away from 
work for hourly employees, most of whom may not be paid for time spent 
at a Social Security office or another agency's office. Similarly, some 
commenters suggested that travel costs to SSA offices should be 
included in the SEIA. As discussed above, the RFA requires federal 
agencies to consider the effects of regulatory action on small 
businesses and other ``small entities,'' and individual employees are 
not ``small entities'' as defined by the RFA. Costs to employees, such 
as lost wages from time away from work or travel expenses, are not 
properly included in the analysis for the purposes of the RFA.
    A number of commenters suggested that DHS include lost 
productivity--both from the employee being away and from human resource 
personnel dealing with the no-match letter--as part of the SEIA. The 
SEIA did include an estimate of lost productivity due to the time an 
employee will spend meeting with human resource personnel to discuss 
the no-match. The SEIA also included an estimate of the lost 
productivity incurred by the employer when an employee visits SSA to 
resolve the no-match. And the SEIA included human resource labor costs 
as suggested by the commenter. See, e.g., sections III.C Wage Rates, 
III.G Cost of Employee Time, III.K Total Compliance Cost Estimates and 
Appendix I: Calculation of Human Resources Labor Cost.
    Some commenters asserted that the rule will be costly to employees 
and the economy, suggesting that, because of the millions of inaccurate 
records in the SSA database, hundreds of thousands of employees will be 
required to take time off work to visit SSA field offices to correct 
the discrepancies. Commenters asserted that many of these employees 
will be required to make multiple visits, and specifically asserted 
that several lawful employees had contacted the SSA up to five times to 
correct no-matches.
    As previously noted, employees are not small entities under the RFA 
and the RFA does not require agencies to measure indirect impact to the 
economy at large. Even so, some of the commenter's assertions warrant 
specific response. In analyzing potential lost productivity, the SEIA 
estimated the time an employee might be absent from work to travel to 
an SSA office to correct a no-match. The SEIA cited two publicly 
available Westat reports on which this time estimate was based.\12\ 
These reports contain closely analogous data--that is, the time 
required to visit an SSA office to address a ``tentative non-
confirmation'' received from the E-Verify electronic employment 
verification system (formerly known as Basic Pilot).\13\ The reports 
suggested that on average, employees spend approximately five hours to 
visit SSA. For the purpose of the SEIA, DHS increased that estimate to 
a full eight hours of lost work time (a 60% increase over the reports' 
findings) to account for those employees that might need to make more 
than one visit to resolve their no-match.
---------------------------------------------------------------------------

    \12\ SEIA, at 30-31, citing Institute for Survey Research, 
Temple University, and Westat, Findings of the Basic Pilot Program 
Evaluation (June 2002) at 170; Westat, Interim Findings of the Web-
Based Basic Pilot Evaluation (Dec. 2006) at IV-17.
    \13\ A ``tentative non-confirmation'' can occur when an 
employee's name, date of birth, or social security number does not 
match SSA's records or if a death indicator is present in SSA's 
database.
---------------------------------------------------------------------------

    The SEIA recognizes that there may be cases in which more than one 
trip to SSA is necessary, and consequently assumes that employees will 
spend an average of eight hours away from work to resolve the no-match 
with SSA. Because no supporting facts are provided, DHS cannot assess 
the validity of the assertion made by the commenter that some employees 
were required to contact SSA up to five times. Our consultations with 
SSA suggest that such an occurrence is highly unlikely.
    Another commenter suggested that the SEIA estimates the opportunity 
cost to the employer of a no-match employee's time in visiting SSA is 
the equivalent of the average employee wage rate at $27.58. The 
commenter suggested that this estimate is wrong, since few employers 
pay an employee the full value of the labor provided, and the lost 
production of an individual employee may be several times greater than 
the employee's hourly wage. The commenter concluded that the SEIA 
underestimates the cost of lost production.

[[Page 63859]]

    The SEIA did not use average wages to compute opportunity costs. As 
explained in the SEIA, DHS used ``fully-loaded'' wages to estimate lost 
productivity. A fully-loaded wage includes such benefits as retirement 
and savings, paid leave (vacations, holidays, sick leave, and other 
leave), insurance benefits (life, health, and disability), legally 
required benefits such as Social Security and Medicare, and 
supplemental pay (overtime and premium, shift differentials, and 
nonproduction bonuses). DHS used data from the Bureau of Labor 
Statistics, the government's source on such statistics, in order to 
estimate the fully-loaded wage.
    DHS also assumed the employer would incur a lost productivity cost 
of 100% of the time an authorized employee needed to visit SSA to 
resolve the no-match. In practice, DHS believes that some employers 
frequently will incur no lost productivity or opportunity cost. If 
employees take paid leave time to visit SSA, they will have less leave 
time for other personal activities. The employer, however, incurs no 
additional productivity losses, because the employer had already 
counted on that employee taking that paid leave. Lost productivity 
would also be minimal in industries where workers' skills are largely 
interchangeable. For example, if a restaurant employee or retail clerk 
were away from work to resolve a no-match issue, the restaurant or 
store would normally attempt to schedule another employee to take that 
shift. Given the 90 days available under the safe harbor procedures to 
resolve the no-match, the employer has substantial flexibility to 
schedule around an employee's planned absence. Consequently, to the 
extent employers have the capability to plan around known absences and 
other employees are available, the productivity loss estimated in the 
SEIA is higher than what employers may see in practice.
    DHS understands that some businesses cannot, through planning, 
mitigate productivity losses attributed to employee absences to resolve 
mismatches. No data is available that suggests how many businesses have 
the ability to schedule other employees to take the place of an absent 
employee, and therefore mitigate costs. For this reason, DHS estimated 
the highest possible impact, which is a 100% productivity loss.
    In addition, DHS has attempted to estimate the cost of the rule on 
an ``average cost per firm'' basis. 73 FR at 15953. There may be cases 
in which the productivity loss to an employer of an employee's visit to 
SSA is greater than the ``average cost per firm'' estimate in the rule. 
However, given the fact that the SEIA estimated a lost productivity 
cost 100% of the time an authorized employee needed to visit SSA at the 
fully loaded wage rate for a full eight hour day, DHS does not believe 
that the ``average cost per firm'' estimate is unreasonable. In fact, 
DHS believes that, given the conservative assumptions underlying the 
analysis, the estimate of lost productivity due to an employee's trip 
to SSA likely overstates the impact to employers.
    Other commenters took the view that DHS should consider the lost 
productivity or replacement costs resulting not only from the time 
employees spend resolving their mismatch, but also the lost 
productivity cost of employees terminated as a result of the employer 
following the no-match regulations. For instance, one commenter stated 
that when Swift & Co. was subject to a worksite enforcement action by 
ICE, the company lost 1,282 employees overnight, and Swift estimated 
that the lost production for one day was $20 million, or about $1,560 
per employee per day.
    The commenter did not detail how lost production costs of $1,560 
per employee per day were calculated, other than it was Swift's 
estimate. Moreover, the workers lost by Swift were found to be 
unauthorized to work in the United States. These comments appear to be 
citing costs incurred by an employer that discovers--through the no-
match letter or some other process--that large numbers of his workforce 
are unauthorized to work. But those costs are outside of the scope of 
the rulemaking and are attributable to the immigration laws of the 
United States.
7. Human Resources and Employee Tracking
a. Systems Costs
    Some commenters suggested that if an employer does not possess a 
system that allows the employer to access an employee file based on a 
SSN, it could take substantial time to resolve large numbers of no-
matches. The commenters were concerned that because the no-match 
letters only provide a list of SSNs without the corresponding employee 
names, the time and effort required of an employer to match the SSNs on 
the list with employees on the payroll. One commenter suggested that it 
would require a month to match 500+ SSNs to the correct employee names.
    DHS disagrees with these estimates. The SEIA provided what DHS 
believes to be a reasonable estimate for the time and cost needed to 
match the SSNs listed on the no-match letter to current employees. The 
average number of mismatched SSNs per letter is approximately 65,\14\ 
well under the ``500+'' number referenced by the commenter. Moreover, 
the scenario posed by the commenter--in which an employer would need to 
identify over 500 employees with mismatched SSNs--is a logical 
impossibility for many small businesses, who have fewer than 500 total 
employees. The SEIA's estimate, and the resulting analysis in the IRFA 
and FRFA of the potential impact on ``small entities,'' provided a 
reasonable estimate of this cost.
---------------------------------------------------------------------------

    \14\ This average was calculated from the information DHS 
obtained from SSA by dividing the total number of mismatched SSNs 
listed in EDCOR letters by the total number of EDCOR letters.
---------------------------------------------------------------------------

    DHS also reasonably assumed that the majority of social security 
numbers would be stored electronically, allowing for relatively rapid 
screening. As discussed above, employers that file more than 250 W-2s 
in a given year are required to do so electronically--so that only 
smaller employers, with correspondingly shorter lists of mismatched 
SSNs, could conceivably need to conduct this matching process 
manually--and more than 80 percent of the FY 2007 W-2 reports were 
filed electronically. DHS permits storage of Employment Eligibility 
Verification Form I-9 under the same standards as applied by the IRS to 
tax accounting documentation, 8 CFR 274a.2(e)-(i), 71 FR 34510 (June 
15, 2006), and an employer's process for checking the accuracy of their 
internal records will be especially rapid for those that keep both sets 
of records electronically. DHS believes, based on the evidence and 
commercial availability of computer systems to comply with wage and tax 
reporting requirements, that employers that do not store their wage, 
tax and employment information electronically would be relatively small 
and, therefore, would have fewer social security numbers to match with 
names. The system costs estimated in the SEIA are reasonable.
b. Reverification Costs
    Several comments addressed the time and cost of the Employment 
Eligibility Verification Form I-9 re-verification process. For example, 
one commenter suggested that re-completing Forms I-9 for every employee 
on a no-match letter will take a significant amount of time for 
employers and could be a massive undertaking, depending on the number 
of employees on the no-match list that

[[Page 63860]]

are still current and will need to have Form I-9 reverified.
    DHS disagrees and believes the commenters overstate the costs. The 
proposed rule, the August 2007 Final Rule, and the supplemental 
proposed rule provided a series of steps that DHS would find to be a 
reasonable response to the receipt of a no-match letter. As DHS 
explained in the original proposed rule, the steps are sequential and 
are designed to assist employers to confirm the work authorization of 
their employees while encouraging employees to correct their records 
with SSA. DHS's rule is designed to avoid interference with the basic 
purpose of SSA's No-Match Letter (EDCOR) program--which is to solicit 
corrections to SSA's records and reduce the Earnings Suspense File--and 
to provide employers and employees guidance on how DHS believes they 
can best comply with their existing obligations under the INA. Thus, 
the rule specifies that employers and employees should attempt to 
resolve the SSN mismatch with the SSA. Only when that process has not 
been completed within 90 days does the rule anticipate that an employer 
would choose to rely on the reverification process--i.e. completing 
parts of a new Form I-9 as set forth in the rule--to confirm the 
employee's work eligibility and obtain the safe harbor protection 
offered by the rule.
    As noted above, see section 6.a.ii, the SEIA makes the reasonable 
assumption that only one-third of work-authorized employees still 
employed at the company and listed in a no-match letter would need to 
visit SSA to resolve the no-match.
    DHS believes that only a small subset of these authorized employees 
will undergo the reverification process because most legal employees 
(citizens and aliens authorized to work) will resolve the no-match with 
SSA, in large part because it is in employees' personal financial 
interest to do so. Notwithstanding that financial incentive for 
employees to resolve their no-match and receive credit for retirement 
benefits, some employees that are referred to SSA to resolve their no-
match may decide to complete a new Form I-9 instead of visiting the 
SSA. To the extent that employees might decline to visit an SSA office 
and instead choose to complete a new Form I-9, the SEIA overestimates 
the costs that would be incurred by employers. DHS estimates that 
completion of all sections of a new Form I-9 and preserving that form 
pursuant to the INA and regulations requires 12 minutes. 73 FR 18551 
(April 4, 2008). The SEIA estimates an employee would be required to 
expend a full eight-hour day to visit SSA to resolve the no-match.
    Given the assumption in the rule that the re-verification procedure 
will function as the last, fall-back step for employers to confirm an 
employee's work authorization, DHS assumed, for the purposes of the 
SEIA, that all employees who resort to the re-verification procedure 
will first have visited the SSA. DHS, therefore, will not lower the 
estimate of the number of employees expected to visit an SSA office. In 
order to allow for the possibility that a larger than anticipated 
number of legal employees may both visit SSA offices and use the I-9 
reverification procedure, DHS will revise the SEIA to include 
additional re-verification costs for 3 percent of employees that might 
visit SSA and also complete a new Form I-9 reverification. Adding the 
reverification costs for this 3 percent without reducing the number of 
employees expected to visit SSA will likely result in a small 
overestimate of the actual costs, but due to limitations of available 
data, DHS believes that this approach is reasonable.
c. Outsourced Staffing Requirements
    Several commenters suggested that many small businesses do not have 
an in-house human resources staff or payroll administrators and instead 
hire outside providers for this service. Some comments also criticized 
the wage rates used in the analysis because those rates do not take 
into account the difference between in-house wages and outsourced wages 
for the same services. A commenter pointed out, for example, that the 
wage rate of an in-house attorney cannot be equated with the cost 
charged to a client by outside counsel. These outsourced wage rates 
would include different and higher rates to recover overhead charges 
for rent, utilities, taxes, and other costs of doing business that 
might not be incurred by the employer. The commenter further suggested 
the cost of out-sourced wages are estimated to be two to three times 
the price of what an employer pays per hour in in-house wages.
    DHS agrees that outsourced work may be more expensive than work 
conducted in-house as the commenter suggests. DHS also agrees to 
assume, for the purposes of the SEIA, that the cost of hiring services 
provided by an outside vendor or contractor is two to three times more 
expensive than the wages paid by the employer for that service produced 
by an in-house employee. The costs in the SEIA have been revised to 
take into account the higher costs that may be incurred when firms use 
outside service providers.
8. Other Costs
    One commenter noted that while the SEIA included costs associated 
with replacing work-authorized employees who are terminated as a result 
of the rule, it did not include costs associated with payment of 
unemployment benefits to such employees. Unemployment benefit payments 
are a cost incurred by the federal and state governments, which are not 
``small entities'' for purposes of the RFA. Moreover, such benefits are 
not paid by an employer as a result of that employer's adherence to the 
safe harbor procedures in this rule, and this cost is at best an 
indirect cost not covered by the RFA.
9. Rehiring Seasonal Employees
    A number of commenters suggested that the employment of seasonal 
employees was not adequately considered in the IRFA. The two most 
common examples may be seasonal employment of farm employees and 
retailer seasonal employment of additional sales and support personnel 
during holiday seasons.
    Some comments suggested that special systems would be needed to 
track seasonal employees no longer employed by the employer at the time 
the no-match letter is received. The rationale for such a tracking 
system would be to mitigate an employer's risk by ensuring that the 
employer can identify and appropriately examine the work authorization 
documents for returning job applicants who were previously listed on a 
no-match letter. The no-match rule does not address this scenario, and 
seasonal employers that hire returning employees could have had 
sufficient reason under INA section 274A, 8 U.S.C. 1324a, and the pre-
existing regulations to compare past no-match letters against the 
identity information provided by all new and returning hires if 
employers believe such a comparison was needed. This rule provides a 
safe harbor after an employer has hired an employee, receives a no-
match letter relating to that employee, and conducts due diligence to 
resolve the no-match letter. The rule does not address the initial 
hiring decision and employment eligibility verification. As with the 
costs that result from an employer's discovery of unauthorized workers 
on the payroll, the cost of any system that an employer may adopt to 
address knowledge acquired from previous no-match letters is 
attributable to the INA, not to this rule.

[[Page 63861]]

10. Conclusions
    Several commenters noted that the thrust of the SEIA is that the 
proposed regulation will not affect a significant number of small 
entities and those small entities which are impacted will not incur 
significant expenses, and suggested that the IRFA and FRFA should 
contain an express statement to that effect.
    The supplemental proposed rule did express the conclusion that 
``DHS does not believe that the direct costs incurred by employers that 
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.'' 73 FR at 15953. The SEIA, as revised in light of the 
comments received in the course of this rulemaking, continues to 
support the conclusion that the direct costs incurred by those small 
entities that avail themselves of the safe harbor are not expected to 
be significant on an average cost per small entity basis.

E. Further Interpretation of the August 2007 Final Rule

    In this supplemental rulemaking DHS seeks 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. Some commenters suggested that this timeframe 
was inadequate, while others suggested that this guidance be made 
explicit in the text of the rule. DHS understands that too short a 
timeline for informing employees of their need to resolve a no-match 
may be unworkable for certain employers and employees, and so the 
Department declines to set a formal limit in the rule text on the time 
that an employer may take in providing ``prompt'' notice to affected 
employees. 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. Prompt notice to affected 
employees is important to enable them to take the steps necessary to 
resolve the mismatch, and an employer should not unreasonably delay 
such notice.
    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 stating that employers' obligations created in that Act did not 
apply to the hiring, recruitment, or referral for employment for a fee, 
or to the continued employment, of workers hired before IRCA's date of 
enactment. 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, this rule does not apply to any such 
workers that may be listed in an SSA no-match letter. A number of 
commenters argued that this exclusion should be explicitly stated in 
the rule text. But employees hired before November 1986 are statutorily 
excluded from the operation of INA section 274A(a), and so no 
regulatory statement reiterating that effect is necessary.

F. Other Comments Received

    The supplemental proposed rule made clear that DHS was addressing 
the three issues raised by the district court, 73 FR 15944, 45, and DHS 
did not reopen other aspects of the rulemaking. Several commenters 
understood the supplemental proposed rule as inviting comments 
generally, and they provided comments on a range of issues previously 
covered in the August 2007 Final Rule but not related to the three 
issues raised by the district court and addressed in the supplemental 
proposed rule. The August 2007 Final Rule addressed the substantive 
issues raised in these comments, and DHS declines to address those 
issues anew.

IV. Changes Made in Republishing the Final Rule

    The final rule does not make any substantive changes from the 
August 2007 Final Rule or the Supplemental Proposed Rule. DHS has 
corrected a technical cross-reference in the text of the final rule and 
republishes the text of the regulation for the convenience of the 
reader.

V. Statutory and Regulatory Reviews

A. Administrative Procedure Act

    DHS published the initial proposed rule and the supplemental 
proposed rule with requests for public comment in the Federal Register 
as a matter of agency discretion. This rule is not a legislative rule 
governed by the notice and comment provisions of 5 U.S.C. 553. DHS is 
publishing this supplemental final rule subject to the preliminary 
injunction entered by the district court. A delayed effective date is 
not required under the APA. 5 U.S.C. 553(d)(2).

B. Regulatory Flexibility Act

    On the basis of the analysis in this preamble, DHS provides below 
its Final Regulatory Flexibility Analysis, as described under the 
Regulatory Flexibility Act, 5 U.S.C. 604. DHS published an initial 
regulatory flexibility analysis pursuant to 5 U.S.C. 603(b), (c), in 
response to the district court's injunction in the supplemental 
proposed rule. 73 FR at 15952-54. DHS published a small entity impact 
analysis in the docket of this rulemaking, ICEB-2006-0004-0233, and 
summarized that analysis in the supplemental proposed rule. DHS invited 
comments related to this Initial Regulatory Flexibility Analysis and 
the accompanying Small Entity Impact Analysis, including comments on 
the assumptions underlying that analysis.
1. Need for, Objectives of, and Reasons Why the Rule Is Being 
Considered
    As discussed more fully in the supplemental proposed rule, 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 has set forth guidance for employers that seek to fulfill their 
obligation not to hire or employ aliens who are not authorized to work 
in the United States.
    The objective of the proposed rule, the August 2007 Final Rule, the 
supplemental proposed rule, and this final rule is to provide clear 
guidance for employers on how to comply with

[[Page 63862]]

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 that wish to limit their risk of liability under the 
immigration laws.
2. Significant Issues Raised in Public Comments
    Significant issues raised by the public comments relating to the 
initial regulatory flexibility analysis and the small entities impact 
analysis are discussed in section III.D of this preamble.
3. Description of and 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 the 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 what share of the affected small entities would be small 
businesses, small non-profit organizations, or small governmental 
jurisdictions. Absent some reason to believe small non-profits or small 
governmental jurisdictions 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, and the public 
comments did not suggest there would be any 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 respond to a no-match letter 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 to document 
their eligibility for the safe harbor by keeping 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 
contained in the Small Entity Impact Analysis available in the docket 
of this rulemaking. While several commenters have expressed concerns 
about the costs to businesses 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.

[[Page 63863]]



                             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............................................       $4,560       $4,454       $4,244       $4,033       $3,822
10-19..........................................        4,847        4,716        4,455        4,194        3,933
20-49..........................................        6,818        6,597        6,155        5,712        5,270
50-99..........................................        8,890        8,582        7,966        7,350        6,734
100-499........................................       24,785       23,426       20,709       17,992       15,274
500+...........................................       36,624       34,496       30,239       25,983       21,726
----------------------------------------------------------------------------------------------------------------

    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 that 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 that 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 substantially 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. DHS has 
not formally certified the rule as not having a ``significant economic 
impact on a substantial number of small entities'' as allowed under 
section 605(b) of the Regulatory Flexibility Act. Instead, DHS has 
prepared this Final Regulatory Flexibility Analysis as described in the 
Regulatory Flexibility Act, 5 U.S.C. 604.
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. 1324a.
    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 unsure how 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 aliens unauthorized to work under federal immigration law.
    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., Government 
Accountability Office, Social Security: Better Coordination among 
Federal Agencies Could Reduce Unidentified Earnings Reports, 
Administrative Record at 400 (GAO analysis of SSA data noting 17% of 
ESF filings by eating and drinking places; 10% by construction, and 7% 
by agriculture). DHS also considered promulgating a rule that applied 
only to critical infrastructure employers because of the increased need 
to prevent identity fraud by employees in high-risk facilities. None of 
these alternatives was acceptable because none addresses the larger 
population of aliens working without authorization or the need for 
clear guidance for employers in other sectors of the economy. 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.
    Focusing on the three economic sectors with the most egregious 
violations of the immigration laws might have had an impact on a 
significant portion of the alien population that illegally enters 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, is a 
less reliable guide for agency action 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 
areas where the law is unenforced or underenforced.

[[Page 63864]]

    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 the inefficiencies and 
inequities that result from other types of partial enforcement would 
remain unchanged. 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.
    Another variation suggested that DHS adopt special provisions for 
short-term, seasonal, or intermittent employees and employers that have 
high turnover rates. This variation applies, as the commenter pointed 
out and DHS has previously noted, to the agriculture, construction, and 
service sectors (such as restaurants or hotels). The commenter 
particularly noted that agricultural employers hire many employees for 
60-day periods and, because SSA sends no-match letters on an annual W-2 
wage reporting basis, most of these letters will arrive long after the 
term of employment has ended. The commenter further suggested that, 
because the employee no longer works for the employer, the employer's 
responsibilities should end there. The commenter requested that DHS 
clarify that employers are not required to track and contact past 
employees for whom they receive no-match letters.
    DHS agrees with certain points made by the commenter, but disagrees 
with the commenter's suggested alternative. The commenter is correct 
that when an employee is terminated, the employer does not have any 
further responsibility for tracking down the employee and resolving the 
mismatch. DHS does not agree, however, that this scenario requires any 
special rule. The focus of this rulemaking is on reinforcing the INA's 
prohibition on continued employment of aliens not authorized to work in 
the United States. The issue of whether an employer acquires 
constructive knowledge from receipt of a no-match letter or possesses 
constructive knowledge at a later time when the employer hires the same 
employee for another cycle of work is not addressed by this rule. 
Employers' hiring practices must comply with the INA, and no safe 
harbor or specific guidance is offered by this rule.
    Most significantly, none of the alternatives for limiting or 
tailoring the applicability of the rule to specific industries or 
sectors would 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 with immigration law and reducing the population of aliens 
illegally working in the United States, and as ineffective in limiting 
the impact on small employers.
    c. Phased implementation for small employers. DHS considered 
phasing in the implementation of the rule by delaying its applicability 
to small entities. Comments suggested that by imposing the rule on 
large entities first, many of the errors thought to exist in the SSA 
database could be corrected over time and best practices for resolving 
no-matches could be developed. A commenter suggested that this 
experience could then be used to ease small entities into the process. 
The commenter suggested that large entities (including both private 
sector and governmental employers) that receive no-match letters have 
sophisticated human resources departments that are capable of handling 
no-match letters, but that small entities with limited human resources 
capacity do not have this capacity.
    DHS has concluded, after further review, that such an approach 
would still harm, not help, small employers. All employers, including 
small entities, are already subject to the legal obligation not to 
knowingly employ unauthorized workers and the constructive knowledge 
standard for employer liability, both of which flow from the INA. 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, limiting the 
guidance and the safe harbor protection offered in this rule to large 
employers would effectively leave small employers exposed to greater 
liability risk and would not address the illegal employment of 
unauthorized aliens by small employers.
    d. Extended time allowance for small employers. DHS also considered 
further extending the time periods in the rule for small employers that 
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. Several commenters supported this 
alternative, with some suggesting that small employers in rural areas 
may find their employees have difficulty resolving their mismatches 
with SSA. Proposed alternatives included providing small entities with 
180 days to complete the steps outlined in the rule, or establishing a 
tiered approach with different timeframes based on the size of the 
employer (with smaller employers receiving more time to comply), or 
based on the distance to the local SSA office. One commenter also 
suggested that DHS consider suspending the running of the timeframes 
when an employee is actively working with SSA to correct the 
discrepancy. DHS considered each of these variations, but does not 
believe that they would provide meaningful benefit to small employers 
or maintain the rule's effectiveness.
    The timeframes set forth in the August 2007 Final Rule were 
extended significantly from those contained in the proposed rule 
published in 2006, in response to comments from large and small 
employers expressing concern that the timeframes initially proposed 
were too short. In particular, the time allotted for an employer to 
review its own records for errors was doubled from 14 days to 30 days. 
The commenters provided no evidence that small employers, with small 
payrolls, would need more time to review their records than would large 
organizations with thousands of employees. Several comments submitted 
during this supplemental rulemaking suggested DHS extend the timeframe 
for an employee to resolve a mismatch with SSA, citing distance to the 
nearest SSA office as a concern for workers in rural areas. But the 
comments provided no evidence or concrete support for the claim that 
the 90 days allotted under the rule would be insufficient. SSA has 
approximately 1,300 local offices nation-wide, and provides public 
assistance in locating the closest office both on-line and by 
telephone, along with advice on the documents required to resolve a 
mismatch.
    Moreover, undue extension of the time period for an employee to 
resolve his or her mismatch would substantially weaken the 
effectiveness of the rule by frustrating employers' ability to be 
confident in the legal status of their workers. If the timeline in the 
rule were extended to 180 days, for example, unauthorized workers 
(possibly with encouragement from unscrupulous employers) would be more 
likely to simply go through the motions of contacting SSA in order to 
extend their time on the job for a full six months, while law-abiding 
employers that suspect, but lack conclusive proof, that some of their 
employees are illegally working without authorization would be forced 
to stand by and worry that the listed employees may leave without 
warning or that the employer might be subject to a worksite enforcement 
or

[[Page 63865]]

investigation effort by ICE. The suggestion to suspend the running of 
the timeframes while an employee is ``actively'' working to resolve his 
mismatch suffers from these same flaws and adds another: There would be 
no clear way for either the employer or DHS to determine whether an 
employee had in fact been actively working in good faith to resolve the 
mismatch, and an employer could not be confident that its conduct met 
the requirements for the safe harbor, effectively eviscerating the 
value of the rule for law-abiding employers.
    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 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 prohibition against 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 that 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.
    f. Elimination of the time limit for resolving no-matches. One 
commenter suggested that DHS adopt what was described as a simpler, 
more straightforward rule for small entities that receive a no-match 
letter, in which the employer would: (1) Complete an internal 
investigation to determine whether the source of the discrepancy is the 
employer's own clerical error; (2) if not, inform the affected employee 
of the discrepancy; and, (3) if the employee challenges the 
discrepancy, require proof that the employee has been in contact with 
SSA to resolve the discrepancy. Under this scenario, the commenter 
suggested that a reasonable employer could assume that the employee was 
resolving the discrepancy with SSA and need not inquire further unless 
another no-match letter was received the following year (or some other 
adverse information arose). The commenter suggested that this approach 
would reduce the burden on small entities. The commenter also believed 
that this would eliminate what it perceived to be a presumption that 
receipt of a no-match letter puts the employer on notice that the 
employee may be unauthorized to work in the United States.
    This alternative essentially eliminates the timeline for an 
employee to resolve the mismatch, and deprives the employer of any 
assurance that the questions raised by the no-match letter have been 
answered. The comment also mistakenly assumes that such a rule would 
negate the well-established fact-conceded in the record of this 
rulemaking even by this rule's opponents and endorsed by the district 
court in the ongoing litigation over this rule-that a no-match letter 
is a legitimate indicator of possible illegal work by unauthorized 
aliens. Such a rule would offer a carte blanche safe harbor to 
employers without requiring the employer to take any meaningful steps 
to answer the questions raised by the employees' appearance on a no-
match letter. DHS cannot give the benefit of a safe harbor when there 
is no assurance that the mismatch has been resolved.
    g. DHS resolution of no-matches. A commenter suggested that DHS, 
rather than employers and employees, resolve mismatches involving the 
employees of small entities. The commenter suggested that small 
entities could be sent to DHS for investigation of any mismatches that 
remained unresolved after the rule's timeframe expired. The commenter 
argued that such a system would give DHS notice of the existence of the 
no-match discrepancy, but not require that the employee be terminated 
until DHS has had an opportunity to investigate the matter. A variation 
on this alternative suggested that DHS create a special office or 
appoint an ``ombudsman'' to assist employees in resolving ``no-
matches'' where the employee has been unable to resolve within the 
requisite timeframe. The commenter suggested that such an approach 
could lead to an intra-governmental correction process with direct 
lines of communication to investigate no-matches and correct the SSA 
database, relieving employers and protect authorized employees from 
automatic termination.
    This alternative is not practically feasible. DHS does not have 
access to the information contained in no-match letters, nor does DHS 
have the personal information about individual employees that SSA needs 
to resolve mismatches. Taken to its logical end, this is a proposal to 
eliminate the SSA no-match letter program entirely-an undertaking that 
is far beyond DHS's regulatory competence.
6. Minimization of Impact
    The RFA requires that an agency provide ``a description of the 
steps the agency has taken to minimize the significant economic impact 
on small entities consistent with the stated objectives of applicable 
statutes * * *'' 5 U.S.C. 604(a)(5). This requirement presumes that the 
agency finds that the rule will have a significant economic impact on 
small entities and is normally treated in conjunction with the 
discussion of alternatives (see above) required by paragraph (a)(5). 
Although DHS, after reviewing the record, does not make a finding that 
the rule will have a significant economic impact on small entities, DHS 
believes that explaining the existing means by which a small entity may 
minimize any impact of the rule, and certain additional steps that DHS 
is taking to assist them, will be useful to small entities.
    (1) DHS and its subsidiary components ICE and United States 
Citizenship and Immigration Services (USCIS), already provide 
substantial support for employers that wish to ensure the work 
eligibility of their workforce. The primary tool DHS makes available to 
employers is the E-Verify program, which is an Internet-based system 
for electronically verifying employment eligibility that is operated by 
U.S. Citizenship and Immigration Services (USCIS), in partnership with 
the SSA. The requirements for obtaining access to E-Verify and 
procedures for the use of E-Verify are established by DHS and USCIS. 
Before an employer can participate in the E-Verify program, the 
employer must enter into a Memorandum of Understanding (MOU) with DHS 
that sets out certain features of the program and enumerates specific 
responsibilities of DHS, SSA, and the employer. This MOU requires 
employers to agree to abide by current legal hiring procedures and to 
ensure that no employee will be unfairly discriminated against as a 
result of the E-Verify program. Employers participating in E-Verify 
must still complete an Employment Eligibility Verification Form (Form 
I-9) for each newly hired employee, as required under current law. 
Following completion of the Form I-9, however, the employer enters the 
employee's information into the E-Verify Web site, and that information 
is then checked

[[Page 63866]]

against information contained in SSA and USCIS databases to confirm the 
employee's work eligibility with much greater rigor than is possible 
with the Form I-9 process alone.
    E-Verify first sends the information to SSA for verification of the 
name, SSN, and date of birth, and SSA confirms these elements as well 
as U.S. citizenship based on the information in SSA records. USCIS also 
verifies through database checks that any non-United States citizen 
employee is in an employment-authorized immigration status. E-Verify 
will then confirm the employee is employment-eligible.
    If the information provided by the employee matches the information 
in the SSA and USCIS records, no further action will generally be 
required, and the employee may continue employment. E-Verify procedures 
require only that the employer record on the Employment Eligibility 
Verification Form I-9 the verification ID number and result obtained 
from the E-Verify query, or print a copy of the transaction record and 
retain it with the Form I-9. Verification of the employee's name and 
SSN through E-Verify sharply reduces the likelihood that individuals 
checked through E-Verify will appear on an SSA no-match letter.\15\
---------------------------------------------------------------------------

    \15\ E-Verify also provides a thorough procedure for contesting 
and correcting records. If SSA is unable to verify information 
presented by the employee, the employer will receive an ``SSA 
Tentative Nonconfirmation'' notice. Similarly, if USCIS is unable to 
verify information presented by the employee, the employer will 
receive a ``DHS Tentative Nonconfirmation'' notice. Tentative 
nonconfirmation notices issues are issued for a variety of reasons, 
including mismatches of name, date of birth, invalid SSNs, 
mismatches in citizenship status or alien work authorization status 
or if a death indicator is present in SSA's database. If the 
individual's information does not match the SSA or USCIS records, 
the employee may contest the tentative nonconfirmation. To contest 
the tentative nonconfirmation, the employee must contact SSA or 
USCIS within eight federal government work days to try to resolve 
the discrepancy. Under the E-Verify program requirements, the 
employer is prohibited from terminating or otherwise taking adverse 
action against an employee who has contested a tentative 
nonconfirmation while he or she awaits a final resolution from the 
federal government. If the employee fails to contest the tentative 
nonconfirmation, or if SSA or USCIS concludes that the individual is 
not work authorized, the employer will receive a notice of final 
nonconfirmation and the employee may be terminated.
---------------------------------------------------------------------------

    (2) In addition, the ICE Mutual Agreement between Government and 
Employers (IMAGE) program permits companies to reduce unauthorized 
employment and the use of fraudulent identity documents, thereby 
reducing the likelihood of receiving a no-match letter. As part of the 
IMAGE program, ICE and USCIS provide education and training on proper 
hiring procedures, fraudulent document detection, use of the E-Verify 
employment verification program, and anti-discrimination procedures.
    ICE provides employers in IMAGE with an ``I-9 audit.'' This free 
audit is similar to the services commercially provided by law firms and 
others for a fee.
    IMAGE also provides employers with a catalogue of ``best 
practices'' including:
     Use of E-Verify for all hiring.
     Establish an internal training program, with annual 
updates, on how to manage completion of Form I-9 (Employee Eligibility 
Verification Form), how to detect fraudulent use of documents in the I-
9 process, and how to use E-Verify.
     Permit the I-9 Employment Eligibility Verification and E-
Verify process to be conducted only by individuals who have received 
this training--and include a secondary review as part of each 
employee's verification to minimize the potential for a single 
individual to subvert the process.
     Arrange for annual I-9 audits by an external auditing firm 
or a trained employee not otherwise involved in the I-9 and electronic 
verification process.
     Establish a self-reporting procedure for reporting to ICE 
any violations or discovered deficiencies.
     Establish a protocol for responding to no-match letters 
received from the Social Security Administration.
     Establish a Tip Line for employees to report activity 
relating to the employment of unauthorized aliens, and a protocol for 
responding to employee tips.
     Establish and maintain safeguards against use of the 
verification process for unlawful discrimination.
     Establish a protocol for assessing the adherence to the 
``best practices'' guidelines by the company's contractors/
subcontractors.
     Submit an annual report to ICE to track results and assess 
the effect of participation in the IMAGE program.

To help ensure the accuracy of their wage reporting, ICE assists 
employers participating in the IMAGE program to verify the Social 
Security numbers of their existing labor force through SSA's Social 
Security Number Verification Service (SSNVS). IMAGE participants also 
verify work eligibility of their new hires through E-Verify. All of 
these steps reduce the potential for employer created errors in wage 
submittals to the IRS and SSA, reducing the potential for the employer 
to receive a no-match letter. See http://www.ice.gov/partners/opaimage/
index.htm.

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 considers interests of 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. This rule reflects 
that consultation. OMB has determined that this rule will not have an 
effect on the economy of more than $100 million.

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 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).

[[Page 63867]]

H. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501, et seq., 
all agencies 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.

0
Accordingly, for the reasons stated in the preamble to this 
supplemental final rule, the Department of Homeland Security reaffirms 
the text of the final rule issued on August 15, 2007, 72 FR 45611, and 
makes one typographical correction as set forth below:

PART 274a--CONTROL OF EMPLOYMENT OF ALIENS

0
1. The authority citation for part 274a continues to read as follows:

    Authority: 8 U.S.C. 1101, 1103, 1324a; 8 CFR part 2.

Sec.  274a.1  [Amended]

0
2. In Sec.  274a.1(l)(2)(iii) remove the phrase ``(l)(2)(i)(B)'' and 
add in its place the phrase ``(l)(2)(i)(C)''.

Michael Chertoff,
Secretary.
[FR Doc. E8-25544 Filed 10-27-08; 8:45 am]
BILLING CODE 9111-28-P




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