DHS' "No-Match Rule" Stopped by Preliminary Injunction:
The Regulatory Flexibility Act and illegal aliens
19 Oct 2007 in Regulatory Policy, Information Quality, Litigation
On October 10, U.S. District Judge Charles Breyer issued a preliminary injunction barring the Department of Homeland Security from implementing a regulation it issued in August that tightened up existing practice in the enforcement of 1986 federal immigration law. The case provides a lesson in administrative procedure -- particularly, how an agency's failure to take obscure procedures seriously can backfire.
In the August 15 "No-Match Rule", DHS established certain "safe harbors" employers could follow to ensure that they were in compliance with federal immigration law, which prohibits employers from hiring or retaining employees whom they constructively know are illegal aliens. Employers have routinely received so-called "no-match" letters from the Social Security Administration alerting them that the Social Security Numbers provided by new hires do not match the names given by the employees. There are three scenarios in which this can occur:
- Simple mistake by job applicant or employer, such as the transposition of numbers
- Database error by the Social Security Administration, in which the job applicant and employer submitted correct information but SSA's database is wrong (this can happen, for example, due to name changes after marriage)
- Knowing submission of false information by job applicant, employer, or both
In the third scenario, however, the preservation of future Social Security benefits is unlikely to be an important consideration. The express purpose for submitting false information is to violate federal immigration law. As the number of illegal aliens in the U.S. workforce has risen, the proportion of "no-match" errors belonging to this category has surely risen.
The AFC-CIO and several other unions and trade associations representing employers who hire unskilled labor, and thus are especially susceptible to the temptation to violate federal immigration law, sued DHS seeking to block implementation of the rule. The plaintiffs offered four arguments:
- The rule contravenes the governing statute
- The rule is arbitrary and capricious under the Administrative Procedure Act
- The rule is an exercise of ultra vires authority by DHS and the Social Security Administration
- The rule was promulgated in violation of the Regulatory Flexibility Act.
We focus on argument 4 -- DHS' alleged failure to comply with the Regulatory Flexibility Act, which requires agencies to estimate the impact a regulation will have on small businesses and other entities, unless the agency can credibly certify that the rule will not have significant impacts. This element of the case has drawn high-profile attention, most notably on the Wall Street Journal editorial page (temporarily available to nonsubscribers):
Last week U.S. District Court Judge Charles Breyer agreed with the plaintiffs and overruled the new rule on grounds that it would cause "irreparable harm to innocent workers and employers." He said the Administration failed to analyze the economic impact on business, which is a violation of the Regulatory Flexibility Act. "There can be no doubt that the effects of the rule's implementation will be severe," said the judge...Because the Journal does not report the nature of the "Reg Flex" argument, we provide important details here. Moreover, as befits any newspaper with strong policy views, the Journal editorial is colored by its support for open immigration, and thus sympathy for a policy outcome in which the No-Match Rule is overturned.
Because Judge Breyer didn't find the rule illegal per se, it's possible DHS could address the implementation concerns and win on appeal. But the better decision would be to use the defeat as an excuse to stop the enforcement overkill. Until the feds fix their own databases, it makes no sense to punish businesses for hiring workers they believe to be legal. Meanwhile, such enforcement will only make it harder for businesses already short of labor in many parts of the country to find and retain good employees.
First, the Reg Flex requirement is strictly procedural. There is no threshold of effects on small business that by law is "too high" for an agency to proceed. The law only requires an agency to perform a Reg Flex analysis unless it can certify that no significant effects will occur.
Second, the Regulatory Flexibility Act does not impose any requirement that a Reg Flex analysis prepared by an agency be either valid or reliable. We're aware of several instances in which a court (like this one) remanded or vacated a regulation for failure to perform, but no example in which a court has done so because it judged the actual analysis to be seriously flawed. (This might change in AFL-CIO v. Chertoff if, for example, DHS performs a Reg Flex analysis, the analysis itself is not credible, and plaintiffs' counsel allege that a non-credible Reg Flex analysis violates the federal Information Quality Act, which requires influential information disseminated by agencies be accurate, clear and unbiased.)
Third, the problem identified by Judge Breyer is that DHS advanced very different (and inconsistent) arguments in the No-Match Rule than it did in its reply brief to the court. In the No-Match Rule, DHS provided boilerplate language certifying that the rule did not not have a significant effect on small business:
The Secretary of Homeland Security, in accordance with the Regulatory Flexibility Act, 5 U.S.C. 605(b), has reviewed this regulation and, by approving it, certifies that this rule would not have a significant economic impact on a substantial number of small entities. This rule would not affect small entities as that term is defined in 5 U.S.C. 601(6). This rule describes when receipt by an employer of a no-match letter from SSA or DHS may result in a finding that the employer has constructive knowledge that it is employing an alien not authorized to work in the United States. The rule also describes steps that DHS would consider a reasonable response by an employer to receipt of a no-match letter. The rule does not mandate any new burdens on the employer and does not impose any new or additional costs on the employer, but merely adds specific examples and a description of a "safe-harbor'' procedure to an existing DHS regulation for purposes of enforcing the immigration laws and providing guidance to employers (72 Fed. Reg. 45623).This language, which is very common in regulatory practice, is sufficient under the law only if it is defensibly true. Otherwise, DHS has a legal obligation to have performed a Reg Flex analysis. What plaintiffs alleged, and Judge Breyer agreed, is that DHS' certification was almost certainly false.
According to Breyer's opinion, DHS took a completely different position in its reply brief. It claimed that the No-Match Rule was exempt from the Regulatory Flexibility Act because it was an interpretative rule and not a legislative rule. Legislative rules change the obligations of regulated parties; interpretative rules do not. Breyer agreed that DHS' position "would have merit"(see footnote 2) if in fact it had stated in the No-Match Rule that it was interpretative. But DHS did not do so.
It is not clear how DHS will extricate itself from this dilemma, but it is clear that the dilemma was one it created for itself. Even if all the other arguments advanced by plaintiffs fail, DHS' failure to style the No-Match Rule as interpretative, followed by its failure to perform a Reg Flex analysis, seems likely to result in remand. DHS can repair the procedural defect by performing a Reg Flex analysis, publishing it for notice and comment, and reissuing the rule.
The impacts a Reg Flex analysis would show depend on what baseline DHS uses. For example, it could use actual current employer practice as the baseline, but then it would have to admit that violations of federal immigration law are widespread and that for the better part of two decades it had failed to enforce the law. In this case, the estimated effects on small business would be very high.
Alternatively, DHS could assume that employers currently comply with federal immigration law such that adhering to the provisions of the "safe harbor" is simple and entails little or no burden. While this might be counterfactual, it would relieve DHS of having to admit to having failed to enforce immigration law.
Under the first scenario, plaintiffs would have to drop the Reg Flex argument. Large impacts per se are not grounds for overturning a properly issued regulation authorized by statute. Under the second scenario, they could allege that DHS had complied with the Regulatory Flexibility Act in a way that violates the federal Information Quality Act.
Plaintiffs
San Francisco Labor Council
San Francisco Building and Construction Trades Council
Central Labor Council of Alameda County
Plaintiff Intervenors
National Roofing Contractors Association
Golden Gate Restaurant Association
Chamber of Commerce of the United States of America
American Nursery & Landscape Association
International Franchise Association
United Fresh Produce Association
Change to Win
Amicus
California Rural Legal Assistance, Inc.
Intervenors
United Food and Commercial Workers Local 5
UNITE HERE
United Food and Commercial Workers International Union
The National Federation of Independent Business Legal Foundation
San Francisco Chamber of Commerce
