While Congress has been unable to reach a political compromise on comprehensive immigration legislation, state legislators and local politicians have been active in the immigration area. In the absence of new federal legislation and responding to political pressures to do something about the immigration problem, state legislatures and local communities have enacted immigration statutes and ordinances during the past two years.
What's been happening
Although recently enacted state and local statutes do not change current federal immigration law and may ultimately be declared unconstitutional because of the federal government's pre-eminent role in immigration matters, they pose additional liabilities, burdens and risks not only to illegal immigrants but also to employers who may employ or do business with unauthorized workers.
The National Conference of State Legislatures reported that as of April 13, immigration legislation had been introduced in all 50 states' 2007 legislative sessions. Many of these bills are related to employment issues. This followed a busy 2006 legislative year during which 570 immigration-related bills were introduced.
Several recently enacted state statutes are directed at employers. These statutes generally repeat the federal proscription against employment of illegal immigrants and apply directly to contractors who contract with state and local governments. Many state and local statutes are intended to ensure illegal immigrants do not receive public benefits afforded U.S. citizens.
Typically, state legislation applies to contracts for services with public entities, including contracts with any public entity in the state and its cities, towns, local municipalities and school districts. These statutes generally do not change federal law but rather express the state's public policy that employers are not to hire or continue to employ illegal immigrants. The new statutes commonly increase employer certification requirements.
In some states, such as Georgia and Oklahoma, the employer verification requirements apply to public agencies and private businesses. Because of the reach of these statutes, subcontractors in these states should expect to receive more scrutiny from general contractors and be able to certify they are not employing unauthorized workers.
Statutes in Colorado, Georgia and Oklahoma require contractors who do business with public agencies to use the federal electronic worker verification program, known as the Basic Pilot program. Legislation proposed in Missouri, South Carolina and Tennessee also would mandate employer participation in the Basic Pilot program.
Under current federal law, participation in the Basic Pilot program is voluntary. Participating employers enter into a memorandum of understanding with the U.S. Department of Homeland Security (DHS) and electronically submit employees' names, Social Security numbers and other information to be compared with information contained in databases maintained by the Social Security Administration (SSA) and DHS.
Summaries of some state immigration laws follow.
Arizona
On July 2, Arizona Gov. Janet Napolitano signed House Bill 2779 into law. Known also as the Fair and Legal Employment Act or the Legal Arizona Workers Act, this new law requires the attorney general or county attorney to investigate all complaints relating to unauthorized workers and provides for a progressive penalty system for those employers found in violation. It also requires all employers to use the Basic Pilot program for the purpose of verifying new employees' eligibility.
The law establishes two types of employment violations—"knowing" and "intentional" employment of unauthorized workers—and establishes different levels of liability for employers found to be in violation of the law.
Penalties for a first violation for "knowingly" hiring an unauthorized worker include suspension of a business license for a period of up to 10 days; an employer must sign a sworn affidavit stating the employer has terminated all unauthorized workers within three business days after a finding of guilt; and the employer is subject to a three-year probationary period. During this period, the employer must file quarterly reports with the county attorney for each new employee.
Penalties for a first violation for "intentionally" hiring an unauthorized worker include suspension of a business license for a minimum of 10 days; an employer must sign a sworn affidavit stating the employer has terminated all unauthorized workers within three business days after a finding of guilt; and the employer is subject to a five-year probationary period. During this period, the employer must file quarterly reports with the county attorney for each new employee.
For a second violation of either offense during the probationary period, a court must order the permanent revocation of all the employer's business licenses immediately—effectively, a business death sentence. The law goes into effect Jan. 1, 2008.
Arkansas
Arkansas enacted legislation this year formally prohibiting state agencies from contracting with businesses that employ illegal immigrants. State agencies, which are defined as any agency, institution or authority supported by state or federal funds, are prohibited from entering into or renewing public contracts with contractors who knowingly employ illegal immigrants or contract with subcontractors who employ or contract with illegal immigrants.
Before executing public contracts, prospective contractors must certify they do not employ or contract with illegal immigrants. Subcontractors must make similar certifications within 30 days of executing subcontracts, and general contractors must maintain on file the subcontractors' certifications.
If a contractor violates the statute and does not remedy the violation within 60 days, the state will terminate the contract and the contractor will be liable to the state for actual damages. If a contractor learns a subcontractor has violated the statute, the contractor may terminate the subcontract but the termination will not be considered a breach of contract by the contractor or subcontractor.
The Arkansas statute applies to any person having a public contract with a state agency for professional, technical or general services or any category of construction in which the total dollar value of the contract is $25,000 or more. This applies to any agency supported by appropriation of state or federal funds other than specifically exempted agencies.
Colorado
Although several states claim to have the toughest laws addressing illegal immigration, a series of bills enacted in 2006 probably justifies Colorado's claim for that distinction.
Colorado enacted comprehensive immigration legislation that requires contractors and subcontractors doing business with public entities to participate in the Basic Pilot program. Effective Aug. 7, 2006, the Colorado statute applies to all contractors who enter into contracts for services with state agencies and political subdivisions of the state, including any city, county, school district, local improvement district, or any other kind of municipal or quasi-municipal public corporation. Interestingly, the Colorado statute applies only to contracts for services and does not apply to contracts for procurement of goods.
Public contracts for services include a provision stating the contractor has confirmed or attempted to confirm all new employees' employment eligibility through the Basic Pilot program; if the contractor has not been accepted into the Basic Pilot program, the contractor must reapply every three months until the contractor is accepted into the program or the contract work has been completed.
Public agencies in Colorado are prohibited from entering into or renewing public contracts for services with contractors who knowingly employ unauthorized workers or contract with subcontractors who knowingly employ or contract with illegal immigrants.
If a contractor obtains actual knowledge that a subcontractor knowingly employs or contracts with an illegal immigrant, the contractor is required to notify the subcontractor and the contracting state agency or political subdivision within three days. If the subcontractor does not stop employing or contracting with the illegal immigrant within three days, the contractor is required to terminate the subcontract.
Violations of these provisions are a breach of contract and allow the public agency to terminate the contract and recover actual and consequential damages. The Colorado Department of Labor and Employment has the authority to investigate complaints and alleged violations, which can be reported on the department's Web site.
Colorado also enacted employer verification and certification requirements that go beyond federal requirements. Employers must affirm within 20 days of hiring new employees that they have examined employees' work status and must retain proof of employees' legal work status. Current federal law does not require employers to maintain copies of the documents presented by employees to verify work eligibility as part of the I-9 process.
The Colorado Department of Labor and Employment has the power to audit and verify employers' compliance. If an employer is found to have failed to maintain the required work eligibility documentation or submitted false documentation, the employer may be fined up to $5,000 for the first violation and up to $25,000 for any subsequent violation.
Another Colorado statute mandates that employers withhold 4.63 percent from the wages of employees who do not have valid Social Security numbers, valid taxpayer identification numbers or Internal Revenue Service-issued taxpayer identification numbers for nonresident immigrants.
Georgia
In April 2006, Georgia became the first state to pass a statute that imposed additional requirements and sanctions on employers. The statute requires all contractors who do business with any state or local public agency or department to participate in the Basic Pilot program.
The electronic verification requirements will be implemented over three years. As of July 1, private companies and public agencies that have more than 500 employees must electronically verify all new employees' work eligibility through the Basic Pilot program. As of July 1, 2008, public employers, contractors and subcontractors with 100 or more employees will be required to participate in the federal electronic verification program for new employees. And as of July 1, 2009, electronic verification will be required for new employees of all public employers, contractors and subcontractors who want to enter into contracts for the performance of services in Georgia.
To implement the mandatory electronic verification requirements, language requiring contractor and subcontractor compliance must be included in contracts with public employers. Proposed regulations require that a contractor who contracts with a public entity must submit a sworn affidavit attesting to the contractor's compliance and that the contractor will require the same attestation from subcontractors employed by the contractor. The Georgia Department of Labor will hire staff to perform random audits to determine whether contractors and subcontractors are in compliance.
In addition to requiring participation in the Basic Pilot program, Georgia disallows expense deductions for payments made to unauthorized workers. No wages or remunerations of $600 or more per year for labor services to an individual hired after Jan. 1, 2008, may be claimed and allowed as a deductible business expense for state income purposes by a taxpayer unless the employee is authorized to work in the U.S.
Georgia also requires employers to withhold state income tax at the rate of 6 percent when an individual's compensation is reported on Form 1099 and the individual has failed to provide a taxpayer identification number or correct taxpayer identification number. If the employer fails to comply with the withholding requirements, the employer is liable for the taxes required to be withheld.
Louisiana
Legislation that went into effect June 23, 2006, authorizes any Louisiana state agency, department or political subdivision to investigate the hiring policies of contractors who employ more than 10 people if the employment of unauthorized immigrants is suspected. Upon receiving notification from a state agency or a private party's written complaint to the agency, the attorney general or a local district attorney can issue an order to fire undocumented workers, and if the contractor does not comply within 10 days of receiving notice, the contractor is subject to penalties of up to $10,000.
If an employer is found by a court to have violated a cease and desist order, the attorney general or district attorney may file a complaint with the appropriate licensing board to have an employer's business license suspended or revoked.
Oklahoma
On May 8, Oklahoma Gov. Brad Henry signed legislation requiring all public employers and contractors and subcontractors in Oklahoma who contract with public agencies to verify worker eligibility through an independent database. Public agencies in Oklahoma will be required to use the Basic Pilot program starting in November.
As of July 1, 2008, all contractors, subcontractors and other private companies who work on public projects will be required to register and participate in a status verification system to verify all new employees' work eligibility. Compliance can be obtained through the Basic Pilot program, SSA's Social Security Number Verification Service (SSNVS), or an independent third-party system with an equal or higher degree of reliability as the Basic Pilot program. Through SSNVS, employers can verify up to 10 names and Social Security numbers online and receive immediate results. According to the Social Security Administration, SSNVS is intended to be used for payroll information only.
The new Oklahoma law also prohibits employers from discharging an employee working in Oklahoma who is a U.S. citizen or permanent resident immigrant while retaining an employee who an employer knows or reasonably should have known is an unauthorized immigrant hired after July 1, 2008, and who holds a job comparable to the job of the discharged employee.
Tennessee
On June 1, 2006, Tennessee enacted legislation prohibiting the state and state entities from acquiring goods or services from any person who knowingly uses the services of illegal immigrants. State entities include counties, cities, municipalities and any other political subdivision of the state.
On Sept. 5, 2006, Tennessee Gov. Phil Bredesen issued an Executive Order authorizing random checks of the personnel records of state contractors and subcontractors and requiring contractors and subcontractors to semiannually attest that they do not knowingly use the services of illegal immigrants in the performance of public contracts. Per the Executive Order, general contractors are required to obtain and maintain such semiannual attestations from subcontractors and make the attestations available to state officials conducting random checks.
Since Jan. 1, no person may enter into a contract to supply goods or services to the state or state entities without first attesting in writing that the person will not knowingly use the services of illegal immigrants or the services of any subcontractor who employs illegal immigrants. If any person who contracts with the state or a state entity is discovered to have knowingly used the services of illegal immigrants, that person is prohibited from contracting with the state or submitting a bid for any contract with the state or other state entities for one year from the date of discovery.
In addition, any person who knowingly and willfully employs or refers for employment an individual who has illegally entered the U.S. is guilty of a Class B misdemeanor and subject to up to six months in prison, a fine up to $500 or both. The license of a person who violates the statute will be revoked and the person will be barred from doing business in Tennessee. However, if a prospective employee presented a Social Security card, driver's license, birth certificate, vehicle registration or work visa that demonstrated the prospective employee was not an illegal immigrant, the employer, employment agency or contract labor provider will not be considered to be in willful violation.
Texas
Texas has enacted legislation using its tax code to penalize employers who employ illegal immigrants. As of Jan. 1, 2008, a business will not be able to deduct any wages or cash compensation paid to an undocumented worker as a business expense. Similarly, in determining the cost of goods sold, a manufacturer or seller cannot include any compensation paid to an undocumented worker used for the production of goods.
Stay informed
While comprehensive federal immigration legislation is yet to be enacted, state legislatures and local communities have been enacting a myriad of immigration legislation, including additional employment verification obligations and employer liabilities. Although the enforceability of some of these measures remains in doubt, if you do business with state and local government units, including school districts, you should become acquainted and comply with these additional requirements.
Stephen M. Phillips is a partner with the Atlanta-based law firm Hendrick, Phillips, Salzman & Flatt.
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