1099 Risk Blog

E-Verify: Now Pay Attention.

You’ve already heard that the White House has delayed the deadline for Federal contractors’ compliance with the E-Verify rule – again – until June 30th. There are those who would argue clearly and compellingly that E-Verify isn’t going to make it, that the forces against it are strong. I was discussing the issue just the other day with an attorney, and the controversial rule makes for a challenging debate topic because of how the lines are drawn. Both the left and the right are split down the middle on many aspects of the rule. Everyone’s got an angle with this one, and the debate is heated, verging on vitriolic. You may have noticed when E-Verify took center stage during the recent stimulus package rigmarole, with defenders arguing that stimulus dollars from the American tax payer shouldn’t be allowed to flow into the hands of illegal immigrants, and that E-Verify represents a reasonable, enforceable, and low-cost solution to mitigate that problem.  It did not survive into the final version of the stimulus, and was perhaps an off-topic intrusion into that debate.

I’m not here to dig into the controversy however, and in reading this, you won’t learn about my personal opinions about what “should” happen with E-Verify. My purpose is to say that regardless of where you stand, if you aren’t paying attention to how E-Verify may impact your business, now’s the time to sit up and take notice.

For one, this author feels Federal E-Verify will happen. It’s just a matter of time: this is the direction the wind is blowing. The delays are less an indication that E-Verify won’t make it, and more an instrument to take some of the wind out of the sails of critics, who in part were objecting to the costs attributable to making changes in time for the deadline. Also with a delay, the Administration can more feasibly claim to have thoroughly researched the issue when they do release a decision. From a policy perspective (and I think this Administration is more policy-analysis-guided than the last), there are too many reasonable arguments for, and not enough un-solvable arguments against. The remaining objections can be addressed over time with various reforms. The government reports that 98.2% of the information keyed into E-Verify is confirmed as accurate right away, and that after two days (time to correct typo keystrokes, most often) the approval rate on the I-9 checks is 99.5%. Although it’s true that the SSA’s real accuracy rate is much worse than these figures, this isn’t panning out to be an issue in actual practice with E-Verify. Plus, there is already momentum: even today, E-Verify is soaking into the fabric of the way hiring is done in the United States, and over 100,000 employers are already enrolled. Finally, the prevailing belief among the American public is that people should be able to reasonably demonstrate their legal right to work in this country. So even if there are problems to work out, public opinion seems to lean in favor of a system like E-Verify, at least from a long-run perspective.

Even if you want to believe that the current Federal E-Verify rule isn’t going to stand –and that’s up to you – it’s still not advisable to play ostrich. The states are implementing their own versions of the ruling left and right, and if your company does business with state and local governments in these jurisdictions, you’re going to run into them. The law firm Littler Mendelson recently published an excellent summary report describing some of the challenges with state by state implementation of E-Verify, illuminating situations where compliance with the state rule may actually be in conflict with how the program is to be implemented at the Federal level, or may even be illegal.

Whether you’re being required to comply with E-Verify at the state or (eventually) Federal levels, pitfalls abound, especially when it comes to the contingent workforce.

Last week I opened the latest issue of a leading staffing industry trade magazine (glamorous reading, I know) for which the cover story was all about E-Verify. A callout box in the story made my blood run cold – the featured staffing company was proudly describing how they use E-Verify as a business differentiator, screening candidates before presenting them to the clients -- and long before an offer of hire. Worse, the story says the scheme was an idea from that company’s own legal department.

Why does this alarm me? Well, using E-Verify on worker candidates before the offer of hire is illegal. E-Verify may not be run on a worker until after the point of hire. Before you get gung-ho about performing E-Verify (fun for the whole family), make sure you understand what you can and cannot do with it. Even as I write this, I’m a little worried about the magazine’s audience of staffing firm leaders who might be rushing to create similar practices in their own businesses, inspired by this article and believing it must be legal, or “they” wouldn’t have printed it. [Consider this my Letter to the Editor, O unnamed staffing industry magazine!]

Another tangle with contingent workforce management and E-Verify is how the program needs to apply to independent contractors. Technically, you can’t I-9 an independent contractor, and you shouldn’t. [Hello, reclassification and co-employment risk!] True independent contractors are responsible to enroll in E-Verify and verify themselves (a scenario that evokes a funny image – does this drivers license photo look like me?). But if you’ve gotten your independent contractor worker classifications wrong – meaning, if you have de facto employees that you are paying on a 1099, either knowingly or unknowingly – then you may be exposed to a whole new level of risk, because you haven’t verified their immigration status or ability to work in the United States. A problem on any day, in any jurisdiction, but if you’re subject to E-Verify, then getting this wrong could result in debarment from doing business with the government. For you Federal contractors out there, with your thousands of independent contractors performing work right this moment, you should probably be very worried about this. I’m not a gambler, but I’ll bet money that you’ve gotten at least some of those classifications wrong, and you’re exposed to risk. Tax risk and co-employment risk are bad enough, but E-Verify puts some scary teeth into the situation: debarment is not a light matter. How much of your revenue is based on government business? Think about it.

For more on independent contractors and E-Verify, and what your risks and responsibilities are, I recommend you read our report produced in collaboration with Michael Best & Friedrich, LLP on E-Verify Requirements for Federal Contractors, published last fall. You can also consult your own legal counsel – I just hope your lawyers are better than the ones over at that poor staffing firm mentioned above.

Outside this blog, the E-Verify debate rages on. I’m not that interested in arguing about immigration reform or trying to see into my crystal ball. But I do want you to know, without any dissembling on my part, that this is a serious issue you should become very familiar with, and take care when implementing. It seems straightforward, and maybe it is for traditional employment applications, but at the margin (where most exciting things happen) the complexity multiplies. With contingent workforce nothing is certain, whether we’re talking about staffing situations or hiring independent contractors. The rules weren’t written with these “fringe” scenarios in mind -- the requirement for single-person businesses to E-Verify themselves makes this painfully evident.

Years from now we’ll be looking back, and it will most likely be case law that shows us how it was all interpreted. Let’s just hope the case isn’t yours, huh?

Liz Greene is not an attorney, and this blog post represents her sole opinion, and not the opinions of MBO Partners, Inc. 

Please tell us about your decision to implement – or not implement – E-Verify at your company, and how you apply it with respect to contract workforce management. Leave a comment, but keep it clean: this blog isn’t a space for immigration debate rhetoric. 

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