In The News:

Federal Court Grants Preliminary Injunction Preventing Implementation of the New SSA/DHS No-Match Rule

On October 15, 2007, the United States District Court for the Northern District of California issued a preliminary injunction preventing implementation of the Department of Homeland Security’s (DHS) Final Rule regarding Social Security Administration (SSA) No-Match letters.  The court held there are serious questions concerning the Final Rule’s legality and that employers and employees alike would be irreparably harmed if the rule took effect.  The preliminary injunction, which replaces an earlier temporary restraining order in the case, means the Final Rule will not be given effect in the near future.  See AFL-CIO, et al. v. Chertoff, et al. (N.D. Cal. Case No. 07-CV-4472-CRB).

As we reported last month (see In The News, September 2007: Implementation of Final SSA/DHS No-Match Rule Currently on Hold Pending the Outcome of Litigation in a Federal District Court Case), the DHS had intended to go forward with a rule that would deem employers under certain circumstances to have constructive knowledge that a worker was illegal based on the employer’s receipt of a No-Match letter from the SSA. 

The court found that the Final Rule is open to at least three significant legal challenges.

First, the court reasoned that the DHS Final Rule represents a significant change in policy.  While government agencies are certainly entitled to change policy without intervention by the courts, the law generally requires that an agency provide a reasoned explanation for a policy shift, which the court concluded DHS had not done in this case.

Second, the court held that DHS had not completed a study of the Final Rule’s potential effect on small businesses as is mandated by the Regulatory Flexibility Act.

Finally, the court held that the Final Rule potentially suffers from a more fundamental jurisdictional defect.  Namely, the court reasoned that DHS’s promise that employers will essentially be immune from discrimination claims brought by the government if the Final Rule’s “safe harbor” provisions are met may well exceed the DHS’s lawful authority.

The government has the right to appeal the injunction.  However, any appeal process will take time, and SSA may not want to wait for a final determination from the courts on the DHS No-Match rule before SSA sends out its No-Match letters based on 2006 W-2 forms.  In fact, the district court itself noted that nothing in its decision prevents the SSA from sending out No-Match letters under the current rules without any reference to the Final Rule enjoined by the court.  It is probable that the SSA will do just that.

Even under the current rules, employers who receive No-Match letters from the SSA should consult with legal counsel regarding what actions should and should not be taken.

Contact Mike Gallagher, Sue Sheeran or Doug Witte for more information.  General information is also available on the SSA’s website at www.ssa.gov.

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