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Executive Order Requires Federal Contractors to Use E-Verify System

Labor and Employment Update

November 19, 2008

As of January 15, 2009, certain federal contractors and federal subcontractors will be required to confirm their employees’ eligibility to work in the United States electronically, pursuant to the U.S. Citizenship and Immigration Services’ (USCIS) E-Verify system. This new obligation was established through Executive Order 12989 and signed by President Bush on June 6, 2008. Its effective date was delayed pending issuance of a final rule. That rule, amending the Federal Acquisition Regulation, was published in the Federal Register on November 14, 2008 by the Department of Defense, the General Services Administration and the National Aeronautics and Space Administration.

The Executive Order reinforces the policy, first announced in 1996, that the federal government does business with companies that have a legal workforce. The new rule states that federal contracts of over $100,000 awarded, and solicitations issued, after January 15 will require government contractors to use E-Verify. Additionally, the rule will require federal contractors to insert a similar clause in their subcontracts over $3,000 for services, supplies or construction. The Final Rule also applies to existing indefinite-delivery/indefinite-quantity contracts for future orders if the contract is to extend past July 15, 2009, and a substantial amount of the contract remains to be performed.

In addition to mandating that covered contractors and subcontractors use the E-Verify system to confirm the legal status of employees hired pursuant to post-January 15 contracts, regardless of whether they are assigned to the contract, the rule obligates covered federal contractors to confirm the employment eligibility of their current employees who are directly working under a federal contract. Aside from the monetary exemptions, the rule contains exemptions for federal contracts and subcontracts where the work will be performed outside the U.S., where the contract will last for less than 120 days, or where the contract is for “commercially available off-the-shelf items.”

Companies awarded a contract with the federal government will be required to enroll in E-Verify within 30 days of the contract award date. Within 90 days of enrollment, all new hires working in the U.S. and its territories must be verified through the E-Verify system within three working days of hire. Current employees of covered contractors assigned to the contract must be confirmed through E-Verify within the later of 90 days of enrollment or 30 days of assignment to the contract. Thereafter, covered contractors must continue using E-Verify for the duration of the contract.

Excluded from the verification requirement are employees hired before November 6, 1986, employees already confirmed through E-Verify and those who do not “directly” perform work under the contract, which is defined by the rule as those who normally perform “support” work (i.e., indirect or overhead positions) and do not perform any “substantial duties applicable to the contract.” Exemptions also exist for employees with security clearances and those who have otherwise been investigated and cleared by the Department of Homeland Security (DHS). Contractors who are unsure whether certain workers are covered or excluded have the option to verify the employment eligibility of all current employees, not just those assigned to a contract, within 180 days of enrollment. 

The verification requirements are somewhat relaxed for institutions of higher education, certain sureties and state and local governments, providing these contractors with the option of verifying only employees assigned to the contract.

The new rule further requires that, prior to enrolling in the E-Verify program, the employer enter into a Memorandum of Understanding (MOU) with DHS and the Social Security Administration (SSA), under which the employer pledges to hire employees lawfully and to not “unfairly discriminated against” any workers due to the employer's participation in the E-Verify program. Violation of the MOU by an employer can result in termination of the contractor’s participation in federal contracts.

According to the USCIS, E-Verify, which is a free Internet-based system operated by DHS and the SSA, currently is used by more than 92, 000 employers. The system is used to verify the employment eligibility of employees against the information contained in various government databases. During Fiscal Year 2008, the E-Verify system handled more than 6.6 million employment verification queries, representing 1 out of every 8 hires made in the U.S. The USCIS claims that “approximately 96.1 percent of all cases queried through E-Verify are instantly found to be employment authorized, and individuals who are not immediately cleared are given the opportunity to correct their government records in order to confirm their work eligibility.” 

Bottom Line

Covered contractors should begin establishing procedures for ensuring that they will be ready to comply with the rule’s requirements when it becomes effective on January 15. These steps should include registering or updating the company’s status on E-Verify and identifying the employees who will need to be verified electronically. Moreover, employers should be prepared to provide photo identification for new hires.