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napbs Journal July 2008
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Legislative Update from Greenberg Traurig LLP
Regulation Requiring Federal Contractors to Use E-Verify Published in Federal Register

By Montserrat Miller,Of Counsel; Joshua Sanderlin, Assistant Director of Governmental Affairs

contractor to use E-Verify to verify the employment authorization of employees “assigned to the contract,” as well as all new hires. Compliance with the E-Verify rules will be a performance element of contracts that contain the requirement. Briefly, the terms that will be required to be included as an element of performance under contracts are the following:

  • That the contractor will enroll in the E-Verify program within 30 days of the date a contract is awarded, and within 30 days of that date use E-Verify to verify the employment authorization of all employees “assigned to the contract.” If the contractor is already enrolled in E-Verify, it must use E-Verify for these employees assigned to the contract within 30 days.
  • That the contractor will use E-Verify for all new hires within three days of the date of hire for all new employees hired after the contract is awarded, as well as for all existing employees who later are “assigned” to the contract.
  • That the contractor will require all subcontractors performing work under the contract that exceeds $3,000 to adhere to the E-Verify requirement.

Federal contractors will have to closely monitor their workforce and the projects employees are working on in order to comply with the rule, and will have to strategically consider which business entities they use to bid on federal contracts.

What Event Triggers the Requirement to Use E-Verify?

A contract award is the triggering event requiring enrollment in E-Verify. Within 30 days of the award of a contract, a contractor must enroll in E-Verify if not already enrolled. This means that the rule should not apply to existing contracts, although the rule does direct contracting officers to amend existing indefinite delivery/indefinite quantity contracts to include the clause for future orders if the remaining period of performance extends at least six months after the effective date of the final rule and the amount of work or number of orders expected under the remaining performance period is substantial. It is unclear whether contracting officials have the power to unilaterally impose such modifications, and most likely such amendments will have to be bargained by the parties, resulting in what is, in effect, a new contract covered by the rule.

Which Employees Must be Verified through E-Verify? The rule defines a covered employee as an employee who is performing “direct work” in the United States under a contract and who was hired after Nov. 6, 1986. This means that all employees who perform work under a federal contract, regardless of whether they are new hires or existing hires, must be verified through E-Verify. The rule does not require contracting employers to verify all of its employees once the employer becomes a federal contractor.

U.S. Citizenship and Immigration Services (“USCIS”) is currently modifying the E-Verify Memorandum of Understanding (“MOU”) that all employers participating in the program must sign, as well as its Web site and training materials. This is needed because prior to the executive order and this rule, employers were prohibited from using E-Verify for existing employees. As federal contractors will now be required to verify all employees, both new and current, working on covered federal contracts, the program rules must be changed by USCIS. Employers who are not federal contractors and who are thus not bound by this requirement will continue to be prohibited from using EVerify for existing employees.

The requirement to use E-Verify for existing employees working on a contract, not only new hires, referred to as “re-verification,” may turn out to be a watershed moment. The employment verification regulations have always limited the events that would trigger a re-verification of existing employees, and the E-Verify program rules have until now prohibited the use of E-Verify for existing employees. This marks the first time that the government will be requiring large numbers of workers to be re-verified and run through the E-Verify database even though they are not changing jobs and have already been verified through the I-9 process. This will be a significant burden in terms of time and resources on federal contractors, particularly for larger employers.

Are Subcontractors and Related Entities Covered?

The rule contains what is known as a “subcontractor flowdown.” This means that a federal contractor will be required to impose, or flow down, the E-Verify requirement to its subcontractors under the federal contract if the subcontract:

  1. Is for commercial or noncommercial services or construction;
  2. Exceeds $3,000; and
  3. Includes work performed in the United States.

It should be noted that the responsibility for the flowdown lies with the principal contractor, not the subcontractor. In other words, the principal contractor must insert the E-Verify language in its contract with the subcontractor and must see that it is adhered to. This will be an additional burden on federal contractors who are already faced with a difficult task in managing their various subcontractors, as well as a burden on the subcontractors who must enroll in and use E-Verify. Many subcontractors are small entities and may not be able to afford the cost and disruption of E-Verify.

Employers who are federal contractors will also need to pay careful attention to how they structure their organizations in terms of entering into federal contracts and which entity employs workers working on federal contracts. The obligation to use E-Verify runs to the contracting entity, but the persons who must be E-Verified are the “employees” of that entity. It thus is questionable whether the employees of an entity that is related to the contracting entity but that is not a subcontractor to the entity would have to be run through E-Verify, even if they are performing work for the related entity that relates to the contract. In other words, the interplay of the terms “contractor” and “employee” may allow some corporate organizations to structure their contracting and employment relationships in such a way as to limit the applicability of the E-Verify requirement.

Conclusion This proposed rule has the potential to dramatically affect how federal contractors structure their operations, manage their workforce and determine whether to bid on federal contracts. There are significant interpretive questions raised by the proposed rule that will need to be addressed in the final rule. Federal contractors should review their workforce and their current federal contracts to determine the best way to structure those relationships going forward.

Further information on E-Verify and the corresponding executive order can be found at the following Web sites:

Link to the executive order:
http://www.whitehouse.gov/news/ releases/2007/01/20070124-2.html
DHS press release: http://www.dhs.gov/ xnews/releases/pr_1213039922523.shtm
FAQ from DHS for federal contractors on the executive order: http://www.uscis.gov/ portal/site/uscis/menuitem.5af9bb95 919f35e66f614176543f6d1a/?vgnextoid =00ccb85299d6a110VgnVCM100000471819 0aRCRD&vgnextchannel=75bce2e26140511 0VgnVCM1000004718190aRCRD

Greenberg Traurig will continue to keep NAPBS and its members informed as to the status of the proposed rule and the corresponding executive order. Additionally, Greenberg Traurig is closely following the progress of legislation in Congress which deals with the extension and/or expansion of the E-Verify program.

If you have any questions or commentsplease contact us at the Email addresses below.

If you have any questions or commentsplease contact us at the Email addresses below.

Montserrat Miller
Of Counsel

Joshua Sanderlin
Assistant Director of Governmental Affairs

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