Companies Need To Assess Policies on No-Match Letters Following Ninth Circuit Ruling

Employers need to carefully evaluate their policies related to Social Security Administration (SSA) no-match letters, which indicate discrepancies between employees reported Social Security numbers and those in the SSA database. On June 16, the U.S. Court of Appeals for the Ninth Circuit reinstated 33 employees who had been terminated after their employer received a no-match letter from the Social Security Administration. The no-match letters indicated that there were discrepancies between the SSA database and the employees names and Social Security numbers as reported by the company on its W-2 forms.

The Ninth Circuit also held that constructive knowledge of immigration status under the Immigration Reform and Control Act (IRCA) must be narrowly interpreted. A no-match letter was itself insufficient to provide the employer with constructive knowledge that an individual was not authorized to work in the United States. Employers are required to have positive information providing notice that an employee lacks authorization to work in the United States. This decision should cause all companies to re-evaluate their procedures in dealing with no-match letters to ensure that the procedure adopted complies with the law. The Labor, Employment and Immigration Group at Ballard Spahr can assist you to establish immigration compliance procedures, including responding to no-match letters.

I. Factual Background

On June 16, 2008, the Ninth Circuit issued a decision in the case Aramark Facility Services v. Service Employees Intl Union Local 1877 (9th Cir., No. 06-56662, 6/16/08). The case arose out of actions that happened five years ago, in 2003, when the Company received a no-match letter on approximately 3,300 of its employees nationwide, including 48 employees working at the Staples Center in Los Angles. It sent out a letter to the employees requiring them to return to the company a new Social Security card or a verification form showing that the SSA card was being processed. The letter gave employees three working days to furnish the requested information, but also stated that the information had to be in to the Company no later than close of business on a date approximately one week after the letters were mailed. The letter warned employees that failure to comply would result in termination. Thirty-three employees failed to meet the deadline and were terminated. The Company allegedly offered to reinstate any employee who could provide the required documentation. Each employee had completed a Form I-9 and provided facially valid documents to the company at the time of hire.

The union filed a grievance on behalf of the terminated employees. The arbitrator concluded that there was no convincing information that any of the employees was undocumented and ordered the 33 employees reinstated. The District Court reversed the arbitration award and concluded that because the terminated employees had failed to indicate they were correcting the SSN mismatch, the Company had constructive notice that they were not eligible to work in the United States. The Ninth Circuit Court of Appeals reversed.

II. No-match letters do not provide constructive knowledge of immigration status

The Court quoted the SSA that a no-match letter does not make any statement about . . . immigration status. The Court stated that there are multiple causes for SSN mismatches, including typographical errors, name changes, compound last names prevalent in immigrant communities, and inaccurate or incomplete employer records. By SSAs own estimates, approximately 17.8 million of the 430 million entries in its database (called NUMIDENT) contain errors. The Court also noted that employers do not face penalties from the SSA based on the no-match letter, and that they are only required to resolicit an employees SSN after receiving a penalty notice from the IRS.

The Court also took notice of statements from the Department of Justice Office of Special Counsel for Immigration-Related Unfair Employment Practices (OSC), the body that enforces the anti-discrimination provisions of the Immigration Reform and Control Act (IRCA). OSC states that a no-match does not mean that an individual is undocumented and prohibits adverse action based solely on the receipt of a no-match letter.

The Company pointed to the proposed Department of Homeland Security (DHS) regulations, which would amend the definition of constructive knowledge in 8 Code of Federal Regulations 274a(1)(l) to include, depending on the totality of the relevant circumstances, failure to take reasonable steps after receiving a no-match letter. The Court concluded that even after the regulations are adopted, a no-match letter by itself does not create constructive knowledge of the lack of status of an employee. Constructive knowledge depends on the totality of the circumstances and whether an employer takes reasonable steps after receiving the no-match letter.

Because no-match letters can have several causes, only one of which is a fraudulent SSN, the letter falls short of the positive information required to provide employers constructive knowledge of an immigration violation.

The Court also held that the employees failure to correct the SSN discrepancies did not provide the Company with constructive knowledge that the employees were undocumented. The Court considered the time period given to the employees to respond to be insufficient. First, the Court concluded that it was likely that the employees determined that they could not meet the deadline and therefore simply did not try to do so, which made no statement about their immigration status. Further, the DHS proposed regulation allows employees 90 days to resolve discrepancies. At the end of 90 days the regulation does not require employers to terminate an employee if the employee cannot resolve the discrepancy. The DHS rule requires only the employee to complete a new I-9. The Court noted that the company could have satisfied the DHS rule, which did not require the employees to be terminated, and therefore, the employees failure to act in response to a no-match letter was not sufficient to be deemed constructive knowledge. Because the company had no evidence that any of the employees was unauthorized, the Court affirmed the arbitrators award reinstating the 33 terminated employees with back pay.

III. Employers should take reasonable steps in response to a social security no-match letter

The Court repeatedly emphasized that the doctrine of constructive knowledge under IRCA is a narrow one. It also included a warning against taking action to comply with immigration laws that might result in discriminatory consequences. Employers are caught in the middle of trying to comply with the non-discrimination provisions of IRCA, while also trying to ensure they are not employing unauthorized aliens.

This new case highlights the importance of taking reasonable steps in response to a SSA no-match letter and having procedures in place to respond to the government and follow up appropriately with the employee. We do not recommend ignoring a SSA no-match letter. Instead we recommend several steps be taken in response to them. Placing a deadline on an employee to resolve a SSA discrepancy based on a no-match letter may result in discrimination charges or other lawsuits. If following up with the employee regarding a no-match letter results in the employee admitting to the employer that the employee is not authorized to work in this country, then the employer must terminate the employee because the employer will have actual knowledge of the employees ineligibility. The proposed DHS regulations are different from the steps employers should take to satisfy SSA and IRS inquiries about no-match issues. Currently, the DHS regulations are not in effect. Employers should stay informed about the status of the DHS regulations to obtain further information if and when they are finalized and become effective, as they may require additional steps be followed by employers responding to no-match letters.

Copyright 2008 by Ballard Spahr LLP.

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