An immigration victory for employers

(FORTUNE Small Business) -- On Wednesday small business owners nationwide caught a break of sorts when a federal judge blocked the implementation of a recent Bush administration initiative that would use the Social Security system to go after employers of illegal immigrants.

Under the Department of Homeland Security's "no match" policy, announced in August 2007, employers would have 90 days after receiving a government letter to verify the immigration status of an employee whose social security number did not match official records.

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Any employer who ignored the letters could face a felony charge of illegal hiring practices, punishable by as much as six months in prison and a fine of $3,000 for each illegal worker. To avoid penalties, employers would have to confirm the status of their workers and fire any who proved to be illegal.

An ideologically diverse coalition of organizations, including the AFL-CIO, the U.S. Chamber of Commerce, and several small business groups, sued the Department of Homeland Security in federal court in San Francisco, arguing that the rule placed too heavy a burden on employers.

"The [90-day] deadline forces employers to make a Hobson's choice," says Robin Conrad, executive vice president for the Chamber's National Litigation Center. Many small businesses lack the resources to verify their employees' immigration status. As a result, Conrad says, "either the business fires the employee in order to immunize itself or does nothing and is subject to criminal penalties."

Homeland Security officials disagree. The no-match rules give businesses "clear guidance on what to do if they receive a letter," said Homeland Security Secretary Michael Chertoff in a statement opposing the court's decision. "If an employer follows the regulation's guidance in good faith, which entails various steps to rectify the no-match within 90 days of receiving the letter, U.S. Immigration and Customs Enforcement will not use the letter as evidence in an enforcement action against the employer."

But small businesses suffer disproportionately when they lose staff. And most small employers generally struggle to comply with government procedures requiring them to verify the immigration status of their employees. A 2006 study estimated that of the Social Security Administration's 435 million individual records, 17.8 million contained mismatched information that could trigger a no-match letter. In that case an employee must get an appointment to go in person to the Social Security Administration and then fill out paperwork, which gets sent by mail to DHS.

Opponents of the policy argue that piecemeal enforcement will create more headaches for employers and regulators without reducing illegal immigration. "The Social Security Administration doesn't have the resources to deal with 140,000 people wandering down to say, 'please verify whether or not I am legal,'" says Kathleen Campbell Walker, president of the American Immigration Lawyers Association (aila.org), a trade association based in Washington, D.C. And small businesses suffer disproportionately when they lose staff.

Since August the DHS has sent out 140,000 no match letters to employers. But Judge Charles R. Breyer of the Northern District of California put those letters on ice until the court resolves whether or not the rules are legal, a blow to the administration's ongoing efforts to crack down on illegal immigration.