Safe Harbor Procedures for Employers Who Receive a No-Match Letter: Clarification; Final Regulatory Flexibility Analysis, 63843-63867 [E8-25544]

Agencies

• DEPARTMENT OF HOMELAND SECURITY

[Federal Register Volume 73, Number 209 (Tuesday, October 28, 2008)]
[Rules and Regulations]
[Pages 63843-63867]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-25544]



========================================================================
Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
week.

========================================================================


Federal Register / Vol. 73, No. 209 / Tuesday, October 28, 2008 / 
Rules and Regulations

[[Page 63843]]



DEPARTMENT OF HOMELAND SECURITY

8 CFR Part 274a

[DHS Docket No. ICEB-2006-0004; ICE 2377-06]
[RIN 1653-AA50]


Safe Harbor Procedures for Employers Who Receive a No-Match 
Letter: Clarification; Final Regulatory Flexibility Analysis

AGENCY: U.S. Immigration and Customs Enforcement, DHS.

ACTION: Supplemental final rule.

-----------------------------------------------------------------------

SUMMARY: The Department of Homeland Security (DHS) is finalizing the 
Supplemental Proposed Rule published on March 26, 2008 and reaffirming 
regulations providing a ``safe harbor'' from liability under section 
274A of the Immigration and Nationality Act for employers that follow 
certain procedures after receiving a notice--either a ``no-match 
letter'' from the Social Security Administration (SSA), or a ``notice 
of suspect document'' from DHS--that casts doubt on the employment 
eligibility of their employees. DHS is also correcting a typographical 
error in the rule text promulgated in August 2007.

DATES: This final rule is effective as of October 28, 2008.

ADDRESSES: The comments on the supplemental proposed rule and the 
proposed rule on docket DHS Docket No. ICEB-2006-0004, may be reviewed 
by one of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov.
     In person at U.S. Immigration and Customs Enforcement, 500 
12th St., SW., 5th Floor, Washington DC 20024. Contact Joe Jeronimo, 
U.S. Immigration and Customs Enforcement, Telephone: 202-732-3978 (not 
a toll-free number) for an appointment.

FOR FURTHER INFORMATION CONTACT: Joe Jeronimo, U.S. Immigration and 
Customs Enforcement, 500 12th St., SW., 5th Floor, Washington DC 20024. 
Telephone: 202-732-3978 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Docket
II. Background
    A. History of the Rulemaking
    B. Purpose of the Rulemaking
    C. Supplemental Final Rule
    1. Authority to Promulgate the Rule
    2. ``Reasoned Analysis'' Supporting Perceived Change in Policy 
Reflected in the Final Rule
    3. Anti-Discrimination Provisions of the INA
    4. Regulatory Flexibility Analysis
III. Public Comments and Responses
    A. Authority To Promulgate the Rule
    B. ``Reasoned Analysis'' Supporting Perceived Change in Policy 
Reflected in the Final Rule
    C. Anti-Discrimination Provisions of the INA
    D. Regulatory Flexibility Analysis
    1. Scope of Regulatory Flexibility Act Review
    2. Direct and Indirect Impact
    3. Baseline Costs, Unauthorized Alien Workers, and the 
Immigration Reform and Control Act of 1986
    4. Variability of SSA Criteria for Issuing No-Match Letters
    5. Base Assumptions Made in the IRFA and SEIA
    6. Opportunity and Productivity Costs
    7. Human Resources and Employee Tracking
    8. Other Costs
    9. Rehiring Seasonal Employees
    10. Conclusions
    E. Further Interpretation of the August 2007 Final Rule
    F. Other Comments Received
IV. Changes Made in Republishing the Final Rule
V. Statutory and Regulatory Reviews
    A. Administrative Procedure Act
    B. Regulatory Flexibility Act
    1. Need for, Objectives of, and Reasons Why the Rule is Being 
Considered
    2. Significant Issues Raised in Public Comments
    3. Description of and Estimate of the Numbers of Small Entities 
to Which the Rule Would Apply
    4. Proposed Reporting, Recordkeeping, and Other Compliance 
Requirements
    5. Significant Alternatives Considered
    6. Minimization of Impact
    C. Unfunded Mandates Reform Act of 1995
    D. Small Business Regulatory Enforcement Fairness Act of 1996
    E. Executive Order 12,866 (Regulatory Planning and Review)
    F. Executive Order 13,132 (Federalism)
    G. Executive Order 12,988 (Civil Justice Reform)
    H. Paperwork Reduction Act
PART 274a--CONTROL OF EMPLOYMENT OF ALIENS

I. Docket

    Comments on the supplemental proposed rule, the proposed rule, and 
the Small Entity Impact Analysis may be viewed online at https://
www.regulations.gov (docket ICEB-2006-0004), or in person at U.S. 
Immigration and Customs Enforcement, Department of Homeland Security, 
500 12th St., SW., 5th Floor, Washington, DC 20024, by appointment. To 
make an appointment to review the docket, call telephone number 202-
732-3979 (not a toll-free number).

II. Background

A. History of the Rulemaking

    DHS published a proposed rule in June 2006 that proposed a method 
for employers to limit the risk of being found to have knowingly 
employed unauthorized aliens after receiving a letter from the SSA--
known as a ``no-match letter''--notifying them of mismatches between 
names and social security numbers provided by their employees and the 
information in SSA's database, or after receiving a letter from DHS--
called a ``notice of suspect document''--that casts doubt on their 
employees' eligibility to work. 71 FR 34281 (June 14, 2006). A sixty-
day public comment period ended on August 14, 2006.
    DHS received approximately 5,000 comments on the proposed rule from 
a variety of sources, including labor unions, not-for-profit advocacy 
organizations, industry trade groups, private attorneys, businesses, 
and other interested organizations and individuals. The comments varied 
considerably; some commenters strongly supported the rule as proposed, 
and others were critical of the proposed rule and suggested changes. 
See https://www.regulations.gov, docket number ICEB-2006-0004.
    DHS published a final rule on August 15, 2007, setting out safe 
harbor procedures for employers that receive SSA no-match letters or 
DHS notices. 72 FR 45611 (Aug. 15, 2007). Each comment received was 
reviewed and considered in the preparation of the August 2007 Final 
Rule. The August

[[Page 63844]]

2007 Final Rule addressed the comments by issue rather than by 
referring to specific commenters or comments.
    On August 29, 2007, the American Federation of Labor and Congress 
of Industrial Organizations and others filed suit seeking to enjoin 
implementation of the August 2007 Final Rule in the United States 
District Court for the Northern District of California. AFL-CIO v. 
Chertoff, No. 07-4472-CRB, D.E. 1 (N.D. Cal. Aug. 29, 2007). The 
district court granted plaintiffs' initial motion for a temporary 
restraining order, AFL-CIO v. Chertoff, D.E. 21 (N.D. Cal. Aug. 31, 
2007) (order granting motion for temporary restraining order and 
setting schedule for briefing and hearing on preliminary injunction), 
and on October 10, 2007 granted plaintiffs' motion for preliminary 
injunction. AFL-CIO v. Chertoff, 552 F.Supp.2d 999 (N.D. Cal. 2007) 
(order granting motion for preliminary injunction).
    The district court concluded that plaintiffs had raised serious 
questions about three aspects of the August 2007 Final Rule. 
Specifically, the court questioned whether DHS had: (1) Supplied a 
reasoned analysis to justify what the court viewed as a change in the 
Department's position--that a no-match letter may be sufficient, by 
itself, to put an employer on notice, and thus impart constructive 
knowledge, that employees referenced in the letter may not be work-
authorized; (2) exceeded its authority (and encroached on the authority 
of the Department of Justice (DOJ)) by interpreting the anti-
discrimination provisions of the Immigration Reform and Control Act of 
1986 (IRCA), Public Law 99-603, 100 Stat. 3359 (1986), 8 U.S.C. 1324b; 
and (3) violated the Regulatory Flexibility Act, 5 U.S.C 601 et seq., 
by not conducting a regulatory flexibility analysis. 552 F.Supp.2d at 
1006. Following its entry of the preliminary injunction, the district 
court stayed proceedings in the litigation. See AFL-CIO v. Chertoff, 
D.E. 149 (N.D. Cal. Dec. 14, 2007) (minute entry).
    DHS published a supplemental notice of proposed rulemaking in March 
2008 to address the specific issues raised by the court in the 
preliminary injunction order. 73 FR 15944, 45, 46-47 (March 26, 2008). 
In the supplemental proposed rulemaking, DHS reviewed past government 
communications about SSA no-match letters to clarify the history of the 
Department's policy on the significance of those letters, and supplied 
additional ``reasoned analysis'' in support of the policy set forth in 
the rule. 73 FR at 15947-50. DHS also clarified that the authority to 
interpret and enforce the anti-discrimination provisions of the IRCA 
rests with DOJ, 73 FR at 15950-51, and provided an initial regulatory 
flexibility analysis, 73 FR at 15951, 52-54, including a small entities 
analysis. Docket ICEB-2006-0004-0233.
    The public comment period on the supplemental proposed rule ended 
on April 25, 2008. DHS received approximately 2,950 comments on the 
supplemental proposed rule from a variety of sources, including labor 
unions, not-for-profit advocacy organizations, industry trade groups, 
private attorneys, businesses, and other interested organizations and 
individuals.
    A number of public comments were the product of mass-mailing 
campaigns, resulting in DHS receiving identical or nearly identical 
electronic filings during the comment period. Other comments included 
multiple-signature petition drives that presented a specific point of 
view. Many comments expressed opinions on immigration policy generally 
but provided little substantive information or supporting documentation 
that DHS could use to refine its judgment on the efficacy of the 
rulemaking or that was pertinent to the issues raised by the 
supplemental proposed rulemaking.
    DHS viewed every comment received from a different source as a 
separate comment, notwithstanding similarities in wording. When 
multiple comments were received from the same source but via different 
media (e.g. electronic and mail), DHS attempted to identify and 
correlate the comments. DHS reviewed the substance of every comment and 
considered the substance of the comments in formulating this final 
rule. We summarize the substance of the comments received below.
    During the public comment period, DHS received requests that the 
comment period be extended. DHS reviewed these requests and concluded 
that they presented no novel or difficult issues justifying an 
extension of the comment period, particularly in light of the 
rulemaking's extensive history, as well as the limited number of issues 
raised by the district court and addressed in the supplemental proposed 
rule. Accordingly, DHS declines to extend the comment period.
    In developing this supplemental final rule, DHS has considered the 
entire administrative record of the August 2007 Final Rule, as well as 
the record of proceedings in the pending litigation, including 
arguments made in the various motions and briefs, and orders of the 
district court, that were relevant to the issues addressed in this 
action. AFL-CIO v. Chertoff, D.E. 129 (N.D. Cal. Oct. 1, 2007) 
(certified administrative record); D.E. 146-2 (N.D. Cal. Dec. 4, 2007 
(errata)) (hereinafter ``Administrative Record''). The docket of the 
United States District Court for the Northern District of California is 
a public record and the documents contained therein are available from 
the court clerk's office.
    After considering the full record, including the comments received 
in response to the supplemental notice of proposed rulemaking, DHS has 
made adjustments to the cost calculations in the Initial Regulatory 
Flexibility Analysis (IRFA) and prepared a Final Regulatory Flexibility 
Analysis (FRFA), finalized the additional legal analysis set out in the 
supplemental notice of proposed rulemaking, and determined that the 
rule should issue without change. Therefore this final rule reaffirms 
the text of the August 2007 Final Rule without substantive change and 
makes one typographical correction.

B. Purpose of the Rulemaking

    The Federal Government has been aware for many years that 
employment in the United States is a magnet for illegal immigration, 
and that a comparison of names and social security numbers submitted by 
employers against SSA's data provides an indicator of possible illegal 
employment. In 1997, the U.S. Commission on Immigration Reform found 
the following:

    Reducing the employment magnet is the linchpin of a 
comprehensive strategy to deter unlawful immigration. Economic 
opportunity and the prospect of employment remain the most important 
draw[s] for illegal migration to this country. Strategies to deter 
unlawful entries and visa overstays require both a reliable process 
for verifying authorization to work and an enforcement capacity to 
ensure that employers adhere to all immigration-related labor 
standards.
* * * * *
    The Commission concluded that the most promising option for 
verifying work authorization is a computerized registry based on the 
social security number; it unanimously recommended that such a 
system be tested not only for its effectiveness in deterring the 
employment of illegal aliens, but also for its protections against 
discrimination and infringements on civil liberties and privacy.
* * * * *
    The federal government does not have the capacity to match 
social security numbers with [Immigration and Naturalization Service 
(INS)] work authorization data without some of the information 
captured on the I-9. Congress should provide sufficient time, 
resources, and authorities to permit development of this capability.

U.S. Comm'n on Immigration Reform, Becoming an American: Immigration

[[Page 63845]]

and Immigrant Policy 113-14, 117 (1997) (emphasis in original); 
Administrative Record at 139-140, 143.
    Similarly, the Federal Government has been long aware of the 
potential for abuse of social security numbers by aliens who are not 
authorized to work in the United States. Such abuse has been the 
subject of numerous public reports by the Government Accountability 
Office and the SSA's Inspector General, as well as congressional 
hearings. See, e.g., Administrative Record, at 35-661; Government 
Accountability Office, Report to the Subcommittee on Terrorism, 
Technology and Homeland Security, Committee on the Judiciary, U.S. 
Senate, Estimating the Undocumented Population: A ``Grouped Answers'' 
Approach to Surveying Foreign-Born Respondents (GAO Rept. No. GAO-06-
775, Sept. 2006) (describes alternative means of gathering interview 
data from undocumented aliens to reduce the ``question threat'' to some 
respondents because they fear that a truthful answer could result in 
negative consequences); Subcommittee on Oversight and Subcommittee on 
Social Security, Committee on Ways and Means, U.S. House of 
Representatives, Social Security Number and Individual Taxpayers 
Identification Number Mismatches and Misuse, 108th Cong., 2nd Sess., 
No. 108-53 (March 10, 2004).
    The illegal alien population in the United States and the number of 
unauthorized workers employed in the United States are both 
substantial. See, e.g., J. Passel, Pew Hispanic Center, The Size and 
Characteristics of the Unauthorized Migrant Population in the U.S. 
(March 2006), found at https://pewhispanic.org/files/factsheets/17.pdf 
(estimating approximately 11.2 million illegal aliens in the United 
States; approximately 7.2 million illegal aliens in the workforce); M. 
Hoefer, N. Rytina & C. Campbell, Office of Immigration Statistics, 
Policy Directorate, U.S. Department of Homeland Security, Estimates of 
the Unauthorized Immigrant Population Residing in the United States: 
January 2006 (August 2007) found at https://www.dhs.gov/xlibrary/assets/
statistics/publications/ill_pe_2006.pdf (estimating unauthorized 
population of 11,550,000 as of January 2006).
    The scale of the problem that this rule seeks to address--that is, 
the unlawful employment of aliens not authorized to work in the United 
States--has become more well-defined through the rulemaking and related 
litigation. The comments submitted in response to the initial proposed 
rule in 2006 by organizations such as Western Growers, and the public 
statements by representatives of such organizations, have been 
bracingly frank:

    In the midst of the combustive debate over immigration reform, 
we in agriculture have been forthright about the elephant in 
America's living room: Much of our workforce is in the country 
illegally--as much as 70%.

T. Nassif, ``Food for Thought,'' The Wall Street Journal, Nov. 20, 
2007, at A19. See also Docket ICEB-2006-0004-0145 (August 14, 2006), 
Administrative Record at 1306 (comments of the National Council of 
Agricultural Employers, suggesting over 76% of agricultural workers are 
not authorized to work in the United States). DHS recognizes this 
critical fact--that many employers are aware that a substantial portion 
of their workforce is unauthorized--and has therefore taken steps 
within the Department's existing authorities to assist employers in 
complying with the law.
    Public and private studies in the administrative record of this 
rulemaking make clear that social security no-match letters identify 
some portion of unauthorized aliens who are illegally employed in the 
United States. One private study concluded that ``most workers with 
unmatched SSNs are undocumented immigrants.'' C. Mehta, N. Theodore & 
M. Hincapie, Social Security Administration's No-Match Letter Program: 
Implications for Immigration Enforcement and Workers' Rights (2003) at 
i; Administrative Record at 309, 313.
    Based on the rulemaking record and the Department's law enforcement 
expertise, DHS finds that there is a substantial connection between 
social security no-match letters and the lack of work authorization by 
some employees whose SSNs are listed in those letters. While social 
security no-match letters do not, by themselves, conclusively establish 
that an employee is unauthorized, DHS's (and legacy INS's) interactions 
with employers that receive no-match letters have consistently shown 
that employers are also aware that an employee's appearance on a no-
match letter may indicate the employee lacks work authorization. 
Nevertheless, as Mehta, Theodore & Hincapie found, SSA's no-match 
letters currently ``do[] not substantially deter employers from 
retaining or hiring undocumented immigrants. Twenty-three percent of 
employers retained workers with unmatched SSNs who failed to correct 
their information with the SSA.'' C. Mehta, N. Theodore & M. Hincapie, 
supra at ii; Administrative Record at 314.
    Some employers may fail to respond to no-match letters because they 
have consciously made the illegal employment of unauthorized aliens a 
key part of their business model or because they conclude that the risk 
of an immigration enforcement action is outweighed by the cost of 
complying with the immigration laws by hiring only legal workers. See 
C. Mehta, N. Theodore & M. Hincapie, supra at 2, 20-30; Administrative 
Record at 314, 316, 334-44 (noting employer ``complaints'' over loss of 
illegal workforce when employees are asked to correct their SSN 
mismatches, as well as the practice by some employers of encouraging 
workers to procure new fraudulent documents to provide cover for their 
continued employment). DHS's interactions with employers have also 
shown that many law-abiding employers are unsure of their obligations 
under current immigration law after they receive a no-match letter, and 
that some employers fear allegations of anti-discrimination law 
violations if they react inappropriately to no-match letters.
    In light of these facts, DHS has concluded that additional employer 
guidance on how to respond to SSA no-match letters will help law-
abiding employers to comply with the immigration laws. Accordingly, in 
this final rule, DHS outlines specific steps that reasonable employers 
may take in response to SSA no-match letters, and offers employers that 
follow those steps a safe harbor from ICE's use of SSA no-match letters 
in any future enforcement action to demonstrate that an employer has 
knowingly employed unauthorized aliens in violation of section 274A of 
the Immigration and Nationality Act (INA), 8 U.S.C. 1324a.

C. Supplemental Final Rule

1. Authority to Promulgate the Rule
    Congress has delegated to the Secretary of Homeland Security the 
authority to promulgate regulations that implement, interpret and fill 
in the administrative details of the immigration laws. INA section 
103(a), 8 U.S.C. 1103(a); Homeland Security Act of 2002, Public Law 
107-296, sections 102(a)(3), (b)(1), and (e), 110 Stat. 2135 (Nov. 25, 
2002) (HSA), as amended, 6 U.S.C. 112(a)(3), (b)(1), and (e). Under 
Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 
U.S. 837, 842-45 (1983), the courts afford due deference to agency 
interpretations of these laws as reflected in DHS's rules. The 
Executive Branch may, as appropriate, announce or change its policies 
and statutory

[[Page 63846]]

interpretations through rulemaking actions, so long as the agency's 
decisions rest on a ``rational connection between the facts found and 
the choice made.'' Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. 
Ins., 463 U.S. 29, 43 (1983).
    DHS is authorized by the HSA and the INA to investigate and pursue 
sanctions against employers that knowingly hire or continue to employ 
unauthorized aliens or do not properly verify their employees' 
employment eligibility. HSA sections 102(a)(3), 202(3), 441, 442, 6 
U.S.C. 112(a)(3), 251, 252; INA section 274A(e), 8 U.S.C. 1324a(e). All 
persons or entities that hire, recruit or refer persons for a fee for 
employment in the United States must verify the identity and employment 
eligibility of all employees hired to work in the United States. INA 
section 274A(a)(1)(B), (b)(1), (b)(2) 8 U.S.C. 1324a(a)(1)(B), (b)(1), 
(b)(2). Under the INA, this verification is performed by completing an 
Employment Eligibility Verification form (Form I-9) for all employees, 
including United States citizens. INA section 274A(b)(1), (b)(2), 8 
U.S.C. 1324a (b)(1), (b)(2); 8 CFR 274a.2. An employer, or a recruiter 
or referrer for a fee, must retain the completed Form I-9 for three 
years after hiring, recruiting or referral, or, where the employment 
extends longer, for the life of the individual's employment and for one 
year following the employee's departure. INA section 274A(b)(3), 8 
U.S.C. 1324a(b)(3). These forms are not routinely filed with any 
government agency; employers are responsible for maintaining these 
records, and they may be requested and reviewed by DHS Immigration and 
Customs Enforcement (ICE). See 71 FR 34510 (June 15, 2006).
    DHS's authority to investigate and pursue sanctions against 
employers that knowingly hire or continue to employ unauthorized aliens 
necessarily includes the authority to decide the evidence on which it 
will rely in such enforcement efforts. It also includes the authority 
to decide the probative value of the available evidence, and the 
conditions under which DHS will commit not to rely on certain evidence. 
Under the prior regulations, an employer who had received an SSA no-
match letter or DHS letter and was charged with knowing employment of 
unauthorized aliens could defend against an inference that the employer 
had constructive knowledge of the workers' illegal status by showing 
that the employer had concluded, after exercising reasonable care in 
response to the SSA no-match letter or DHS letter, that the workers 
were in fact work-authorized. 8 CFR 274a.1(l)(1) (2007). Those 
regulations, however, provided no detailed guidance on what would 
constitute ``reasonable care.'' In the August 2007 Final Rule--as 
supplemented by this final rule--DHS announces its interpretation of 
INA section 274A and limits its law enforcement discretion by 
committing not to use an employer's receipt of and response to an SSA 
no-match letter or DHS letter as evidence of constructive knowledge, if 
the employer follows the procedures outlined in the rule. This 
limitation on DHS's enforcement discretion--this safe harbor--is well 
within the rulemaking powers of the Secretary of Homeland Security. 
See, e.g., Lopez v. Davis, 531 U.S. 230, 240-41 (2001) (upholding 
categorical limitation of agency discretion through rulemaking). This 
rule does not affect the authority of SSA to issue no-match letters, or 
the authority of the Internal Revenue Service (IRS) to impose and 
collect taxes, or the authority of DOJ to enforce the anti-
discrimination provisions of the INA or adjudicate notices of intent to 
fine employers.
    The ongoing litigation involving the August 2007 Final Rule does 
not constrain DHS's authority to amend and reissue the rule. The 
Executive Branch's amendment of regulations in litigation is a natural 
evolution in the process of governance. As the United States Court of 
Appeals for the District of Columbia has noted:

    It is both logical and precedented that an agency can engage in 
new rulemaking to correct a prior rule which a court has found 
defective. See Center for Science in the Public Interest v. Regan, 
727 F.2d 1161, 1164-65 (D.C. Cir. 1984); Action on Smoking and 
Health v. CAB, 713 F.2d 795, 802 (D.C. Cir. 1983). Where an 
injunction is based on an interpretation of a prior regulation, the 
agency need not seek modification of that injunction before it 
initiates new rulemaking to change the regulation.

    NAACP, Jefferson County Branch v. Donovan, 737 F.2d 67, 72 (D.C. 
Cir. 1984). See generally Thorpe v. Housing Auth. of Durham, 393 U.S. 
268, 281-82 (1969).
    As noted in the supplemental notice of proposed rulemaking, the 
district court enjoined implementation of the August 2007 Final Rule 
and the issuance of SSA no-match letters containing an insert drafted 
by DHS. AFL-CIO v. Chertoff, D.E. 137 (N.D. Cal. 2007) (preliminary 
injunction); 73 FR at 15947. The preliminary injunction did not 
prohibit further rulemaking by DHS. The district court subsequently 
stayed proceedings in the litigation to allow for further rulemaking. 
AFL-CIO v. Chertoff, D.E. 142 (stay motion); 144 (statement of non-
opposition); 149 (minute order staying proceedings pending new 
rulemaking) (N.D. Cal. 2007). Accordingly, not only does DHS continue 
to have the authority to revise and finalize this rulemaking but the 
orders of the district court contemplate such rulemaking action.
2. ``Reasoned Analysis'' Supporting Perceived Change in Policy 
Reflected in the Final Rule
    An agency action is arbitrary and capricious if the agency fails to 
examine relevant data and articulate a satisfactory explanation for its 
action including a ``rational connection between the facts found and 
the choice made.'' Motor Vehicle Mfrs. Ass'n v. State Farm Mutual Auto. 
Ins., 463 U.S. 29, 43 (1983). In its order granting the preliminary 
injunction, the district court found that ``DHS has sufficiently 
articulated a rational connection between the facts found and the 
choice made.'' 552 F.Supp.2d at 1010. The district court expressed 
concerns, however, that DHS had not sufficiently articulated a 
rationale for what the court saw as DHS's ``change'' in position on the 
significance of SSA no-match letters when promulgating that August 2007 
Final Rule. While the district court acknowledged that the preamble to 
the August 2007 Final Rule remained consistent with DHS's and legacy 
INS's prior informal guidance by ``assur[ing] employers that `an SSA 
no-match letter by itself does not impart knowledge that the identified 
employees are unauthorized aliens,' '' 559 F.Supp.2d at 1009 (quoting 
72 FR 45616), the court concluded that ``DHS decided to change course'' 
in the text of the August 2007 Final Rule by ``provid[ing] that 
constructive knowledge may be inferred if an employer fails to take 
reasonable steps after receiving nothing more than a no-match letter.'' 
Id. Having identified what it believed to be a change in DHS's 
position, the court concluded that ``DHS may well have the authority to 
change its position, but because DHS did so without a reasoned 
analysis, there is at least a serious question whether the agency has 
`casually ignored' prior precedent in violation of the APA.'' 552 
F.Supp.2d at 1010.
    DHS provided in the supplemental proposed rule an extensive review 
of the non-precedential correspondence and public reports relating to 
the value of SSA no-match letters as an indicator that individuals 
listed in a letter may not be authorized to work in the United States 
and the obligations of employers to respond to such letters. 73 FR at 
15947-48. That review showed that neither the former INS nor DHS had 
issued a formal or precedential

[[Page 63847]]

statement of agency policy regarding the significance of SSA no-match 
letters, and that, therefore, there was no agency precedent that had 
been ``casually ignored'' in DHS's promulgation of the August 2007 
Final Rule. It also showed that DHS's consistent, if informal, view of 
SSA no-match letters has been that (1) SSA no-match letters do not, by 
themselves, establish that an employee is unauthorized, (2) there are 
both innocent and non-innocent reasons for no-match letters, but (3) an 
employer may not safely ignore SSA no-match letters, and (4) an 
employer must be aware of and comply with the anti-discrimination 
provisions of the INA. The position reflected in the August 2007 Final 
Rule--that a no-match letter, and an employer's response to such a 
letter could, in the totality of the circumstances, constitute proof of 
an employer's constructive knowledge that an employee is not authorized 
to work in the United States--was consistent with the informal agency 
interpretations offered to employers over the past decade.
    Nevertheless, in light of the court's concerns that DHS had changed 
its position on these issues in the August 2007 Final Rule, the 
supplemental notice of proposed rulemaking set forth the ``reasoned 
analysis'' sought by the court and identified four significant reasons 
for the issuance of this rule: (1) The need to resolve ambiguity and 
confusion among employers regarding their obligations under the INA 
following receipt of an SSA no-match letter; (2) the growing evidence 
and consensus within and outside government that SSA no-match letters 
are a legitimate indicator of possible illegal work by unauthorized 
aliens; (3) DHS's view that SSA's criteria for sending employee no-
match letters helps to focus those letters on employers that have 
potentially significant problems with their employees' work 
authorization; and (4) the established legal principle that employers 
may be found to have knowingly employed unauthorized alien workers in 
violation of INA section 274A based on a constructive knowledge theory. 
73 F.R. 15949-50.
a. Need for Clear Guidance Regarding No-Match Letters
    As was noted in the supplemental notice of proposed rulemaking, one 
key justification for issuance of this rule is to eliminate ambiguity 
regarding an employer's responsibilities under the INA upon receipt of 
a no-match letter. As one business organization with nationwide 
membership commented in response to the initial publication of the 
proposed rule in 2006:

    Disagreement and confusion [of an employer's obligations upon 
receipt of a no-match letter] are rampant and well-intended 
employers are left without a clear understanding of their compliance 
responsibilities. [Organization] members have had substantial 
concerns regarding whether mismatch letters put them on notice that 
they may be in violation of the employment authorization provisions 
of the immigration law, since the Social Security card is one of the 
most commonly used employment authorization documents.

Administrative Record at 1295 (comment from National Council of 
Agricultural Employers, Aug. 14, 2006). See also id. at 849 (comment by 
the National Federation of Independent Business: ``Clarification of the 
employer's obligation on receiving a no-match letter and the safe 
harbor provided for in the proposed rule is critical.'').
    As noted above, all previous agency guidance was in letters 
responding to individual queries from employers, members of Congress, 
or other interested parties--neither the INS nor DHS had ever released 
any formal statement of agency policy on the issue. In addition, agency 
correspondence over the years was heavily caveated, at times even 
equivocal, and although more recent letters from DHS had articulated 
more clearly employers' obligations upon receiving a no-match letter, 
those letters did not purport to supplant prior statements by legacy 
INS. In the absence of a clear, authoritative agency position on the 
significance of no-match letters, employers and labor organizations 
were left free to stake out positions that best served their parochial 
interests, by in some cases misconstruing language in the no-match 
letter aimed at preventing summary firings or discriminatory practices 
as instead commanding employers to turn a blind eye to the widely-known 
fact that unauthorized alien workers would often be listed in those 
letters. In the face of this ambiguity, well-meaning employers' 
responses to SSA no-match letters were also affected by concern about 
running afoul of the INA's antidiscrimination provisions. Thus, 
employers concluded that the risks of inaction in the face of no-match 
letters--with the possibility of being found to have knowingly employed 
unauthorized workers in violation of INA 274A--was outweighed by the 
risks of embarking on an investigation after receiving a no-match 
letter only to face charges of discrimination.
    The August 2007 Final Rule was designed to remedy this confused 
situation by reminding employers of their obligation under the INA to 
conduct due diligence upon receipt of SSA no-match letters, and by 
formally announcing DHS's view that employers that fail to perform 
reasonable due diligence upon receipt of SSA no-match letters or DHS 
suspect document notices risk being found to have constructive 
knowledge of the illegal work status of employees whose names or SSNs 
are listed. Further, because the constructive knowledge standard 
applies a ``totality of the circumstances'' test to the facts of a 
particular case, and is therefore not reducible to bright-line rules, 
the August 2007 Final Rule sought to provide greater predictability 
through a clear set of recommended actions for employers to take, and 
assured employers that they would not face charges of constructive 
knowledge based on SSA no-match letters or DHS letters that had been 
handled according to DHS's guidelines.
b. No-Match Letters Are Legitimate Indicators of Possible Illegal Work 
by Unauthorized Aliens
    DHS's reasoned analysis on the evidentiary value of SSA no-match 
letters in the August 2007 Final Rule, and in this supplemental 
rulemaking, also includes the growing evidence and consensus within and 
outside government that SSN no-matches are a legitimate indicator of 
possible illegal work by unauthorized aliens. The SSA Office of the 
Inspector General (SSA IG) has reported, after reviewing earnings 
suspense file data for tax years 1999-2001, that fraudulent use of SSNs 
\1\ was widespread in the service, restaurant, and agriculture 
industries and that such fraud was a significant cause of SSA no-
matches:
---------------------------------------------------------------------------

    \1\ See INA Section 274C, 8 U.S.C. 1324c.

    [OIG] identified various types of reporting irregularities, such 
as invalid, unassigned and duplicate SSNs and SSNs belonging to 
young children and deceased individuals. While we recognize there 
are legitimate reasons why a worker's name and SSN may not match SSA 
files, such as a legal name change, we believe the magnitude of 
incorrect wage reporting is indicative of SSN misuse. Employees and 
industry association representatives acknowledged that unauthorized 
---------------------------------------------------------------------------
noncitizens contribute to SSN misuse.

Office of the Inspector General, Social Security Administration, Social 
Security Number Misuse in the Service, Restaurant, and Agriculture 
Industries, Report A-08-05-25023, at 2 (April 2005), Administrative 
Record at 456. See generally Administrative Record at 35-661.

[[Page 63848]]

    SSA no-match letters have also formed a basis for multiple criminal 
investigations by ICE and prosecutions on charges of harboring or 
knowingly hiring unauthorized aliens.\2\
---------------------------------------------------------------------------

    \2\ See, e.g., United States v. Gonzales, 2008 WL 160636 (N.D. 
Miss. No. 4:07-CR-140, Jan. 18, 2008) (finding no-match letters 
admissible at trial, and upholding a search warrant obtained on the 
basis of information, including copies of social security no-match 
letters, received from a confidential informant, treating no-match 
letters as ``documentary evidence supporting the allegation'' of the 
confidential informant); United States v. Fenceworks, Inc., No. 
3:06-CR-2604 (S.D. Cal.), D.E. 16 (judgment of probation and 
forfeiture of $4,700,000 in case involving multiple Social Security 
no-match letters) (related cases Nos. 3:06-CR-2605 (probation and 
fine of $100,000); 3:06-CR-2606 (probation and fine of $200,000)); 
United States v. Insolia, No. 1:07-CR-10251 (D. Mass), D.E. 1 
(complaint; attachment, ]] 25-32, February 2007 probable cause 
affidavit detailing history of employer's no-match letters from 2002 
through 2005 and other investigative methods and facts); 34 
(indictment); United States v. Rice, No. 1:07-CR-109 (N.D.N.Y), D.E. 
1 (complaint; attached probable cause affidavit) (]] 64-66, 
detailing results of matching analysis and SSA letters received by 
defendant's employer), D.E. 17 (plea agreement).
---------------------------------------------------------------------------

    DHS's view--that no-match letters regularly identify unauthorized 
alien workers--was also overwhelmingly affirmed by those who submitted 
comments on the proposed rule in 2006. See, e.g., Administrative Record 
at 866 (comment by U.S. Chamber of Commerce: ``It is estimated that 
annually 500,000 essential workers enter the U.S. to perform much 
needed labor without work authorization. * * * The proposed regulation 
will strip needed workers from employers without providing employers 
with an alternative legal channel by which to recruit to fill the gaps. 
* * *''); id. at 874 (comment by Essential Workers Immigration 
Coalition including same statement); id. at 850 (comment by National 
Federation of Independent Business: ``a substantial number of workers 
identified by no-match letters are undocumented immigrants who are 
unable to provide legitimate social security numbers''); id. at 858 
(comment by Western Growers opposing the rule on grounds that ``it 
would have a most devastating effect on California and Arizona 
agriculture, where an estimated 50 to 80 percent of the workers who 
harvest fruit, vegetables and other crops are illegal immigrants''); 
id. at 887 (comment by American Immigration Lawyers Association: 
``[T]he proposed regulation admittedly will `smoke out' many 
unauthorized workers.''); id. at 1306 (comment by National Council of 
Agricultural Employers suggesting that, as a conservative estimate, 76% 
of agricultural workers are not authorized to work in the United 
States, that ``employers would likely lose a significant part of their 
workforces,'' and that ``a substantial number of workers would not 
return to work'' when faced with the requirement to verify work 
authorization ``because they would be unable to do so''). See also AFL-
CIO v. Chertoff, 552 F.Supp.2d at 1008 (``th[e] Court cannot agree with 
plaintiffs'' fundamental premise that a no-match letter can never 
trigger constructive knowledge, regardless of the circumstances'').
c. SSA's Procedures Better Target No-Match Letters to Employers With 
Potential Workforce Problems
    SSA's criteria for sending employer no-match letters also inform 
DHS's position in the August 2007 Final Rule and in this supplementary 
rulemaking. SSA does not send employer no-match letters to every 
employer with a no-match. Instead, SSA sends letters only when an 
employer submits a wage report reflecting at least 11 workers with no-
matches, and when the total number of no-matches in a given wage report 
represents more than 0.5% of the employer's total Forms W-2 in the 
report.
    In addition, SSA has continued to refine the wage reporting process 
in ways that help to reduce administrative error resulting in a no-
match letter. Employers filing more than 250 Forms W-2 are required to 
file electronically (see 42 U.S.C. 405(c)(2)(A); 20 CFR 422.114; 26 CFR 
301.6011-2), and electronic filing of Forms W-2 has risen from 53% of 
all employee reports in FY2003 to over 80% in FY2007--a 51% 
increase.\3\ This direct electronic filing substantially reduces the 
likelihood that SSA errors--such as during data entry of the 
information submitted on a paper Form W-2--would result in 
discrepancies in the wage reports. Employers also have access to SSA's 
system for identifying name-SSN mismatches at the time they file the 
wage reports. That system can only be used to verify current or former 
employees and only for wage reporting (Form W-2) purposes. Employers 
who use SSA's system are able to eliminate most no-matches in their 
reports and thereby significantly reduce their likelihood of receiving 
a no-match letter.
---------------------------------------------------------------------------

    \3\ Social Security Administration, Performance and 
Accountability Report, Fiscal Year 2007 at 67-8.
---------------------------------------------------------------------------

    DHS is also aware that SSA has developed a series of computerized 
error-checking routines to resolve certain common errors that result in 
unmatched name and SSN. These routines resolve name discrepancies 
caused by misspellings, typographical errors, first name and last name 
transpositions, and female surname changes (e.g. marriage or divorce). 
They can also resolve discrepancies from the use of a derivative 
nickname instead of a proper name or from scrambling compound or 
hyphenated surnames. The routines can also resolve SSN discrepancies 
such as numerical transpositions.
    GAO has reported that approximately 60 percent of no-matches in 
recent tax years' wage reports are corrected by SSA's algorithms. See 
Government Accountability Office, Social Security: Better Coordination 
among Federal Agencies Could Reduce Unidentified Earnings Reports (GAO 
Report 05-154, 2005), Administrative Record at 400. See also Office of 
the Inspector General, Social Security Administration, Effectiveness of 
the Single Select Edit Routine (Audit Report A-03-07-17065, Sept. 
2007). While these routines cannot resolve all discrepancies, they 
reduce the number of inadvertent no-matches that are reported to 
employers.
    DHS believes that, taken together, these efforts better direct no-
match letters to employers that have potentially significant problems 
with their employees' work authorization. Employers with stray mistakes 
or de minimis inaccuracies are much less likely to receive no-match 
letters.
d. The Longstanding Principle That Employers May Be Liable for INA 
Violations Based on Constructive Knowledge
    Both pre-existing regulations and consistent case law demonstrate 
that an employer can be found to have violated INA section 274A(a)(2), 
8 U.S.C. 1324a(a)(2), by having constructive rather than actual 
knowledge that an employee is unauthorized to work. The concept of 
constructive knowledge appeared in the first regulation that defined 
``knowing'' for purposes of INA section 274a, 8 CFR 274A.1(l)(1) 
(1990); 55 FR 25928 (June 25, 1990). As noted in the preamble to the 
original regulation, that definition of knowledge is consistent with 
the Ninth Circuit's decision in Mester Mfg. Co. v. INS, 879 F.2d 561, 
567 (9th Cir. 1989) (holding that, after receiving information that 
employees were suspected of having presented false documents to show 
work authorization, the employer had constructive knowledge of 
unauthorized status because the employer failed to make inquiries or 
take appropriate corrective action). See also New El Rey Sausage Co. v. 
INS, 925 F.2d 1153, 1158 (9th Cir. 1991).
    The rulemaking record demonstrates that employers have continued to

[[Page 63849]]

demand clear guidance on appropriately responding to SSA no-match 
letters, consistent with their obligations under the INA. It also 
demonstrates a well-established consensus that the appearance of 
employees' SSNs on an SSA no-match letter may indicate lack of work 
authorization. The record also shows that SSA's practices in generating 
no-match letters helps to focus those letters on employers that, in 
DHS's view, have non-trivial levels of employees with SSN mismatches in 
their workforce, and existing law clearly establishes that employers 
may be charged with constructive knowledge when they fail to conduct 
further inquiries in the face of information that would lead a person 
exercising reasonable care to learn of an employee's unauthorized 
status.
    This reasoned analysis supports DHS's position in the August 2007 
Final Rule--that an employer's failure to conduct reasonable due 
diligence upon receipt of an SSA no-match letter can, in the totality 
of the circumstances, establish constructive knowledge of an employee's 
unauthorized status. Assuming, as did the district court, that this 
position constituted a change from prior statements in informal agency 
correspondence, DHS has now provided additional--and sufficient--
reasoned analysis to support that change.
3. Anti-Discrimination Provisions of the INA
    The preamble to the August 2007 Final Rule said that employers that 
adopt the rule's safe harbor procedures to verify employees' identity 
and work authorization must apply them uniformly to all employees who 
appear on employer no-match letters. Failure to do so, the preamble 
warned, may violate the INA's anti-discrimination provisions. The 
preamble further noted that employers that follow the safe harbor 
procedures uniformly and without regard to perceived national origin or 
citizenship status will not be found to have engaged in unlawful 
discrimination. 72 FR 45613-14. The DHS insert prepared to accompany 
the no-match letter had similar language. AFL-CIO v. Chertoff, D.E. 7, 
Exh. C. (N.D. Cal. Aug. 29, 2007).
    The district court questioned DHS's authority to offer what the 
court viewed as interpretations, rather than mere restatements, of 
settled anti-discrimination law, noting that DOJ, not DHS, has 
authority for interpretation and enforcement of the INA's anti-
discrimination provisions. The court concluded that DHS appeared to 
have exceeded its authority. 552 F.Supp.2d at 1011.
    DHS recognizes the jurisdiction of DOJ over enforcement of the 
anti-discrimination provisions in section 274B of the INA (8 U.S.C. 
1324b). As stated in the preamble to the August 2007 Final Rule, 
``DOJ--through its Office of Special Counsel for Immigration-Related 
Unfair Employment Practices--is responsible for enforcing the anti-
discrimination provisions of section 274B of the INA, 8 U.S.C. 1324b.'' 
72 FR 45,614. The August 2007 Final Rule also stated that DHS's rule 
``does not affect * * * the authority of DOJ to enforce the anti-
discrimination provisions of the INA or adjudicate notices of intent to 
fine employers.'' Id. DHS does not have the authority to obligate the 
DOJ or the Office of Special Counsel, and the August 2007 Final Rule 
did not purport to make any such obligation. Whether an employer has 
engaged in unlawful discrimination in violation of INA 274B is a 
determination that is made by DOJ through the Office of Special 
Counsel. A statement by one agency about the authority of another 
agency does not, in and of itself, encroach on the authority of that 
other agency, and DHS's statements in the August 2007 Final Rule were 
reviewed through an interagency process that was created to improve the 
internal management of the Executive Branch. Executive Order 12866, 58 
FR 51735 (Oct. 4, 1993), as amended by Executive Order 13258, 67 FR 
9385 (Feb. 28, 2002), as amended by Executive Order 13422, 72 FR 2763 
(Jan. 23, 2007).
    Nevertheless, in light of the district court's concerns, DHS 
rescinds the statements in the preamble of the August 2007 Final Rule 
discussing the potential for anti-discrimination liability faced by 
employers that follow the safe harbor procedures set forth in the 
August 2007 Final Rule.\4\ DHS has also revised the language in its 
insert letter that will accompany the SSA no-match letters. These 
changes do not alter existing law or require any change to the rule 
text.
---------------------------------------------------------------------------

    \4\ For example, DHS rescinds conclusive statements from the 
preamble of the August 2007 Final Rule such as ``employers who 
follow the safe harbor procedures * * * will not be found to have 
engaged in unlawful discrimination.'' 73 FR at 15950, citing 72 FR 
45613-14.
---------------------------------------------------------------------------

    DHS recognizes the concerns raised by commenters that 
discrimination litigation may be brought against them. As expressed by 
one commenter:

    One of the greatest potential costs faced by employers as a 
result of this rulemaking is the increased likelihood of 
discrimination lawsuits brought about by the required termination of 
employees who cannot resolve ``mismatches.'' DHS' retraction of the 
assurances it attempted to provide in the proposed rule only 
increases the uncertainty that employers face. Moreover, even 
meritless claims brought by terminated employees will require 
significant expenses in legal fees and related costs to defend, and 
unless DHS can remove jurisdiction in all courts in which such 
actions might be brought, it cannot prevent these expenses. Our 
reality is that we will be ``attacked'' by numerous organizations * 
* * as we have been in the past.

ICEB-2006-0004-0498.1 at 1-2 (emphasis in original); see also ICEB-
2006-0004-0571.1 at 2; ICEB-2006-0004-0679.1 at 2.
    While DHS lacks the authority to announce interpretations of the 
anti-discrimination provisions of the INA, DOJ possesses such 
authority, and persons seeking guidance regarding employers' anti-
discrimination obligations in following the safe harbor procedures in 
the August 2007 Final Rule, as modified by this supplemental 
rulemaking, should follow the direction provided by DOJ published in 
today's edition of the Federal Register, and available on the Web site 
of the Office of Special Counsel for Immigration-Related Unfair 
Employment Practices, at https://www.usdoj.gov/crt/osc/htm/
Nomatch032008.htm. Employers may also seek advice on a case-by-case 
basis through OSC's toll-free employer hotline: 1-800-255-8155. The 
Department continues to urge employers to apply the safe harbor 
procedures in this rule to all employees referenced in an SSA no-match 
letter or a DHS notice uniformly and without regard to perceived 
national origin or citizenship status.
4. Regulatory Flexibility Analysis
    In its decision enjoining implementation of the August 2007 Final 
Rule, the district court construed the safe harbor in the rule as 
effectively creating compliance obligations for employers that received 
no-match letters. Doubting the voluntary nature of the safe harbor 
rule, the court found it likely that small businesses would incur 
significant costs to enter the safe harbor:

    Because failure to comply subjects' employers to the threat of 
civil and criminal liability, the regulation is the practical 
equivalent of a rule that obliges an employer to comply or to suffer 
the consequences; the voluntary form of the rule is but a veil for 
the threat it obscures. The rule as good as mandates costly 
compliance with a new 90-day timeframe for resolving mismatches. 
Accordingly, there are serious questions whether DHS violated the 
RFA by refusing to conduct a final flexibility analysis.

552 F.Supp.2d at 1013 (internal quotations and citations omitted). In 
light of the district court's conclusion

[[Page 63850]]

that a regulatory flexibility analysis would likely be required, DHS 
published an initial regulatory flexibility analysis (IRFA) in the 
supplemental proposed rule, 73 FR at 15952-54, and placed on the docket 
for public comment the Small Entity Impact Analysis, Supplemental 
Proposed Rule: Safe Harbor Procedures for Employers Who Receive a No-
Match Letter, ICEB-2006-0004-0233 (hereinafter, the ``SEIA'').
    DHS continues to view the August 2007 Final Rule and this 
supplemental rule as interpretive, and does not believe that these 
rulemakings bear any of the hallmarks of a legislative rule. See Hemp 
Industries Ass'n v. Drug Enforcement Admin., 333 F.3d 1082, 1087 (9th 
Cir. 2003) (identifying three circumstances in which a rule is 
legislative); Syncore Int'l Corp. v. Shalala, 127 F.3d 90, 94 (D.C. 
Cir. 1997) (interpretive rule ``typically reflects an agency's 
construction of a statute that has been entrusted to the agency to 
administer'' and a statement of policy ``represents an agency position 
with respect to how it will treat--typically enforce--the governing 
legal norm. By issuing a policy statement, an agency simply lets the 
public know its current enforcement or adjudicatory approach.''). DHS 
is not invoking its legislative rulemaking authority to mandate a 
specific action upon a certain event. Instead, this rulemaking informs 
the public of DHS's interpretation of Section 274A of the INA and 
describes how DHS will exercise its discretion in enforcing the INA's 
prohibition on knowing employment of unauthorized aliens. Although the 
district court questioned whether DHS has changed its position on the 
evidentiary force of no-match letters in enforcement proceedings 
against employers, neither the August 2007 Final Rule nor this 
supplemental rulemaking departs from any prior legislative rule. See 
Oregon v. Ashcroft, 368 F.3d 1118, 1134 (9th Cir. 2004). As noted 
above, the only record of the agency's previous position lies in 
correspondence between the agency and individuals and employers seeking 
advice on specific questions.
    Thus, although DHS continues to believe that the Regulatory 
Flexibility Act does not mandate the analysis that has been undertaken 
here, see Central Texas Tel. Coop. v. FCC, 402 F.3d 205, 214 (D.C. Cir. 
2005), the Department provided an IRFA and supporting economic 
analysis, and has now prepared a Final Regulatory Flexibility Analysis 
(FRFA) in response to the district court's concerns.
    As the United States Court of Appeals for the Ninth Circuit has 
noted, the Regulatory Flexibility Act (RFA) ``imposes no substantive 
requirements on an agency; rather, its requirements are `purely 
procedural' in nature. * * * To satisfy the RFA, an agency must only 
demonstrate a `reasonable, good-faith effort' to fulfill its 
requirements.'' Ranchers Cattlemen Action Legal Fund v. USDA, 415 F.3d 
1078, 1101 (9th Cir. 2005). See also Envtl. Def. Ctr. v. EPA, 344 F.3d 
832, 879 (9th Cir. 2003) (``Like the Notice and Comment process 
required in administrative rulemaking by the APA, the analyses required 
by the RFA are essentially procedural hurdles; after considering the 
relevant impacts and alternatives, an administrative agency remains 
free to regulate as it sees fit.'').
    The RFA, by definition, does not apply to individuals. Where it 
applies, the RFA requires agencies to analyze the impact of rulemaking 
on ``small entities.'' Small entities include small businesses, not-
for-profit organizations that are independently owned and operated and 
are not dominant in their fields, and governmental jurisdictions with 
populations of less than 50,000. 5 U.S.C. 601(3), (5)-(6). Small 
businesses are defined in regulations promulgated by the Small Business 
Administration. 13 CFR 121.201.
    The RFA provides that an initial regulatory flexibility analysis 
(IRFA) shall contain:

    (1) A description of the reasons why action by the agency is 
being considered;
    (2) A succinct statement of the objectives of, and legal basis 
for, the proposed rule;
    (3) A description of and, where feasible, an estimate of the 
number of small entities to which the proposed rule will apply;
    (4) A description of the projected reporting, recordkeeping and 
other compliance requirements of the proposed rule, including an 
estimate of the classes of small entities which will be subject to 
the requirement and the type of professional skills necessary for 
preparation of the report or record;
    (5) An identification, to the extent practicable, of all 
relevant Federal rules which may duplicate, overlap or conflict with 
the proposed rule.

5 U.S.C. 603(b). Furthermore, an IRFA must also contain:

    a description of any significant alternatives to the proposed 
rule which accomplish the stated objectives of applicable statutes 
and which minimize any significant economic impact of the proposed 
rule on small entities. Consistent with the stated objectives of 
applicable statutes, the analysis shall discuss significant 
alternatives such as--
    (1) The establishment of differing compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
    (2) The clarification, consolidation, or simplification of 
compliance and reporting requirements under the rule for such small 
entities;
    (3) The use of performance rather than design standards; and
    (4) An exemption from coverage of the rule, or any part thereof, 
for such small entities.

5 U.S.C. 603(c). The RFA does not require that these elements be 
considered in a specific manner, following a prescribed formula or 
content. Given the nature of rulemaking, and its diversity, agencies 
develop IRFAs in a manner consistent with the statute and the 
rulemaking itself.\5\
---------------------------------------------------------------------------

    \5\ The Small Business Administration had provided additional 
guidance. See Office of Advocacy, Small Business Administration, A 
Guide for Government Agencies: How to Comply with the Regulatory 
Flexibility Act (2003). It states, in pertinent part:
    The RFA requires agencies to conduct sufficient analyses to 
measure and consider the regulatory impacts of the rule to determine 
whether there will be a significant economic impact on a substantial 
number of small entities. No single definition can apply to all 
rules, given the dynamics of the economy and changes that are 
constantly occurring in the structure of small-entity sectors.
    Every rule is different. The level, scope, and complexity of 
analysis may vary significantly depending on the characteristics and 
composition of the industry or small entity sectors to be regulated.
    Id. at 14.
---------------------------------------------------------------------------

    The IRFA provided with the supplemental notice of proposed 
rulemaking contained the elements listed in 5 U.S.C. 603(b) as well as 
the discussion of significant regulatory alternatives required by 5 
U.S.C. 603(c). The supplemental proposed rule explicitly requested 
comments on the economic aspects of the analysis and on the discussion 
of regulatory alternatives. Publication of the supplemental proposed 
rule received significant media coverage. The U.S. Small Business 
Administration Office of Advocacy (Advocacy) hosted a small business 
roundtable shortly after publication of the supplemental proposed rule 
to collect comments from interested small businesses and submitted a 
public comment letter based on this input. The comments provided by 
Advocacy are addressed in the analysis below. As noted above, the 
supplemental proposed rule and accompanying IRFA received nearly 3,000 
comments from the public, including a significant number of comments 
specifically addressing the IRFA and the underlying SEIA.
    DHS has reviewed the comments received on the IRFA and has 
concluded that the IRFA complied with the statutory standards for such 
an analysis and provided the public sufficient information to submit 
informed comments regarding the possible impact of this rule.

[[Page 63851]]

    In light of comments that identified plausible regulatory 
alternatives or areas needing further clarification or adjustments in 
the economic model underlying the SEIA, DHS has revised the analysis 
and assembled a FRFA. The RFA requires that a FRFA contain:

    (1) A succinct statement of the need for, and objectives of, the 
rule;
    (2) A summary of the significant issues raised by the public 
comments in response to the initial regulatory flexibility analysis, 
a summary of the assessment of the agency of such issues, and a 
statement of any changes made in the proposed rule as a result of 
such comments;
    (3) A description of and an estimate of the number of small 
entities to which the rule will apply or an explanation of why no 
such estimate is available;
    (4) A description of the projected reporting, recordkeeping and 
other compliance requirements of the rule, including an estimate of 
the classes of small entities which will be subject to the 
requirement and the type of professional skills necessary for 
preparation of the report or record; and
    (5) A description of the steps the agency has taken to minimize 
the significant economic impact on small entities consistent with 
the stated objectives of applicable statutes, including a statement 
of the factual, policy, and legal reasons for selecting the 
alternative adopted in the final rule and why each one of the other 
significant alternatives to the rule considered by the agency which 
affect the impact on small entities was rejected.

5 U.S.C. 604(a). The discussion below and in the final SEIA on the 
docket addresses specific comments received on the IRFA and, together 
with the FRFA summarized in this supplemental final rule, provides the 
statutorily required agency assessment of comments received, 
projections of the number of affected small entities, description of 
the anticipated reporting and compliance burdens, and discussion of 
steps taken to limit any impact of the rule on small entities. In this 
way, DHS has ``demonstrated a `reasonable, good-faith effort' to 
fulfill'' the procedural and substantive requirements of the RFA.

III. Public Comments and Responses

A. Authority To Promulgate the Rule

    A number of commenters challenged DHS's authority to promulgate 
this rule. DHS has reanalyzed its jurisdiction and authority in light 
of these comments, and concludes that it has the necessary authority to 
promulgate this final rule.
    Several commenters suggested that the rule imposes an affirmative 
due diligence obligation on employers that does not exist in the INA 
once employers complete the Form I-9 process. As is explained in 
section II.C, supra, the INA's prohibition on ``knowing'' hiring or 
continued employment of unauthorized workers extends to employers that 
have constructive knowledge that an employee is unauthorized to work. 
The concept of constructive knowledge appeared in the first regulation 
that defined ``knowing'' for purposes of INA section 274a, 8 CFR 
274A.1(l)(1) (1990); 55 FR 25,928. As noted in the preamble to that 
original regulation, that definition of knowledge is consistent with 
the Ninth Circuit's decision in Mester Mfg