The Real Deal: Mandatory E-Verify for Covered Federal Contractors

Becomes Effective September 8, 2009

After several extensions, the final rule mandating use of the Department of Homeland Security's (DHS) E-Verify system for certain qualifying federal contractors and subcontractors is set to go into effect on September 8, 2009. Under the final rule employers with covered federal contracts commenced or modified on or after September 8, 2009, that include the Federal Acquisition Regulation (FAR) E-Verify clause, will be required to participate in the E-Verify program. Employers with federal contracts should determine whether they are covered and prepare for the implementation of E-Verify to ensure adherence to the various deadlines in the regulations.

What is E-Verify?

E-Verify is a free, Internet-based system operated by the DHS in partnership with the Social Security Administration (SSA) and allows enrolled employers to verify the employment eligibility of certain employees online after the employee has completed an I-9. Participation in the program is currently voluntary for all U.S. employers. Employers using E-Verify input information from the I-9 and receive a response on employment eligibility. Depending on the response received, the employer may need to provide the employee with an opportunity to verify his or her employment eligibility before taking any adverse action related to the individual's employment.

Who is a Federal Contractor?

An employer is a federal contractor if it has entered into a contract with the federal government or one of its agencies to furnish supplies or services (including construction). In addition to formal contracts, federal contracts include, but are not limited to, awards and notices of awards, job orders or task letters issued under basic ordering agreements, letter contracts, purchase orders, and contract modifications. Federal contracts do not include grants and cooperative agreements.

What Federal Contractors are Affected by the New Rule?

Employers with prime federal contracts (including construction contracts) valued at $100,000 or more with a period of performance of 120 days or longer that are entered into on or after September 8, 2009, are required to comply with this new rule. The rule applies only to employers with direct contracts with the federal government (or its agencies), including those funded by the American Recovery and Reinvestment Act (ARRA). However, employers with federal contracts that include only commercially-off-the-shelf (COTS) items – items available commercially in substantially quantities in the same form – or federal contracts where all work is to be performed outside of the U.S. are exempt. All covered federal contracts awarded on or after September 8, 2009, should include a clause requiring the federal contractor to use E-Verify to verify the employment eligibility of all new hires and all current employees assigned to the federal contract.

Existing and indefinite federal contracts that meet the time and monetary requirements stated above should be modified to include the new E-Verify requirement if the remaining period of performance under the contract extends at least six months beyond September 8, 2009, and the amount of work or number of expected orders under the remaining period is substantial. "Substantial" for this purpose is not clearly defined and interpretation will fall within the discretion of the federal government's contracting officer. Employers with existing contracts without an E-Verify clause should not follow the mandatory E-Verify requirements until the contract has been modified.

What Federal Subcontractors are Affected by the New Rule?

Employers with subcontracts flowing from covered federal contracts are also required to use E-Verify if the subcontract is for services or construction over $3,000. The covered federal contractor is responsible for ensuring that its subcontracts include the E-Verify clause and subcontractors are responsible for reviewing and complying with all requirements contained within those contracts.

What Specific Employees are Affected?

Current participants in E-Verify must verify the employment eligibility of all new employees hired after the employer voluntarily enrolls in the program and signs a Memorandum of Understanding (MOU) with the DHS and SSA. Under the new rule, covered federal contractors and subcontractors must verify the employment eligibility of all new hires and must also verify the employment eligibility of all current employees hired after November 6, 1986, that are assigned to the federal contract or subcontract. Employees with certain government security clearances or credentials are exempt from verification.

Federal contractors and subcontractors who are affected by the new rule also have the option to verify the employment authorization of their entire workforces, as opposed to determining the employees who are assigned to the contract, as long as the employer updates any current company profile they may have with the DHS to reflect the election of this option and initiates E-Verify queries for all employees within 180 days of enrollment or the update. Importantly, all other employers who are using E-Verify on a volunteer basis and are not covered federal contractors or subcontractors under this new rule may NOT use E-Verify to verify the employment eligibility of existing employees.

Does the New Rule Also Apply to Colleges and Universities?

Colleges and universities who have qualifying federal contracts are also subject to this rule. Funding to institutions of higher learning in the form of federal grants, however, do not constitute "federal contracts" for purposes of this rule. For those colleges and universities who do have qualifying federal contracts or subcontracts, the same requirements for all other federal contractors and subcontractors will apply EXCEPT that colleges and universities are NOT required to use E-Verify for all new hires. These institutions of higher learning must still verify the employment eligibility of any employee who will be assigned to the federal contract by using the E-Verify system.

What Should Employers Do Now?

Employers affected by this new rule who have not yet enrolled in E-Verify are not required to do so until they are awarded a new federal contract or subcontract on or after September 8, 2009. Employers with existing contracts affected by the rule should work with legal counsel to determine whether contracts should be or have been modified to require E-Verify participation. Once the new contract is awarded or an existing contract is modified, the federal contractor has 30 days from the contract award/modification date to enroll in the E-Verify program and has an additional 90 days from the enrollment date to verify new hires and all current employees assigned to the federal contract or subcontract.

Affected employers who have already voluntarily enrolled in the program should update their company profiles and identify the company as a federal contractor through E-Verify's online system. Such employers will have 90 days from the contract award/modification date to verify current employees assigned to the federal contract. These employers should already be verifying the employment eligibility of all new hires under the original E-Verify requirements. Employees who have already been verified by the covered federal contractor should not be re-verified in connection with this new rule.

All employers participating in E-Verify must carefully read and sign the MOU and post a notice issued by the DHS confirming participation along with the anti-discrimination notice issued by the Department of Justice's Office of Special Counsel. These notices are available for download from the E-Verify Web site after enrolling in the program and should be posted in a prominent place clearly visible to affected and prospective employees.

Please contact Tami Earnhart with any questions regarding your requirement to enroll in E-Verify as a federal contractor or subcontractor or Jenifer Brown regarding E-Verify in general or other questions concerning I-9 compliance, employment verification, and other immigration-related issues.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.