`Business Death Penalty' for Hiring Illegal Aliens Unites Obama, Companies

In 2007, Arizona enacted a law containing what then-Governor Janet Napolitano called the “business death penalty,” a provision threatening companies that hired illegal aliens with revocation of their corporate charters.

The U.S. Chamber of Commerce’s challenge to the law is now before the U.S. Supreme Court, which hears arguments today. With states and cities seeking to crack down on illegal border crossing, a ruling upholding the measure would spur enactment of similar laws elsewhere, advocates on both sides say.

“Once the principles are in place, the floodgates will open around the country,” said Michael Hethmon, a lawyer with the Washington-based Immigration Reform Law Institute, which supports the Arizona law.

The case also may provide a hint as to the court’s approach to other state immigration measures, including a separate Arizona statute that gives local police a greater role in arresting illegal immigrants. President Barack Obama’s administration, which backs the Chamber of Commerce in the case, is urging the court to declare immigration policy to be a matter almost exclusively for the federal government, not the states.

“The court hasn’t ruled broadly on the appropriate role of the states in immigration enforcement in more than 30 years,” said Peter Spiro, a law professor at Temple University who specializes in immigration law. “This could be the vehicle for tipping its hand one way or the other on the question.”

Photographer: Justin Sullivan/Getty Images

Illegal immigrant Rolando Ambrocio of Guatemala carries a bucket of dirt while working on a landscaping job in San Rafael, California. Close

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Photographer: Justin Sullivan/Getty Images

Illegal immigrant Rolando Ambrocio of Guatemala carries a bucket of dirt while working on a landscaping job in San Rafael, California.

E-Verify System

The court also will consider an issue that Carter Phillips, the Chamber of Commerce’s attorney in the case, says may be of even greater importance to big corporations. It will decide whether Arizona can require employers to participate in E- Verify, a system designed to allow confirmation of worker eligibility for employment through federal databases. The system is voluntary under U.S. law.

Napolitano, now Obama’s homeland security secretary, signed the Arizona measure into law. A San Francisco-based federal appeals court upheld both aspects of the statute, which is also being challenged by civil rights groups and a labor union.

The law, which took effect in 2008, makes the hiring of illegal aliens a state offense, in addition to a federal one, and subjects violators to penalties including the revocation of their charter.

The challengers say the employer-sanctions provision runs afoul of a 1986 federal statute that bars states and cities from penalizing employers for hiring illegal aliens except through “licensing and similar laws.” A central question in the case is whether that exception is broad enough to let a state revoke the charter of a company that hires illegal workers.

National Policy

The opponents also say the employer-sanctions provision undermines Congress’s intent to have a national policy govern immigrant employment.

“It’s an enormous burden on the employers because you now have a completely separate parallel set of regulations out there,” Phillips said. “It’s pretty clear Congress didn’t intend that.”

Arizona Attorney General Terry Goddard is defending the law, saying the sanctions provision doesn’t create any obligations that aren’t already imposed by the federal ban on employment of illegal aliens. Federal law lays out both civil and criminal sanctions that employers may face for violations.

“Permitting states to take actions against licensees who are knowingly employing unauthorized aliens supports the congressional interest in vigorous enforcement,” Goddard argued in court papers.

So far, Arizona officials have filed only three enforcement actions against employers, all in Maricopa County, which includes Phoenix and Scottsdale.

State Laws

Only Arizona and Hawaii allow revocation of a business license to punish companies for hiring illegal aliens. Eight other states and two cities impose lesser sanctions, according to a brief filed in support of the Chamber of Commerce by 17 other business trade groups.

One question for the court is what Congress’s intent was when it enacted the 1986 law. Sri Srinivasan, a Washington lawyer with O’Melveny & Myers who represents the business groups, says Congress had multiple goals in mind: preventing the employment of illegal aliens while minimizing the burdens on employers and avoiding discrimination against job applicants.

“Congress sought to balance a number of considerations in its carefully calibrated employer-sanctions provisions,” Srinivasan said.

Hethmon, the lawyer whose group supports the law, said cracking down on the hiring of illegal immigrants was by far Congress’s top priority.

“They wanted to stop illegal immigration across the border by removing the magnet,” he said.

Central Issue

With E-Verify, the central issue is whether Congress’s decision to make the program voluntary means that states can’t make it mandatory.

The Chamber of Commerce says Congress sought to minimize the burdens on businesses until it determined whether the system was workable. “It is not for Arizona or any other state to disregard Congress’s judgment,” the trade group argued in court papers.

Goddard argued that the state law “helps to advance the federal government’s interest in ensuring a lawful workforce and developing an effective employee-verification program.”

One lurking question in the case is how reliable E-Verify is. The system produced inaccuracies in an estimated 4.1 percent of cases, primarily because of an inability to detect unauthorized workers using a false identity, according to a December 2009 report submitted to the Department of Homeland Security.

In his brief, Phillips called the system “error prone.” That puts him at odds with his ally in the case, the Obama administration, which hailed “E-Verify’s successful track record, which is borne out by findings documenting the system’s accuracy and participants’ satisfaction.”

The case, which the court will resolve by early July, is Chamber of Commerce v. Whiting, 09-115.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net.

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