Arizona Business "Death Penalty" Act Constitutional

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By Ronald G. Guerra

In December 2010 the U.S. Supreme Court heard oral arguments in the Chamber of Commerce v. Whiting, Case No. 09-115, the challenge to the Arizona immigration law, known as the Legal Arizona Workers Act ("LAWA"). Under LAWA, all Arizona employers are required to use the federal internet-based E-Verify program to determine whether employees are eligible to work in the United States. On May 26, 2011, in a 5-3 decision, the Court held that LAWA was constitutional and not otherwise preempted by federal law. This may signal bad news for employers seeking to hold off illegal immigration laws at the state level.

The Court considered three issues:

1. Whether federal law expressly preempts the provisions of LAWA that sanction employers for the knowing or intentional employment of undocumented aliens.
   
   The Court's majority held that federal law did not expressly preempt provisions of LAWA. The Chamber of Commerce ("The Chamber") argued that Arizona's law was expressly preempted by the Immigration Reform and Control Act of 1986 ("IRCA"). IRCA expressly preempts "any state or local law imposing civil or criminal sanctions (other than through licensing and similar laws) upon those who employ, or recruit or refer for a fee for employment, unauthorized aliens." LAWA allows Arizona courts to suspend or revoke the licenses necessary to do business in the state if the employer knowingly or intentionally employs an unauthorized alien. Arizona thus argued that LAWA came within the exception of IRCA because it was directed at imposing sanctions through licensing laws. The Court agreed with Arizona and held that "Arizona's licensing law falls within the confines of the authority Congress chose to leave to the states and therefore is not expressly preempted."
   
   
2. Whether LAWA is impliedly preempted because it conflicts with federal law.
   
   The Court's majority held that the Arizona statute was not impliedly preempted. The Chamber argued that Congress "intended the federal system to be exclusive" and that any state system therefore necessarily conflicted with federal law. Arizona argued that its procedures "simply implement the sanctions that Congress expressly allowed Arizona to pursue through licensing laws." The Court agreed and held that "given that Congress specifically preserved such authority ("other than through licensing and similar laws") for the states, it stands to reason that Congress did not intend to prevent the states from using appropriate tools to exercise that authority." The Court explained that "implied preemption analysis does not justify a free-wheeling judicial inquiry into whether a state statute is in tension with federal objectives; such an endeavor would undercut the principle that it is Congress rather than the courts that preempts state law."
   
   
3. Whether a state law or local government ordinance requiring employers to enroll and participate in the federally created and administered voluntary E-Verify program is impliedly preempted.
   
   The Court's majority held that a requirement to enroll in and use E-Verify was not impliedly preempted. The Chamber argued that "Congress wanted to develop a reliable and non-burdensome system of work-authorization verification that could serve as an alternative to the I-9 procedures and the mandatory use of E-Verify impedes that purpose." Arizona argued that its requirement that employers operating within its borders use E-Verify in no way obstructs Congress' purposes." The Court held that "Arizona's use of E-Verify does not conflict with the federal scheme... and is entirely consistent with the federal law."

What are the implications of the Court's decision in the Arizona case?

Unfortunately, this decision undercuts the call for comprehensive immigration reform at the federal level because states are now empowered to rush to pass their own state laws modeled on LAWA. To the extent that states focus on the suspension of state licenses their laws would pass constitutional muster and are not preempted by federal law.

The effect of Arizona-style laws in other states will not be felt immediately because the mandatory use of E-Verify is only prospective in application. That is, only new hires are required to be subject to the E-Verify process. But many agricultural employers, including Oregon Association of Nurseries members, layoff or terminate many of their seasonal hires every year. When rehired or recalled, these employees will be subject to the E-Verify process. Hence, an agricultural employer might retain its workforce for this season but could well find that a substantial portion of its workforce disappears or cannot be verified through E-Verify the next season after an Arizona-style law is passed. This could have dramatic consequences for agricultural employers subject to such a state scheme.

This, of course, says nothing about the "death penalty" aspect of any Arizona-style law. Under such a scheme a business that has been found to violate the state law on two occasions would be subject to the withdrawal of its ability to do business in the state — thus the "death penalty." The Court discussed in depth the definition of what a business license is. The Court found that Arizona's definition of "any agency permit, certificate, approval, registration, charter or similar form of authorization that is required by law and that is issued by any agency for the purposes of operating a business in the state... largely parrots the definition of license that Congress codified in the Administrative Procedure Act." The Court held that "even if a law regulating articles of incorporation, partnership, certificates, and the like is not itself a licensing law, it is at the very least similar to a licensing law, and therefore, comfortably within the savings clause."

One final note — the original challenge to LAWA was a facial challenge only. That is, the courts were only asked whether, on its face, LAWA was constitutional. Each of the courts reviewing this question has now said yes. What remains is an "as-applied" challenge, a challenge that will arise after an employer is actually charged with a violation of LAWA and seeks to set it aside as unconstitutional in its application to the business entity. This decision then is not the final say in how LAWA will impact business. LAWA will continue to be in the news and generate additional controversy as it is implemented and applied.

Summer 2011

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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