Court to Rule on Tough Arizona Immigration Law

A federal appeals court will soon decide the legality of a state law that could put Arizona firms out of business for hiring illegal immigrants.

By Meghan Davy, Intern, the Kiplinger letters

July 2, 2008

More than 200 businesses in Arizona are challenging a state law that includes the toughest employer sanctions in the nation. The law, which started to take effect Jan. 1, requires Arizona's approximately 150,000 businesses to verify the legal status of all new hires through the federal E-Verify program, a voluntary system that allows employers to check the legitimacy of Social Security numbers and identity documents provided by job applicants. The law is being phased in, and no companies have been charged yet under its provisions.

Arizona companies found to have hired an undocumented worker are severely punished -- with fines and a 10-day suspension of their business license for a first offense. A second violation within the three-year probationary period results in the removal of all state licenses and permits, effectively forcing the company to shut down.

The law was upheld by a federal court in February, but a coalition of businesses appealed to the 9th U.S. Circuit Court of Appeals on the grounds that only the federal government has the power to enforce immigration restrictions. They also argued that the E-Verify system is a voluntary measure that can't be forced on businesses.

Opponents say the law is already taking a big economic toll on the state. "It's been a headache for a lot of companies. Many had to stop their growth plans last summer -- projects that were being developed were just shut down," says Julie Pace, an attorney with Ballard Spahr Andrews & Ingersoll who is representing the companies in the suit. "The law is really affecting investment capital, construction is slowing down, and retail sales are way down," Pace says.

Others say the retrenchment is mostly a result of the national economic slowdown, but they worry whether Arizona will be able to participate in the recovery when it comes. "The Latino community is moving away because they don't feel welcome in Arizona anymore," says David Jones, president and CEO of the Arizona Contractors Association. "The question is, when the economy turns back -- and we are estimating that in the next 18 to 24 months -- will they return?"

Supporters say the law is necessary to help legal workers. They cite a study by the Maricopa County Attorney's Office that estimated Arizona workers were losing $1.4 billion in wages annually because local companies were hiring undocumented workers. "It's simple, it'll prove to be the most effective, nondiscriminatory measure in that it just asks people to follow the law," says Russell Pearce, a state representative who was instrumental in passing the law.

The law was signed reluctantly by Democratic Gov. Janet Napolitano, who said Arizona was forced to act because Congress had failed in its obligation to come up with a national solution. "Congress has dropped the ball miserably here," says Jeanine L'Ecuyer, press secretary for Napolitano.

Sheridan Bailey, owner of Ironco Enterprises, founder of Arizona Employers for Immigration Reform and one of those challenging the law in court, says Arizona needs a national guest worker program as part of a comprehensive immigration law. "There is no way to maintain a 3% GDP without additional workers," Bailey says, adding that there must also be a way to help the nearly 12 million illegal immigrants who are already living in the country become legal workers.

Congress' chances of tackling the immigration problem will improve next year, no matter who wins the presidency. Both Republican John McCain and Democrat Barack Obama are in favor of a comprehensive plan that includes tougher border controls, a large guest worker program and a path for illegal immigrants in the U.S. to become legal residents.

For weekly updates on topics to improve your business decisionmaking, click here.