We received a question concerning the E-Verify federal contractor requirements as applied to a multi-entity organization.

The question comes in two parts:

1. If a subsidiary is awarded a federal contract, can the parent company (which is the company that signed up for e-verify and entered into the MOU but has a different FEIN from the subsidiary) e-verify all of its current employees and those of its other subsidiaries, even if the parent and the other subsidiaries do not hold federal contracts?

2. What if an employee of a subsidiary that is not a federal contractor is assigned to perform work for a subsidiary that did sign a contract (but the employee is not transferred to/employed by the contracting subsidiary)?

Let’s discuss the first part: the regulations amending the FAR (Federal Acquisition Regulation) do not specifically address the issue of whether separate but related legal entities may use E-Verify for their entire workforce when only one company has a qualifying contract. The commentary portion of the rule does mention a similar scenario though, in addressing the issue of whether subsidiaries must use E-Verify for existing employees when the parent holds the contract, but the subsidiaries do not. In particular, the FAR council writes:

Whoever signs a contract is the contractor. Only the legal entity that signs the contract and is bound by the performance obligations of the contract is covered by this E-Verify term. If ambiguity remains, this issue will have to be handled on a case-by-case basis consistent with traditional FAR principles.

This reasoning would seem to indicate that this first scenario is not permissible, since the parent company (and its subsidiaries) are not a party to the contract, and thus under the MOU, they cannot use E-Verify for existing employees. On the other hand, E-Verify representative have told us that a parent company can register using one account and include all related companies as hiring locations. Since many companies have been doing this, they may need to change this policy so related companies are not all given federal contractor status.

The second part of the question addresses the situation when an employee of a subsidiary that is not a federal contractor is assigned to perform work for a subsidiary that is, and there is no employee-transfer involved. Following the logic above, it would seem that this employee cannot be run through E-Verify since his employer is not a federal contractor. Once again, the regulation is silent on this issue, but the commentary portion provides some insight. When asked whether the requirement to E-Verify new hires could be applied only to locations that are engaged in the contract, the Council responded:

If the requirement were limited only to new hires at locations doing Government work, the rule would be impractical and too easy to undermine by transferring employees from noncontracting work sites to contracting work sites. Not all hires of a contractor are hired through the location where they work. It is very common for a contractor to hire through a central site that has no connection to various work sites.

Although this comment addressed a different issue, it is possible that the government may take a similar stance that the employee should be run through E-Verify, even though his direct employer is not a federal contractor. Remember, this whole rule came about from President Bush’s Executive Order, which mandated that federal contractors should have a legal workforce to promote efficiency and reliability in federal government procurement. Allowing this one employee to escape the requirement simply because he is technically employed by a non-contracting entity would seem to undermine the intent of the rule.

These are complex issues and the law/requirements surrounding this rule are constantly evolving. We’ll be sure to provide further updates and clarification on this issue as guidance becomes available.

Disclaimer: Although our bloggers are legal experts in the field, these answers should not be construed as direct legal advice. Your specific employment situation may involve facts and complications unknown to us. For specific issues and questions regarding I-9 and E-Verify compliance, please contact your immigration or employment counsel.