The U.S. Department of Justice (DOJ) recently announced a second False Claims Act (FCA) settlement this year involving violations of employment eligibility verification requirements – underscoring that government contractors face growing exposure if they fail to comply with E-Verify obligations under FAR 52.222-54.
Understanding the FCA
The False Claims Act is a federal law that imposes liability on individuals or companies that knowingly submit false or fraudulent claims for payment to the U.S. government. In the context of government contracts, this means a contractor can face civil penalties – including treble damages – if it bills the government for work that violates material contract terms. In recent cases, the DOJ has applied the FCA to contractors who allegedly used unauthorized workers on covered federal projects, reasoning that such labor costs were falsely claimed as compliant contract expenses. The scope of potential FCA liability is broad and, in some cases, the DOJ may take the position that the mere fact of submitting a contract invoice is itself an implied certification, by the government contractor, that the claimed costs and underlying work comply with all material contract terms.
DOJ Enforcement: A Broader Message for Industry
On Sept. 18, DOJ announced a $4 million settlement with a New Jersey shipbuilder accused of employing unauthorized workers on Navy contracts. This follows a January 2025 settlement with a Louisiana shipyard for similar violations. Although both cases involved shipbuilders, the government’s theory – that contractors billed for labor performed by individuals not authorized to work in the U.S. – applies equally to manufacturing and services contractors supplying the federal government.
Understanding E-Verify Obligations for Federal Contractors
Operated by the U.S. Department of Homeland Security (DHS), E-Verify is an internet-based system that confirms employment eligibility by comparing data from an employee’s Form I-9 with DHS and Social Security Administration records.
Under FAR 52.222-54 Employment Eligibility Verification, contractors and covered subcontractors must use E-Verify when the clause is included in a contract. The key requirements are:
Who must enroll: Federal contractors awarded a contract on or after Sept. 8, 2009 containing the FAR 52.222-54 clause. The clause generally applies to contracts valued above $150,000, performed in the U.S. and lasting longer than 120 days. Covered subcontracts include services or construction performed in the U.S. valued more than $3,500.
- When to enroll and verify
- Enroll in E-Verify within 30 days of being awarded a covered contract.
- If already enrolled, update your company profile to indicate “Federal Contractor with FAR E-Verify Clause.”
- Create an E-Verify case for each new employee within three business days after the employee starts work for pay.
- Have a tentative non-confirmation (TNC) process in place for workers who do not initially clear E-Verify. Be sure to document any resolutions and terminate employment if issues are not resolved within the required time periods for processing TNCs.
- For employees assigned to a federal contract, either:
- Verify those specific employees within 90 days of enrollment or 30 days after assignment, whichever is later, or
- Elect to verify your entire existing workforce within 180 days of enrollment or your decision to do so.
Subcontractor obligations: Prime contractors must flow down the E-Verify clause to covered subcontractors and ensure compliance. Because liability can attach where a prime “knows or should know” a subcontractor is violating the rule, proactive oversight is essential. Best practice includes obtaining documentation of each subcontractor’s E-Verify enrollment (“Maintain Company” confirmation page) and auditing compliance during contract performance.
Compliance Checklist – Five Steps to Reduce E-Verify FCA Risk
- Inventory contracts: Identify all contracts and subcontracts containing FAR clause 52.222-54.
- Confirm enrollment: Verify your organization is enrolled as a “Federal Contractor with FAR Clause” and that the E-Verify administrator account is current.
- Verify on time: Ensure cases are created for all new hires within three business days and for existing employees assigned to covered contracts within the applicable time frames.
- Strengthen subcontractor oversight: Require written confirmation of subcontractor enrollment and monitor for ongoing compliance.
- Audit and train: Conduct periodic internal audits and provide regular HR/compliance training to maintain documentation readiness for any government inquiry.
The Bottom Line
The DOJ’s recent FCA settlements are a clear warning: E-Verify compliance is an enforcement priority. Federal government contractors should proactively evaluate their verification processes, subcontractor oversight and training to reduce FCA risk and demonstrate a robust compliance posture.
