On July 2, 2007, Arizona became the first state to require every employer to enroll and participate in DHS's flawed E-Verify program to verify the employment eligibility of all newly hired workers when it passed H.B. 2779. Dubbed "The Legal Arizona Workers Act," the poorly crafted law (which took effect January 1, 2008) also created state penalties for employers who "knowingly" or "intentionally" employ undocumented workers, including the possible suspension or revocation of business licenses, and additional reporting and compliance requirements.

Shortly after its passage, several national and local groups filed suit in federal district court asking that implementation of the law be delayed because it conflicted with federal law, violated constitutional due process rights, increased discrimination against foreign-born workers, and would cause severe economic hardship to the state. These lawsuits were consolidated, and on February 8, 2008, the court denied the requests to delay implementation of the new law.

In response, an appeal was filed with the 9th Circuit Court of Appeals in April 2008 (Arizona Contractors Assiation v. Candelaria). For more information view the Opening brief and the Plaintiffs'/Appellants' Consolidated Reply Brief in that case.

On 09/17/08, the 9th U.S. Circuit Court of Appeals rejected the challenge by business and civil rights groups and upheld the Legal Arizona Workers Act.