Sections of the law were blocked by a federal judge in Oklahoma in June after the U.S. Chamber of Commerce and others challenged it, saying the "E-Verify" program is unreliable and unfairly imposes penalties on employers.
State attorneys told a three-judge panel of the 10th U.S. Circuit Court of Appeals Monday that Congress didn't bar states from requiring employers to use E-Verify.
The appeals court judges did not indicate when they might rule.
The electronic system allows employers to quickly verify a worker's eligibility through a computer with an Internet connection using information from an I-9 form, which is a required from everybody working in the U.S.
"Isn't it a lot simpler" to used the computer system instead of a paper form that takes days to mail, Judge Paul J. Kelly quizzed Carter Phillips, an attorney representing the chamber. "Isn't it the same database?"
"I don't understand what the big problem is, quite frankly," Kelly said.
Congress created E-Verify as part of an immigration bill in 1996 as four-year pilot program in five states, but later expanded it to all 50 states in 2003. Most states don't require employers to use it.
"Congress did not speak to what states could do," argued Dan Weitman, Oklahoma assistant attorney general.
The San Francisco-based 9th Circuit last year upheld Arizona's law that made E-Verify a requirement for all employers, ruling that "Congress could have, but did not, expressly forbid state laws from requiring 'E-Verify' participation."
The chamber and other groups that include the American Civil Liberties Union, labor unions and advocates for immigrants argue that Congress chose not to make E-Verify a requirement because it's flawed.
"It's rife with mistakes, which goes to the whole question as to why Congress hasn't made it mandatory," Phillips argued.