Imagine yourself as a small businessperson, receiving this letter. How exactly do you deal with it?. You can't fire them, it's clearly against the law as defined in the letter.
If you do, you can face not only the government fines, but just imagine if your employee gets a lawyer and files a discrimination suit against you ? There are armies of lawyers out there looking for soft underbellies, like yours, to make a killing.
Secondly, did you know that the SSA's own information is wrong 20% of the time ? There are all sorts of reasons, other than illegal hood, that can cause non-matches.
It could be as simple as a maiden name (and lots of Hispanics use two last names); a father/son or other relative with the same name, a case of identity theft ( but who is the thief, and who is the victim, and how are you supposed to know ? the only information you have is a non-match letter), and the burden of proof is on you.
You can't just fire them upon suspicion, you must have legal proof. This requires a lawyer, but you're a small business. You can't afford to hire a lawyer just to do legal searches on employee's backgrounds. it's not cost effective.
You can't run their info before you hire them, that's not allowed.
And, you can't fire them, according to the letter above.
Can you simple require them to fill out a new form with the correct information and send this onto SSA? It would be interesting to see if you got a second error letter from them. Then you might give INS a call from a pay phone reporting the likelihood of the presence of an illegal person at a certain address. But, probably you are right. The word has come down from the highest level that the laws are not to be enforced.