A statewide group of contractors is warning that a new Louisiana law requiring firms seeking public contracts to verify the citizenship of all their employees could wreak “havoc’’ in public contracting.

The Louisiana Associated General Contractors is challenging the legality of the law, claiming in a lawsuit against Gov. Bobby Jindal that Act 376 goes too far.

The group contends the state statute is at odds with federal rules and law and also breeds confusion over who can and cannot bid on government contracts.

The law, which does not take effect until Jan. 1, requires those seeking public contracts to certify they have registered with and use the federal E-Verify system to determine whether their employees are legal citizens or legal immigrants.

The lawsuit, filed Tuesday in Baton Rouge state court, says an employer must enter into a memorandum of understanding with the U.S. Department of Homeland Security in order to take part in the E-Verify program.

The memorandum requires an employer to use the program for verification of all employees hired after the employer enrolls in the E-Verify system, the suit states.

“If interpreted to require verification … of all employees — and not just new employees hired after the employer executes the MOU — Act 376 will produce the absurd result of requiring employers to breach the MOU in order to comply with the verification requirements of the Act,’’ the suit contends.

“It has the potential to create havoc in public contracting,’’ the suit adds. “It may have an adverse effect on competition and bid prices.’’

Kyle Plotkin, a spokesman for Jindal, said Thursday there is “strong legal standing on this law.’’

“It makes sense to ensure that taxpayer dollars are not going to illegal immigrants,’’ Plotkin said.

“We’re always happy though to work with contractors to make sure contracts are not arbitrarily cancelled,’’ he added.

Ken Naquin, LAGC chief executive officer, said the group is seeking clarification from the courts.

“We’re not faulting anybody. The law does conflict with federal rules,’’ he said. “We can’t comply with the state statute and be in compliance with the federal rules.’’

Naquin said Act 376 makes reference to “all employees.’’

However, the MOU required in the E-Verify program mandates that an employer “will not verify employees hired before the effective date of this MOU,’’ the suit states.

“You can’t E-Verify current employees,’’ Naquin said.

“It is a confusing issue,’’ he acknowledged.

The LAGC suit seeks a judicial declaration that Act 376 “should be interpreted and applied to require the use of E-Verify only for all employees hired after the employer signs the MOU.’’

The LAGC also complains about a penalty provision in the act, which says those found in noncompliance could face cancellation of the contract and be banned from eligibility for future public contracts for up to three years.

“It’s a very severe penalty,’’ LAGC attorney Russel Wray said.

The suit contends the state act’s sanction provision conflicts with and is preempted by federal law.

The suit has been assigned to state District Judge Mike Caldwell.

E-Verify is mandated by the Illegal Immigration Reform and Immigration Information Act of 1996. It is a free Internet-based system to confirm the legal status of newly hired employees.

The employer must also continue to check the status of any new employees during the term of the contract.