Violations of Occupational Safety and Health Administration standards just got significantly more costly.
Since 1990, OSHA has been one of only three agencies specifically exempted from a law that required federal agencies to raise their fines to keep pace with inflation. A section of the budget signed by President Barack Obama last November eliminated this exemption for OSHA. As a result, the agency started to assess increased penalty amounts effective Aug. 1.
The Bipartisan Budget Act not only eliminated the prohibition on OSHA raising its penalties to account for inflation, it specifically required the agency to increase penalties to account for the lack of increases from 1990 to 2015. The required initial penalty “catch-up adjustment” was tied to the percentage difference between the October 2015 consumer price index and the October 1990 CPI. The inflation adjustment factor for this period is 1.78156. As a result, all of OSHA’s penalties will increase by 78.156 percent.
The new maximum penalties per violation will be: other than serious violations, $12,471; serious violations, $12,471; repeat violations, $124,709; willful violations, $124,709 (with a minimum penalty of $8,908); and failure-to-abate violation, $12,471 per day.
Although the specific dollar amounts appear unusual, the interim final rule explains that because of rounding down to the nearest $1,000 done for the past 25 years, overall penalties were thousands of dollars less than they would have been. The Inflation Adjustment Act eliminated the rounding rules, and going forward penalties will be rounded to the nearest dollar.
OSHA is setting the new penalties at the fullest amount authorized by law through an interim final rule, not a proposed rule that would have been subject to a public notice and comment period before being finalized. Rather, the rule became effective immediately upon its publication on July 1, with an effective date of Aug. 1. OSHA will accept public comments for 45 days, or until Aug. 15. If warranted, OSHA could alter the interim rule. Because the comments and consideration will take place after the effective date of the new penalties, and because a less-than-maximum penalty increase must go through full notice-and-comment rulemaking, the agency will probably decide not to makechangestotheinterim rule and instead publish a brief final rule in the Federal Register confirming that decision.
Although the interim final rule itself does not discuss whether the new penalties will be applied to inspections begun before Aug. 1, OSHA’s website notes that any citations issued by OSHA on or after that date will be subject to the new penalties if the related violations occurred after Nov. 2, 2015 (the date of the budget act signing). The Office of Management and Budget has also specified that agencies “will apply the new penalty levels to any penalties assessed on and after the effective date.”
This application of the new penalties to pending inspections may cause some unfair and anomalous results as all cases closed on July 30 will have penalties lower than those issued one day later, through no change or fault in the employer’s conduct.
After this initial adjustment, OSHA will have to implement annual cost-of-living increases, with the adjustment tied to the increase in the CPI. Adjustments must be made by Jan. 15 each subsequent year. To keep up with Federal OSHA, State Plan states must do the same.
Although complete compliance with every OSHA requirement would be the best way to avoid these new penalties, that laudable goal does not present a practicable plan for employers. In order to develop a workable plan, employers should consider conducting a privileged audit of their workplace safety and health compliance and implementing appropriate corrective actions.
Any employer receiving citations and penalties for inspections begun prior to Aug. 1 should review these issues carefully. The increased dollar amount for penalties, combined with Assistant Secretary of Labor David Michaels’ April 2010 changes on how penalties are calculated and assessed (and corresponding limitations on penalty reductions) suggest the real possibility that even a single OSHA citation will result in a penalty of more than $10,000. The increase in penalties may lead to a greater number of contests and appeals based on the expense of a current violation, and the much greater expense of a potential future repeat or willful violation. Employers must carefully consider these issues when attempting to settle matters with OSHA.
Jill Lowell is an associate in the Rochester office of Littler Mendelson P.C. Thomas Benjamin Huggett is a shareholder in the firm’s Philadelphia office.
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