Federal Agency Must Follow Proper Process Before Removing Exemption Which Would Impact Large Number
Updated: Jul 1
This post is not legal advice.
In July of 2015, the Occupational Safety and Health Administration (OSHA) issued a memorandum revising the retail exemption for facilities that would be exempt from safety guidelines established for handling hazardous chemicals. The revision of the retail exemption was in response to the catastrophic chemical explosion at a fertilizer plant in 2013 in West, Texas. On review, the U.S. Court of Appeals, D.C. Circuit held that OSHA had not followed the required processes in the Occupational Safety and Health Act (OSH Act) and sent the revised exemption back to OSHA.
In 1992, OSHA developed a standard related to employment in places in industries related to hazardous chemicals. As a part of the standard, OSHA created the retail sales exemption from the standard. The exemption allowed retail facilities not to compile with the standard as long as more than half the income was obtained from direct sales to end users. The thought was that retail facilities would only house small volumes of hazardous chemicals and be unlikely to cause a significant release. The exemption, however, did not discriminate if storing large quantities or if the retailer sold wholesale to end-users.
Following the explosion in West, Texas, President Obama directed the Secretary of Labor to make necessary changes including looking at revising the retail sales exemption. OSHA revised the interpretation of “retail facilities” to follow the Department of Commerce’s manual on classifying businesses. Under the revised interpretation, a “retail facility” would only be those that sold merchandise in small quantities to the general public and would exclude those that sold in wholesale to end users.
The Agricultural Retailers Association, Fertilizer Institute, and other individual businesses brought a petition to review OSHA’s narrowed definition of “retail facility.” The groups argued that OSHA should have provided notice and a comment period before finalizing the revised definition.
Court of Appeal’s Decision
The court of appeals agreed with the groups that OSHA was required to allow for a notice and comment period before finalizing the revised definition of “retail facility.” When creating a new workplace standard or revising an existing standard, OSH Act required OSHA to use a notice and comment process. OSHA admitted the rule had not gone through the notice-and-comment process, but argued the agency had only changed an interpretation of an existing standard that did not require notice and comment.
The court found this change was a standard and not a regulation (more on this in a moment). The OSH Act governed standards and not regulations (another federal law governs those). The change in definition was a standard because the basic purpose was to address a particularly significant risk (here the risk of storing large quantities of chemicals for wholesale distribution to end-users). The revised definition would require roughly 4,800 facilities to comply with more rigorous requirements for storing and managing hazardous chemicals. To the court, this was a standard that had to go through a notice and comment process.
If the court had seen the revised definition as a regulation, it would have changed the outcome. In prior court rulings, OSH Act regulations go through the normal federal administrative processes in the Administrative Procedures Act (APA). Under the APA, an agency can avoid the notice-and-comment process when issuing interpretive rules. Interpretive rules cannot change substantive policy. OSHA argued that the revised definition was an interpretive rule, but the court rejected this view. According to the court, the revised definition was substantive since it expanded the reach to businesses that were initially exempt. The court also rejected this view since the revised definition was a standard, OSH Act did not allow for interpretive rules, and was substantial.
The revised definition would have brought in up to 4,800 facilities that had previously been exempt. Regulating these facilities for the first time would have had to have to make improvements to comply with the safety rules. The revised definition would have meant increased fertilizer costs for producers. Even if the court had upheld the revised definition, OSHA would have been unable to enforce the revised definition due to language placed in a federal spending bill that limited OSHA’s ability to spend money on enforcement.
OSHA must now go back and use a notice-and-comment period to implement the revised definition. OSHA will publish the revised definition plus rationales for why the revision is necessary for the Federal Register and allow the public an opportunity to comment on the revision. OSHA will have to consider the comments before issuing the final revised definition.
The other factor to consider in all of this is we are in a presidential election year. President Obama only has a few months left in office and this newly revised definition may not make it through the notice and comment process before he leaves office. The new administration may not want to develop a revised definition or may have other views on how to revise the definition.
How OSHA handles revising this definition will be an issue worth watching to see how the administrative process works out and how an incoming administration will handle. The upcoming election could potentially play a large factor in how OSHA handles the revision.
Agric. Retailers Ass’n v. Occupation Safety & Health Admin., No. 15-1326, 2016 WL 5315200 (D.C. Cir. Sept. 23, 2016).