Curbing OSHA's Egregious Penalty Policy
OSHRC's decision in the Erik K. Ho case sets a new course for the commission.
RECENTLY, the Occupational Safety and Health Review Commission handed down a decision that limits OSHA's use of its per-instance/per-employee "egregious penalty" policy. The decision in Secretary of Labor v. Erik K. Ho, Ho Express, Inc., and Houston Fruitland, Inc.,1 comes just months after OSHA announced its new "enhanced enforcement policy," which implements new tactics to crack down on the worst violators of the OSH Act.
The commission's decision to rein in OSHA's use of the egregious penalty policy in Ho is a good indicator that it will carefully review OSHA's application of its new enhanced enforcement policy. In addition, the Ho case is a good example of the newly-constituted Commission's focus on the strict terms of the Occupational Safety and Health Act, and its willingness to reject positions not adequately supported by the Act or OSHA regulations.
Ho's Alleged Egregious Conduct
The case involved a citation against a Houston developer, Erik K. Ho, who had purchased an abandoned building for the purpose of developing the property as residential housing. According to the Review Commission, Ho was aware there was asbestos throughout the building and that its removal would require trained and licensed personnel using proper removal procedures and respiratory protection.
The commission found that, nevertheless, Ho hired 11 Mexican nationals (all of whom were non-English speaking, uneducated, undocumented immigrants) to remove the asbestos from the building. Ho allegedly never informed the workers they were removing asbestos, never trained them on the hazards of asbestos or on proper removal procedures, never provided respirators or protective clothing, and implemented none of the proper work practices required by the OSHA standard, such as adequate ventilation, monitoring, and debris removal. The commission found that the employees worked 12-hour shifts, seven days a week under these conditions.
According to the commission, a month into the project, a city inspector visited the site and discovered the improper asbestos removal. He allegedly issued a stop work order, requiring city approval before Ho's work could continue. Instead of shutting down, however, Ho allegedly resumed the work at night to avoid detection. The commission found that the work continued under the same dangerous conditions for two months, until an explosion and fire occurred at the worksite, seriously injuring three workers.
The injuries prompted an OSHA investigation, during which OSHA uncovered Ho's alleged clandestine asbestos removal project. OSHA subsequently issued citations, charging Ho with multiple willful violations of the respirator and training provisions contained in the construction industry asbestos standard (29 C.F.R. § 1926.1101). Given the extreme nature of the allegations against Ho, OSHA applied its "egregious penalty" policy, charging separate willful violations and separate penalties for each of the 11 exposed employees. A total penalty of $1,136,900.00 was assessed.
The 'Egregious Penalty' Policy
Neither the Occupational Safety and Health Act nor the OSHA regulations specifically mention the concept of an "egregious penalty" policy. Nevertheless, in 1990, OSHA issued Instruction CPL 2.80 ("Handling of Cases to be Proposed for Violation-by-Violation Penalties"), which provides for such penalties when OSHA believes an employer has "flagrantly" disregarded its responsibilities for the health and safety of its employees.2
According to the Instruction, an egregious penalty is appropriate if (1) the employer had actual knowledge of a specific serious work site hazard; (2) the employer, nevertheless, intentionally or through plain indifference made no reasonable effort to eliminate the known violation; and (3) at least one other aggravating factor exists, such as (a) the violation resulted in worker fatalities or a large number of injuries; (b) the violations resulted in persistently high rates of injuries or illnesses over time; (c) the employer had an extensive history of prior violations; or (d) the employer's conduct amounts to clear bad faith in the performance of its duties under the act.
The distinguishing feature of the egregious penalty policy is the method OSHA uses to calculate the proposed penalty. Normally, OSHA calculates a penalty by grouping all examples of the violation of a particular section of an OSHA standard into one cited violation. Under the egregious penalty policy, "instead of grouping or combining violations for penalty purposes, each instance of noncompliance is considered a separate violation and a penalty is applied separately." Given the fact the OSH Act permits penalties of up to $70,000 for willful violations, the egregious penalty procedure can lead to extraordinary penalty amounts.
Since its inception, employers have unsuccessfully argued the egregious penalty policy exceeds the Secretary of Labor's authority under the act and that, even if such authority exists, it should not be exercised without first engaging in notice-and-comment rulemaking through publication in the Federal Register.
The Commission's Decision
An administrative law judge approved the penalties assessed against Eric Ho, and Ho sought review by the commission. Ho did not challenge the judge's approval of the charges but argued the multiple per-employee respirator and training violations should be grouped into two single items for purposes of the penalty amounts.
On review, the commission agreed that Ho had committed the charged violations, and indeed opined Ho was "one of the worst employers to ever come before the Commission." Nevertheless, by a 2-1 vote, the commission rejected OSHA's use of the egregious penalty policy and disapproved the assessment of separate, per-employee penalties.
The commission concluded that separate, per-employee penalties are appropriate only when the cited standard clearly prescribes conduct that is unique and specific to individual employees. For example, it is proper to cite an employer with multiple penalties for each instance of failing to make a proper recordkeeping entry on its OSHA injury and illness logs. On the other hand, such penalties are not permitted where a standard addresses a single work practice to protect against the exposure of multiple employees to a single recognized hazard. For example, OSHA normally cannot assess per-employee penalties for an employer's failure to guard a roof perimeter.
In this case, OSHA charged Ho with 11 violations (i.e., one violation per employee) of the respiratory protection and training provisions of the asbestos standard. The commission concluded both provisions are stated in "general performance terms [that] refer to a single course of conduct rather than an individual duty." As to the respirator provision, the commission noted that it imposes different requirements for the provision and use of respirators depending only upon the nature of the asbestos hazard to which all employees are generally exposed, and not on personal characteristics peculiar to the individual employees. The violation was based on a single act--Ho's failure to provide the appropriate respiratory protection for the type of work being performed by the group of employees. Likewise, the training provision only requires an employer to have "one training program" for "all employees" who fall into the covered categories.
Still, the commission did acknowledge that some standards must necessarily be applied on an individualized basis. As examples, the commission cited "recording an entry in an OSHA log, fitting a respirator to an employee, and determining an employee's blood lead level." However, the commission emphasized that the regulatory language in standards of general prescription, such as the respirator and training standards cited in this case, do not provide "fair notice to an employer that it may be penalized on a per-employee basis for violations." Accordingly, the commission reversed the administrative law judge's decision and approved only one penalty for each of the respirator and training violations.
Significantly, however, noting Ho's "extreme lack of good faith" and his "appalling lack of concern for the health and safety of his employees," the commission increased the originally proposed penalties for the remaining citations to their maximum levels, which resulted in a total penalty amount of $658,000.
The Current Commission and Ho's Potential Impact
The Review Commission, as presently constituted, is relatively new, with its three members coming on only in the past year. Further, until recently, the Review Commission was not up to full strength and for several years only had two members. The Ho decision is a good example of how this Review Commission is prepared to put both OSHA and employers to the test to show their positions are fully grounded in the act or regulations, as opposed to OSHA's directives and guidelines. For example, in Ho, the commission made it clear it will scrutinize any of OSHA's enforcement directives, stating it will "not give deference to the Secretary [of Labor's] directives because [it does] not view [such directives] to be an exercise of the Secretary's delegated law-making authority."
Similarly, in an earlier decision, this commission approved a "repeat" citation against an employer, even though the underlying citation was outside the three-year guideline set by OSHA in its Field Inspection Reference Manual. In that decision, Secretary of Labor v. Hackensack Steel Corp., 3 the commission noted that the Field Inspection Reference Manual is not binding on OSHA or the commission, and provides no substantive rights for employers.
In addition, the Ho decision comes just months after OSHA announced its new "enhanced enforcement policy," with a goal to strengthen OSHA's enforcement efforts against recalcitrant employers who "expose their workers to serious safety and health hazards and who continue to defy workers' safety and health regulations." Like the egregious penalty policy, the new "enhanced enforcement policy" focuses on the worst offenders of the act, including those charged with multiple high-gravity violations. The policy steps up OSHA's enforcement techniques, to include expanded follow-up inspections, a focus on the entire corporate entity, increased publicity of citations, tougher settlement requirements, and enforcement in federal courts.
Like the egregious penalty policy, the new enhanced enforcement policy is an enforcement directive, not a regulation. Accordingly, one can expect the commission to take a hard look at citations or employer arguments that are based solely on this new policy.
1. OSHRC Docket Nos. 98-1645 & 98-1646 (September 29, 2003).
2. OSHA Instr. CPL 2.80, Handling of Cases to be Proposed for Violation-by-Violation Penalties (Oct. 1, 1990).
3. OSHRC Docket No. 97-0755 (September 24, 2003).
This article originally appeared in the January 2004 issue of Occupational Health & Safety.