President Obama signed the Bipartisan Budget Act of 2015 into law yesterday. The deal was negotiated quickly to avoid a default on the nation’s debt. Perhaps as a result, it includes a surprise for those with an interest in occupational safety and health: penalties imposed by the Occupational Safety and Health Administration (OSHA) are increasing. Title VII of the Budget Act—entitled the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015—requires mandatory upward adjustments of multiple civil penalties, including those proposed by OSHA. By no later than July 1, 2016, OSHA must issue an interim final rule containing a “catch up adjustment” to its civil penalties. Prior to issuing the interim final rule, OSHA is not required to follow notice-and-comment rulemaking provisions. The changes to the penalty amounts depend upon the cost-of-living adjustments established by the Consumer Price Index (CPI). The initial catch-up adjustment amount will be the percentage difference between the CPI in October 2015 and the CPI in October 1990, which was the year that OSHA penalties were last adjusted.
The percentage difference between the CPI in September of 2015 and October 1990 is approximately 78 percent. Using that figure, OSHA’s penalties would change roughly as follows:
- Other-than-Serious Violation: Maximum of approximately $12,476 (The current maximum is $7,000.)
- Serious Violation: Maximum of approximately $12,476 (The current maximum is $7,000.)
- Repeat Violation: Maximum of approximately $124,765 (The current maximum is $70,000.)
- Willful Violation: Minimum of approximately $8,912; maximum of approximately $124,765 (The current minimum is $,5000; the current maximum is $70,000)
- Failure-to-Abate: Maximum of approximately $12,476 per day (The current maximum is $7,000)
These numbers are approximate because the October 2015 CPI data is not completed. The initial penalty increases must become effective by August 1, 2016.
Any agency, including OSHA, may seek to impose a smaller initial penalty increase than what is called for under these formulas by: 1) publishing a notice of proposed rulemaking requesting comments regarding the penalties; 2) concluding, based on the comments, that an increased penalty will have a “negative economic impact” or impose “social costs” that outweigh the benefits of increasing the penalties; and 3) obtaining the approval of the Director of the Office of Management and Budget. Under the leadership of Assistant Secretary of Labor for Occupational Safety and Health Dr. David Michaels, OSHA has consistently touted the benefits of engaging in “regulation by shaming,” which includes issuing citations with high penalties that are accompanied by hard-hitting press releases. Given these policies, OSHA is not likely to propose anything less than the maximum penalty increases.
After the initial catch up adjustment is made by July 1, 2016, OSHA is required to adjust penalties no later than January 15 of each year using the CPI. As such, employers should expect to see OSHA penalties increase annually with inflation.
Until the Budget Act was signed, OSHA and the Social Security Administration were exempted from the Federal Civil Penalties Inflation Adjustment Act. (The Internal Revenue Service was and remains exempt). The Budget Act was negotiated by a small group of Republicans and the White House. No information regarding their reasoning in increasing OSHA penalties is available at this point. Dr. Michaels and Congressional Democrats have pushed for an increase in OSHA penalties for years. In addition, the need for additional revenue has been a key discussion point in budget negotiations, and the increase in OSHA penalties will clearly accomplish that.
Employers have typically looked at a variety of factors in determining whether or not to appeal citations issued by OSHA, including the risk of future “repeat” or “willful” citations, the steps necessary to abate the alleged hazard, and customer and employee relations issues. The amount of the penalty often has not been a significant factor in determining whether or not to contest. Given these increases, that may change.