On November 3rd it was announced that the Federal Budget Agreement, which was quickly worked out behind closed doors and signed the day before, includes unexpected provisions authorizing the Occupational Safety and Health Administration (OSHA) to increase penalties for the first time since 1990. The new provision is entitled the “Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.” To the surprise of most observers, the amount of the increase could be as much as 82%.
This law seems designed to compensate for the “freeze” on financial penalty increases that had been in place for the last 25 years. (OSHA had previously been limited by the Federal Civil Penalties Inflation Adjustment Act of 1990 which prevented it from increasing penalties.) The Agreement requires OSHA to make a one-time “catch-up” increase to compensate for the more than two decades of no increases. The catch-up increase can’t exceed the inflation rate from 1990 through 2015 as measured by the Consumer Price Index (CPI), which is expected to be around 82%.
Assuming OSHA applies the maximum catch-up increase allowed, the current maximum $70,000 fine for a Repeat and Willful violation would grow to as much as $125,000 each. The new act does include a potential exception to the increases. OSHA is allowed to forego following the guidelines if “increasing the civil monetary penalty by the otherwise required amount will have a negative economic impact [on America]” or “the social costs of increasing the civil monetary penalty by the otherwise required amount outweigh the benefits.” This language gives OSHA considerable latitude to apply these fines as they see fit.
After the one-time “catch-up” increase is implemented, OSHA will then annually increase maximum penalties at a rate equal to the amount of the inflation rate for the prior fiscal year.
OSHA has not yet commented on this development and it is not clear whether it will choose to increase penalties to the full extent allowed. However, based on the consistent comments from the current OSHA administration about the benefits of stiffer regulatory punishments, it’s highly likely that they will implement most, if not all, of the increases.
The initial penalty increases must become effective by August 1, 2016, but we should expect to learn well before then the extent to which OSHA will increase these penalties and fines. The Federal Office of Management and Budget is expected to issue guidance on implementing the bill’s provisions by January 31, 2016.
What Should Employers Do Now?
Employers may have several months to anticipate these higher penalties, but action on safety should begin immediately. Workplace safety has benefits that go beyond avoiding expensive penalties. Workplace safety protects workers, improves morale and can actually help the bottom line profits for all workplaces. Rather than just treating safety as an expense, management should work to develop a business plan to achieve safety goals, avoid fines, and reduce insurance expense and lost time.