The Downfall of the Paralyzed Veterans Doctrine Grants Federal Agencies a “Dangerous Permission Slip for the
Arrogation of Power” and
Exposes the Regulated Community to
Potentially Fatal Doses of Regulation Run Amok
(a/k/a The Triple Whammy of Perez, Auer and Whitman)
In the Spring of 2015, a troubling decision of the U.S. Supreme Court, Perez v. Mortgage Bankers Association,1 stripped away the only practical protection available to the regulated community against the abusive regulatory agency practice of adopting ambiguous legislative rules and then re-interpreting them in almost whatever way the agency later deems appropriate. Commentators hinted at the quagmire it might create for the regulated community. Fast forward three months to June 2015 and the regulated community found itself quickly settling into the quicksand.
I. OSHA’s PSM Memoranda
In June of 2015, after being liberated from the constraints of Paralyzed Veterans2 by the Supreme Court’s decision in Perez, OSHA issued three enforcement guidance memoranda announcing three retroactive interpretations of its the Process Safety Management (PSM) Standard. The three memoranda address: (1) the scope of the PSM Standard’s "retail exemption"; (2) whether and how much of a mixture containing a "highly hazardous chemical" (HHC) is counted in determining whether a threshold quantity of the HHC is present for purposes of triggering PSM coverage; and (3) whether the covered process was designed in accordance with "recognized and generally accepted good engineering practices" (REGAGAP).3
OSHA’s PSM Standard is the most complex and paper-intensive OSHA safety standard ever adopted by the agency. The effect of the first two memoranda was to significantly increase the number of processes and facilities subject to the PSM Standard on a retroactive basis, with no prior notice or opportunity for public input, and no phase-in period. Indeed, many of the newly-covered facilities had no prior experience with the OSHA PSM standard. It is likely that many employers designed their processes to operate with dilute concentrations of the HHCs so that, under the prior OSHA interpretation, the processes would not be subject to the PSM Standard.
OSHA’s RAGAGEP memorandum indicates that compliance with a national consensus safety standard would be viewed as a safe harbor for compliance with RAGAGEP with respect to the safety issues addressed by the national consensus standard. If OSHA had stopped there, the regulated community would have limited concerns with OSHA’s efforts to address this issue on a generic basis for purposes of administrative convenience. Unfortunately, the memorandum also appears to say that, if the employer does not comply with the applicable national consensus standards, the employer will be required to demonstrate that the engineering practices it implemented are at least as effective as the applicable national consensus standards. The practical effect of the third memorandum was to materially increase the burden of complying with the engineering design and operating requirements applicable to processes subject to the PSM Standard on a retroactive basis, with no prior notice or opportunity for public input, and no phase-in period. What is particularly egregious about the third memorandum is that it seeks to reinterpret the PSM standard to require measures that were proposed and abandoned during the initial PSM rulemaking.4
All three of OSHA’s June 2015 PSM memoranda have been challenged in pending court proceedings. It is unclear how those cases will be resolved. Fundamental due process cries out for immediate relief for the regulated community rather than court decisions advising employers that they will have to wait for OSHA citation contests to challenge OSHA’s positions on these issues. It seems unconscionable to require employers to wait until they have been cited for alleged violations of the PSM Standard to challenge OSHA’s re-interpretations of the rule, to which the courts give deference, despite years of employer reliance on the prior interpretations.
Faced with this choice, employers may be forced to forego good faith challenges to OSHA re-interpretations of OSHA rules to avoid the risk of exposure to willful citations. In these circumstances, it is quite understandable that the regulated community would seek relief from Congress, which apparently delegated its legislative powers to the Federal regulatory agencies without adequate controls on their use.5
II. At One Time, Rules so Vague that Individuals of Common Intelligence Must Necessarily Guess at Their Meaning Violated the First Essential of Due Process of Law
At least at one time, it was thought to be fundamental that a statute or rule, which either forbids or requires the doing of an act in terms so vague that individuals of common intelligence must necessarily guess at its meaning and differ as to its application, violates the first essential of due process of law. This principle was applied within the context of criminal laws in Connally v. General Construction Company.6 Virtually all OSHA standards are subject to application in a criminal context in the event of a workplace fatality.
That principle of due process was also applicable to the enforcement of a regulatory statute and implementing rules that impose civil penalties for noncompliance.7 In Dravo Corp. v. OSHRC, the court quoted the following from the Fifth Circuit decision in Diamond Roofing8 and the Third Circuit decision in Bethlehem Steel Corp. v. OSHRC.9
An employer, however, is entitled to fair notice in dealing with his government. Like other statutes and regulations which allow monetary penalties against those who violate them, an occupational safety and health standard must give an employer fair warning of the conduct it prohibits or requires, and it must provide a reasonably clear standard of culpability to circumscribe the discretion of the enforcing authority and its agents. . . .
If a violation of a regulation subjects private parties to criminal or civil sanctions, a regulation cannot be construed to mean what an agency intended but did not adequately express. . . . We recognize that OSHA was enacted by Congress for the purpose stated by the respondents. Nonetheless, the Secretary as enforcer of the Act has the responsibility to state with ascertainable certainty what is meant by the standards he has promulgated.
To strain the plain and natural meaning of words for the purpose of alleviating a perceived safety hazard is to delay the day when the occupational safety and health regulations will be written in clear and concise language so that employers will be better able to understand and observe them.
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The purpose of OSHA standards is to improve safety conditions in the working place, by telling employers just what they are required to do in order to prevent or minimize danger to employees. . . . The responsibility to promulgate clear and unambiguous standards is upon the Secretary. The test is not what he might possibly have intended, but what he said.
Unfortunately, it appears that the foregoing principle has been greatly eroded in the regulatory compliance context, as is reflected in a line of related cases, based on the Supreme Court’s decision in Auer v. Robbins.10 In Auer, the Court held that courts generally must defer to an agency’s reasonable interpretation of an ambiguous “legislative rule” -- a rule the agency adopted through a public rulemaking.
III. The Principle of Paralyzed Veterans Undone by Perez
Prior to Perez, in Paralyzed Veterans,11 the U.S. Court of Appeals for the District of Columbia (the D.C. Circuit) had struck what seemed to be a reasonable balance between the authority of a regulatory agency to re-interpret the law and the regulated community’s need for a reliable understanding of what the law required. Paralyzed Veterans generally held that once a regulatory agency had established its interpretation of an ambiguous “legislative rule,” the agency could not materially change that interpretation except through another public rulemaking.
The underlying essence of Paralyzed Veteranswas that the action of an agency, in unilaterally announcing a material change in a well-established interpretation of an ambiguous rule, should be viewed as equivalent to amending (rewording) the text of the rule because the practical effect was the same. Perez rejected that rationale and overruled Paralyzed Veterans as an erroneous interpretation of the Administrative Procedure Act, which allows agencies to issue and modify its "interpretative rules" (i.e., its interpretation of legislative rules) but not its "legislative rules," without a rulemaking. The combined holdings (double whammy) of Perez and Auer could be read to permit a government agency (e.g., OSHA) to materially change its interpretation of an ambiguous “legislative rule,” without further rulemaking, whenever the agency determines a different interpretation would better achieve the goals of the underlying statute (e.g., the OSH Act), and the agency’s new interpretation is “reasonable.” Absent unusual circumstances, it also appears that any agency interpretation that is plausible (i.e., does not do violence to the English language) would be considered reasonable. This generally would be the case even where the regulated community relied on the prior interpretation, and the prior interpretation was in effect for a long period of time. On the other hand, if the underlying regulatory analysis and text of the preamble supporting the rule reflect an interpretation the agency later abandons through its re-interpretation of the rule, due process demands that there be a remedy available to the regulated community.
In Perez, the Court suggested that there may be extraordinary situations where detrimental reliance on an agency’s prior interpretation of a rule is so substantial that the agency’s new interpretation may be unreasonable. The Court also suggested that changing agency interpretations of a rule would be entitled to less deference than a longstanding interpretation. However, these limitations appear to fall far short of the due process protections contemplated by the U.S. Constitution, which is the crux of the problem.
IV. OSHA Rulemaking and the Application of Intelligible Principles
Article I of the Constitution vests all legislative powers in Congress. Under the non-delegation doctrine, the Supreme Court has held that Congress may not simply delegate its legislative powers to federal agencies, but may adopt legislation authorizing federal agencies to adopt substantive rules provided Congress has articulated "intelligible principle[s]” to constrain the content of those rules. Whitman v. American Trucking Associations.12 There have been only two cases in which the Court held that a statute failed to satisfy that loosely-interpreted standard.
However, the unique features of OSHA’s rulemaking authority suggest that the final rule produced by an OSHA rulemaking does not fall within the rationale underlying Perez and Auer. The Supreme Court and the lower courts have held that, in order for OSHA to establish the validity of an occupational safety and health standard addressing a health hazard, it must satisfy the following “intelligible principles” established by the Occupational safety and Health Act (as well as additional “intelligible principles” established by other applicable laws, such as the Regulatory Flexibility Act and the Paperwork reduction Act):
- Current exposures to the identified hazards pose a significant risk of harm;
- The proposed requirements would significantly reduce the risk posed by current exposures to the identified hazards;
- The proposed requirements are technically and economically feasible; and
- The proposed requirements are the most cost-effective approach for achieving the reduction in risk posed by the identified hazards.13
For an occupational safety and health standard addressing a safety hazard, OSHA must also demonstrate that the costs are reasonably related to the benefits.
Virtually every new OSHA standard is challenged during the 60-day period established for the filing of a petition for pre-enforcement review, and largely upheld by the reviewing appellate court based on a finding that OSHA has satisfied the applicable “intelligible principles.” It is critical to remember, however, that this type of court decision represents a pre-enforcement determination -- based on the rulemaking record -- that the text of the rule, as contemporaneously interpreted by the agency, satisfied each of the applicable “intelligible principles.” It should not be viewed as a determination that, once the rule is finalized, any re-interpretation of the rule that does not do violence to the English language is reasonable and entitled to judicial deference. To do so makes a mockery of the rulemaking process, and denies the regulated community the due process guaranteed by the Constitution.
In general, there is either an explicit or implicit contemporaneous interpretation of the final rule generated by the OSHA rulemaking. At a minimum, these interpretations appear in the preamble to the final rule, the supporting technical and economic feasibility analysis, and the Information Collection Request required by the Paperwork Reduction Act. There are at least three sections of the preamble to every final rule that either state or indicate how OSHA interprets most if not all provisions of the rule. First, the preamble to the final rule always includes a section-by-section explanation of the final rule. Second, the preamble to the final rule generally includes a fairly extensive discussion of stakeholder comments, including an identification, analysis and resolution of the issue and why OSHA selected that approach. Finally, there is always an economic analysis that refers to and incorporates OSHA’s underlying technical and economic feasibility analysis, and its paperwork burden analysis under the Paperwork reduction Act.
The technical and economic feasibility analysis, and the paperwork burden analysis – both mandated by Congress -- are based on OSHA’s interpretation of the proposed and final rules. Absent those interpretations, it would be impossible for OSHA to estimate the costs of compliance with the rule, which are necessary to conclude the rule is feasible, and that either the rule implements the most cost-effective approach to control the covered hazards (for health standards) or the costs of compliance are reasonably related to the benefits (for safety standards).
In Perez, Justice Sotomayer, on behalf of a unanimous court, stated that the rule of Paralyzed Veterans was not sound because it required a new rule making only when an agency had previously adopted an interpretation of its regulation, but not to the adoption of the initial interpretation:
MBA’s “interpretation-as-amendment” theory is particularly odd in light of the limitations of the Paralyzed Veteransdoctrine. Recall that the rule of Paralyzed Veterans applies only when an agency has previously adopted an interpretation of its regulation. Yet in that initial interpretation as much as all that come after, the agency is giving a definite meaning to an ambiguous text—the very act MBA insists requires notice and comment. MBA is unable to say why its arguments regarding revised interpretations should not also extend to the agency’s first interpretation. [footnote omitted].
But, contrary to the quoted language from Perez, in the context of an OSHA occupational safety and health standard adopted through a traditional rulemaking, the initial OSHA interpretation was adopted through the rulemaking process. It should not be viewed as an interpretive rule, but as a binding interpretation that the agency may relax through prosecutorial discretion, but may not tighten without a new rulemaking. If that approach was taken, the technical and economic feasibility analyses and the paperwork burden analyses required by Congress would become meaningful, and the current charade regarding those obligations would likely come to an end. If, instead of taking an enlightened approach, OSHA responded by continuing to issue ambiguous rules, but without the interpretative language currently found in the preambles and technical and economic feasibility analyses, the regulated community would need to file petitions for review challenging the rules as both lacking the required justification and void for vagueness. Of course, it would be appropriate for OMB to recognize and remedy the problem rather than leaving it to the courts.
V. Auer Deference Violates The Constitutional Mandate for a Separation Of the Legislative and Judicial Powers
In his powerful dissent in Decker v. Northwest Environmental Defense Center,14 Justice Scalia persuasively asserted that Auer deference should be viewed as improperly endowing the regulatory agency with judicial powers, which violates the Constitutional mandate to maintain a separation of the legislative and judicial functions:
For decades, and for no good reason, we have been giving agencies the authority to say what their rules mean, under the harmless-sounding banner of "defer[ring] to an agency's interpretation of its own regulations."
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Our … cases provide two principal explanations, neither of which has much to be said for it. … First, some cases say that the agency, as the drafter of the rule, will have some special insight into its intent when enacting it. … The implied premise of this argument—that what we are looking for is the agency's intent in adopting the rule—is false. … Whether governing rules are made by the national legislature or an administrative agency, we are boundby what they say, not by the unexpressed intention of those who made them.
The other rationale our cases provide is that the agency possesses special expertise in administering its "'complex and highly technical regulatory program." … That is true enough, and it leads to the conclusion that agencies and not courts should make regulations. But it has nothing to do with who should interpret regulations—unless one believes that the purpose of interpretation is to make the regulatory program work in a fashion that the current leadership of the agency deems effective. Making regulatory programs effective is the purpose ofrulemaking, in which the agency uses its "special expertise" to formulate the best rule. But the purpose of interpretation is to determine the fair meaning of the rule—to "say what the law is," … not to make policy, but to determine what policy has been made and promulgated by the agency, to which the public owes obedience.
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While the implication of an agency power to clarify the statute [authorizing its rulemaking activities] is reasonable enough, there is surely no congressional implication that the agency can resolve ambiguities in its own regulations. For that would violate a fundamental principle of separation of powers—that the power to write a law and the power to interpret it cannot rest in the same hands. "When the legislative and executive powers are united in the same person . . . there can be no liberty; because apprehensions may arise, lest the same monarch or senate should enact tyrannical laws, to execute them in a tyrannical manner." …
But when an agency interprets its own rules … the power to prescribe is augmented by the power to interpret; and the incentive is to speak vaguely and broadly, so as to retain a "flexibility" that will enable "clarification" with retroactive effect. … Auer deference encourages agencies to be "vague in framing regulations, with the plan of issuing 'interpretations' to create the intended new law without observance of notice and comment procedures." Anthony, The Supreme Court and the APA: Sometimes They Just Don't Get It, 10 Ad-min. L. J. Am. U. 1, 11-12 (1996). Auer is not a logical corollary to Chevron but a dangerous permission slip for the arrogation of power. …
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In any case, however great may be the efficiency gains derived from Auer deference, beneficial effect cannot justify a rule that not only has no principled basis but contravenes one of the great rules of separation of powers: He who writes a law must not adjudge its violation.
This unfortunate state of affairs was cogently described by the D.C. Circuit in Appalachian Power, 208 F.3d 1015, 1019 (D.C. Cir. 2000):
The phenomenon we see in this case is familiar. Congress passes a broadly worded statute [as is permitted by Whitman v. American Trucking Associations]. The agency follows with regulations containing broad language, open-ended phrases, ambiguous standards and the like [as is permitted by Auer]. Then as years pass, the agency issues circulars or guidance or memoranda, explaining, interpreting, defining and often expanding the commands in the regulations [as is permitted by Perez]. One guidance document may yield another and then another and so on. Several words in a regulation may spawn hundreds of pages of text as the agency offers more and more detail regarding what its regulations demand of regulated entities. Law is made, without notice and comment, without public participation, and without publication in the Federal Register or the Code of Federal Regulations [again, as is permitted by Auer and Perez]. With the advent of the Internet, the agency does not need these official publications to ensure widespread circulation; it can inform those affected simply by posting its new guidance or memoranda or policy statement on its web site. An agency operating in this way gains a large advantage. "It can issue or amend its real rules, i.e., its interpretative rules and policy statements, quickly and inexpensively without following any statutorily prescribed procedures." Richard J. Pierce, Jr., Seven Ways to Deossify Agency Rulemaking, 47 Admin. L. Rev. 59, 85 (1995).[footnote omitted] The agency may also think there is another advantage--immunizing its lawmaking from judicial review agency may also think there is another advantage--immunizing its lawmaking from judicial review.
VI. The Available Options for Restoring Balance to the Federal Regulatory Scheme
The current dysfunctional situation represents a clear denial of due process to the regulated community. Potential solutions through the courts include: (1) resuscitating the principle of Paralyzed Veterans; (2) eliminating Auer deference; or (3) establishing a rule that “original interpretations” of a legislative rule established through the rulemaking process are exceptions to Auer deference. In Perez, four justices suggested a need to re-examine Auer. One can hope that opportunity did not die with the passing of Justice Scalia. The issue was raised in a February 5, 2016 amicus brief filed by the Washington Legal Foundation on a Petition for Certiorari to the US Supreme Court in United Student Aid Funds, Inc. v. Bryana Bible (Docket 15-861).
Elimination of Auer deference would mean that the interpretation of a rule would not be decided through an abusive exercise of agency power, and it would provide agencies with a strong incentive to draft rules that reflect their true intent and minimize ambiguity. However, it would not provide the strong shield provided by Paralyzed Veterans. Furthermore, particularly for regulatory schemes that do not funnel legal challenges into specialized tribunals or a limited number of appellate courts, there is a potential for uncertainty from varying interpretations of the agency rule, especially for the many rules adopted in the Auer era.
Perez rejected the broad principle (of Paralyzed Veterans) that once a regulatory agency had established its interpretation of an ambiguous “legislative rule” (a rule adopted through a public rulemaking), the agency could not materially change that interpretation except through another public rulemaking. However, that does not appear to preclude the lower courts from holding that, if a regulatory agency materially changes either the interpretation of a rule as stated in the rulemaking documents, or a later-established interpretation of an ambiguous rule, the rule, to the extent reinterpreted, is no longer entitled to a presumption that it satisfies the “intelligible principles” governing its adoption.
As noted above, OSHA’s determinations that a rule is technically and economically feasible and reflects the most cost-effective approach in addressing the hazard are not made in a vacuum. They are based on an analysis of what the rule will require of the regulated community. During a citation contest, to avoid issuing “a dangerous permission slip for the arrogation of power,” OSHA should be required to demonstrate that its new interpretation satisfies all of the “intelligible principles” applicable to the adoption of the rule. Unfortunately, that solution is far from ideal because it does not eliminate the uncertainty as to the ultimate outcome, and many small employers could not afford the cost of the litigation. However, if OSHA is forced to carry this burden of proof in every case in which it re-interprets an OSHA rule, it should dramatically reduce the abuses of the current situation. Due process should require nothing less. An argument against adoption of the agency’s new interpretation based on detrimental reliance would be a separate basis for rejecting the agency’s interpretation.
The regulated community needs to participate more effectively in the rulemaking process and to identify and attempt to resolve ambiguous or clearly flawed provisions in proposed agency rules during the rulemaking and in final rules through pre-enforcement review. The courts should be encouraged to remand ambiguous rules to the issuing agency and mandate that they be rewritten so that individuals with common intelligence need not guess at their meaning. In a citation contest, the Review Commission and the courts should reject OSHA’s re-interpretations of ambiguous rules when those re-interpretations deviate from interpretations adopted during the rulemaking. The great bait and switch process must be brought to an end.
If the courts cannot be persuaded to rectify the situation they created, Congressional intervention will be required. Unfortunately, the members of Congress and those who influence them tend to take positions on regulatory reform that preclude the compromise needed to ever enact meaningful regulatory reform legislation. As a result, Congress generally intervenes only on an ad hoc basis when the abusive regulatory action creates a firestorm of opposition.15 Another complication is that there are some in the regulated community who would rather have the courts defer to the agency’s interpretation of its “legislative rules” than risk a court adopting the position of a public interest group.