In a major blow to OSHA’s ongoing efforts to modify existing safety and health standards through informal agency guidance, a unanimous panel of federal judges recently invalidated a July 2015 OSHA memorandum that had significantly narrowed the Process Safety Management standard’s retail facility exemption. Retail facilities have been exempt from the PSM standard since its May 1992 promulgation, based on the understanding that hazardous chemicals are usually only present in such facilities in small quantities that are not likely to create a risk of a catastrophic release. In 1992, OSHA issued a letter defining retail facilities as those deriving 50% or more of their income from direct sales of highly hazardous chemicals to end users.

The West Texas fertilizer plant that suffered a catastrophic explosion in 2013, resulting in fifteen deaths, qualified as a retail facility exempt from the PSM standard. In response to the incident, President Obama directed the Secretary of Labor to identify any changes that should be made to the standard to prevent similar chemical accidents. OSHA replied by issuing the July memorandum rescinding the income-from-direct-sales test, and announcing that retail facilities would instead be subject to the definition contained in a Department of Commerce Manual classifying types of businesses. Under that definition, retail facilities are those that are “organized to sell merchandise in small quantities to the general public.”

If implemented, the July memorandum would have expanded the scope of the PSM standard to cover approximately 4,800 previously-exempt facilities at a cost of more than $100 million. As such, several agricultural trade organizations and a number of individual businesses filed suit challenging the memorandum and arguing that the change to the exemption should have been implemented using notice and comment procedures. On September 23, 2016, the DC Circuit Court of Appeals agreed.

As defined in the OSH Act, a safety and health standard requires “the adoption or use of one or more practices, means, methods, operations or processes reasonably necessary . . . to provide for safe or healthful employment.” Accordingly, the Court characterized standards as “remedial measure[s] addressed to a specific and already identified hazard.” The Act authorizes the Secretary of Labor to promulgate or modify such standards subject to notice and comment rulemaking. In contrast, the Act does not define the word “regulations,” which the Court stated were intended to “enable collecting information about unknown hazards,” and which OSHA can issue without needing to utilize notice and comment procedures. In defense of its memorandum limiting the retail exemption, OSHA argued that it did not issue or modify a safety standard, but rather simply issued a new interpretation of an existing standard. In doing so, OSHA analogized the distinction between standards and regulations contained in the OSH Act to the distinction between legislative and interpretive rules contained in the Administrative Procedures Act. Because OSHA believed that the memorandum was simply an interpretive rule under the APA, it asserted that it was not subject to the notice and comment procedural requirements contained in the OSH Act.

The DC Circuit Court of Appeals was not convinced. In rejecting OSHA’s analogy to the APA, the Court stated that “[t]he OSH Act and the APA prescribe different procedural requirements, and those requirements do not necessarily apply to the same subset of rules.” Unlike some other statutes, the OSH Act does not reference “interpretive rules” at all. Instead, it uses its own terminology distinguishing standards, which impose new compliance obligations, from regulations, which are designed solely to aid the enforcement of existing compliance obligations.

As such, the Court stated that it had no need to decide whether OSHA’s memorandum limiting the retail exemption qualified as an interpretive rule under the APA. Instead, the relevant inquiry was whether the memorandum created new requirements with which employers would need to comply. In a unanimous opinion, the court held that it did, reasoning that OSHA sought to correct a “particular significant risk” by redefining the retail exemption, rather than simply gathering data about the risks associated with storing large quantities of highly hazardous chemicals. As a result, OSHA’s memorandum constituted a standard for the management of highly hazardous chemicals that required notice and comment rulemaking.

OSHA is inordinately slow in developing new standards, which on average take the agency between eight and eleven years to finalize. To avoid the glacial pace of the rulemaking process, OSHA relies on informal guidance and interpretation letters to explain, and in some cases expand, the agency’s enforcement powers. In doing so, OSHA imposes onerous and costly obligations on employers through backdoor rulemakings without notice or public input, and without fairly considering the costs and benefits of the change. The Court’s opinion in the instant case constitutes a severe restriction on OSHA’s ability to unilaterally expand the scope of its enforcement powers, which will likely encourage legal challenges to other agency guidance documents that have not been through the formal rulemaking process.

Given the ramifications of this decision on OSHA’s ability to enforce new interpretations of existing standards, the agency is considering an en banc appeal to a full panel of judges on the DC Circuit Court of Appeals and has until November 27, 2016 to file. In the meantime, the Court’s decision presents employers with a defense to citations issued under informal OSHA guidance or interpretations that have not been subject to full notice and comment procedures.