Seyfarth Synopsis: In a challenge brought by trade associations for the farm supply and fertilizer industries, the D.C. Circuit vacates OSHA memorandum narrowing the retail exemption from the PSM standard.

The U.S. Court of Appeals for the District of Columbia Circuit recently ruled against OSHA on a Petition for Review of an OSHA interpretative memorandum in Agricultural Retailers Ass’n & Fertilizer Inst. v. United States Department of Labor, No. 15-1326 (D.C. Cir. Sept. 23, 2016).

In this case, the Agricultural Retailers Association and the Fertilizer Institute sought review of a July 22, 2015 OSHA memorandum and interim policy interpretation that had significantly narrowed the Retail Facilities Exemption to the Process Safety Management of Highly Hazardous Chemicals (PSM) standard, 29 C.F.R. § 1910.119. The challenged interpretation had a dramatic effect on agricultural retailers that provide fertilizers to end users in the agricultural industry. In that regard, the interpretation swept in many previously-exempt fertilizer and farm supply retailers into coverage under the onerous PSM standard.

OSHA issued the interpretation after a 2013 explosion at a West, Texas fertilizer supplier left 15 people dead and many others injured. Under the interpretation, OSHA retreated from the so-called “50 percent test” for determining whether a seller of highly hazardous chemicals qualified for the retail exemption. Under that test, an establishment was exempt from PSM coverage if it “derived more than 50 percent of its income from direct sales of highly hazardous chemicals to the end user.” Application of this test meant that fertilizer suppliers typically fell within the exemption despite having large quantities of highly hazardous chemicals at their establishments. The challenged interpretation applied a different, much narrower, test to determine applicability of the exemption. Under that test, retail facilities included only those “organized to sell merchandize in small quantities to the general public” as set forth sectors 44 and 45 of the NAICS Manual. This definition precluded employers that sold or distributed large, bulk quantities of highly hazardous chemicals (i.e., farm and fertilizer supply businesses) from relying upon the retail exemption.

The thrust of the petitioners’ challenge to OSHA’s memorandum was that it was actually an OSHA standard, not an interpretation, and that, in turn, OSHA was required to follow rulemaking procedures, including notice-and-comment requirements. OSHA admittedly did not follow these procedures. OSHA contended that rulemaking procedures did not apply because its action was a mere interpretation of a standard, and that its memorandum did not issue or modify a “standard.” The D.C. Circuit rejected OSHA’s argument and agreed with petitioners. In so doing, the court held that the memorandum amounted to a “standard within the meaning of the OSH Act” because its purpose was to correct “a particular significant risk,” rather than guide general enforcement. Given that determination and OSHA’s admitted failure to follow rulemaking procedures, the court granted the petition and “vacated” OSHA’s memorandum.

For the time being, this means that employers (including agricultural retailers) may once again rely on the “50 percent rule” for determining applicability of the retail exemption to the PSM standard. How long that reprieve lasts remains to be seen given OSHA’s apparent commitment to this issue, but one thing is clear — any future change to the retail exemption will afford stakeholders the opportunity to be heard through notice-and-comment procedures.

In the meantime, we will continue to monitor and keep you updated on this issue as it develops.