For the last twenty-five years, I have defended companies in OSHA enforcement actions. No matter how large or small the action, employers should always begin by evaluating the potential financial impact the OSHA citation could have on the company. From that evaluation, employers can then decide the amount of resources that are needed to defend it.
Some factors like the proposed monetary penalty are straightforward to calculate. But there are five other factors which really turn on the specific facts of each case and need to be evaluated carefully to determine the true potential financial impact: 1) the cost in time and capital to abate the alleged hazard in the citation, 2) the impact that the OSHA citation could have upon collateral litigation and parallel regulatory inspections, 3) the potential for repeat OSHA citations, 4) the characterization of the citation as "willful," and 5) the impact that safety violations may have upon the company in competing for new projects.
By considering these factors, you can evaluate the potential financial impact of the citation and allocate the appropriate resources to defend it, accordingly.
Evaluating the Required Abatement Actions
One of the first questions that should be asked is “what, from OSHA's point of view, must be done to abate the hazard or violative condition in the citation?” Many times, the abatement is straightforward and inexpensive such as training a few employees on a new procedure.
Frequently though, OSHA asks for a change in work practices, or a change in equipment or materials of construction. In my experience, reducing a line speed, the installation of blast resistant buildings and replacing all carbon steel pipe with stainless steel have been the most expensive changes that OSHA has requested. Reducing a line speed reduces the rate of production which directly affects revenues. Installing blast resistant buildings and substituting stainless steel piping is extremely expensive and very time consuming. All three examples greatly influenced the evaluation of the citation and the employer’s measured response to contest it.
Evaluating the Impact that OSHA Citations Can Have on Collateral Litigation and Parallel Inspections
OSHA citations can have a significant impact upon civil litigation, workers’ compensation proceedings, indemnification provisions and parallel regulatory inspections.
Assume that a company hires a contractor to do some welding and the contract has an indemnification clause. The safety representative of the company writes a hot work permit and unfortunately, a flash fire occurs and the welder and one other company employee are fatally injured. OSHA conducts an investigation, concludes that the hot work permit was inadequate and issues one serious citation against the company. In our litigious society, it is usually only a matter of weeks before the Estate of the welder brings a wrongful death suit against the company and a workers’ compensation claim against his employer, the contractor. The permit and the OSHA citation will have a significant impact on the wrongful death suit. In court, the Estate will argue that the OSHA standards on hot work defined the standard of care and that the OSHA citation for an inadequate hot work permit proves a violation of that duty of care; i.e., negligence.
Moreover, such negligence will often trigger an indemnification clause and the welder’s employer may seek reimbursement of any compensation which it paid to the Estate and any expenses and attorney’s fees related to defending that claim.
Let's change the facts and assume that the OSHA citation is characterized as "willful," which means that the employer intentionally and knowingly violated the law. This opens the door to claims for punitive damages in the welder's wrongful death suit. For the company employee who was also fatally injured, the willful citation may enable him to get out of the worker compensation system and bring his own wrongful death claim, also seeking punitive damages.
OSHA citations can also affect an EPA inspection. Assume a petrochemical facility has a release and OSHA conducts an inspection and issues Process Safety Management (PSM) citations. EPA inspections frequently continue long after OSHA has issued its citations. When EPA conducts an inspection under its Risk Management Protection (RMP) rule, which is virtually identical to OSHA’s PSM standard, the OSHA PSM citations become a road map for the EPA inspection and leads to more compliance issues.
While the collateral litigation, indemnification and EPA inspection issues are very fact specific, all can be dramatically impacted by an OSHA citation.
Evaluating the Potential for Repeat Violations
OSHA defines a repeat violation as one where a company receives an OSHA citation that becomes final through settlement or litigation, and then receives a second, separate OSHA citation involving a substantially similar hazard to the first citation. OSHA has the discretion to characterize this second substantially similar citation as a "repeat" violation and propose a penalty of up to $70,000. The physical location of the first citation has no bearing on the determination as long as both locations are within the company’s corporate network.
It’s easy to imagine how potential costs can quickly escalate under this system, especially where an employer has multiple locations. Let's look at an example. Years ago, one of my clients, which had 67 facilities across the nation, received an eye wash citation from OSHA at its Massachusetts facility with a proposed penalty of $700. The penalty was so small that the client just paid it without discussing it with its legal department. A few years later, one of the client’s plants in Illinois received two repeat citations for inadequate eye washes with a proposed penalty of $140,000 based on the original Massachusetts citation.
OSHA's repeat policy is a national policy so employers need to consider each OSHA citation from a broadened, corporate perspective, and not as a separate, local independent issue. Employers should be asking “how likely is this hazard to be repeated at other facilities?” and “can a corporate policy be implemented to protect employees and prevent the hazard from recurring?
Evaluating the Willful Citation
Occasionally, OSHA issues a citation that has been characterized as "willful," meaning that the employer has knowingly and intentionally disregarded the requirements of law. OSHA puts more resources into prosecuting a willful citation and it can change your relationship with the Agency. OSHA can come to see the company as a "bad actor" which makes future inspections and citations more likely and subsequent litigation more costly.
A willful citation also damages the public perception of the company. To the employees, the neighboring community, the shareholders, the media and other agencies such as EPA or the CSB, a willful citation is a red flag suggesting that a closer examination of the safety and health culture might reveal more compliance issues.
Even though prosecution is rare, a willful violation of an OSHA standard that causes an employee's death is a criminal violation of the Federal OSH Act. Willful violations can also raise issues in collective bargaining and in dealing with insurance companies. As noted previously, it can also change civil litigation raising issues over punitive damages and allowing employees to circumvent the workers compensation bar and sue their employer.
Evaluating the Impact of Safety Violations and Competing for New Projects
In some industries, your safety record is an important factor in the competitive process for new business. The question that frequently appears on bid documents in these industries is “have you had any willful, repeat or serious safety violations in the previous three years?” If the answer is yes, then your ranking in the competitive process is lowered and may affect your chance of winning a new contract. In some industries, the competition is so fierce that companies will not accept a serious citation from OSHA. Instead, they litigate and strive for a settlement that will not affect their competitive position.
Evaluating an OSHA citation to determine its potential financial impact upon a company is a very fact-dependent process. Some citations pose little to no financial risk while others pose significant risk. A proper, cumulative evaluation of the potential financial impact considers not only the proposed penalty, but the five factors mentioned in this article. Once that evaluation has been conducted, the company can then determine the appropriate amount of resources needed to properly defend the citation.