“Regulation by Shaming”—What is the Impact on the Economy? (Part 1)

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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The long, hot pre-election season is in full swing in Washington, D.C., and to state the obvious, the economy is front and center. As a result, members of both parties have been talking about how burdensome regulations hurt the economy and keep employers from hiring. What is missing from this debate? The economic impact of “tough” enforcement from the Occupational Safety and Health Administration (OSHA).

Since he was sworn in, OSHA Assistant Secretary David Michaels, Ph.D., MPH has touted “regulation by shaming” as an effective means of enforcement. Dr. Michaels’s comments include: “Fear of public disclosure (and the associated scorn and anger” encourages employers to eliminate hazards rather than “suffer the public embarrassment and political pressure that often follows disclosure.” At the recent American Bar Association meeting of the Occupational Safety and Health Committee, Dr. Michaels confirmed his commitment to “regulation by shaming.”

The “regulation by shaming” concept has three primary components: multiple citations (typically characterized as “willful”), high penalties, and press releases that brand employers as “bad actors” who do not care about the welfare of their employees. These three components are inter-related because an OSHA press release highlighting small penalties would not garner any attention. As such, to engage in effective “regulation by shaming,” OSHA must ramp up the number of citations and “willful” violations to reach penalty numbers that will attract attention.

The economic effects of enforcement—including “shaming”—on businesses have been notably absent from the current debate about the true costs of regulations and their impacts on the economy. The economic impacts are, however, significant. The first effect is obvious: When OSHA demands high penalties in the hundreds of thousands of dollars, the money paid by the employer could have been used to hire new employees. The effect of “willful” citations and the associated press release “shaming” the employer is more difficult to quantify, but it is clearly there. For example, a client who recently received two “willful” citation reports has been informed that two customers will not use the company again if the citations stand. The result? A loss of approximately $70 million in business and an untold number of jobs.

As an OSHA defense attorney, one of the more frustrating aspects of this system is that the law defining a “willful” violation has not changed. Why are so many violations allegedly “willful” now when they were not under the Bush administration? In a recent decision addressing the compensability of time spent changing clothes under the Fair Labor Standards Act, Judge Posner of the Seventh Circuit Court of Appeals made comments that also ring true in OSHA cases. In discussing how the U.S. Department of Labor’s interpretation changes depending on who sits in the White House, Judge Posner wrote:

Such oscillation is a normal phenomenon of American politics. Democrats are friendlier to unions than Republicans are. . . .  Naturally the Department of Labor does not acknowledge that its motive in switching sides was political; that would be a crass admission in a brief or in oral argument, and unlikely to carry weight with the judges. The Department says instead that it is right as a matter of law and that the position the Department took in the Bush years is wrong; it adds that since it enforces the Fair Labor Standards Act its (current) position should carry weight with us. But all the Department does to demonstrate the “rightness” of its current position is to echo the plaintiffs’ arguments. Nowhere in the Department’s brief is there a reference to any institutional knowledge of labor markets possessed by the Department’s staff—or to anything indeed to which the parties might not have complete access—that might help the court to decide the case sensibly; and at the oral argument the Department’s lawyer acknowledged this void. All that the Department has contributed to our deliberations, therefore, though it is not quite nothing, is letting us know that it disagrees with the position taken by the Bush Department of Labor. . . . It would be a considerable paradox if before 2001 the plaintiffs would win because the President was a Democrat, between 2001 and 2009 the defendant would win because the President was a Republican, and in 2012 the plaintiffs would win because the President is again a Democrat. That would make a travesty of the principle of deference to interpretations of statutes by the agencies responsible for enforcing them. . . .  Sandifier v. U.S. Steel Corp.

Although the context is different, OSHA is engaged in the same behavior. Specifically, a violation that did not meet the definition of “willful” during the Bush years (or even the Clinton years) is now suddenly “willful” under the Obama administration.

In the next blog post on this topic, I will present a case study of “shaming” in action and also discuss whether regulation by shaming makes for good policy.

Melissa A. Bailey is a shareholder in the Washington, D.C. office of Ogletree Deakins.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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