Employment Law Daily Narrowing process safety management retail exemption was ‘standard’ requiring OSHA notice-and-comment rulemaking
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Tuesday, September 27, 2016

Narrowing process safety management retail exemption was ‘standard’ requiring OSHA notice-and-comment rulemaking

By Joy P. Waltemath, J.D. When, after a catastrophic chemical explosion at a Texas fertilizer company, OSHA issued a memorandum narrowing the scope of the retail-facility exemption to the Process Safety Management Standard so that its requirements would now apply to formerly exempt facilities like the Texas plant, the agency issued a safety "standard" within the meaning of the OSH Act, the D.C. Circuit ruled. As such, the appeals court had jurisdiction to review OSHA’s action, and under the OSH Act, OSHA was required to have adhered to procedural notice-and-comment requirements, which it concededly did not do. Accordingly, the court granted the petitions for review and vacated OSHA’s action (Agricultural Retailers Assn. v. U.S. Department of Labor and Occupational Safety and Health Administration, September 23, 2016, Srinivasan, S.). Process Safety Management Standard. The Process Safety Management (PSM) standard (29 C.F.R. § 1910.119) "contains requirements for preventing or minimizing the consequences of catastrophic releases of toxic, reactive, flammable, or explosive chemicals." OSHA initially exempted retail facilities from the requirements of the PSM standard because it believed that chemicals in retail facilities were in small volume packages or containers, making a large release of toxic chemicals unlikely. In 1992, OSHA issued a letter defining an exempt retail facility as "an establishment . . . at which more than half of the income is obtained from direct sales to end users," which remained the rule for more than two decades. 50 percent test for retail exemption. The catastrophic chemical explosion at the West, Texas, fertilizer company in April 2013 resulted in the deaths of 15 persons and injured many others. Although the company stored large quantities of a highly hazardous chemical (anhydrous ammonia) for bulk distribution as fertilizer to farmers, it had been exempt from the PSM standard under the 50 percent test for retail facilities. That test allowed establishments to claim the exemption even if they stored large amounts of hazardous chemicals for distribution in wholesale quantities to commercial end users (including farmers), as long as the distributions went directly to the end users. OSHA Memorandum. President Obama later issued an executive order that, among other things, directed the Labor Secretary to "identify any changes that need to be made in the retail . . . exemption." In response, OSHA issued its Memorandum on Process Safety Management of Highly Hazardous Chemicals and Application of the Retail Exemption (29 C.F.R. § 1910.119(a)(2)(i)) on July 22, 2015. The Memorandum rescinded all prior policy documents, letters of interpretation, and memoranda related to the retail exemption and the 50 percent test. OSHA said that retail facilities would instead be defined by a Department of Commerce manual classifying types of businesses, which required that to meet the definition, retail facilities must be "organized to sell merchandise in small quantities to the general public." OSH Act procedural requirements. When promulgating or modifying a "standard," OSHA must adhere to notice-and-comment procedures set forth in the OSH Act, but admittedly, when it issued the Memorandum redefining "retail facility," OSHA did not do so. OSHA argued instead that the Memorandum did not issue or modify a standard—it only interpreted an existing standard—and so was not subject to the notice-and-comment procedures or to direct review by this court. Was Memorandum a "standard?" Whether the Memorandum amounted to issuance (or modification) of an "occupational safety and health standard" was the issue before the D.C. Circuit, which noted that a "standard" is "a remedial measure addressed to a specific and already identified hazard, not a purely administrative effort designed to uncover violations of the Act and discover unknown dangers." Under that definition, the appeals court concluded that OSHA’s Memorandum newly defining a retail facility amounted to a standard. Its basic function was to address a specific, already identified risk—that associated with storing large quantities of highly hazardous chemicals for distribution to end users in bulk quantities, as the Texas fertilizer company had. OSHA was not merely gathering data about that risk or undertaking a general detection or enforcement function, but instead was attempting to correct the risk by subjecting facilities (like farm supply companies) to the PSM standard. OSHA itself estimated that the revised definition would subject up to 4,800 facilities to "new" and "more demanding," substantive hazardous chemical safety standards. Although the Memorandum itself did not impose new preventative measures on its own, it did so in conjunction with the PSM standard, reasoned the court, finding the essential effect and object of the Memorandum was to expand the substantive reach of the PSM standard by narrowing the retail exemption. By redefining retail facilities, the Memorandum subjected a substantial number of businesses previously classified as exempt retail facilities to additional safety standards. To the appeals court, that qualified as a standard within the meaning of the OSH Act. APA requirements irrelevant. OSHA contended that the Memorandum was not a standard because it only would constitute an interpretive rule under the APA. But the OSH Act and the APA prescribe different procedural requirements, said the court, and those requirements do not necessarily apply to the same subset of rules. Here, the petitioners claimed that they were entitled to relief under the OSH Act’s governing standards, so the D.C. Circuit did not need to determine whether the Memorandum at issue here would constitute an interpretive rule under the APA. Because the Memorandum was a standard within the meaning of the OSH Act, with which it failed to comply, the court granted the petition and vacated the Memorandum.

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