Focusing on Enforcement and Rolling Back the Regulatory Legacy of the Bush Administration

While running for the office of president and during his first year holding that office, Barack Obama set forth a vision of the federal government’s approach to labor and employment issues that differed starkly from that of the Bush administration. One of the fora most critical to actualizing this vision is the U.S. Department of Labor (DOL) and its agencies.

The main ideological shift in the Obama DOL is an increased focus on stricter enforcement of existing laws and a regulatory agenda that is more pro-worker and pro-labor. In its first year, the Obama administration laid the groundwork for this new, more aggressive approach to workplace regulation. Having secured larger budgets for key agencies and reoriented its focus from compliance assistance to enforcement, the administration enhanced its investigative and enforcement capabilities and has initiated a number of high-profile enforcement initiatives. Such initiatives are likely to continue, as DOL seeks out violators of whom it can make examples.

The administration is taking the same aggressive approach with its regulatory agenda. While it did not issue any significant new workplace regulations in its first year, the administration has signaled its intention to tackle some important and controversial regulatory issues in 2010, in an attempt to roll back what the administration has labeled the “anti-labor” policies of the Bush administration.

A New Sheriff in Town

With the bulk of the department’s leadership team in place, Secretary of Labor Hilda L. Solis has attempted to clarify this ideological shift by drawing a sharp contrast with the previous administration, announcing that there was “a new sheriff in town” and that the Department of Labor was going to drastically increase its enforcement efforts.

Solis started to take steps to support this enforcement rhetoric by requesting $104.5 billion for the DOL’s FY 2010 budget. This represented a 10 percent increase from FY 2009, which Solis said is meant to amplify DOL’s ability to police employers’ compliance with wage and hour and occupational safety and health laws. DOL has used this enhanced budget to hire 250 wage and hour investigators in 2009, increasing the number of investigators by 33 percent. DOL also hired 250 occupational safety and health inspectors and has promised to hire 100 more in 2010.

The federal budget that President Obama proposed on February 1, 2010, for FY 2011 is set to continue this trend by including $117 billion for the DOL, with $25 million set aside to combat employee misclassification, as well as funding for an additional 177 investigators and enforcement staff.

The Solis-led DOL has already begun to show results from its greater emphasis on enforcement. From July to October 2009, the Department of Labor collected nearly $2 million in back wages for more than 500 workers. Also in October, OSHA issued a record-breaking $87 million fine that was more than four times the previous high.

Occupational Safety and Health Administration

The overarching shift in emphasis from compliance to enforcement in the Solis-led DOL is evident in the actions of DOL’s constituent departments and agencies. Since Democrats took control of Congress in 2006, both House and Senate Democrats have pressured OSHA to become more aggressive in its enforcement activities. This trend continued during the Obama administration’s first year, with congressional hearings and government agency reports criticizing OSHA’s enforcement and oversight efforts during the previous administration.

OSHA has responded to these criticisms by laying the groundwork for a more aggressive approach to enforcement. In 2009, the administration secured a $41.6 million increase in OSHA’s FY 2010 budget and, with this additional funding, hired new investigators, with plans to hire more in 2010. The FY 2011 budget recently proposed by President Obama would increase OSHA’s budget by an additional $14 million. Under this expanded budget, funding would increase for OSHA’s enforcement and standards-setting divisions, but would decrease for the Voluntary Protection Program (VPP), a compliance program recognizing work-sites with exemplary safety and health programs. The Government Accountability Office report recently criticized VPP because OSHA was not ensuring that only qualified worksites participated. In its proposed budget for 2011, OSHA plans to hire 25 new investigators and transfer an additional 35 from compliance assistance officers to its enforcement divisions.

OSHA has further responded to criticism of its prior enforcement efforts by replacing its maligned Enhanced Enforcement Program (EEP) with a new Severe Violators Enforcement Program (SVEP). OSHA created EEP in 2003 to “target those employers who are indifferent to their obligations under the OSH Act.” However, in 2009, the Office of Inspector General published a report criticizing OSHA’s efforts under EEP, finding that it had failed to protect workers from “recalcitrant” employers. The new SVEP enables OSHA to conduct more aggressive multi-worksite inspections, work more closely with OSHA state plans and establish a nationwide referral program. Employers will become subject to the SVEP where inspections find: (1) fatality or catastrophe situations; (2) two or more willful, repeat or failure-to-abate violations due to “high-emphasis hazards” (e.g., fall hazards, amputation hazards, combustible dust hazards, crystalline silica hazards, lead hazards, trenching/excavation hazards and ship-breaking hazards); (3) three or more willful, repeat or failure-to-abate violations relating to the release of highly hazardous chemicals; and (4) all “egregious” enforcement actions.

In addition to these other indicia of greater enforcement emphasis, under the Obama administration, OSHA has started to levy greater monetary penalties against employers, including a record-breaking $87-million fine against BP in October. This penalty was more than four times the previous largest total penalty-a $21 million fine in 2005. Also, in the first two months of the 2010 fiscal year (October and November 2009), OSHA cited six employers with “egregious” violations, which is two more than OSHA issued during the previous fiscal year in its entirety. Under its egregious penalty policy, OSHA can assess a separate penalty for each instance of a violation, rather than proposing a single penalty for all violations of a specific OSHA regulation. Based on recent enforcement actions, OSHA seems to be focusing its egregious penalty policy on cases involving hazardous substances, underage workers and daily exposure to serious hazards like trenches and excavation cave-ins, as well as on employers that have ignored prior incidents or have obstructed OSHA investigations.

In conjunction with its greater emphasis on enforcement, OSHA has also indicated it will be focusing on recordkeeping. OSHA Administrator David Michaels stated that he believes companies “dramatically underestimate” the actual incident rates of workplace injury or illnesses. Accordingly, OSHA has announced a National Emphasis Program on recordkeeping that will look at whether employers underreport work-related injuries or illnesses. As part of this program, OSHA will conduct targeted inspections involving detailed record reviews, employee interviews and an analysis of the possible impact of employers’ safety incentive programs on the reporting recordable incidents.

Wage and Hour Division

Further evidence that the Department of Labor has shifted its focus from compliance assistance to investigation and enforcement comes from the DOL’s Wage and Hour Division (WHD). The Wage and Hour Division is responsible for enforcing the DOL’s wage and hour laws, as well as issuing interpretative guidance to assist employers in their efforts to comply with those laws. During the Bush administration, WHD issued numerous opinion letters to help employers understand the WHD’s interpretation of wage and hour regulations. However, in the first year of his presidency, the Obama administration’s WHD did not issue a single opinion letter.

At first glance, this appeared related to the difficulty the administration encountered in filling top positions at DOL. While most of the major positions within the Department of Labor were filled during Obama’s first year in office, the position of Wage and Hour Administrator has remained vacant. President Obama’s original candidate, Lorelei Boylan, asked that her nomination be withdrawn for family reasons. Republicans had also objected to Boylan’s nomination because of her involvement in the controversial New York Wage Watch Program.

However, as the Obama administration’s second year commenced, it became clear that the WHD’s failure to issue opinion letters was part of a concerted shift in the way the administration plans on providing compliance guidance. In March 2010, the WHD announced that it would no longer issue definitive fact-specific opinion letters submitted by individuals and organizations. Instead, WHD will now issue Administrator Interpretations, which are intended to be “general interpretations of the law and regulations, applicable across-the-board to all those affected by the provision in issue.” In response to requests for opinion letters, WHD will now provide only “references to statutes, regulations, interpretations and cases that are relevant to the specific request but without an analysis of the specific facts presented.” While this shift to more general compliance guidance will likely consume fewer resources at WHD, as a result, employers will lose an important avenue for receiving assurances that their specific practices comply with WHD’s view of the law. This move is indicative of the department’s overall shift of resources away from compliance efforts and toward enforcement and investigative initiatives.

Indeed, this shift in emphasis is borne out by the FY 2011 budget proposed by President Obama. Under that budget, the WHD would receive $244 million, an increase of almost $20 million from its FY 2010 budget, including funding to hire 100 new enforcement personnel. This $20-million budgetary increase is part of the $25-million “Misclassification Initiative,” which is a joint proposal of the DOL and Treasury Department aimed at reducing employers’ incentives to misclassify employees as “independent contractors.” Not only would the Misclassification Initiative provide funding for more enforcement personnel, it would also provide funding for competitive grants that would boost the states’ abilities to deal with this issue.

In addition, the WHD recently unveiled a new initiative titled “We Can Help,” which is aimed at educating workers about their rights under various wage and hour laws, and encouraging them to report violations. In her remarks announcing the program on April 1, 2010, Solis stated that the WHD would be “working with international consular officials, community and faith-based organizations, and advocacy groups throughout the country” in connection with the initiative. The WHD announced its intention to use public service announcements, workers’ rights videos, posters, publications and billboards to publicize the program, and Solis stated that her staff “will conduct outreach to stakeholders and vulnerable workers” in a variety of industries, including construction, apparel, manufacturing, restaurants, home health care, and hotels and motels. This initiative is further evidence of the DOL’s increased emphasis on investigative and enforcement measures.

Major Regulatory Initiatives for 2010

In addition to its increased emphasis on enforcement, the Department of Labor is poised to engage in a more pro-worker and pro-union regulatory agenda in 2010.

Within a week of his inauguration, President Obama issued several orders that, according to remarks the President made when issuing the orders, were aimed at reversing “many of the policies toward organized labor” promulgated by the Bush administration with which he “sharply disagreed.” To effectuate these executive orders, the Department of Labor is in the process of issuing and implementing regulations. On March 19, 2010, the DOL issued a notice of proposed rule making in connection with Executive Order 13495. That rulemaking, once it takes effect, will require contractors and subcontractors who succeed a federal contract worth $100,000 or more for the same or similar service at the same location of a predecessor to offer individuals employed by the predecessor, not including managers or supervisors, a right of first refusal to employment. The Department of Labor also plans to finalize regulations in connection with Executive Order 13496 that prescribe the size, form and content of the notice that contractors must post to describe the rights of employees under federal labor laws.

These regulations to enact the pro-worker orders that Obama issued at the start of his presidency are just the tip of the iceberg. Secretary Solis has indicated that the DOL will seek to enact up to 90 new rules and regulations in 2010 to give more power to workers and unions. To that end, the DOL has formally established a variety of regulatory goals for the second year of the Obama administration.

Regulation of “Persuader” Activity under the Labor-Management Reporting and Disclosure Act

One such goal for 2010 will be developing a regulation that revises the interpretation of Section 203(c) of the Labor-Management Reporting and Disclosure Act (LMRDA). The LMRDA requires all entities acting as “persuaders” in the context of a union organizing campaign to register with the federal government. Entities that enter into agreements with employers to provide persuader services are also required to file reports within 30 days detailing the amount paid by the employer and containing “a detailed statement of the terms and conditions” of the arrangement or planned services to be provided. Section 203(c) of the LMRDA creates an “advice” exemption from reporting requirements that apply to “such person by reason of his giving or agreeing to give advice to such employer.” The “advice” exemption to the reporting requirements of the LMRDA historically has included persuasive material prepared by consultants or attorneys for use by the employer.

The new LMRDA regulation will resemble the regulation issued in January 2001 by the Clinton administration that was subsequently rescinded by President Bush in April of that year. The Clinton-era regulation did not require lawyers and consultants who simply review and revise persuasive material prepared by the employer to report that activity. However, that proposed regulation stated that, if a “consultant or lawyer or their agent communicates directly with employees in an effort to persuade them,” the “advice” exemption would not apply, and there would be a reporting requirement. A duty to report would also trigger even if the consultant or attorney did not communicate directly with the employees as long as the direct or indirect object of the consultant or lawyer’s activity was to persuade employees.

Ergonomics Reprise

The DOL has also laid out an aggressive regulatory agenda for 2010 on workplace safety issues. In what seems to be a first step in issuing a new ergonomics regulation, OSHA issued a proposed rule on January 29, 2010, that includes a definition of work-related musculoskeletal disorders in its recordkeeping regulations in 29 C.F.R. Part 104. This rulemaking also adds a separate column on the OSHA 300 Log used to record work-related injuries, so that employers and OSHA can track these disorders. These requirements were previously introduced as part of a 2001 rulemaking, but OSHA removed them from that rulemaking in 2003 before it became final. OSHA may use the data collected under such recordkeeping regulations to support a new ergonomics regulation.

Any ergonomics regulation that OSHA issues will likely provide the same stringent requirements and broad scope as the controversial ergonomics standard that was issued near the end of the Clinton administration and then repealed almost immediately by President Bush and the Republican Congress. That Clinton-era Ergonomics Program Standard, which became effective on January 14, 2001, broadly defined a “musculoskeletal disorder” as a disorder of the muscles, nerves, tendons, ligaments, joints, cartilage, blood vessels or spinal discs that affect the neck, shoulder, elbow, forearm, wrist, hand, abdomen, back, knee, ankle and foot. It also provided that musculoskeletal disorder injuries could be manifested by diagnoses including, but not limited to, carpal tunnel syndrome, rotator cuff syndrome, lower back pain, trigger fingers, tarsal tunnel syndrome, sciatica, tendinitis and herniated spinal discs. On March 20, 2001, President Bush signed a congressional resolution that repealed the ergonomic regulations because of the substantial costs and compliance challenges it imposed on employers. Because the vote enacting the resolution fell along party lines during a period in which the Republicans controlled Congress, it is possible that President Obama, with a Democratic Congress, might successfully issue a new ergonomics regulation. However, critics of such a new ergonomics standard argue that it is a job killer. As such, the administration might have trouble promulgating this type of new standard given the current economic climate.

DOL’s regulatory agenda also includes taking final action on a 2005 proposed rulemaking that would update the existing standards for the construction of electrical power transmission and distribution installations and make them consistent with the general industry standards. OSHA also plans to issue a final rulemaking on its cranes and derricks standard. Both are likely to have a significant impact on the construction industry.

EBSA Rulemaking in 2010

As recently detailed in the Department of Labor’s Semi-Annual Regulatory Agenda, DOL’s Employee Benefits Security Administration (EBSA) will also be engaging in extensive rulemaking in 2010. EBSA recently has promulgated, or is in the process of promulgating, rules implementing portions of the Genetic Information Nondiscrimination Act (GINA), the Mental Health Parity and Addiction Equality Act (MHPAEA) and the Health Insurance Portability and Accountability Act (HIPAA).

EBSA’s interim final rule implementing GINA, among other things, provides guidance regarding individual and group market prohibitions against health plans and health insurers denying coverage or raising premiums for those predisposed to genetic diseases. The rule also implements statutory prohibitions against the collection of genetic information by health plans and insurers.

The interim final rule implementing MHPAEA prohibits group health plans from treating mental health or substance abuse conditions differently than general medical conditions in terms of increasing out-of-pocket costs or limiting benefits. EBSA continues to receive comments on this rule.

Together with the departments of Labor, the Treasury, and Health and Human Services, EBSA is in the process of supplementing final rules implementing HIPAA, issuing further regulatory guidance addressing health care access, renewability and portability provisions affected by recent amendments to HIPAA under the Children’s Health Insurance Program Reauthorization Act of 2009.

Additionally, EBSA is in the process of issuing final rules establishing a safe harbor period under Title I of ERISA and related tax provisions that would exclude moneys withheld by employers or paid by participants from the definition of “plan assets” and will issue a notice of proposed rulemaking to clarify the definition of “fiduciary” under section 3(21) of ERISA, bringing it in line with the current practices of plan managers, individual plan participants and investment advisors. Later this year, EBSA plans to issue a final rule clarifying the required disclosure of plan fee and expense information to plan participants and beneficiaries.