Penalties Increase for Workplace Violations: Compliance Incentive or Employer Burden?

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Federal agencies have increased the amount of penalties an employer may be assessed in the event of a violation – and these are not modest increases. Running afoul of a workplace law could cost an employer upwards of $100,000 for a single penalty, with some of the possible assessments increasing more than 80 percent.

But the spikes in fines don’t end there – the penalty amounts will continue to be adjusted regularly for inflation.

The Case for Incentivizing Compliance

The rationale for stiffer fines stems from the belief that civil penalties advance the purposes of employment laws by:

  • Maintaining remedial impact;
  • Encouraging compliance; and
  • Deterring violations.

Many enforcement agencies posit that the existence of penalty provisions provide an incentive for compliance not just for the employer subject to a penalty, but for other employers as well. The Department of Labor (DOL) describes the “benefits of penalties,” such as leveling the playing field for compliant employers by punishing those bad actors that may cut corners.

Last October, Dr. David Michaels, Assistant Secretary of Labor for the Occupational Safety and Health Administration (OSHA), made a compelling case for tougher sanctions: “The most serious obstacle to effective OSHA enforcement of the law is the very low level of civil penalties allowed under our law, as well as our weak criminal sanctions. . . OSHA’s current penalties are not strong enough to provide adequate incentives.”

Congress agreed. It passed the 2015 Amendments to the Inflation Adjustment Act– even accommodating the suggestion to index adjustments on the Bureau of Labor Statistics’ Consumer Price Index.

$125,000 per Violation Becomes Reality

Based on the amendments, enforcement agencies have been busy updating their implementing regulations.

This summer, the EEOC increased its fines for notice-posting violations from $210 to $525 per violation. Just three years ago, these violations would have been assessed a $110 penalty.

Such steep increases are also a reality at the DOL. The agency released two interim rules regarding penalty increases: one in conjunction with the Department of Homeland Security (related to the H-2B guest worker program), and the other encompassing important labor laws including:

  • Mine Safety and Health Act;
  • Employee Retirement Income Security Act (ERISA);
  • Fair Labor Standards Act;
  • Migrant and Seasonal Agricultural Worker Protection Act;
  • Employee Polygraph Protection Act;
  • Longshore and Harbor Workers’ Compensation Act; and
  • Black Lung Benefits Act.

The OSH Act is also covered by the increases, and is the subject of some of the most eye-popping amounts.

As of August 2, 2016, for any violations that occurred after November 2, 2015, OSHA penalties rose nearly 80 percent. So, for example, a failure to abate citation has risen from $7,000 per day to $12,471 per day beyond the abatement date.

Under the updated penalty structure, any employer that willfully or repeatedly violates the OSH Act may be assessed a civil penalty of as much as $124,709, but not less than $8,908, for each willful violation.

But a relatively minor violation, such as a posting violation, can become expensive too. As of August 2, when a violation of a posting requirement is cited by OSHA investigators, a civil penalty of up to $12,471 may be assessed for each violation.

OSHA has issued revisions to its Field Operations Manual, in which it includes a proposed penalty structure (technically, OSHA proposes penalties, and the Occupational Safety and Health Review Commission assesses penalties.)

Possible Relief?

There is room for discretion with respect to the steep penalties.

For instance, OSHA will continue to provide penalty reductions to address the impact of these penalty increases on smaller businesses and in cases where the deterrent goals of the penalty structure would not be advanced. An OSHA Area Director could implement penalty reductions depending on the:

  • Size of the employer;
  • Gravity of the violation, calculated by:
    • The severity of the injury or illness that could result from the alleged violation; and
    •  The probability that an injury or illness could occur as a result of the alleged violation;
  • Good faith of the employer; and
  • Employer’s history of previous violations.

In addition, Congress has placed restrictions on enforcement activities regarding two categories of employers: small farming operations and small employers in low-hazard industries.

However, penalty adjustments are not normally granted if:

  • The employer is currently on the Severe Violator Enforcement List (SVEP);
  • Proposed citations meet the requirements for inclusion in the SVEP;
  • The proposed citations are related to a fatality/catastrophe;
  • The proposed failure to abate notification is based on a previous citation for which the employer failed to submit an abatement verification;
  • The employer has received a willful or repeat violation within the past five years related to a fatality;
  • The employer has been referred to debt collection for past unpaid OSHA penalties;
  • The employer has numerous recordkeeping violations related to a large number or rate of injuries and illnesses at the establishment; or
  • The employer has failed to report a fatality, inpatient hospitalization, amputation or loss of an eye under regulatory requirements.

But Wait, There’s More

In addition to penalties assessed by the EEOC and the DOL, employers should note increases related to the following laws, which are enforced by the Department of Justice (DOJ):

  • False Claims Act;
  • Anti-Kickback Act;
  • Immigration and Nationality Act;
  • Unlawful employment of aliens penalties under the Immigration Reform and Control Act of 1986 (IRCA);
  • Paperwork violations (per relevant individual), which include Form I-9 paperwork violations;
  • Violations related to a participating employer’s failure to notify of final nonconfirmation of an employee’s employment eligibility;
  • Unfair and discriminatory immigration-related employment practice violations and document abuse; and
  • Violations related to IRCA document fraud.

Like other proposed penalty amounts, these increases are not slight. For example, violations of document fraud (relating to less serious activities) under the IRCA will rise to:

  • A minimum of $376 to a maximum of $3,005 for first violations; and
  • A minimum of $3,005 to a maximum of $7,512 for subsequent violations.

Not sure if these increased penalties will have a deterrent effect? Could these possible fines result in an unbearable burden for your organization? Let the regulators know soon: the DOJ’s comment period ends on August 29, 2016.

 

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