D.C. Circuit Orders OSHA to Follow Notice and Comment Requirements When Imposing New Standards on Agricultural Retailers

A fundamental principle of administrative law is that federal agencies must provide the public with reasonable notice and the opportunity to comment on proposed administrative issuances that impose substantive obligations that did not previously exist.  Not every agency issuance, including guidance and policy interpretations, rise to that level.  Whether agency action requires notice and comment has been the subject of considerable litigation in the federal courts, largely under the Administrative Procedure Act (“APA”).  The intersection between administrative law and federal regulation of agricultural entities recently resulted in litigation before the U.S. Court of Appeals for the District of Columbia Circuit over the storage of anhydrous ammonia and other frequently used fertilizer.

On September 23, 2016, the D.C. Circuit issued an important decision in Agricultural Retailers Association and The Fertilizer Institute v. U.S. Department of Labor v. Occupational Safety & Health Administration (ARA v. OSHA).  ARA v. OSHA concerned a challenge by two agricultural associations and individual agricultural retailers to a July 22, 2015, memorandum (“Memorandum”) issued by OSHA following a 2013 explosion at an agricultural retailer’s facility in West, Texas.  The Memorandum was styled by the agency as an “interpretation” of its 1992 Process Safety Management Standard (“PSM Standard”), which imposes requirements on employers designed to prevent or minimize the consequences of catastrophic releases of toxic, reactive, flammable or explosive chemicals. 29 CFR § 1910.119. 

Since its inception, the PSM Standard has contained an exemption for “retail facilities.” 29 CFR § 1910.119(a)(2)(i).  During June 1992, in response to a letter from The Fertilizer Institute shortly after it issued the PSM Standard, OSHA defined exempt retail facilities as establishments with more than half of the income is obtained from direct sales to end users (“50% Test”).  Agricultural retailers sell a majority of their goods, including anhydrous ammonia, to farmers, who are the end users of those products.  For more than two decades, OSHA re-affirmed to agricultural retailers that they are retail facilities exempt from the onerous requirements of the PSM Standard. 

The 2013 explosion at the West, Texas facility led President Obama to issue an Executive Order (“EO”) directing OSHA, inter alia, to identify any changes to the retail exemption in the PSM Standard to meet the goal of preventing major chemical accidents.  Based on the EO, OSHA issued the Memorandum, which rescinded all prior policy statements and other memoranda related to the retail exemption and the 50% Test.  OSHA even went so far as to claim that the 50% Test was “directly contrary to OSHA’s original intent.”   

OFW Law Principals Gary Baise, Stewart Fried, and Elliot Belilos filed original petitions on behalf of ARA and over a dozen agricultural retailers before the D.C. Circuit under the OSH Act and the APA.  TFI also filed a petition on behalf of its members.  The Petitions sought to have the Memorandum vacated based on OSHA’s failure to adhere to the notice and comment provisions contained in both laws.  ARA and TFI alleged that the Memorandum imposed substantive obligations on their members who had relied upon OSHA’s retailer exemption for nearly a quarter century.  ARA and TFI also argued that the Memorandum was overbroad and would require retailers to adhere to a standard for chemicals that retailers already have adequate storage controls in place. 

OSHA’s Memorandum originally mandated a January 2016 compliance date.  This unreasonably short deadline was extended multiple times following an administrative motion for stay, an agreed-upon extension following the filing of the federal court actions, and finally pursuant to appropriations legislation which precluded OSHA from spending any funds to enforce the Memorandum during fiscal year 2016.

In a straightforward opinion under the OSH Act, the D.C. Circuit vacated the Memorandum, holding that OSHA failed to comply with the OSH Act’s procedural requirements.  The Court of Appeals noted that standards are “remedial measure[s] addressed to a specific and already identified hazard, not a purely administrative effort designed to uncover violations of the Act and discovery of unknown dangers.” Opinion, at 7.  Standards are focused on “correcting a particular significant risk, not on ‘general enforcement.’” Id.  Based on this foundation and its precedent, the D.C. Circuit determined that “OSHA’s new definition of a retail facility . . . amounts to a standard.” Id., at 8 (emphasis added). 

The Court of Appeals had little difficulty concluding that the “basic function” of the Memorandum was to “address the risk associated with storing large quantities of highly hazardous chemicals for distribution to end users in bulk quantities, as had been the case at [ ] West, Texas.” Id.  The goal of the Memorandum was not to “gather data,” but to “correct the risk by subjecting facilities such as farm supply companies to the preventative measures in the PSM Standard.” Id.  The “essential effect and object” of the Memorandum was to “expand the substantive reach of the PSM Standard” to a “substantial number” of previously exempt agricultural retail facilities.  Accordingly, the Memorandum qualified as a standard under the OSH Act.  Because the Memorandum amounted to an OSH Act standard, OSHA was required to comply with the OSH Act’s notice and comment procedures.  OSHA never published the Memorandum for notice and comment and based on the agency’s failure to do so, the D.C. Circuit vacated the Memorandum.

The Court of Appeals also declined to address the parties’ APA arguments because it had jurisdiction to vacate the Memorandum under the OSH Act.  As a result, no decision was reached regarding whether the Memorandum constituted an “interpretive rule.”  Under the APA and recent U.S. Supreme Court caselaw, agencies that issue interpretive rules are not required to adhere to the APA’s notice and comment procedures.

Finally, the D.C. Circuit declined to permit the steelworkers’ union (“Union”) to intervene. Although not relevant to the decision, the Court of Appeal’s decision to deny the Union’s request to intervene may have implications in other appellate proceedings. The Opinion held that the Union lacked standing to intervene because the record was devoid of evidence supporting that a single union member worked at any retail facility affected by the Memorandum.  This well-founded conclusion should serve to limit intervention requests by entities with only a remote interest in the proceedings.

OSHA’s post-decision options are limited.  The agency has already removed the Memorandum from its website and has advised agricultural retailers than they do not need to comply.  Whether OSHA decides to seek rehearing from the full D.C. Circuit or seeks U.S. Supreme Court review remains to be seen.  What is clear is that OSHA, barring a successful appeal, will have no choice but to go back to the drawing board and commence formal rulemaking if it seeks to edit the retail exemption in the PSM Standard and attempt to force agricultural retailers to comply with a standard generally applicable to large manufacturers, not smaller entities that sell commonly used fertilizers directly to farmers.  OSHA advised the court during the briefing process that it was commencing preliminary efforts to do exactly that.   Although the long-term impact of ARA v. OSHA remains unclear, the case stands for the important proposition that OSHA and other federal agencies cannot impose new duties and obligations without going through the notice and comment procedures required by Congress.

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