By Eric J. Conn

OSHA is attempting to reap the policy-making benefits of a Supreme Court decision that lets regulatory agencies offer new (even contradictory) interpretations of existing rules without following the Administrative Procedure Act’s (“APA”) notice-and-comment rulemaking process, with the most immediate and serious impacts seen in the regulatory landscape of chemical process safety. OSHA policymakers have shown they are eager to exercise new-found authority to unilaterally change the meaning or application of existing regulations to suit their current agenda (i.e., without soliciting stakeholder input and otherwise flouting the traditional checks on agency rulemaking afforded by the APA, such as economic and feasibility analyses).

Perez v. Mortgage Bankers

That is the reality following the high court’s 2015 decision in the closely watched Perez v. Mortgage Bankers case. The Supreme Court’s decision killed a longstanding doctrine, set by the D.C. Circuit, that changes to agency rules, even if the changes are “interpretive” in nature, must go through APA public notice-and-comment. Mortgage Bankers reversed that principle, and held that notice-and-comment rulemaking is not required for “interpretive rules” or “administrative interpretations.”

The effect of the Supreme Court’s new precedence is to free regulators, like OSHA, to change, though internal fiat, long-held positions regarding how its rules must be followed and enforced, and (if recent efforts by OSHA testing its new authority stand) even to whom its rules apply. In the post-Mortgage Bankers world, OSHA has a powerful new tool for backdoor rulemaking, an already favorite route for OSHA to end-run the burdensome standard-setting process imposed by Congress.

OSHA Impact of Mortgage Bankers

OSHA wasted no time taking this new legal doctrine out for a spin. OSHA’s first efforts to utilize the new authority were seen in three bold changes to its Process Safety Management of Highly Hazardous Chemicals standard (29 CFR 1910.119), which detail the requirements for operating and maintaining processes that use highly hazardous chemicals.  Obviously, OSHA was chomping at the bit to issues these letters, rather than labor through the burdensome rulemaking process that it had also initiated.  Specifically, less than three months after the Supreme Court issued the Mortgage Bankers decision, OSHA issued three separate interpretation letters to amend the PSM Standard:

1. Narrowing the long-standing “Retail Exemption” from PSM-coverage;
2. Defining and enforcing the application of “Recognized and Generally Accepted Good Engineering Practices” (“RAGAGEP”); and
3. Expanding the scope of chemical mixtures that are covered by the PSM Standard.

The new policies grew out of OSHA’s overall efforts to respond to President Obama’s Executive Order issued in 2013, a few months after the deadly West, TX fertilizer plant explosion (now understood to be an intentional act of arson, not a process safety accident), to “modernize” chemical safety regulations and policies.

The Chemical Mixture Interpretation

The memorandum regarding Process Safety Management of Highly Hazardous Chemicals and Covered Concentrations of Listed Appendix A Chemicals, revises OSHA policy on the concentrations of components of a chemical mixtures that trigger the applicability of the PSM standard.  Appendix A of the PSM Standard lists the “highly hazardous chemicals” that are covered by the Standard when they are present in quantities that exceed thresholds identified in Appendix A. For some of those chemicals, Appendix A also lists a specific concentration level at which that chemical in a mixture allows the mixture to count for PSM coverage.

Most of the chemicals in Appendix A, however, do not list a specific concentration level for which mixtures that contain those chemicals can be PSM-covered. For decades, OSHA has applied a “commercial grade” or “pure grade” standard for setting the triggering concentration for mixtures with those chemicals. OSHA interpreted “commercial grade” to mean a typical maximum concentration of the chemical that is commercially available and shipped. Generally speaking, that meant these chemicals had to make up 99% of a chemical mixture before the mixture counted towards PSM coverage.

With last summer’s “interpretation” letter, OSHA abandoned that decades old “commercial grade” standard, and substituted in what is being referred to as the “1% rule.” As the name suggests, rather than only counting those mixtures made up of 99% of an Appendix A chemical for PSM-coverage purposes, OSHA intended to count Appendix A chemicals in mixtures, when the Appendix A chemical make up only one percent or more of a chemical mixture. OSHA reasoned that a set trigger of one percent is more appropriate because it will result in consistent application and will account for the hazardous characteristics of chemicals at low levels.

Under the new policy, only the weight of the covered chemical, not total of the mixture, is counted, and it does not count the weight of chemicals in portions of the process where partial pressure of the chemical in vapor space under handling or storage conditions is less than or equal to 10 millimeters of mercury.

If left as-is, this new interpretation will significantly expand the number of processes covered by the PSM regulations, including, of greatest consequence to Industry, most commercial mixtures of aqueous hydrochloric and hydrofluoric acid.

The Retail Exemption Interpretation

In another “interpretation” memorandum, OSHA “clarified” its interpretation regarding the exemption of retail facilities from PSM coverage. When the PSM Standard was promulgated in 1992, OSHA expressed that because chemicals in retail facilities (e.g., gas stations) are typically sold in small packages and allotments, the same process safety risks are not present as at larger manufacturing facilities. Accordingly, retail establishments were exempted from PSM coverage. After the standard was issued, OSHA produced several interpretation letters and other guidance indicating that this retail exemption applied to locations that derived more than 50 percent of their income from direct sales of highly hazardous chemicals to end users – the “50 percent test.”

By interpretation letter, OSHA has expressed a new conclusion:

“[the 50 percent test] has no relationship to OSHA’s original intent for application of the exemption.”

OSHA also noted that the 50 percent test conflicts with the commonly understood meaning of “retail establishment” as well as the definition of a retail establishment recognized by the Department of Commerce in its NAICS manual (North American Industry Classification System).

Under its new “interpretation” letter, OSHA now intends to exempt under the retail exemption:

“Only facilities, or the portions of facilities, engaged in retail trade as defined by the current and any future updates to sectors 44 and 45 of the NAICS Manual may be afforded the retail exemption at 29 CFR 1910.119(a)(2)(i).”

The RAGAGEP Interpretation

OSHA’s memorandum regarding RAGAGEP in Process Safety Management Enforcement addresses the meaning of and requirements related to “recognized and generally accepted good engineering practices” (“RAGAGEP”). Employers are required to ensure process equipment and the testing and inspection procedures to maintain that equipment comply with RAGAGEP. The regulatory text of the PSM Standard, however, leaves undefined the term RAGAGEP. The Preamble to the final PSM Standard states only that:

“[RAGAGEP] would include appropriate internal standards of a facility, as well as codes and standards published by NFPA, ASTM, ANSI, and NFPA, etc.”

57 FR 6356 (Feb. 24, 1992).

With this “interpretation” letter, OSHA attempts now to define four categories of acceptable RAGAGEP as follows:

1. Published and widely adopted codes (e.g., NFPA 70 National Electric codes);
2. Published consensus documents (e.g., ASME B31.3 Process Piping Code);
3. Published non-consensus documents (e.g., the Chlorine Institute’s “pamphlets” that depart from ANSI’s Due process requirements for rulemaking and specifically focus on chlorine and sodium hypochlorite (bleach) safety); and
4. “Appropriate” internal standards set by the employer that “either meet or exceed the protective requirements of published RAGAGEP where such RAGAGEP exits.”

This new RAGAGEP interpretation is concerning for several reasons. First, OSHA has undermined the plain regulatory language that allows employers to set their own internal standards, and also elevate published, non-regulatory industry guidance to become the legal standard by which enforcement will be conducted. The feasibility of employers implementing this new definition is also questionable. For example, employers would be expected to update operations, maintenance procedures, and equipment to remain current with new published versions of RAGAGEP. The burden this will impose on employers with complex processes that rely on a wide variety of RAGAGEP will be immense, and will no doubt require additional personnel to monitor all applicable RAGAGEP, maintain updated procedures, communicate changes, and implement updates, which often may require engineering changes or even capital projects. Finally, the interpretation letter also blurred the commonsense meaning of the terms should and shall, essentially converting non-mandatory recommendations in non-mandatory documents into mandatory legal obligations.

Industry Pushback

These new policies have raised a ruckus with Industry. Indeed, Industry cried foul, with the American Fuel & Petrochemical Manufacturers (AFPM), the American Petroleum Institute (API), and the American Chemistry Council (ACC), among others, filing multiple lawsuits in the D.C. Circuit challenging the interpretations. The Associations have been arguing that the interpretation letters are not “interpretive” in nature, but because of the significant expansion and distortion of the original understanding and application of the requirements of the PSM Standard, the new letters must be viewed as “legislative” in nature, and therefore, must go through notice and comment rulemaking. More importantly, the Associations explained how the new interpretations would actually undermine industry safety efforts.

Many in Congress are also up in arms over OSHA’s unilateral policy revisions, prompting lawmakers, especially concerned about the far-reaching new position on covering retail sites, to take steps to thwart the changes with budget riders and other maneuvering. While OSHA stated that “gas stations” selling small allotments (up to 50 gallons) of fuel were still exempt (and indeed were the purpose of the exemption) the new Retail Exemption interpretation, if ever enforced, will have the most significant impact on the fertilizer industry. Accordingly, Congress blocked the interpretation, at least through the end of this fiscal year:

“Through September 30, 2016, OSHA will not cite employers for violations of the PSM standard at facilities that it would not have cited applying the interpretation of the term ‘retail’ that was in place prior to July 22, 2015.”

Note that this delay only runs through the end of the current fiscal year. So unless blocked again by Congress or the Courts, we can expect OSHA to put this new enforcement interpretation into effect before the end of the Obama Administration.

OSHA’s new interpretation on covered concentrations in mixtures will also delay enforcement of this interpretation through the end of September:

“Through September 30, 2016, employers will not be cited for violations of the PSM standard based on the June 5, 2015, enforcement policy. However, PSM citations may still be issued based on the previous ‘commercial grade concentration’ policy, under which OSHA considers the total weight of the chemical in the process at commercial grade concentrations and higher.”

RAGAGEP Interpretation Settlement

Just recently, the industry groups’ legal challenge to the RAGAGEP interpretation letter was settled with OSHA out of court, largely addressing the private-sector’s concerns about the letter. The associations agreed to dismiss their suit in a settlement approved by the D.C. Circuit Court. Through this agreement, industry negotiated for three major concessions from OSHA:

• Explicit recognition of internal standards as RAGAGEP and when to use them.
• Return to the normal English meaning of “should” in that it will no longer create a presumption of a violation of a standard.
• Updates to RAGAGEP are only required if the new version explicitly requires retroactive application.

Specifically, the settlement turned OSHA’s view of internal standards on its head, with OSHA now expressly recognizing the utility and legitimacy of employers use of internal standards as RAGAGEP. The settlement also returned OSHA’s enforcement policy to the normal English meaning of “should” and “should not,” in that OSHA will not presume a violation where deviations from those types of provisions of non-mandatory standards are discovered. Finally, OSHA also stipulated that employers will only be required to update procedures or equipment based on an updated version of RAGAGEP only if the new version explicitly requires retroactive application.

Under terms of the settlement, OSHA agreed to issue a revised enforcement memo that replaces the controversial memo from June 2015.

In a press release, AFPM’s President, Chet Thompson, explained:

“We are pleased that OSHA and the Department of Justice were willing to engage us in settlement negotiations and ultimately to address all of our primary concerns with the revised enforcement memo. Settlements of this nature are pretty rare, and thus speaks to the strength of our case. Regardless, this settlement is good for AFPM’s members and the government, as our collective resources are better spent on actual efforts to improve safety rather than litigation.”

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While the settlement in the legal challenge to the RAGAGEP letter appears to resolve several core issues surrounding OSHA’s interpretation of RAGAGEP, we can view this in one sense as just “one down, two to go.”  There are still fundamental issues that remain with respect to OSHA’s overreach in interpreting the PSM Standard without rulemaking. What’s more, however, is these three PSM interpretation letters are no doubt just a trial balloon for OSHA to see how far it can stretch the Mortgage Bankers decision for its regulatory and enforcement aims in a host of other enforcement policies.