A 'gotcha' move? Construction industry reacts to OSHA fine increase bombshell

If you didn't look too closely at the 2016 federal budget bill, which President Obama signed earlier this month, you probably missed a small provision that could have a giant financial impact on the construction industry. The U.S. Department of Labor's Occupational Safety and Health Administration hasn't made an upward adjustment of fines since 1990, and the new budget directs the agency to raise them and, on a yearly basis, keep them in line with the Consumer Price Index. The index has risen approximately 82% since 1990, so the initial change could see the dollar amount of OSHA fines skyrocket.

For example, although a violation of OSHA posting requirements would today result in a maximum fine of $7,000, after the new fines are implemented in August 2016, the same violation, given an 82% increase, could cost a company as much as $12,740. 

However, that is a paltry sum compared to the potential fine for a willful violation, issued when OSHA determines an employer either knowingly failed to comply with a legal requirement or acted with "plain indifference" to employee safety. The current maximum penalty for a willful violation is $70,000, but, after adjustment for CPI, would be $127,400. Even if the fact that OSHA often reduces fines by as much as 50%-60% is taken into consideration, employers could still be looking at an amount that all but the largest companies would have trouble paying.

Although OSHA has not yet announced the exact increase percentage, the construction industry would see a huge impact of such a move, as construction fatalities accounted for 20.6% of all total private industry fatalities last year, according to the BLS. 

Industry reactions

For many industry experts, the news of the provision's inclusion in the budget bill was unexpected.

Brian Turmail, senior executive director of public affairs for the Associated General Contractors of America, said the organization was aware of the possibility of a fine increase provision in the bill, but "it was something that was agreed to at the last minute."

"We knew about it as soon as anyone else knew it was going to be in the bill, but certainly it is something we've been working hard to make sure our members are now aware of," he said.

Attorney Lawrence Dany, partner at Sutherland Asbill & Brennan LLP in New York, represents contractors in a variety of safety-related issues and disputes and said the only unexpected aspect of the increase was the timing, not the fact that the fines were going up. "I think it's a surprise just to the extent that when something comes out without any forewarning it tends to be a surprise, but, in the grand scheme of things, the fact they are adjusting the penalty rate to be more in line with other agencies is not," he said.

What has taken some in the industry aback, though, is the tenor of OSHA discussion about contractor safety, specifically the comments of Assistant Secretary of Labor for OSHA David Michaels in his testimony before the House Committee on Education and the Workforce Subcommittee on Workforce Protections in October. In his statement before the committee, Michaels said, "Simply put, OSHA penalties must be increased to provide a real disincentive for employers accepting injuries and worker deaths as a cost of doing business."

Turmail contested those claims and said, "There's no owner of a business that we're aware of, and certainly not our members, who would willingly put his workers in harm's way."

Robert Poole, safety director at HITT Contracting, agreed: "It's not true. Thirty years ago I'd say that would be an accurate statement, but those days are gone. It's hard for companies to operate that way now."

Poole said most companies make safety a priority not only because it’s the right thing to do, but because safety has become a matter of profit. On a project with hundreds or thousands of workers, he said, "a couple of minor incidents are going to save you a lot of money over having a job that has (many) incidents or accidents that cost you tens, if not hundreds, of thousands of dollars in (workers' compensation) costs."

Dany agreed and said that if an accident or incident serious enough to incur a large OSHA fine happened on a project, the rise in insurance costs, criminal charges and even civil lawsuits could far outweigh the prospect of an OSHA fine. "In terms of an event where an OSHA fine would come into play," he said, "there are a myriad of concerns, a number of which would probably be more pressing to the company than the magnitude of an OSHA fine."

A different approach?

Several industry safety experts expressed the belief that OSHA's focus should be on education and outreach rather than on fines.

"If they want to collect more in fines, that's their prerogative," Turmail said, "but let's not pat ourselves on the back. How much you collect in fines is a measure of how much you haven't educated the community you regulate."

Poole said he would like to see OSHA take a more aggressive stance on education and outreach by using some of the money collected in fines to beef up educational programs and materials for contractors.

"I'd have loved for them to say 'OK, we’ll double the fines, but, out of that, half the fines we'll use for education.' Now I understand what you're doing here. You're trying to help businesses. You're trying to help people learn. You're trying to help save lives by saying something like that," Poole said. "That would have been nice to hear."

Turmail said the AGC will continue to partner with OSHA to help the association's member firms make their sites safer. "We'll continue to offer to work with OSHA to proactively educate the construction industry on how to improve safety," he said. "That's where we all should be spending our time."

Turmail added: "In the end, it shouldn't be about 'gotcha.' It's not cops and robbers. What we're trying to do is make sure workplaces are as safe as possible."

What companies can do 

As to what companies can do to minimize their risk of incurring fines, regardless of the amount, Dany said it's critical to implement robust safety programs and incorporate them at all levels of the organization so that employees "at the top, all the way down to your trade laborer, are integrated into a culture of safety compliance."

He added, "It's that kind of top-down program that is ultimately going to be successful in operating in this environment, and they're also going to be successful as a company when seeking to have incident-free workplaces as their goal."

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