Beveridge & Diamond
 

OSHRC Guidance on Repeat Violations and Affiliated Companies

Beveridge & Diamond, P.C., January 27, 2011

Can the Occupational Safety and Health Administration (OSHA) issue a “repeat” citation to a company based on a previous violation by an affiliate of that company?  It depends on whether OSHA may “pierce the corporate veil” and find that the two affiliates are a single employer for OSHA purposes.  Until now, the Occupational Safety and Health Review Commission (OSHRC) has provided limited guidance on this topic.  At stake are both the pejorative characterization of being a repeat violator and substantially increased penalties -- a “repeat” violation carries a maximum penalty of $70,000, ten times the maximum for a “serious” violation.  In a recent decision, Loretto-Oswego,1 the OSHRC laid out clear guidance on this issue for the first time in many years.  It also clarified that OSHA bears the burden of proof that the affiliated companies are a single employer.

1.         Background

Section 17(a) of the Occupational Safety and Health Act of 1970, as amended (OSH Act), authorizes OSHA to assess a civil penalty of up to $70,000 to “[a]ny employer who ... repeatedly violates the requirements of section 5” or a standard under section 6 of the OSH Act.2  OSHA has summarized the elements for a “repeat” violation in its Field Operations Manual, which provides that “[a]n employer may be cited for a repeated violation if that employer has been cited previously for the same or substantially similar condition or hazard and the citation has become a final order of the Review Commission.”3  Essentially, OSHA must establish: (1) the same employer, (2) an OSHRC final order at the time of the alleged violation, and (3) substantial similarity of the violated requirement.

OSHA also identifies a time element for the previous citation.  The 2009 Field Operations Manual provided that the new citation must have been issued within 3 years of the previous citation or within three years of the final abatement date, whichever is later.4  In 2010, OSHA extended those three-year periods to five years.5

The Field Operations Manual does not discuss whether affiliated companies can be considered a single employer for purposes of a “repeat” citation.  The leading case on “piercing the corporate veil” for OSHA enforcement purposes is Advance Specialty Co. (1976), in which the OSHRC stated:

It is well settled that corporate entities may be disregarded in order to effectuate a clear legislative purpose ....  We find, therefore, that when, as here, two companies share a common worksite such that the employees of both have access to the same hazardous conditions, have interrelated and integrated operations, and share a common president, management, supervision or ownership, the purposes of the Act are best effectuated by the two being treated as one.6

Other fact patterns have resulted in different decisions, but little additional clarity, until now.  Moreover, those OSHRC decisions did not involve a question of “repeat” citations.7  

2.        Facts

In 2002, OSHA issued five citations to Loretto-Oswego Residential Health Care Facility (“Loretto-Oswego”) located in Oswego, New York.  These citations were issued in response to two inspections that had been conducted at the facility, and alleged violations of various general industry standards.  OSHA classified two of the citations as “repeat” violations.  OSHA made this classification based on previous violations that had been found at two affiliated facilities: Loretto-Rest Residential Health Care Facility in Syracuse, New York  (Loretto-Rest) and Loretto-Utica Residential Health Care Facility in Utica, New York (Loretto-Utica).  The parent company, Loretto Management Company (LMC), was located at the same address as Loretto-Rest.  Loretto-Oswego disputed OSHA’s characterization of the citations as “repeat” violations, on the basis that it was a separate corporation from its affiliates.

3.        ALJ Decision

In 2003, ALJ Schoenfeld determined that Loretto-Oswego, Loretto-Rest, and Loretto-Utica were a single employer and affirmed OSHA’s classification of the violations as “repeat” violations.

The ALJ looked for  a combination “of most or all” of three factors to determine whether the affiliated entities were a single employer: (1) a common worksite; (2) a common president or management; and (3) close interrelations and integration of operations.  These factors were first articulated in Advance Specialty Co.

With respect to the first factor, the ALJ concluded that even though the affiliated entities had three different physical addresses, they were nonetheless a common worksite because employees at each of the entities were “exposed to the same or similar types of hazards.”  Also, he noted that the parent, LMC, and one of the affiliates, Loretto-Rest, shared the same address.

With respect to the second factor, the ALJ concluded that the affiliates had a common president and management, because the affiliates had a common president, chief executive officer, and chief financial officer.  The LMC bylaws stated that the parent company “will control, oversee, coordinate, represent and support the interests of all present and future Loretto corporations.”  The LMC financial statement asserted that “the overall operations of all entities are under the administrative control of the President of the Corporations.”

Finally, with respect to the third factor, the ALJ concluded that the affiliates were closely interrelated and integrated because employees with LMC had the authority to settle citations, the affiliates participated in monthly meetings, one of the affiliates operated a central food commissary that provided foods to the affiliates, a common website posted job opportunities for the affiliates, all service and maintenance employees belonged to the same union, and the same insurance agency handled all worker compensation claims.  Also, several employees at the parent company had the authority to direct the affiliates and ensure that they followed regulatory requirements.

Finding that each of the factors was present, the ALJ concluded that Loretto-Oswego, Loretto-Rest, and Loretto-Utica were a single employer, and upheld OSHA’s citations for “repeat” violations by Loretto-Oswego.

The employer appealed the decision to the OSHRC, which seven years later reversed the ALJ on this issue.

4.        OSHRC Decision

In reviewing the ALJ’s decision, the OSHRC analyzed the same factors to determine if there was a single employer, but reached a different conclusion.

As for the first factor, a common worksite, the OSHRC found that the affiliates did not share a common worksite because the facilities were located in three different cities.  Thus, it rejected the ALJ’s assessment that there was a common worksite because the working conditions were similar at the different locations, and gave no weight to the fact that the parent, LMC, was co-located with Loretto-Rest.  This factor makes it more difficult for OSHA to assert that geographically-separate affiliates are the same company for “repeat” citation purposes.

The second factor did favor a finding of a single employer:  sharing a common president, management, supervision or ownership.  As noted above, the parent and the affiliated companies shared the same president, chief executive officer, and chief financial officer.  The OSHRC did not regard this as determinative, however, saying “[t]his outward appearance of a common identity gives way, however, when we consider the extent to which LMC and its affiliates had ‘interrelated and integrated operations.’”  That factor, discussed below, overrode the significance of a common management structure, which is shared by many affiliated companies.

The critical factor for the OSHRC was the actual interrelationship between the affiliated companies.  The OSHRC found that there was little or no interaction between the affiliates.  Although there was some involvement on the parent company’s part with the Loretto-Oswego operations, on a day-to-day basis, administrative personnel at Loretto-Oswego operated independently of the parent.  The OSHRC concluded that “[i]n terms of safety matters, the evidence in the record is particularly weak as to whether LMC and its affiliates were so integrated that they acted as one employer.”  The OSHRC also commented that even though LMC reviewed an exposure control plan and periodically sent personnel to the facility during inspections or for environmental and maintenance issues, this was “nothing more than resource sharing,” and was not “the level of integration necessary to show a single-employer relationship.”  Thus, separate safety programs among affiliates can be a significant factor in finding that affiliates are not a single employer, despite parent company involvement.  In addition, the OSHRC viewed the parent’s participation in the OSHA inspection as irrelevant to the issue, in part because it was clear that the Loretto-Oswego personnel, not LMC personnel, were primarily responsible for safety matters at the facility.

Based on this analysis of the factors, the OSHRC concluded that the affiliates were not a single employer and overturned the ALJ’s finding of “repeat” violations.

In a footnote, the OSHRC also clarified that the burden of establishing a single-employer relationship when issuing “repeat” citations falls on OSHA.  In doing so, it partially overruled its 1981 decision in Trinity Industries, where it had ascribed that burden to employers because of their unique knowledge.

5.        Conclusion

In Loretto-Oswego, the OSHRC took a careful look at the factors for determining the presence of a single-employer relationship.  It concluded that mere affiliate relationships and the sharing of some corporate resources was not enough.  Instead, the OSHRC identified critical factors that warranted against treating affiliated companies as a single employer, including little to no interaction among the affiliates; limited involvement among the affiliates and the parent company; independent administrative operations on a day-to-day basis; limited interaction with respect to safety matters; and separate facilities.  The OSHRC also shifted the burden of establishing a single-employer relationship back to OSHA, making it more difficult for OSHA to establish a “repeat” violation. 

Companies facing possible “repeat” citations based on corporate affiliation may want to review this OSHRC decision carefully.

For more information, please contact Mark Duvall, mduvall@bdlaw.com, or Jayni Lanham, jlanham@bdlaw.com

For a printable PDF of this article, please click here.


1 Loretto-Oswego Residential Health Care Facility, OSHRC Docket Nos. 02-1164 & 02-1174 (Rev. Comm’n 2011).

2 29 U.S.C. § 666(a) (emphasis added).

3 OSHA Field Operations Manual, Directive Number CPL 02-00-148, Chap. 4, § VII.A.1 (Nov. 9, 2009) (emphasis omitted).  This description tracks that of the leading OSHRC decision on “repeat” violations, Potlach Corp., OSHRC Docket No. 16183, 7 BNA OSHC 1061, 1063 (OSHRC 1979).

4 OSHA Field Operations Manual, Chap. 4, § VII.E.1.a.

5 OSHA Administrative Penalty Information Bulletin (undated, but posted July 2010), http://www.osha.gov/dep/administrative-penalty.html.

6 Advance Specialty Co., OSHRC Docket No. 2279, 3 BNA OSHC 2072, 2075-75 (OSHRC 1976).  See also C.T. Taylor Co., OSHRC Docket No. 94-3241, 20 BNA OSHC 1083, 1086-88 (OSHRC 2003); Vergona Crane Co., OSHRC Docket No. 88-1745, 15 BNA OSHC 1782, 1783 (OSHRC 1992); Trinity Industries, Inc., OSHRC Docket No. 77-3909, 9 BNA OSHC 1515, 1518-19 (OSHRC 1981).

7 An administrative law judge (ALJ) in 1997 observed that “[t]he Commission ordinarily does not pierce the corporate veil for the purpose of determining whether a company committed a repeat violation,” but did so on the facts of that case.  His decision is still pending review by the OSHRC.  Southern Scrap Materials Co., OSHRC Docket No. 94-3393, 1997 OSAHRC LEXIS 162 (ALJ 1997), petition for review granted (Nov. 24, 1997).

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