Impact of MSHA penalties

A number of things can be said about MSHA penalties and the effects that penalty assessment procedures have on mine operators.

Penalties are part of a company’s reputation. If an adverse event occurs that attracts media coverage, invariably a company’s compliance history and MSHA penalties are publicly reported. The larger and more numerous the penalties, the poorer the picture that emerges.

Major customers are increasingly considering compliance history and mine operators often consider the MSHA history of independent contractors in connection with their hiring criteria. MSHA reviews penalty records to decide whether additional enforcement is required, such as impact inspections and pattern of violations orders.

Penalties are a non-tax-deductible financial burden, and operators often do not realize exactly how points assigned to inspector findings increase the cost of penalties. Operators also sometimes miss the cost significance of too many violations. History of violations is one of six criteria considered for every penalty calculation.

An operator’s history of violations in MSHA’s records is used to calculate present penalties. MSHA regulations provide: “Overall history is based on the number of assessed violations in a preceding 24-month period.” … “For mine operators, the penalty points will be calculated on the basis of the average number of assessed violations per inspection day.”

An operator’s current penalties can increase up to 25 points (assigned for an average of 2.1 violations per inspection day or more). History points can greatly inflate penalties. For instance, 77 points convert to a penalty of $436. Add 20 points for a total of 102 and the penalty is $3,224. Even small operators can be assessed sizable penalties depending on other findings.

Other criteria for penalty calculations are size of operator and mine. Sometimes, small mines are hit harder by application of history points. A small operation might have inspections lasting only two days. If a mere five violations are issued in that period, the small operator will have maximum history points (20) that will disproportionately inflate penalties and can produce a devastating financial impact. Proposed new MSHA regulations may provide some relief for this long-standing disparity.

Three other criteria – negligence, gravity of violation and demonstrated good faith in abatement – all add penalty points, but these are largely based on inspector findings. Operator before-the-fact mitigation in the form of precautions, safeguards, preventative actions and employee training can help reduce the seriousness of findings and penalty assessment impact.

Finally, there is a criterion related to the effect of penalty on the operator’s “ability to continue in business.” MSHA presumes an operator will not be affected, but the regulations provide: “The operator may submit information to the District Manager concerning the business financial status to show that the penalty will affect the operator’s ability to continue in business.”

This could produce a downward adjustment of penalty. Most often this procedure is invoked during settlement efforts in penalty contests before the Federal Mine Safety and Health Review Commission.

That brings up another critical impact of penalties: the time and expense of using procedures, including litigation, to rectify unfair citations and penalties. When total industry penalties skyrocketed from about $20 million in 2005 to almost $200 million in 2010, most companies were compelled to challenge penalties – both regular point-based assessments and special assessments.

Regulations allow MSHA to waive the regular assessment formula if it determines conditions surrounding the violation warrant a special assessment. Special assessments are used for fatal accident citations, unwarrantable failure charges and other serious matters, including imminent danger and charges of unlawful discrimination against people who exercised safety rights.

Special assessments are invariably thousands of dollars and frequently at the $70,000 level. Flagrant violations can be assessed up to $242,000. Negligence and gravity of violation are the criteria that most affect the magnitude of any special assessment.

Since August 2014, MSHA has been soliciting and receiving comments on proposed regulations related to civil penalties. That process is concluding. New procedures will be adopted, but what will they say?

As proposed, MSHA would remove many of the current findings that inspectors make on citation forms.  For example, instead of negligence descriptions being none, low, moderate, high and reckless disregard, as they are currently, the choices will be that the operator was negligent or not. MSHA sees this as a way to avoid operator disagreement and legal contests.

For operators, it is almost a one-size-fits-all situation. MSHA almost never finds no negligence. That means operators will always be negligent with no shades of gray. Mitigating circumstances will not be considered. If MSHA wants to raise the negligence, the only other choice is reckless disregard, and this will not bode well for companies. This finding is rarely used even for unwarrantable failure citations and orders, but with new regulations this may change. Also, similar reductions in finding options are being considered for the gravity criterion.

MSHA also wants to limit the Federal Mine Safety and Health Review Commission from exercising independent judgment.

Take note

MSHA has been soliciting and receiving comments on proposed regulations related to civil penalties, but what areas will be regulated?

Photo: Michael T. Heenan

Legal editor Michael T. Heenan is an attorney at Ogletree, Deakins, Nash, Smoak & Stewart, one of the nation’s largest labor and safety law firms. He can be reached at michael.heenan@odnss.com.