STATE OF CALIFORNIA
OCCUPATIONAL SAFETY AND HEALTH
In the Matter of the Appeal of:
EAGLE ENVIRONMENTAL, INC.
P.O. Box 3924
P.O. Box 3924
Truckee, CA 96160
Truckee, CA 96160
98-R3D3-1640 through 1653
The Occupational Safety and Health Appeals Board (Board), acting pursuant to authority vested in it by the California Labor Code and having ordered reconsideration on its own motion of the decision of the Administrative Law Judge (ALJ) makes the following decision after reconsideration in the above-entitled proceeding.
Between December 11, 1997 and April 6, 1998, a representative of the Division of Occupational Safety and Health (the Division) conducted an accident inspection at a place of employment maintained by Eagle Environmental, Inc. (Employer) at 2401 North Euclid Avenue, Upland, California (the site).
On April 6, 1998, the Division cited Employer for alleged serious violations of sections 5158(d)(2) [gasoline tank purging]; 5158(d)(8) [source of ignition in presence of flammable vapors]; 5168(b) [bonding devices]; 5158(d)(3) [air testing]; 5158(d)(5)(A) [frequency of testing]; 5158(e)(1)(H) [unapproved electrical equipment]; 5158(e)(1)(F) [source of ignition in confined space]; 5603 [source of ignition near gasoline storage tank]; 5158(e)(1)(C) [safety belt and line use]; 5158(e)(1)(E) [safety harness and hoist use]; 5158(d)(10) [ready entry and exit]; 2500.9(a) [flexible cords]; 1509(a) [IIPP]; and 3381(a) [hard hat use] of the occupational safety and health standards and orders found in Title 8, California Code of Regulations.1 The Division proposed civil penalties totaling $35,625.
Employer filed a timely appeal contesting the existence of the alleged violations and the reasonableness of the proposed penalties.
A hearing was held on April 27, 2001, before an Administrative Law Judge (ALJ) of the Board, in San Bernardino, California. Daniel Schnurrenberger, President, represented Employer. Andy Morita, District Manger, represented the Division.
After several amendments by the Division to the original citations, which resulted in the penalties being reduced from $35,625 to $11,300, Employer moved, without objection, to limit the scope of its appeal to the reasonableness of the proposed penalties. The motion was granted.
Employer moved for reduction of the proposed penalties to zero on the ground that it was no longer in business, or, in the alternative, for reduction of the penalties based upon financial hardship. The Division did not object to either motion.
Daniel Schnurrenberger testified for Employer that he was the corporation president and sole shareholder. Employer was in the business of lining underground storage tanks and cleaning tanks for the purpose of lining them. Employer ceased to do business on April 18, 2000. On that date, a certificate was filed with the California Secretary of State that Employer was a dissolved corporation. Employer did not have any employees after that date and its contractors license was expired. Schnurrenberger does not intend to operate the same type of business in the future.
Schnurrenberger is now in the business of residential framing and general contracting as an individual. Schnurrenberger further testified that payment of the total remaining penalties of $11,300 would impose a financial hardship and could prevent him from continuing his business. He has only two employees. Personal tax returns for 1996, 1997, 1998, 1999 and 2000 and corporate tax returns for 1997, 1998, 1999, and 2000 were introduced into evidence. Schnurrenberger gave details regarding his current debts of about $315,000, cash flow problems, and lack of remaining credit.
In a decision dated May 5, 2001, the ALJ reduced the penalties to zero on the ground that Employer was out of business, and did not intend to re-engage in the operation of the same type of business.
On June 7, 2001, the Appeals Board ordered reconsideration on its own motion to consider if either financial hardship or the discontinuation of a business warrant reduction of civil penalties to zero when the underlying citations are established. The Division filed an answer to the Boards Order of Reconsideration on July 10, 2001.
1. Does closure of Employers business justify the elimination or reduction of penalties under the facts of this case?
2. Does Employers purported financial hardship justify elimination or reduction of the penalties under the facts of this case?
FINDINGS AND REASONS
DECISION AFTER RECONSIDERATION
Under previous case precedent, the Board has recognized two situations, which may mitigate or justify the elimination or reduction of civil penalties. These situations, financial hardship and closure of a business have been the subject of recent decisions. Although closure of a business and financial hardship may be related in a particular situation, each represents a unique, separate situation that must be addressed independently because of the distinguishable factual and legal considerations justifying relief under each scenario. In the instant case, Employers appeal presents a request for relief from the penalties proposed by the Division based upon closure of the business, or in the alternative, due to financial hardship.
The Board is mindful that business closures can be based upon a host of reasons that, to a varied extent, may involve financial hardship. However, we will address both claims of Employer independently.
1. Closure of Employers Business Does Not Justify the Elimination
or Reduction of Penalties Under the Facts of This Case.
In this case, relying on our earlier opinions in Leftys Pizza Parlor, Cal/OSHA App. 74-580, Decision After Reconsideration (Feb. 24, 1975) and Arcade Meats and Deli, Cal/OSHA App. 76-320, Decision After Reconsideration (Apr. 7, 1978), the ALJ reduced the civil penalty from $11,300 to zero after the Division had reduced the original proposed penalty amount of $35,625 to $11,300 at the hearing.
We find there has been inconsistency as to the application of Leftys Pizza Parlor, supra, and Arcade Meats and Deli, supra, by different ALJs. In this case we will closely re-examine the impact that closure of a business has on penalty elimination or reduction.
Leftys Pizza Parlor, supra, and Arcade Meats and Deli, supra, arose from the early days of the Cal/OSHA program when penalties for violations were often viewed more for their educational effects than for their deterrent effects on future violations. Miller/Thompson J.D. Steel Harris Rebar, Cal/OSHA App. 99-3121, Decision After Reconsideration (Sept. 26, 2001).
In Leftys Pizza Parlor, supra, the Division issued several citations to the employer arising out of an injury accident. However, by the time of the appeal hearing, the co-owners had sold the pizza parlor to an independent third party. They had completely divested themselves of their former business and, at the time of the hearing, had no plans to continue making or selling pizza, either under the name Leftys or any other name.
The Appeals Board, citing an employers statutory duty to provide a safe and healthful place of employment consistent with Labor Code section 6300, found that the monetary penalties proposed in connection with the citations were not designed to exact retribution from an employer who violates a safety order. Instead, the Appeals Board held that the civil penalties were designed to induce employers to contribute to achieving the goals of the [California Occupational Safety and Health] Act. (Leftys Pizza Parlor, supra)
Arcade Meats and Deli was operated as a sole proprietorship that the owner sold one month after the Divisions inspection. By the time of his appeal hearing, the sole proprietor was employed in a market as a meat cutter. The Board set aside the proposed civil penalties. Citing Leftys Pizza Parlor, the Board held that the assessment of a civil penalty against an employer whose establishment is no longer in existence does not promote the purpose of the Act.
Recently, in Miller/Thompson J.D. Steel Harris Rebar, supra, we addressed the effect that closure of a business has on a joint venture. In that case, we held that, [w]e are not persuaded that reduction or elimination of penalties against any employer, and specifically the joint venture Employer in this case who ceased business operations, promotes the purposes of the Act.
In Miller/Thompson J.D. Steel Harris Rebar, supra, we did, however, recognize that there may be cases where closure of a business is one of several factors to be considered in determining whether penalty relief is warranted, but business closure alone will not justify penalty relief.
Relying on Linsey Fashion, Cal/OSHA App. 96-2695 Decision After Reconsideration (Apr. 18, 2001) and Alfredo Annino/Alfredo Annino Construction, Inc., of Nevada, Cal/OSHA App. 98-311 Decision After Reconsideration (Apr. 25, 2001), the ALJ concluded in this case that elimination of all proposed penalties was appropriate because, [e]mployer is out of business and does not intend to re-engage in the operation of the same type of business . Although residential framing and lining commercial storage tanks both involve the construction industry, overlap in job duties is next to nonexistent. (ALJ Decision, pg. 5)
We find that construing Linsey Fashion and Alfredo Annino to hold that an employer can violate California Occupational Safety and Health laws and evade responsibilities for those acts by closing one business and opening another under a different form of ownership involving the same principal(s) is too narrow a reading of those cases. Because the Occupational Safety and Health Act of 1973 was enacted for the purpose of ensuring safe and healthful working conditions for all working men and women, our decisions must be read in a light that furthers rather than defeats the purposes of the Act.
As we noted in Miller/Thompson, supra, [w]e see no deterrent effect in a system that allows Employers to evade penalties simply by disbanding after being cited for health and safety violations. Also, since the purpose of the Act is to ensure safe working conditions for all working men and women, we fail to see how we promote that purpose if we allow an employer to evade penalties simply by changing his/her line of business. In this case, that appears to be exactly what Mr. Schnurrenberger did. After being cited for violations of the Act with $35,625 in penalties by the Division, he closed the corporate entity in which he was the sole shareholder and opened up a new business as a sole proprietor2. We fail to see how allowing Mr. Schnurrenberger (or his corporation) to walk away from civil penalties for 14 serious violations insures that the Acts objectives are met.
We find that the ALJ incorrectly applied Linsey Fashion and Alfredo Annino to the facts of this case. Under Linsey Fashion, Employers closure of the business and engagement in the operation of a different business is insufficient to grant penalty relief.
Any notion that the underlying premise of Leftys Pizza Parlor and Arcade Meats and Deli, entitles an employer who closes his business to penalty relief for that reason alone, is overruled.
2. Employers Purported Financial Hardship Does Not Justify
Elimination or Reduction of the Penalties Under the Facts of This Case.
As stated above, while business closure will not alone justify penalty relief, other factors may be considered along with it that might include a claim for financial hardship3.
When viewed in the abstract, the very terms of the phrase financial hardship connote an amorphous concept that is dependent upon the facts of the particular case. However, instead of reviewing the facts in a vacuum from only an employers perspective, the Board must be mindful of both the parameters of its review and the statutory scheme where it finds its authority for making a determination of final penalty assessments. The Board cannot permit the exemption from (elimination) or reduction of penalties arising from an established violation by an Employers claim of financial hardship without any regard to the objectives of the Act in promoting safety and health for California workers.
In the recent cases of Dye & Wash Technology, Cal/OSHA App. 00-2327, Denial of Petition for Reconsideration (July 11, 2001) and The Bumper Shop, Inc. Cal/OSHA App. 98-3466 Decision After Reconsideration (Sept. 27, 2001), we provided an approach to financial hardship claims for penalty relief for employers which insures due consideration of the objectives of the Act and the deterrent purposes of the penalty citation system. Accordingly, whether financial hardship is asserted as a separate basis or as another factor along with business closure to justify penalty relief, the guidance set forth in Dye & Wash, supra, and The Bumper Shop, Inc. supra, must be utilized prior to granting relief from penalties for an established violation of health and safety laws.
In this case, we do not find any basis for a financial hardship claim based upon Employers tax returns. Employer submitted personal and corporate tax returns for 1997, 1998, 1999 and 2000. Employer also submitted a 1996 personal tax return in support of its claim that closure of the business coupled with financial hardship should avail it of reduced or eliminated penalties. Since the penalty stems from a December 11, 1997, incident, we find that the 1998, 1999 and 2000 tax returns are not relevant because liability for civil penalties is fixed at the time the violation occurred, (See e.g., Reich v. Occupational Safety and Health Review Commission, (Jacksonville Shipyards Inc. (11th Cir. 1997) 102 F.3d 1200; Chesapeake Bay Foundation, Inc. v. Gwaltney of Smithfield, Ltd., (4th Cir. 1989) 890 F.2d 690, 696) unless it can be shown that financial hardship was related, both in time and costs incurred, to correcting [the cited] violations. The Bumper Shop, Inc., supra.
Our review of the arguably relevant tax returns indicates that they were filed on behalf of Eagle Environmental Coating, which does not appear to be the entity which is the subject of these violations. Assuming that Eagle Environmental Coating and Eagle Environmental, Inc. are the same entity, the 1997 corporate tax return shows a net loss of $87,420. However, the 1997 tax return also shows gross sales of $450,019 and a gross profit of $101,139. The cause of the majority of Employers loss for that year are business deductions and depreciation which do not reflect that Employer did not have the resources to address and correct safety and health violations. Nor does the 1997 tax return reflect that Employers loss for the year was caused by addressing and correcting safety and health infractions. Nothing in either return suggests that Mr. Schnurrenberger was forced to close Eagle Environmental because of financial hardship caused by addressing the safety violations.
We find that the evidence presented by Employer was insufficient to establish that the financial hardship was related, both in time and costs incurred, to correcting the cited violations and therefore must deny Employers request for penalty relief.
In addition, Employer should have been addressing the serious safety violations in this case prior to the citations being issued in order to have a credible claim that it is entitled to relief under the concept of financial hardship.
One of the social responsibilities of operating a business is to ensure a safe workplace before workers commence work. Fulfillment of that obligation reduces the costs to society that result from injured workers. It is not proper to defer addressing serious safety and health violations until a worker is injured or until the violation is detected by a governmental enforcement agency.
The law does not impose an unreasonable burden in this regard. It is only fair that all employers be treated equally because it would create an unfair burden on the vast majority of employers who address and insure minimum labor standards and working conditions for their employees to have to compete against employers who do not take their social responsibilities as seriously.
We believe that the social policy enunciated in Labor Code section 90.5 is analogous to enforcement of safety and health laws. That section states, It is the policy of this state to vigorously enforce minimum labor standards in order to ensure employees are not required or permitted to work under substandard unlawful conditions, and to protect employers who comply with the law from those who attempt to gain competitive advantage at the expense of their workers by failing to comply with minimum labor standards.
The public policy enunciated in Labor Code sections 6300 et. seq. regarding the enhancement of health and safety laws offers the same protection with the same effect of protecting employers from those who attempt to gain competitive advantage by failing to comply with health and safety laws as do the enforcement of minimum labor standards enunciated under Labor Code section 90.5. If we allow employers to evade their responsibilities by subjecting employees to unsafe working conditions and then not enforcing penalty assessments for violating these minimum safety regulations, we participate in a system that allows employers to shirk their social obligations by not having an incentive to adhere to basic safety and health laws. By not having to address safe working conditions, employers who refuse or neglect to follow safety and health laws obtain an unfair advantage over their competition.
Accordingly, any consideration for relief based on financial hardship is inappropriate in this case.
DECISION AFTER RECONSIDERATION
The decision of the ALJ is reversed. Civil penalties totaling $11,300 are assessed.
MARCY V. SAUNDERS, Member
GERALD P. OHARA, Member
OCCUPATIONAL SAFETY AND HEALTH APPEALS BOARD
FILED ON: October 19, 2001
1 Unless otherwise specified
all section references are to Title 8, California Code of Regulations.
2 Our review of Employers tax returns indicates that Mr. Schnurrenberger has operated a carpentry business called Legacy Timber Framing since at least 1996. Whether Mr. Schnurrenberger started a new company or just disbanded Eagle Environmental after being cited by the Division our analysis here would not change.
3 As we initially noted, Employers petition for reconsideration seeks penalty relief due to closure of the business, or in the alternative, for financial hardship. Since we stated above that business closure alone cannot justify penalty relief, we proceed with the following analysis for financial hardship mindful that the business closure may be a basis for the Employers inability to pay the proposed penalty although not so articulated by the Employer.