Landmark OSHA Ruling Curtails General Contractor Risk
October, 2007
by Brian E. DeVilling and Bradford S. Krause
Since its creation in 1970, the Occupational Safety and Health Administration (OSHA) has enforced safety regulations on the worksite. For most of this time, OSHA has been able to cite general contractors for subcontractors' safety violations, regardless of the general contractor's level of control over the subcontractor. A recent ruling by the Occupational Safety and Health Review Commission (OSHRC) in Secretary of Labor v. Summit Contractors, Inc. may significantly curtail this power, however, and dramatically change the landscape of OSHA regulation.
The Summit Case
Summit Contractors, Inc. was hired in 2003 as the general contractor to build a dormitory. Summit employed only four individuals at the worksite, and hired numerous subcontractors for the project. In June 2003, OSHA inspectors observed employees of one subcontractor, All Phase Construction, Inc., working on scaffolding without fall protection. OSHA cited not only All Phase, but also Summit for a safety violation. Summit did not dispute that it previously observed All Phase employees working without fall protection. Nor did Summit dispute that it controlled the worksite as the general contractor.
The OSHRC, which hears appeals over contested OSHA citations and penalties, held that Summit could not be cited for All Phase's safety violations. Although Summit controlled the worksite, was aware of the hazard, and requested that All Phase fix the hazard, Summit did not expose its own employees to or create the hazard. The OSHRC reasoned that penalizing a contractor that neither creates nor exposes its employees to a hazard would exceed OSHA's powers. Specifically, Section 1910.12(a) of Chapter 29 of the Code of Federal Regulations provides in part, "Each employer shall protect the employment and places of employment of each of his employees engaged in construction work by complying with the appropriate standards prescribed [by OSHA]." Thus, OSHA may only issue citations and penalties to contractors that create a hazard or place their own employees in danger, according to the ruling.
General Contractor Responsibility Before And After Summit
Before the Summit ruling, OSHA regularly issued citations to general contractors for safety hazards created by subcontractors. In the landmark 1976 Grossman Steel & Aluminum Corp. ruling, the OSHRC recognized that "the general contractor is well suited to obtain abatement of hazards either through its own resources or through its supervisory capacity." Thus, OSHA would "hold the general contractor responsible for violations it could reasonably be expected to prevent or abate by reason of its supervisory capacity."
The Grossman ruling ushered in a thirty year era in which OSHA held general contractors responsible for subcontractor created safety hazards, culminating in OSHA's Multiemployer Citation Policy. Under this policy, employers were classified as "creating", "exposing," "correcting," or "controlling" employers. Employers that created a hazard, exposed their employees to a hazard, or had responsibility for correcting a hazard could be cited for a violation. More controversially, controlling employers could be cited for violations as well. OSHA defined a controlling employer as "an employer who has general supervisory authority over the worksite, including the power to correct safety and health violations itself or require others to correct them." Thus, a controlling employer could be cited regardless of whether it created a hazard or exposed its employees to a hazard.
The multiemployer policy drew praise from some safety advocates, but drew criticism from others as OSHA issued citations to general contractors that had no role in creating hazards. Some industry groups, such as the National Association of Home Builders, called on OSHA and Congress to abandon the multiemployer policy, claiming that it imposed undue and unpredictable burdens on builders and made questions of responsibility too confusing.
The Summit ruling overturned thirty years of OSHA precedent and may significantly reduce general contractor exposure to OSHA penalties in the future. OSHA annually issues over $100 million in penalties, according to recent U.S. Government Accountability Office reports. A significant portion of these penalties are levied on contractors classified as controlling employers. Whether one agrees or disagrees with the Summit ruling, its potential financial impact is significant; many contractors that previously paid fines from hundreds to hundreds of thousands of dollars would not have to pay such fines under the Summit ruling.
Summit's Limitations
While Summit may significantly curtail general contractor exposure to OSHA penalties, contractors must be aware of its limitations before altering safety policies or procedures. The Secretary of Labor has appealed the ruling to the United States Eighth Circuit Court of Appeals. It is unclear whether the ruling will be reversed, will be curtailed, or whether OSHA will continue to levy penalties against controlling employers pending the outcome of the appeal. Even if the Eighth Circuit affirms the OSHRC's ruling in Summit, many risks still abound for general contractors.
General Contractors May Still Be Cited As Creating, Correcting, Or Exposing Employers
If they can be classified as creating, correcting, or exposing employers, general contractors may still be cited for safety violations. The more active a role that a general contractor takes in a subcontractor's work, the more likely the general contractor is to fall into one of these three remaining classifications. If, for example, Summit's employees would have taken an active role directing All Phase's work or had been directly exposed to the fall hazard, OSHRC's ruling would likely have been different.
General Contractors May Still Be Cited If Subcontractors Are Considered Employees
The basis of the Summit ruling is that federal regulations limit an employer's responsibility under OSHA to "his employees." Thus, if a subcontractor can be considered an employee of the general contractor, the general contractor may still be cited for the subcontractor's safety violations. Courts look past labels when analyzing whether one qualifies as an employee or independent contractor, and instead analyze the nature of the relationship itself. If one party controls and directs the means by which the other party performs work, courts will generally consider it an employer employee relationship, regardless of whether the parties label the worker an independent contractor.
Summit Does Not Affect Tort Liability
OSHA is intended to prevent workplace accidents rather than to compensate those who are involved in accidents. Once an accident occurs, contractors face additional financial risk from litigation. While the Summit ruling may limit OSHA risk, it does not affect litigation risk.
Injured workers may still sue any contractor involved in a project. The fact that a general contractor is not liable under OSHA does not mean that it will not be liable in a lawsuit, as the scope of the contractor's duty under tort law is greater than under OSHA. Attorney's fees will be much greater defending a lawsuit than defending against an OSHA citation. Damages for pain and suffering, medical costs, and loss of society, all of which are potentially available in a lawsuit, are typically much greater than OSHA penalties. The estimated annual cost of the U.S. tort system stands at a whopping $246 billion, dwarfing the annual costs of OSHA compliance and annual amount of OSHA penalties. For contractors, litigation is a much greater financial risk than OSHA penalties.
Summit's Impact On Subcontractors
The Summit ruling presents a potential double edged sword for subcontractors. On the one hand, OSHA inspectors might shift more responsibility to subcontractors since general contractors will be much harder targets in the post-Summit era. Although subcontractors may have been cited for safety violations under pre-Summit policies anyway, inspectors could nevertheless increase the amount of each penalty imposed. Whether subcontractors bear more of the penalty burden is speculative, however, as the Summit ruling was issued very recently and no objective data is yet available.
On the other hand, subcontractors regularly subcontract their own work, and in doing so stand in a similar legal position to a general contractor able to benefit from the Summit ruling. If, for example, a roofing subcontractor subcontracts with an electrician, Summit would still limit the roofer's OSHA exposure if the electrician creates a hazard to which none of the roofer's employees are exposed.
Conclusion
The Summit ruling has the potential to significantly decrease general contractors' financial exposure under OSHA, if it is upheld on appeal. For subcontractors that routinely subcontract portions of their work, Summit has the same potential. For subcontractors sitting at the bottom of the contractual chain, however, Summit's impact remains unclear.
The Summit ruling should not under any circumstances be viewed as a reason to alter or curtail safety policies or procedures. All contractors still face significant litigation risk. General contractors still face risk under OSHA if they are classified as creating, exposing, or correcting employers, or if they exercise a degree of control over subcontractors sufficient to create an employer employee relationship.
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