October 01, 2002

Small Businesses Receive Environmental Enforcement Benefits

4 min

Small Businesses Receive Environmental Enforcement BenefitsSmall businesses have been provided with several weapons with which they may attempt to reduce the demands of EPA and other regulatory agencies as a result of a new law with the imposing title of the Small Business Regulatory Enforcement Fairness Act (SBREFA), which was signed into law on March 29, 1996.

Attorneys Fees May Be RecoveredSection 231 of SBREFA, covering small businesses ranging up to 1,500 employees and $25 million in annual receipts, provides that when a regulatory agency (such as EPA) makes an administrative or judicial claim against a small business, and the demand of the agency is substantially in excess of the amount awarded, and is unreasonable when compared with the decision and circumstances of the case, the judge or adjudicative officer may award attorney fees and other expenses incurred by the business in defending the claim, even though the government is successful in establishing the liability of the business for the underlying violations.

The effect of this legislation will be to require the EPA and other agencies to be more reasonable in the demands for penalties in order to avoid the effect of Section 231, should EPA recover substantially less if the case is tried. EPA will also likely give far more consideration to the ability of the business to pay a penalty than has heretofore been given.

EPA, fearful of the potential for paying attorneys' fees and expenses under SBREFA, has already issued a guidance document to its regional offices on how to proceed in future enforcement actions. That document, entitled "Interim Guidance on Administrative and Civil Judicial Enforcement Following Recent Amendments to the Equal Access to Justice Act," was issued May 28, 1996, and cautions against the Agency making unreasonable demands in administrative and judicial complaints. It also recommends determining whether the alleged violator is a small business covered by SBREFA, and if so, obtaining as much information as possible on the businesses' financial condition before filing a complaint.

Virtually all small business are regulated by some government agency, and they should be aware of SBREFA and the benefits it bestows on them. While SBREFA does not provide much regulatory relief overall, it can be useful in an enforcement action by allowing the business to threaten to claim attorneys fees and expenses in defending the claim if the agency does not recover substantially all penalties demanded. As the amount of penalties to be awarded in an enforcement action is often far from certain, such a threat may reduce the demands of the agency and expedite settlement.

Waiver of Penalties Provides Incentives for Small BusinessesAs a result of the mandates of SBREFA, EPA has also issued a final policy designed to provide incentives for small businesses to comply with environmental laws by providing for reduction in or waiver of penalties for small businesses that make good faith efforts to correct violations, and by providing guidance for State and local governments to also provide such incentives.

EPA’s “Policy on Compliance Incentives for Small Businesses,” (61 Federal Register 27984 (June 3, 1996), states that EPA will refrain from initiating an enforcement action seeking civil penalties, or will mitigate civil penalties, whenever a small business (defined as an entity employing 100 or less individuals) makes a good faith effort to comply with environmental requirements in one of two ways:

  • by receiving on-site compliance assistance from a government or government-supported program (e.g., a state university), and violations are detected during that program; or
  • by voluntarily conducting an environmental audit and promptly disclosing to EPA or the appropriate state agency all violations discovered as a result of the audit.
  • However, the waiver of penalties is by no means automatic. The business that discovers the violations must have not had any previous violations of that nature, and must correct the violations within the shortest practicable period of time, or within a period of time agreeable to the agency. In addition, the violation must not have caused actual serious harm; be one that presents an imminent and substantial endangerment, or a significant health, safety or environmental threat; nor involve criminal conduct.

    If the small business meets all of these criteria, EPA may waive all penalties that would be applicable to the violations. If a small business meets some but not all of the criteria, EPA may waive a portion of the penalties, the amount waived to be dependent upon circumstances. EPA states that it will defer to state agency actions that are consistent with its Policy. This is an important factor, as EPA has the right to override a state action that it believes is not appropriate.

    The EPA Policy is heavily caveated, and a small business desiring to rely upon it should obtain a copy of the Policy and be thoroughly familiar with its terms, considering the potential for exposure to significant penalties if the business does not meet EPA’s criteria, and EPA’s penchant for strictly interpreting policies on waiver of its enforcement discretion.