[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                                                   S. Hrg. 102-000 

        DEPARTMENT OF LABOR ENFORCEMENT AGAINST SMALL BUSINESS

=======================================================================

                                HEARING

                               before the

            SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                     WASHINGTON, DC, JUNE 17, 2004

                               __________

                           Serial No. 108-69

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      ENI FALEOMAVAEGA, American Samoa
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             GRACE NAPOLITANO, California
TODD AKIN, Missouri                  ANIBAL ACEVEDO-VILA, Puerto Rico
SHELLEY MOORE CAPITO, West Virginia  ED CASE, Hawaii
BILL SHUSTER, Pennsylvania           MADELEINE BORDALLO, Guam
MARILYN MUSGRAVE, Colorado           DENISE MAJETTE, Georgia
TRENT FRANKS, Arizona                JIM MARSHALL, Georgia
JIM GERLACH, Pennsylvania            MICHAEL MICHAUD, Maine
JEB BRADLEY, New Hampshire           LINDA SANCHEZ, California
BOB BEAUPREZ, Colorado               BRAD MILLER, North Carolina
CHRIS CHOCOLA, Indiana               [VACANCY]
STEVE KING, Iowa                     [VACANCY]
THADDEUS McCOTTER, Michigan

                  J. Matthew Szymanski, Chief of Staff

          Phil Eskeland, Policy Director/Deputy Chief of Staff

                  Michael Day, Minority Staff Director

            SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT

EDWARD SCHROCK, Virginia, Chairman   [RANKING MEMBER IS VACANT]
ROSCOE BARTLETT, Maryland            DONNA CHRISTENSEN, Virgin Islands
SUE KELLY, New York                  ENI F. H. FALEOMAVAEGA, American 
TRENT FRANKS, Arizona                Samoa
JEB BRADLEY, New Hampshire           ANIBAL ACEVEDO-VILA, Puerto Rico
STEVE KING, Iowa                     ED CASE, Hawaii
THADDEUS McCOTTER, Michigan          DENISE MAJETTE, Georgia

              Rosario Palmieri, Senior Professional Staff

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Varnell, Hon. Robert C., Deputy Solicitor, US Department of Labor     4
Drummond, Ms. Anita, Director of Legal and Regulatory Affairs, 
  Associated Builders and Contractors, Inc.......................    14
Bennett, Mr. Perry A., Jr., Health Safety and Environmental 
  Director, Molded Fiber Glass Companies.........................    17
Lee, Ms. Patricia H., President and CEO, National Institute for 
  Urban Entrepreneurship.........................................    21

                                Appendix

Opening statements:
    Schrock, Hon. Edward.........................................    32
    King, Hon. Steve.............................................    34
Prepared statements:
    Varnell, Hon. Robert C., Deputy Solicitor, US Department of 
      Labor......................................................    36
    Drummond, Ms. Anita, Director of Legal and Regulatory 
      Affairs, Associated Builders and Contractors, Inc..........    47
    Bennett, Mr. Perry A., Jr., Health Safety and Environmental 
      Director, Molded Fiber Glass Companies.....................    54
    Lee, Ms. Patricia H., President and CEO, National Institute 
      for Urban Entrepreneurship.................................    62

                                 (iii)
      


 
         DEPARTMENT OF LABOR ENFORCEMENT AGAINST SMALL BUSINESS

                              ----------                              


                        THURSDAY, JUNE 17, 2004

                  House of Representatives,
                        Committee on Small Business
            Subcommittee on Regulatory Reform and Oversight
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:35 a.m. in 
Room 2360, Rayburn House Office Building, Hon. Edward L. 
Schrock, [chairman of the Subcommittee] presiding.
    Present: Schrock and Bordallo 

    Chairman Schrock. Good morning everyone. The hearing will 
come to order.
    Good morning, ladies and gentlemen. I will go ahead and 
begin. I know Mrs. Bordallo is on the way. I figure that by the 
time I finish with my opening statement, she will be here. If 
not, I will talk real slow at the end.
    Congress has taken steps to try to make life a little 
easier for small businesses over the past eight years. In 1996, 
they passed the Small Business Regulatory Enforcement Fairness 
Act. In part, it said that each Agency of the government must 
establish a policy to provide for the reduction or waiver of 
civil penalties for violations of statutory or regulatory 
requirements by a small business.
    In 2002, it continued to be the case that small business 
owners were seeing paperwork grow at a faster rate than their 
businesses' bottom line and Congress acted by passing the Small 
Business Paperwork Relief Act. That legislation required 
agencies to share enforcement statistics with this Committee. 
Some of the raw statistics we found were that the Department of 
Labor conducted enforcement actions against 143,000 businesses 
in the last fiscal year. Small businesses accounted for 66,000 
of those actions. Over a 1,000 of those against small 
businesses came from the Employment Standards Administration, 
and over 12,000 came from the Occupational Safety and Health 
Administration, but these raw numbers don't alone explain 
anything to us and that is why we are having this hearing 
today.
    The goals of the Department of Labor's regulatory agencies 
are to ensure worker safety, health and compliance with labor 
laws. The goal of this Committee is to make sure that the Labor 
Department is achieving its aims with the most efficient means, 
that are the least disruptive to well-intentioned small 
business owners. Reasonable people can disagree on over how 
much the Labor Department should focus on compliance assistance 
versus enforcement. We will hear from the Labor Department as 
well as from some of the regulated community on how well that 
balance is being achieved.
    People who own small businesses in the United States 
deserve fair treatment. They should be rewarded for making a 
good-faith effort to comply with these regulations. It is 
important to continue to work for more and better results for 
the small businesses in this country. The small business sector 
has been a constant source of economic growth and job creation 
in this recovery, and the government needs to work with, not 
against, America's small businesses. I have made it a personal 
goal to work towards creating an environment where small 
businesses can grow and prosper in this country. The owners of 
small businesses should be less worried about how to deal with 
government regulation than with how to grow their businesses 
and create jobs in America.
    President Bush expressed, in his most recent State of the 
Union address, that our agenda for jobs and growth must help 
small business owners and employees with relief from needless 
regulation. I am confident that we can make significant headway 
towards the president's agenda while still insuring compliance 
with our nation's labor laws.
    [Chairman Schrock's opening statement may be found in the 
appendix.]
    Then let me thank those of you who are going to be 
testifying today. It is now my pleasure to yield the floor to 
the ranking member, my good friend of 30 years from Guam, the 
gentle lady Madeline Bordallo.

    Ms. Bordallo. Thank you very much, Mister Chairman. It is 
indeed an honor to be serving with you after all these many 
years and it is not every day that a freshman Member of 
Congress is able to be a Ranking Member.
    This Committee has met time and time again to discuss the 
burdens federal agencies place on small businesses. It is a 
growing concern as our nation's small enterprises strive to 
help aid our country in sustaining a much needed economic 
recovery. A recent study reported that for firms employing 
fewer than 20 employees, the annual regulatory burden is nearly 
$6,975 per employee, almost 60 percent higher than that of 
firms with fewer than 500 employees.
    This definitely is not right and something needs to be done 
to change it. Small businesses do not have the manpower or the 
extra money, as compared to their corporate counterparts, to be 
able to comply with the burdensome regulations imposed by many 
federal agencies. Most small firms simply do not have enough 
employees to weed through the paperwork or enough understanding 
of the new regulations to fully comply.
    As we depend on these small enterprises to continue 
generating 75 percent of all new jobs, we must also recognize 
the challenges that they face and work to help them break down 
these barriers. In this hearing this morning, we are going to 
examine how the Department of Labor is living up to its 
commitment to lessen regulatory burdens facing small 
businesses. The Bush administration has repeatedly expressed 
that reducing regulations facing small businesses is a 
priority. We share this goal and we are here today to assess 
its progress. Even with the passage of the Small Business 
Paperwork Relief Act, agencies are still not completely 
reporting their enforcement actions and the effect that they 
have on our nation's small firms.
    The Department of Labor report, issued this past year, 
generated concern based on the large number of citations that 
had been issued to small businesses through their Agency. For 
example, this report stated that the Occupational Safety and 
Health Administration, better known as OSHA, issued 24,583 
assessments of which 20,780 went to businesses with less than 
250 employees. This resulted in a total of $51.7 million being 
assessed against small firms. In addition, the Mine Safety & 
Health Administration had 104,800 enforcement actions, of which 
100,300 were for small penalties.
    While the MSHA is not expected to necessarily reduce or 
abate penalties, they certainly are able to take certain 
factors into consideration before setting the burdensome 
penalties. These reports are a significant tool in this 
Committee's ability to assess the impact that regulations are 
having on our nation's small businesses. As this report 
indicates, the DOL needs to acknowledge the effects that these 
regulations are placing on small enterprises. They need to be 
innovative in the manner in which they communicate with small 
businesses and in being more resourceful in easing small firm's 
ability to comply with these regulations.
    Our nation's small businesses need to know exactly what is 
expected of them. This was promised to them through the Small 
Business Regulatory Enforcement Fairness Act in 1996, and again 
in the Small Business Paperwork Relief Act in 2002. As members 
of the Small Business Committee, we must continue to provide 
oversight to insuring that government agencies are held 
accountable for the regulatory burdens that they place on our 
small businesses.
    I want to thank the small business owners that are here 
today for taking time out of their schedules to talk with us 
and I look forward to hearing your testimony.
    Thank you, Mister Chairman.

    Chairman Schrock. Thanks Ms. Bordallo. During my Navy 
career, I was privileged to serve on the island of Guam. Jeanne 
and I went there in 1975 and our only child was born there. We 
have a picture of Randy when he was a month old and Ms. 
Bordallo was holding him. Never could I have imagined that we 
would be sitting together in Congress like this. We are truly 
friends from a long way back and it is really nice to have her 
with us this morning.
    Before we begin receiving testimony from witnesses, I want 
to remind everyone that we would like the witnesses to stay as 
close to five minutes as possible. In front of you on the 
table, you will see a box that will let you know when your time 
is up. When it turns yellow, you have a minute left; and when 
it turns red, the trap door opens and away you go. And once 
that sign is on, we would ask that you try to wrap up as soon 
as you feel comfortable.
    We have two panels today. On the first panel, we have the 
Honorable Robert Varnell, who is the Deputy Solicitor of the U. 
S. Department of Labor. We are delighted to have you here and 
the floor is yours.

 STATEMENT OF THE HONORABLE ROBERT VARNELL, U.S. DEPARTMENT OF 
                             LABOR


    Mr. Varnell. Well, thank you, Mister Chairman. At the 
outset, I just wanted to say thanks for letting me represent 
the Department of Labor. I also wanted to just state that I 
have prepared a written statement, which I ask you to enter 
into the record.

    Chairman Schrock. Without objection.

    Mr. Varnell. Thank you. Well, good morning and thank you 
again for inviting me here today to discuss how the Department 
of Labor is working hard to strike the appropriate balance 
between: on the one hand, fairly and effectively enforcing the 
laws with which Congress has charged us; and on the other, 
easing the regulatory burden on small business.
    In striking this balance, we recognize that small business 
is the engine driving America's economy and that it must remain 
competitive. Our ultimate goal at the department is the 
protection of America's workers. We are striking this balance 
in three ways. First, our enforcement agencies provide high-
caliber compliance assistance, specifically directed towards 
the small business community. I have brought a packet of 
compliance-assistance materials with me today, which I will 
share with your staff before I depart. Second, our agency is 
effectively and fairly enforcing their laws and regulations 
while taking into consideration, when appropriate, the size of 
the employer. Finally, our approach to rule making gives due 
consideration to small business needs.
    Secretary Chao launched the compliance-assistance 
initiative in June 2002 with its primary focus on helping small 
business and she created the Office of Compliance Assistance 
Policy. Let me share a couple of examples of these efforts. The 
Department has developed ``E-Laws Advisors,'' an interactive 
electronic tool that provides information on more than 20 DOL 
laws. The site receives hundreds of hits each day. We also 
operate a Toll-Free National Call Center, which has response 
capabilities in over 140 different languages and has answered 
more than three million calls since it was set up back in 
September 2001.
    In addition to these department-wide efforts, our Agency 
has individually tailored a compliance assistance to achieve 
their unique missions. For instance, an FY 2003, OSHA's newly 
created Office of Small Business Assistance coordinated more 
than 31,000 nationwide on-site consultation visits to small 
businesses. OSHA's web site was recently named one of ``Best of 
the Web'' and receives more than 50 million hits each year.
    Like OSHA, Wage Hours developed unique compliance- 
assistance tools aimed at helping small business. This 
assistance includes extensive public-awareness campaigns such 
as YouthRules! explaining child-labor requirements and fair 
pay, explaining the Department's new white-collar overtime 
rules. The Wage Hour web site is visited more than 78,000 times 
per month and the Agency fields nearly 40,000 toll-free 
telephone inquiries per month.
    When enforcement is required, OSHA and Wage Hour will 
continue to take into account the size of the business when 
assessing penalties. OSHA is required by the OSH Act to reduce 
penalties by up to 60 percent, depending on the size of the 
employer. Along with these reductions mandated by statute, OSHA 
and FY 2003 further reduced penalties in 71 percent of cases 
involving small businesses, totaling approximately $29 million 
in reductions. OSHA is also working to alleviate paperwork 
burdens on small business. For instance, OSHA's policy, for 
certain paperwork deficiencies, allows for no citations to be 
issued. If citations are issued to certain technical 
violations, no penalty, or a reduced penalty, will be assessed.
    In addition, employers with ten or fewer employees, and 
that is 75 percent of all employers in most instances, are 
exempted from keeping injury and illness records. Similarly, 
Wage Hour takes business size into consideration as well. 
Reductions or waivers for assessments against small entities 
are, in most cases, already factored into the statutory and 
regulatory formulas used to compute penalties. Wage Hour field 
managers also can make pre-assessment and post-assessment 
adjustments when levying penalties against an employer. When it 
comes to record-keeping penalties, Wage Hour does not have 
statutory authority to assess penalties for record-keeping 
violations related to minimum wage and overtime, and it 
assesses only a very small penalty for child labor record-
keeping violations.
    In sum, when it comes to enforcement against small 
business, our agencies do not levy penalties simply for the 
sake of doing so. But make no mistake that we will pursue 
aggressive enforcement when it is warranted. Lastly, our 
approach to rule making makes sure that the interests of small 
business are taking into account. Our reg agenda is no longer a 
wish list and has been trimmed from 130 down to 79 items. OSHA, 
under SBREFA, provides a vehicle for small business 
participation at the regulatory-development stage by way of its 
Small Business Advocacy Review Panel.
    Wage Hour says that small business, by clarifying out-dated 
rules, most notably and most recently, the FSLA's white-collar 
overtime exemption. During this rule-making process, DOL 
carefully weighed the concerns expressed by small business, 
which is disproportionaly affected by unclear overtime rules 
and the risks of costly litigation. The DOL published a final 
rule sensitive to the challenges of small business and is 
aggressively providing compliance assistance through its Fair 
Pay Outreach Program.
    Thank you once again for allowing me to review how the DOL 
is working to strike the right balance for small business, and 
I would be very happy to answer any questions that you may 
have.
    [Mr. Varnell's statement may be found in the appendix.]

    Chairman Schrock. Thank you very much, Mr. Varnell. Let me 
ask a general question, which I might add to it: How does the 
Department of Labor and its subagencies decide to prioritize 
its resources as between compliance assistance and enforcement? 
What is the balance? And what is the procedure for first-time 
violators?
    On Page 7, Fiscal 2003 has said that you conducted 12,366 
inspections. I am led to believe, right or wrong, that of all 
those inspections, there were 12,366 penalties. Help me 
understand all that?

    Mr. Varnell. I can take the first part--

    Chairman Schrock. Sure.

    Mr. Varnell. --of your question first, which is how we--

    Chairman Schrock. Balance.

    Mr. Varnell. --prioritize between compliance assistance and 
enforcement. At the outset, I should note that the department 
does have to make those kind of choices as far as priorities 
because we have limited resources and one thing is clear. Over 
the last few years, really since the beginning of Secretary 
Chao's tenure at the Department of Labor, we have been putting 
increased emphasis on compliance assistance. It is much more of 
a priority I would submit than it used to be. The secretary 
launched the Compliance Assistance Initiative back in 2002; and 
along with that, she also established an Office of Compliance 
Assistance, which is devoted to coordinating these kinds of 
outreach efforts throughout our department, sharing best 
practices with our agencies, that kind of thing.
    But I also want to make clear that while compliance 
assistance is being given a greater priority, it has not 
replaced enforcement. We see it really as a powerful tool that 
compliments enforcement, both of which are part of our arsenal, 
so to speak, to assist small business as well as the rest of 
the regulated community in ultimately not violating our 
workplace rules and protecting America's workers. Compliance 
assistance is our front-end approach, which we use to teach 
businesses what they need to do, so that they understand and so 
they don't violate laws to begin with. Enforcement we use on 
the back-end, if necessary.
    So, again, it is a dual approach. We are trying to make 
them both priorities, but we really do see them as a complement 
to one another.

    Chairman Schrock. If I am a small business owner and I am 
trying to get my business up and running, I am probably 
panicked that I am not going to make the bottom line at the end 
of the year, and the regulations are so voluminous that, at 
some point, something is going to slip through the cracks and 
he is probably going to violate something he doesn't even 
realize that he is doing. What would be wrong with the system 
that when you inspect them, if they are making mistakes and it 
is the first time deal. So, this is the mistake you made. You 
will have 60 to 90 days to correct it. We will be back again 
for an inspection and if they have not corrected it, then take 
legal action.
    And I understand that incorrectly the first violation 
always results in a civil penalty, or some sort of penalty, 
financially or otherwise. Am I right or wrong, and if I am 
correct, why does it have to be that way? If we are truly 
trying to protect small business and give them an equal share 
of the succeeding, it seems like the heavy hand of government 
does everything they can to beat them down and we just have to 
stop that.

    Mr. Varnell. Good point. The first thing I would like to 
say is that the actions we take are ultimately guided by the 
statutes that we enforce and we are obligated to do that; and 
the OSH Act mandates that we seek out and enforce the law 
against violations, which can include first-time violations. 
But I agree, and the department agrees as well, that there has 
to be some flexibility in acknowledging the situation on the 
ground, so to speak.
    That being said, there is flexibility that goes into how 
penalties are ultimately levied. The OSH Act, itself, mandates 
that the size of the employer be taken into consideration. For 
those smallest employers, between one and 25 employees, the 
statute mandates that there be a reduction in penalty by 60 
percent. On top of that, we can place a 10-percent reduction 
for first-time violations. There can also be a 15-percent 
reduction for good-faith efforts to comply with the law and 
also for quick abatement type stuff. So there really is 
flexibility there in how we address small businesses that are 
confronting regulations for the first time.

    Chairman Schrock. As kind of a follow-up on that: What 
percentage of inspections result in enforcement action and what 
percentage of enforcement actions actually result in civil 
penalties?

    Mr. Varnell. I have seen some of this data and I think I 
can give you a snapshot view. Some of it fluctuates from agency 
to agency. The question, so that I can give you a complete 
response, I would like to follow-up in writing, if possible.

    Chairman Schrock. All right.

    Mr. Varnell. But I do know, in the case of OSHA, something 
like approximately 30 percent of inspections result in the 
issuance of no citation because there is a finding of complete 
compliance, which is a significant percentage. And I know if 
you take that 70 percent, in which a citation is issued, there 
is another percentage on which no penalty is levied because the 
violation that is found is something other than serious.
    Similarly, with the Wage Hour Division, I don't have an 
exact percentage for you but I do know that it is a very small 
percentage of inspections that ultimately result in the 
department bringing an enforcement action, or initiating 
litigation in federal district court to secure back wages, a 
very small percentage.
    But, again, to completely answer your question, I would 
like to provide you some written statement.

    Chairman Schrock. Can you help me with this. How do you 
measure success in your department? Do you include the number 
of inspections, the number of enforcement actions, the number 
of penalties imposed, the numbers of callers to your 800 
numbers? Are there other numbers that you can use to gauge how 
well you are doing in this arena?

    Mr. Varnell. The first point I want to make is that we do 
track that kind of data on both the enforcement side of our 
approach and the compliance-assistance side of our approach, 
which again both are ultimately geared towards preventing 
workplace violations from occurring and protecting America's 
workers.
    On the enforcement side, our agencies track the number of 
investigations that they initiate, the number of citations that 
they put forth, the number of violations that they cite, 
amounts of penalties, and some reductions in penalties are 
tracked. Similar with compliance assistance, we track the 
number of web site hits, the number of phone calls that we 
answer, the number of opinion letters that we respond to. We do 
track all of that kind of data, which is important because it 
is a good metric for letting us know how we are interacting 
with the public.
    But the more important point, the thing that we are 
ultimately trying to track, which we use to measure success, is 
really the data that shows whether the missions of our agencies 
are being accomplished. So, for instance, at OSHA, we are 
always constantly looking at injury and illness and fatality 
rates to make sure that those lines are trending down, which 
they are. On the wage-hour side of things, we are looking to 
measure if we are decreasing the amount of child-labor 
violations; we are finding the amount of back wages that we 
recover.
    So, ultimately, that is what we try to measure. I have had 
some experience with the Government Performance Results Act and 
I know that for agencies to be accountable for what they are 
supposed to be doing, they have got to be looking at the 
outcomes that we are producing and not just the outputs, the 
amount of paper we issue, the number of phone calls we make, 
that kind of thing.

    Chairman Schrock. Ms. Bordallo?

    Ms. Bordallo. Thank you very much, Mr. Chairman.
    Mr. Varnell, my question is obviously, to use OSHA as an 
example, your inspectors need to be thoroughly familiar with 
the latest business processes to accurately access the danger 
to workers. Does the department have a program to inform itself 
of advances in business processes, or safety techniques and how 
does it pass that information out to the field? And secondly, 
does OSHA give the business a certain number of days to make 
corrections before a penalty is imposed?

    Mr. Varnell. I do know that OSHA and OSHA officials, 
investigators, technical experts, they have a lot of 
interaction with the regulated community, with industry, with 
small business. OSHA has several various technical Committees 
in which representatives from industry, from labor, from small 
business, come in and talk about the issues that they are 
dealing with, which includes a lot of technical development, 
that kind of thing.
    So there is interaction in that respect and it is filtered 
down to our OSHA officials on the ground. They have to know 
that information in order to conduct their inspections 
appropriately and make sure that they understand which hazards 
must be abated.
    I know you asked me a second follow-up.

    Ms. Bordallo. I did, a follow-up: Does OSHA give the 
business a certain number of days to make corrections before 
they impose a penalty?

    Mr. Varnell. This is a question that I may need to follow-
up on in writing to make sure that I answer it appropriately. 
Again, I do know there is flexibility in the penalties that are 
ultimately levied and it is a 15-percent reduction that can be 
allowed for if quick abatement is done. So I know that the 
Agency tries to work with small business owners to abate 
hazards. I will have to get back to you on that.

    Ms. Bordallo. Yes, the reason I asked is I was an inspector 
for our government on Guam and I took an OSHA inspector with me 
and he always gave them 10 days to make corrections before any 
kind of penalty. And then they would come back to inspect again 
after 10 days.
    The other one is: You testified that the Department of 
Labor changed its overtime rule to respond to an explosion of 
class-action lawsuits. Can you tell us how many such suits were 
filed last year and can you tell us how many such suits were 
filed in 2002?

    Mr. Varnell. I have seen that kind of data. I don't have 
the exact numbers for the exact time periods that you have just 
asked for. I know that I can get you that data. One thing that 
I can say is that there are now more class actions involving 
alleged violations of the Part 541 White Collar Rules than any 
other kind of workplace class-action litigation and that 
includes even discrimination or equal- employment lawsuits.
    So there really has been an explosion in this kind of 
class-action litigation. That is one of the driving reasons 
that the department felt like it needed to take this effort to 
update and modernize and clarify these rules.

    Ms. Bordallo. Can you get the figures to the Committee? I 
would appreciate that.

    Mr. Varnell. Absolutely.

    Ms. Bordallo. All right. Just one quick question, Mister 
Chairman. Can you tell us in detail what efforts the department 
makes to go out and find new businesses to make sure that they 
receive the proper education in compliance assistance? I ask 
because we have heard from the NFIB and other small business 
organizations that their members are often unaware of their 
obligation until an inspector shows up. Most of the compliance 
assistance that you reference in your testimony depends on a 
small business owner knowing that he or she needs more 
information.
    So can you give me some answer on that?

    Mr. Varnell. It is a fair point and I think it relates 
directly to this dual approach that we are trying to develop, 
which is compliance assistance first and enforcement on the 
back end, if necessary. The department is taking myriad steps 
to try to get the word out on what laws and regulations require 
of the regulated community. We recognize that if we are going 
to impose regulations on small business, then we have an equal 
obligation on our part to explain what those regulations 
actually require.
    A lot of it is technology based. We have very good web 
sites up and running that are accessed all the time. Again, the 
statistic that I cited in my opening statement said that our 
OSHA web site alone is contacted 50 million times approximately 
each year. We have toll-free call centers where people can call 
in, and there are efforts that we take. Well, we take the 
initiative to reach out and there are public-awareness 
campaigns. I know our Wage Hour Division has at least radio 
spots, perhaps TV as well, where they try to explain what 
worker protections are required under the Fair Labor Standards 
Act, under child labor, that kind of thing.
    So we are taking many steps to try to get the word out.

    Ms. Bordallo. I feel that it is a two-way street. We must 
cooperate and help out small businesses. Right now, the economy 
is such that our entire small business base is eroding because 
of overseas business. So, therefore, I feel that the Agency 
should go out of its way to assist small business.

    Chairman Schrock. Let me just follow-up real quick. You 
said 55 million hits a year.

    Mr. Varnell. Fifty million.

    Chairman Schrock. Fifty million. Basically, what are they 
hitting on? What are they looking for? Just a myriad of things 
or is there one specific area?

    Mr. Varnell. It is a myriad of things. There are 
compliance-assistance tools geared specifically towards small 
business. There is a Small Business Handbook that OSHA has put 
out, which is sort of a nuts and bolts primer on what is 
required of small businesses as far as complying with the OSH 
Act; and various forms that have to be submitted are also 
downloadable from the web site, the statutes and regulations 
themselves are accessible, so it is a wide variety.

    Chairman Schrock. Are you able to tell who the businesses 
are that hit you?

    Mr. Varnell. I don't think so.

    Chairman Schrock. Good. Well, I think that is good. I don't 
think you need to know.

    Mr. Varnell. That is a good point. One thing that I would 
like to emphasize there. We have put in place what we call our 
confidentiality protocol.

    Chairman Schrock. Great.

    Mr. Varnell. Recognizing the fact that there does have to 
be a fire wall between companies that want to learn what they 
need to do in order to comply with our laws, making sure that 
any fears they have of enforced regulations coming later on 
will take care of that.

    Chairman Schrock. Nobody wants to have to approach the 
federal government on anything. And if they think that they are 
going to have a surprise inspection because they came on your 
web site that would not be a good thing.

    Mr. Varnell. Absolutely.

    Chairman Schrock. Let me ask you: The issue of enforcement 
priority has come up several times, are OSHA and your other 
internal agencies focused on the biggest safety and health 
risks, or are they focused on all potential threats without 
regard to risk assessment? And one of the people who is going 
to speak next in her testimony talks about the big four as 
being: falls struck by, cut in between, which gives me the 
willies to think about it, and electric shock. Those seem to be 
what 96 or 94 percent of all the problems. How much time do you 
focus on the rest of that?

    Mr. Varnell. All of our agencies have to target the high 
risks that they are charged with addressing. Again, because our 
agencies have limited resources, there is one statistic that I 
know our department cites that says: The amount of resources we 
have, we can only go out and inspect each--it would take us 175 
years to inspect each workplace, so we have to make priorities 
and decisions and what risks we want to address.
    As a couple of examples: With our Wage Hour Division, they 
target what are referred to as high-risk industries. Those are 
industries that it is known that they are problems with the 
recidivism and continued violations with wage-hour laws. It 
includes things like the garment industry, retail, restaurants, 
hotels. Wage Hour also puts a lot of effort into trying to 
protect low-wage workers, vulnerable workers, workers that are 
less likely to try to protect their own rights on their own 
because they don't have the tools or the know-how on how to do 
that. That includes immigrants, Hispanic workers, people with 
limited English proficiency.
    You mentioned OSHA. OSHA has to make the same types of 
choices and they do target what they refer to as high-hazard 
industries, and that does include construction because 
construction sites can be dangerous and there are problems 
there that have to be specifically targeted. Machine guarding, 
OSHA runs a site-specific targeting program. Again, OSHA also 
does reach out to certain populations that are known to have 
higher illness and injury rates like Hispanics and immigrant 
workers.
    So the short answer is: We do have to make those kinds of 
choices in our priorities.

    Chairman Schrock. It seems to me that in the same testimony 
that she was saying that OSHA investigative--I am probably 
reading what she is going to read. OSHA's investigative 
construction facilities, as reviewed, the rate has fallen from 
13.5 per 100,000 in 1994 to 11.3 per 100,000 in 2002. That is 
darn good, but it needs to go further I guess right now.

    Mr. Varnell. I don't have that exact data in front of me 
but I do know that our trend lines are moving in the right 
direction.

    Chairman Schrock. Okay. Ms. Bordallo was talking about 
overtime rules. With regard to the new overtime rules, I 
noticed that in the final rules, it makes note several times of 
vigorous enforcement. Will small businesses have a period of 
time when they can learn about the rules beyond August or on 
the day that it becomes effective, or are you going to start 
enforcement actions right away? And tell me more about what 
your planned education effort entails because it may be awhile 
before these folks are going to be able to understand all this; 
and by the time that they understand it, they are going to be 
hit with a penalty?

    Mr. Varnell. Yes. The new rule does go into effect on 
August 23rd. When that happens, it is an enforceable regulation 
that we have to enforce. But we published that final rule on 
April 23rd, giving a 120-day lead-up period between the time of 
final publication and the effective date, which is an unusually 
long period of time.

    Chairman Schrock. Where did you publish it? How would the 
small business owner in Guam, for instance, know that there are 
such regulations?

    Mr. Varnell. Very good question and we recognize that. On 
April 23rd when we published the rule, the department, and 
specifically the Wage Hour Division launched what I would 
submit is the most aggressive public-outreach campaign that we 
have ever done, and it is right up there and it is under the 
sort of title: Fair Pay. It was launched the very same day. It 
includes a very elaborate web site, which includes fact sheets 
on the various occupations that are affected by the new rule; 
there are video seminars that can be downloaded and watched; 
there are several PowerPoint presentations that could be 
downloaded and distributed by employers and employees.
    On top of that, we have several, I would say tens or dozens 
of our officials out there talking about the rule, both career 
and non-career; folks from our Wage Hour Division from 
Employment Standards Administration, from my office, the 
Solicitor's Office, the Secretary's Office, out on the street, 
so to speak, letting the public know what this rule is all 
about, so that they can be in a good position to begin 
complying with the rule once it goes into effect in August.

    Chairman Schrock. I am guessing there are some small 
businesses that don't have web sites and are in remote areas, 
as I mentioned. Are they going to get a mailing? How will they 
know that they need to look these regulations up?

    Mr. Varnell. I don't know if there are any mailings. I 
don't believe there are but I would have to confirm that.

    Chairman Schrock. Well, how will these businesses know?

    Mr. Varnell. I agree. It is a challenge for us to get the 
word out there fully. We are taking aggressive steps to do 
that. The rule has generated a lot of buzz in the press, so I 
think there is sort of general recognition that this rule is 
out there and that people need to understand what it is. But we 
have to get the word out there as much as possible.

    Chairman Schrock. Ms. Bordallo?

    Ms. Bordallo. Just a quick follow-up. That was one of the 
questions that I was going to ask. Just exactly how do you 
disseminate information from your agencies, and related 
agencies, to these small businesses in rural areas, mom and pop 
operations? I am just curious. Now we are talking about the 
overtime rule and I jut wonder: How effective is this? And 
would they then be penalized for not following the rules and 
regulations?

    Mr. Varnell. Yes. The nature of some of our agencies, MSHA 
for instance, the Agency that oversees mining, safety and 
health, is really set up and designed to reach those 
populations in geographic areas where they are most needed. So 
there is some sort of input into rural areas, so that small 
businesses can understand--

    Ms. Bordallo. Some.

    Mr. Varnell. --what the new regulations--

    Ms. Bordallo. But not enough.

    Mr. Varnell. Well, there are steps that need to be taken. 
You know we can use technology; we can use the press to get the 
word out, that kind of thing. But I don't disagree that it is a 
challenge for us to get the words fully out there.

    Ms. Bordallo. I feel that if the department is going to 
embark on a new program, new regulations, then you have to have 
something in place where you are going to be able to 
disseminate the information to everyone. It is a tremendous 
job. There is no question about it. But it is something that 
should be in place before we begin to enforce rules and 
regulations.

    Chairman Schrock. I think that is something this Committee 
needs to watch because in a lot of the areas that you 
represent, they are going to be so busy that they are not going 
to be reading newspapers, or watching television. They are 
going to be trying to keep their business going and if they 
don't they are certainly going to get caught and we have got to 
be real careful on how we do that.
    In Virginia, where I live everybody has got a computer. I 
understand that. But in some of these remote, rural areas they 
don't and I am afraid that they are going to be hit hard and 
those are probably the exact areas where we want to try to help 
from an economic standpoint, so we have got to be very careful.
    Thank you for coming. We have a lot to think about here and 
we have got to make sure that we watch out after these folks 
and assist you all in any way that we can and make sure that 
these outlying areas get information they need so that they are 
not going to fall into a trap sometime because I know that 
happens and that is one of the things that I am going to be 
watching to make sure that that doesn't happen. I have had a 
few incidences of constituents at home who have had some rather 
uncomfortable dealings with OSHA and we are going to keep 
watching that. So I thank you and we will be in touch. Thank 
you very much.

    Mr. Varnell. Thank you.

    Chairman Schrock. We will take about a three-minute break 
until the next panel is ready.
    [Recess.]

    Chairman Schrock. I am going to call the next panel. Let me 
introduce them. First we have Anita Drummond. Anita is the 
Director of Legal and Regulatory Affairs for the ABC, the 
Associated Builders & Contractors, and her previous service 
included serving as an advocate and assistant counsel at SBA's 
Office of Advocacy.
    Next is Perry Bennett, the HES Director for Molded Fiber 
Glass Companies of Ashtabula, Ohio. I am probably one of three 
or four people in this room who knows where that is. He is 
representing the American Composites Manufacturing Association.
    Last is Patricia Lee, the president and CEO of the National 
Institute for Urban Entrepreneurship. She was previously the 
managing vice president and National Director of Clinical 
Programs for the Institute of Justice.
    We are delighted to have you here. The same rules apply, 
except this time there are three trap doors instead of one. We 
will begin with Ms. Drummond. The floor is yours.

     STATEMENT OF ANITA DRUMMOND, ASSOCIATED BUILDERS AND 
                       CONTRACTORS, INC.

    Ms. Drummond. Good morning. I am Anita Drummond. I am with 
Associated Builders & Contractors. It is a pleasure to be here 
today. I ask that my formal statement be placed in the record.

    Chairman Schrock. Without objection.
    Ms. Drummond. In addition, I would like to put in the 
record the excerpts from the IG's report from the U.S. 
Department of Labor that I have given your staff.
    I failed to put that in my testimony because I had not had 
an opportunity to thoroughly review it prior to preparing my 
testimony, so I will make reference to it.

    Chairman Schrock. Great.
    Ms. Drummond. First of all, I would just like maybe to 
address for brevity's sake some of the issues that came up when 
you met with the Deputy Solicitor. Specifically, you asked how 
do you measure success.
    The entire Department, including the Occupational Safety & 
Health Administration, has a strategic plan through 2008. Among 
the things they do is they evaluate the fatality statistics and 
then determine what types of goals they would have for reducing 
fatalities, as well as reducing injuries and illnesses.
    One of the things that we are critical of is looking at 
fatalities, looking at fatalities as a blanket number instead 
of getting a little deeper and finding out what causes 
fatalities.
    My testimony refers to what we call the Big Four. It has 
long been recognized by the Department as the major causes of 
fatalities in construction, with the exception of incidents 
that are not controlled by OSHA, and they do recognize that, 
such as automobile accidents. We would like to see OSHA focus 
its resources in addressing the Big Four fatality causes.
    Another question that was raised was does the Department 
have the authority in an abatement environment not to issue a 
citation. The Deputy Solicitor represented that potentially 30 
percent of the inspections do not receive citations. I suspect 
if that statistic is correct it is because the Department does 
have the authority not to issue citations.
    Beginning under Assistant Secretary Joe Deere during the 
Clinton Administration, he implemented a policy that allowed 
paperwork violations to be waived and, therefore, no citation 
issued if it was abated on site. My suspicion is that continues 
today, and that is the reason that of their inspections there 
is some number that no citation is issued I just wanted to 
answer that question that was raised.
    As to OSHA in general, OSHA has a very aggressive 
rulemaking agenda currently. Construction faces at least six 
rulemakings--beryllium, silica, hexivale and chromium, confined 
space, electrical transmission, and cranes and derricks. Six 
major rulemakings that are moving quickly through the pipeline. 
We would say that of those, probably cranes and derricks are 
the most significant because they directly go to some of the 
issues of fatalities.
    However, as a result, I will admit that our construction 
industry has been sidetracked by those rulemakings and not able 
to fully put pressure on the agency to focus on compliance 
assistance measures that would better address the Big Four.
    I would say that some of the things that we have 
experienced that are successful that should be elaborated on is 
training of compliance officers. In OSHA's fiscal year 2005 
proposed budget, they asked for more money to help train the 
compliance officers--we would support that--and for compliance 
assistance.
    The reason is construction is such a unique industry. It is 
not a set, steady workplace. You have to have different ways of 
going about protecting employees and training employees, so we 
would support actually a larger OSHA budget to train their 
compliance officers in construction.
    Another thing that is critically identified by OSHA in its 
strategic plan and we agree is the growing community of non-
English speaking workers, particularly in construction. We 
think that something like a public service announcement system 
where you are actually educating workers directly on the major 
four fatalities in construction, or you could focus in other 
industries' major hazards, would be another effective way to 
increase employees' education, not just employers'. It would 
work both ways.
    You can look to the 1970s when we did a major PSA campaign 
for litter in the United States. It raised a high level of 
awareness of the general public. It is a similar environment. 
Those kinds of efforts take money, but they do get to the heart 
of the issue, which is worker safety.
    We are very pleased that ABC received a Susan Harwood grant 
wherein which we developed programs and did training for 
Hispanic workers. We do believe this is a critical area, and 
for our industry, as you can tell from my written testimony, 
workforce development is a critical issue.
    On enforcement in general, I do make reference in my 
testimony to two cases that are moving through the judicial 
pipeline. One critical one is OSHA's effort to expand its 
authority to enforcement citations outside of what we believe 
is their statutory authority, and the Occupational Safety and 
Health Review Commission agrees.
    O.S.H.A. has taken upon itself that if there is a single 
violation such as a fall--let us say you have a railing that is 
missing. Instead of having a single citation employer, any 
employers that may be also on the worksite could be cited per 
employee for that citation, so it is a multiplier effect, which 
makes it more costly for the business, but it also makes it 
more unpredictable.
    You as an employer may have a fellow employer that does not 
have a handrail placed, and you are being cited for all your 
employees that are potentially affected by that. That is the 
type of cases that are moving through the court system, and the 
Secretary has appealed that to the Fifth Circuit trying to 
proceed with that enforcement authority.
    On other Department of Labor issues I would like to focus 
on the Davis-Bacon Act enforcement. First I would like to point 
to the Inspector General's report, which I mentioned at the 
beginning of my oral testimony. The Inspector General has found 
the Department has spent $22 million over six years trying to 
fix the Davis-Bacon wage survey process.
    Davis-Bacon is a law that establishes the rates of 
prevailing wages that will be paid on federal construction 
projects. It is a system where the Department sends out surveys 
asking employers to fill out the paperwork to determine what 
the prevailing wage should be in their area. No matter what 
comes back, whether it is statistically viable or not, the 
Department will establish those wages.
    Those wages will not be published for 18 months, and in 
some cases you can view the Inspector General's report much 
longer. Those wages will be published, so they already become 
stale. They are not necessarily statistically viable. The 
Department spent $22 million in six years to have a system that 
is just about as bad as it has always been.
    One of the things the Department looked at was relying on 
the Bureau of Labor Statistics, which already has a system in 
place to evaluate wages that are actually paid, and it is 
statistically viable. The Department failed to adopt that 
system or a system that was like it. We recognize it is an 
expensive system to adopt, so why are we duplicating systems 
when we have another division in the Department of Labor that 
is already doing the surveys?
    This investigation started because Congress brought it to 
the attention of the GAO in 1995. The Inspector General, in his 
latest report, was the most critical of that aspect of the 
Department of Labor than any other thing going on in the 
Department of Labor.
    Finally, on Davis-Bacon, and it is more extensively 
described in my testimony. Under the Davis-Bacon Act, it is 
against federal policy for an employer to collect or to pay 
wages to a worker on federal work and then in turn that federal 
worker rebate any portion of their wages to an employer. That 
activity goes on on a daily basis in the United States.
    Union workers pay into what is called a job targeting fund. 
It is a large pot of money, and you can run a union LM-2 form 
that are published on the Department of Labor's website. Union 
dollars, employees' money, are going back to employers to help 
union contractors underbid particularly small businesses that 
are bidding on federal work.
    Even though it may be unattractive that they are 
underbidding small businesses, the more important issue is it 
is a violation of the statute of the Davis-Bacon Act for 
employees' wages to be cut in order to rebate employers.
    The Department of Labor refuses to enforce this policy. It 
determined that it was against public policy and against the 
law during the first Bush Administration. The Court, the D.C. 
Circuit and the Ninth Circuit, have upheld against the Davis-
Bacon Act, and yet the Department of Labor failed to enforce 
it.
    Those are my three points. I will be glad to take 
questions.
    [Ms. Drummond's statement may be found in the appendix.]

    Chairman Schrock. Thank you very much.
    Let me ask you. Is there anyone that remains here from DOL?
    [No response.]

    Chairman Schrock. They are all gone, right? That is too 
bad.
    Mr. Bennett?

    STATEMENT OF PERRY A. BENNETT, JR., MOLDED FIBER GLASS 
                           COMPANIES


    Mr. Bennett. Mr. Chairman and honorable Member, I 
appreciate the opportunity to talk to you this morning on 
behalf of the American Composite Manufacturers Association. My 
name is Perry Bennett, and I am the Health Safety & 
Environmental Director from Molded Fiber Glass Companies in 
Ashtabula.
    A.C.M.A., just to familiarize you all, is a trade 
association serving the composite and cast polymer industry. We 
represent over 1,100 companies nationwide and more than 80 
percent of which are small and medium sized businesses. Our 
members manufacture many familiar products such as tubs and 
showers, boats, farm equipment, underground storage tanks, 
parts for automobiles, trucks, airplanes, power poles. It goes 
on and on. We make a lot of important products.
    Our company was established in 1948 in Ashtabula, Ohio. In 
1953, we began making the first Corvette made entirely of 
fiberglass. We have grown since then, but we are still a 
family-owned business.
    We understand and appreciate the importance of workplace 
safety and the overall health of workers. We take the health 
and welfare of our workers very seriously. Protecting workers 
is not just good for business. It is the right thing to do.
    We appreciate the role OSHA has played over the years in 
reducing workplace injuries. However, we do have some problems 
with the way OSHA conducts enforcement. In the words of the 
late President Reagan, ``There is nothing wrong with America 
that Americans cannot fix.'' I believe in that, and I hope that 
this testimony today can help.
    Our industry has some specific problems with OSHA 
enforcement, which include aggressive enforcement of antiquated 
regulations.
    I would also at this time ask if I could submit my written 
statement for the record. I also have for the record something 
I am going to be referring to. This is a consensus standard 
from the National Fire Protection Association. I submit this 
for the record, too. I will give it to a staff member when I am 
done.

    Chairman Schrock. Thank you. Without objection. So ordered.

    Mr. Bennett. Thank you.
    Some of the specific problems we have is the enforcement of 
the antiquated regulations, some of which are 35 years old. The 
best example of this is Rule 1910-107, which deals with spray 
finishing using flammable, combustible liquids.
    When OSHA rules were first published in 1969, they 
incorporated standards issued by the National Fire Protection 
Association, and this is NFPA-33. Since then they update them 
about every two years. This is the latest version in 2003.
    However, OSHA continues to enforce 107, which is a 35-year-
old rule. They continue to do that, even though, as I say, the 
standards on which the rule was originally promulgated was 
based on this, which has changed many times.
    Similarly, Regulation 1910-106, which is based on NFPA-30, 
a similar standard. That is for the handling and storage of 
flammable liquid and combustible liquid. On several occasions, 
OSHA aggressively cited some of our facilities for violations 
of various sections of 106. In these cases, even the old OSHA 
standard did not apply to the lower hazards seen in our 
industry.
    With a sizeable effort from our plant and our corporate 
staff, we were able to get these non-applicable citations 
dropped by OSHA by going to the OSHA area director. However, 
this effort involved over 40 hours of preparation at the plant 
safety level, 20 hours of preparation at the corporate level, 
overnight travel and a full day of the plant manager's time in 
order to dispute a rule that should not be enforced, and so we 
have taken quite a bit of our time.
    Had we not prevailed at this level, we certainly would have 
had to hesitate taking it to court or going to a higher level 
because of the inability to recover legal costs and the costs 
of litigation.
    Another member company was recently cited for violating 
1910-107. I am referring to specific cases. Even though at one 
point OSHA back in 1996 wrote a directive, an interpretation of 
the compliance section saying if we comply with the consensus 
standard such as this rather than an OSHA standard in effect at 
the time of the inspection that clearly provides equal or 
greater employee protection, they will not be cited.
    The fact is, though, that OSHA inspectors are citing 
members of our industry for not complying with the outdated 
standard. These citations may be overturned on appeal, but 
fighting OSHA citations is a burdensome process. Most small 
companies simply do not have the resources, the knowledge or 
the courage to take on a federal agency. Therein lies the 
problem of not updating these rules.
    Another member company was recently cited for violating 
Section 107. The OSHA inspector was apparently not aware of the 
more specific consensus standard for composites manufacturing 
in NFPA-33 or the OSHA interpretation letter that I referred to 
earlier. The inspectors were not aware of the other standards, 
nor were they aware of the letter from OSHA.
    We feel that better communications between the OSHA 
office--

    Chairman Schrock. The OSHA inspector was not aware?

    Mr. Bennett. The OSHA inspector was not aware.

    Chairman Schrock. Was not aware. Okay.

    Mr. Bennett. That was the problem. He cited them based on 
the rule that was not associated with our industry. It was the 
old rule, not the section that allows for a different standard. 
Again, these are processes, as was mentioned earlier, that have 
changed in the last 35 years and so they are citing based on 
some very old rules.
    Better communications between the OSHA office and the field 
inspectors is important, and open communications between the 
inspector and the company being inspected is important. Very 
often we may know of something that they do not ask. Often 
times employers do not know what citations are issued until 
several week after the inspection when they receive them in the 
mail.
    I know the OSHA field manual requires OSHA to notify us 
when they see a problem. Naturally you would want to know, 
especially if it is a very serious issue, a safety issue. We 
would want to know right away. Very often we do not know all of 
the citations we get until several weeks afterwards.
    I think I could describe the mood or the tone of most OSHA 
inspections that I have witnessed as intimidating, especially 
to a small business. Intimidating is the word rather than 
communication.
    Mr. Lowell Miles, a small business owner from Portland, 
Oregon, could not be here today. He wanted to come and testify. 
He is the former president of the ACMA and has worked for 20 
years to reform OSHA and EPA and the NFCA Code. He has asked me 
to relay to you his experience with the OSHA department last 
year when the NFPA-33 Committee formally asked the OSHA 
Director to update Rule 107.
    The response from OSHA was that they see no reason to 
change the existing rule. Mr. Miles replied that OSHA is the 
only one remaining with that opinion since the Uniform Fire 
Code and the International Fire Codes have both been updated to 
include the new language in NFPA-33. All the other code setting 
folks believed that it was important to update their code, but 
OSHA said no.
    Complying with OSHA standards would be much easier for the 
composites industry if the agency had in place regulations that 
reflected up-to-date practices and if OSHA field inspectors 
were better trained. Outdated OSHA standards also create 
confusion in the state labor administrations that adopt and 
enforce federal standards.
    What happens there is the state offices do a lot of the 
enforcing in some of the states, but they are enforcing federal 
rules so there is more of a disconnect at the state level 
between the inspectors and the OSHA office who makes 
interpretations of rules, so I think there is a greater 
disconnect there in those states. They are even further removed 
from the OSHA interpretations than the federal inspector.
    A.C.M.A. stands ready to work with OSHA and update their 
standards. Specifically, we will continue our efforts to 
convince OSHA to adopt the update version of this, and I think 
this is only one example. This is an example that we know about 
in our industry.
    I think training is important for the field inspectors. 
Referring to some of the statements earlier, once an inspector 
comes in they are bound to issue a citation if they see 
something wrong. I do not ever remember getting 10 days. I wish 
we could get 10 days to fix something, but I do not ever 
remember getting any leeway in that manner.
    Thank you for allowing me to make these statements today.
    [Mr. Bennett's statement may be found in the appendix.]

    Chairman Schrock. What I hear you saying, and correct me if 
I am wrong, but what I think I heard you say was that sometimes 
the business owner who is being inspected by OSHA understands 
the regulations, the up-to-date regulations, better than the 
OSHA person doing the inspecting?

    Mr. Bennett. Unfortunately that happens, and I think 
probably more so in the larger companies where you have experts 
on board.

    Chairman Schrock. And it sounds like each OSHA person is 
allowed to interpret their regulations as he or she sees fit?

    Mr. Bennett. Yes, I think until you go to the higher level. 
Very many times we have been very successful at going to the 
area director. We are a little bit larger business. We have 
people on staff like myself that are aware of these issues. You 
can go to the area director.
    He talked about getting these reductions. The only way you 
get reductions is to ask within 15 days for a meeting with the 
area director. I think many small businesses are unaware of 
that. They are unaware of the possible reductions, and they are 
afraid to do anything except pay their fine.
    What can happen is you could spend at least $50,000, one of 
our industries, putting a sprinkler system in that is beyond 
the amount of sprinkler system they need to put out fires from 
our processes. In so doing, you could spend $50,000 or $100,000 
just because you are doing what OSHA has told you you have to 
do.
    Now, again the larger businesses are aware of this and have 
the expertise to go in there and say look, NFPA-33 applies. 
There is a letter that you guys put out in 1996. We are aware 
of that. A lot of the smaller businesses just do not know that, 
and they are unaware. They get hurt the most.

    Chairman Schrock. Thank you.
    Ms. Lee? Thanks for being here.

  STATEMENT OF PATRICIA H. LEE, NATIONAL INSTITUTE FOR URBAN 
                        ENTREPRENEURSHIP


    Ms. Lee. Good morning. My name is Patricia Lee, and I am 
the president and CEO of the National Institute for Urban 
Entrepreneurship, a non-profit, Washington, D.C. based, public 
interest organization. Thank you, Mr. Chairman, Ranking Member 
and other congressional staff for inviting me to testify before 
this Subcommittee today. It is truly an honor.
    I ask that my written statements also be included in the 
record.
    My comments about the Department of Labor's enforcement 
actions and their impact on small business are derived from my 
own personal observations and experiences over 20 years as an 
attorney advocate for entrepreneurs, small and large 
businesses, and as a third generation entrepreneur.
    I started with my grandfather's craft and jewelry business 
in Chicago and my mother's After Five cosmetics and smaller 
businesses and my own serial businesses from book vending to 
carpet cleaning to a thriving law practice in Illinois.
    The entrepreneurs that I have represented and converse with 
on a daily basis would be considered micro entrepreneurs--the 
smallest of the small business by SBA standards. Generally they 
hire fewer than five employees, are entry level entrepreneurs 
in urban communities, are people of color and typically have 
gross receipts well under $500,000 annually.
    Although they may understand the intricacies of their own 
business, they rely heavily on pro bono attorneys because they 
lack access to capital to pay private attorneys or to hire in-
house legal counsel. Although these entrepreneurs typically 
will be outside of the jurisdictional threshold of the U.S. 
Department of Labor's enforcement actions, the regulatory 
thresholds do not provide the greatest of comfort.
    Both OSHA and FSLA have incomer threshold tests with FSLA 
further requiring a volume test, $500,000 gross receipts, to 
qualify for enterprise coverage. It is conceivable that a 
fledgling entrepreneur could unknowingly meet the incomer's 
test and, if the business is in a high cost district, such as 
New York, Chicago or Los Angeles, could exceed the $500,000 in 
gross receipts, but still yet not be profitable and lack an 
appreciation or basic understanding of the federal laws of 
which they must comply.
    My first recommendation would be for this Committee to 
evaluate the federal jurisdictional threshold and consider 
exempting small businesses by increasing the volume test to in 
excess of say $300 million in gross receipts.
    Second, I am aware of the regulatory burden on small 
businesses and have reviewed a report authored by Drs. Mark 
Crane and Thomas Hopkins for the SBA's Office of Advocacy. The 
authors' $7,000 regulatory burden per employee does not 
surprise me, and it may even be too low for the smallest of the 
small entrepreneurs that do not operate at the same efficiency 
levels as larger corporations.
    Further, with respect to the regulatory cost, one can only 
wonder where these costs will come from, especially when profit 
margins are razor thin or non-existent. Unfortunately, it may 
reduce employment, wages, a critical capital expenditure or 
investment, such as health care benefits, or create a future 
problem for the non-compliant business.
    Mr. Chairman, my father, who learned frugality from serving 
in the Navy as yourself, but in World War II, reminded me from 
time to time--

    Chairman Schrock. Thanks for reminding me I was not in 
World War II. That is very nice.

    Ms. Lee. --money does not grow on trees.

    Chairman Schrock. Money does not grow on trees. If I heard 
that once when I was growing up, I heard it a million times.

    Ms. Lee. And that estimated $7,000 presents a lost 
opportunity cost for the business, the worker and the owner.
    Third, enforcement actions appear to be driven by crisis 
rather than proactive education, outreach and collaboration. 
The wisdom of enforcement directed at a business after an 
alleged problem has occurred might make the consuming public 
feel better, but it does not protest the workers' health and 
safety, nor does it save the business.
    More likely than not, it stigmatizes and traumatizes the 
business owner, whose quest for the American dream quickly 
turns into an American nightmare. For this reason, I recommend 
that the Department of Labor exhaust proactive educational 
remedies, collaborate with the state and local agencies and 
undertake appropriate outreach in lieu of crisis oriented 
enforcement action.
    Fourth, my skepticism about burdensome federal labor 
regulations enforced vigorously is that, with all due respect, 
the regulatory enforcement is generally not as effective as it 
should be. Why create and then enforce countless regulations 
that are too complex for the ordinary person, unreasonable 
under basic standards of common sense and too costly for entry 
level enterprise? Aside from the well-meaning objective of 
worker protection, is not the real impact business failure?
    Mr. Chairman, it is time to reevaluate the purpose and the 
rationale behind the regulations and these vigorous enforcement 
actions. If the stated purpose does not fit the end, then 
consider repealing or changing the regulation, as well as 
altering the approach.
    Fifth, it is my opinion that both House Bill 2728, 
concerning the allowance for small business to obtain 
compliance extensions, and House Bill 1583, which relates to 
the allowance of attorney's fees when a small business 
prevails, are both excellent ideas and would be beneficial.
    There is nothing better than a well-run, safe and 
profitable business, one that motivates and inspires its 
workers. Individuals who have the privilege and honor of 
working for a great company such as this truly appreciate it 
and are better for it. These good businesses are responsible to 
their consumer, to their workers and to their investors.
    Unless small businesses are allowed some flexibility to 
grow and are assisted with relevant education and appropriate 
outreach, consumers, workers and investors may miss out on the 
next amazing business enterprise.
    Thank you.
    [Ms. Lee's statement may be found in the appendix.]

    Chairman Schrock. Thank you very much. You are dead right. 
Our fathers must have grown up together.

    Ms. Lee. Possibly so.

    Chairman Schrock. We will compare notes.
    As you can see, we are going to have votes here, but what I 
am going to try to do is just ask some rudimentary questions so 
we do not have to hold you all because I have a feeling, based 
on the number of bells--she does not have votes?
    Let me ask all three of you. I am going to ask all three. 
Ms. Drummond kind of alluded to it. Any comments on the 
testimony of Mr. Varnell? I did not mean to put you on the 
spot.

    Mr. Bennett. I think I did make a comment.

    Chairman Schrock. Please.

    Mr. Bennett. My question that I had for him, and I did not 
have the opportunity to question him, was he was asked the 
question, and I think he sort of dodged it, regarding how much 
emphasis is put on outreach or compliance assistance--

    Chairman Schrock. Yes.

    Mr. Bennett. --versus enforcement. I do not think he 
answered that. I wondered how many dollars they spend on 
enforcement and how much of their staff or efforts goes towards 
enforcement versus outreach.
    I think it is true. They do have a great website. They have 
a wonderful website, but many of the businesses, like you said 
a little earlier, do not have access to the website, nor do 
they have time to sit there and cull through it during the day. 
They have other things to do.
    An outreach program I think is a very important thing, and 
I think--

    Chairman Schrock. Yes. I think when I asked that there was 
a gray area there. That is the area where I think businesses 
are in trouble, and I think that is a problem.
    Ms. Lee?

    Ms. Lee. I heard an admission from you that there is a 
problem.

    Chairman Schrock. Yes.
    Ms. Drummond. I can give you some insight into that. Fiscal 
year 2005 budget, which is not that much over prior years, they 
have 358 FTEs dedicated to compliance outreach, $71 million. On 
the enforcement side you are looking at $171 million and FTEs 
of 1,581. Full-time employees. Sorry.
    You have 1,500 full-time employees on enforcement and 358 
on what they call the federal compliance assistance activities.

    Chairman Schrock. That does not bode well for small 
business.
    Ms. Lee?

    Ms. Lee. We are very happy about many of the changes that 
are occurring within the Department of Labor, but also we 
thought that outreach definitely needed to be improved not only 
in the rural communities, but also in urban areas.

    Chairman Schrock. Let me ask Ms. Drummond. In your written 
testimony you state that OSHA is not giving adequate attention 
to educating businesses about major hazards that exist. That 
struck me when I saw that last night. How should those 
priorities be changed to fix that?
    Ms. Drummond. Respectfully, I only address construction.

    Chairman Schrock. Right.
    Ms. Drummond. We are spending a great deal of time on newly 
identified hazards by OSHA, and instead of going back and 
looking at the fact that 94 percent of the investigated 
fatalities in construction, and you can also look at their 
citation lists which fall in line that we have the Big Four. We 
would prefer that the agency spent more time on that.
    It is very true that they are increasing the number of 
people they are training, especially train the trainer. I often 
say something that the business community does not like. OSHA 
needs more money. Their budget has not stayed current with the 
number of employers doing different systems. They rely very 
heavily on the website. It is because it is inexpensive. I 
respect that.

    Chairman Schrock. I do, too.
    Ms. Drummond. They are doing the best they can with their 
resources.

    Chairman Schrock. But there are still businesses that do 
not have access to that.
    Ms. Drummond. Right. Getting to the point, they really need 
more money for that.
    I would like to take a page out of the Employment Training 
Administration. They are doing outreach to high school 
counselors on training and availability of training to 
students. They are writing letters to every high school 
counselor.
    If you use that as they are taking a whole different 
approach, OSHA could do something, and there are plenty of 
associations out there of business license county 
administrators and so forth. When someone gets a new business 
license, there may be passages that the Department could put 
together and give to them to send.
    Those are costly endeavors, but endeavors that may be 
valuable just the same.

    Chairman Schrock. Let me ask one thing. In what capacity do 
ABC's members feel OSHA inspectors are not sufficiently 
knowledgeable about their industry, and what can we do about 
that?
    It sounds like they are all interpreting things 
differently, and obviously they do not understand. You might 
have 10 inspectors, and they all come in with different 
solutions.
    Ms. Drummond. ABC recognizes that the compliance officers 
are under the gun because they have to inspect all types of 
sites. We would really like to see them specialized. We would 
really like to see them trained when there is a new regulation 
out on how it would apply to construction.
    I point to steel erections. When steel erection standards 
were finished they invited the industry folks, union employers 
alike, to come in and train the compliance officers. We bore 
the cost as well as them. We shared the cost.
    I think that that should be a requirement that compliance 
officers understand the application of regulations as they 
apply to an industry.

    Chairman Schrock. There have been a few who feel OSHA is 
more concerned with helping businesses comply with the letter 
of the law or achieving better worker safety and health 
outcomes.

    Mr. Bennett. I think in fairness, inspectors that I have 
encountered, and I speak from my own experience, really do 
want--I mean, they are trying to help.
    I think most inspectors I have encountered are very 
conscientious. They are really trying to do the job right. I 
think the problem is the policies and the rules under which 
they have to operate.

    Chairman Schrock. They are operating under regulations that 
tie their hands. Yes.

    Mr. Bennett. They may be more focused on every dot and 
tiddle here in the rule rather than focusing on major issues at 
the worksite. That is probably because of the procedures and 
policies that are in place.

    Chairman Schrock. Right. Ms. Lee, in your work with urban 
entrepreneurs, do you find that these businesses are fully 
aware of the regulations that affect their business? When they 
are aware, how do they find out about them?

    Ms. Lee. No, typically they are not fully aware of the 
regulations.

    Chairman Schrock. How do they find out about them?

    Ms. Lee. Really, the only way they do find out--there are 
two ways. Some are connected to the Internet, but most are not. 
Others attend various outreach--for example, legal services 
attorneys or public interest attorneys that are business 
oriented will provide some training and some help, but 
typically they are not aware.

    Chairman Schrock. Folks, I am going to have to leave. I am 
going to turn this over to Ms. Bordallo. I am sure she has a 
lot of questions from the Guam perspective. I would like to be 
here to hear them since I love Guam, but let me thank you all.
    Believe me, what you are saying is not falling on deaf ears 
because we do not hold these hearings just to kill time during 
the day. We have these hearings because we want to hear from 
you all so we can fix these problems. I hear it every day from 
the constituents I represent.
    Slowly, but surely, we will keep chipping away at it and 
chipping away at it. The further we can chip away at the 
bureaucracy who does this, the better for everybody. Rest 
assured, action will be taken on the things you have spoken 
about. I really appreciate it.
    I am going to turn this over to Ms. Bordallo. I have to go 
do my duty and vote. Thanks.

    Ms. Bordallo. [Presiding] Thank you very much, Mr. 
Chairman.
    Before he leaves, I just want to say that I thought he 
asked a very, very important question earlier, and that was is 
there anybody here from the Department of Labor. It is 
unfortunate that the Deputy Solicitor is not here because I 
think these are the concerns they should listen to and 
certainly try to rectify some of the problems within the 
agencies.
    Be that as it may, I do want to comment to you, Mr. 
Bennett. You mentioned about the 10 day period that our OSHA 
inspectors give our people. Well, I represent a very 
compassionate community.

    Mr. Bennett. Great.

    Ms. Bordallo. They feel for small business. In Guam, about 
95 to 97 percent of our businesses come under the category of 
small business.
    My first question is to you, Anita. OSHA's use of per 
employee citations for a single violation is very interesting. 
I presume what they are doing is leveraging the statutory 
penalty to make it as high as possible to deter violators.
    Could you explain how that worked in the case you mentioned 
and whether in your opinion that bends the authority granted to 
OSHA by Congress? If the court upholds this technique, what do 
you see as the worst case scenario?
    Ms. Drummond. In all due respect to the Secretary of Labor, 
she was confronted with a very difficult situation. She had 
what she represented was a very bad actor who engaged in 
egregious behavior. It was a contractor that exposed its 
workers to asbestos. In that situation, he was subjected to 
both local and federal citations.
    In an effort to punish the worst actor, the Department of 
Labor cited the employer for violations. Instead of saying you 
have a single violation, let us say personal protection 
equipment--let me use a better example. Maybe there was a 
protection to seal off an area. Instead of just having a single 
citation for failure to seal off an area, it was multiplied by 
every employee that was exposed to it.
    The Occupational Safety and Health Review Commission held 
that she had exceeded her statutory authority. You may only 
give citations for an incident of a violation, not an incident 
of a violation for every employee exposed.
    The concern is that while it was an admirable effort on her 
part to try to protect workers, it was beyond her statutory 
authority. When the Occupational Safety and Health Review 
Commission rejected their interpretation that they could expand 
their authority, the Department of Labor has now appealed that 
to the Fifth Circuit.
    Importantly, the Department had interpreted its authority 
differently in an earlier Administration. I believe it was a 
different Administration. Earlier the Department had 
interpreted its authority differently.
    This arbitrary and capricious interpretation directly 
reflects the fact that the system should be predictable. It is 
an example of how it has become unpredictable as the Department 
tries to stretch its authority beyond the statutory mandate 
from Congress.
    The worst case scenario is, and it does happen. This 
particular behavior does occur, but, just as stated before, 
most employers negotiate down their fines and move on. You 
cannot afford to challenge a citation, even if you do not 
always believe it is legitimate.
    Worst case scenario for construction sites. You have an 
employer that would have a violation. Maybe it is a lock out/
tag out violation. You must lock down and tag a particular type 
of equipment. You could conceivably get a citation for every 
worker on the site, whether it was the employer who controlled 
that or not.
    I am Employer B. Employer A has a piece of equipment that 
is not in compliance and has not been labeled properly. That 
citation could go for every worker that is around that 
equipment of that employer plus any other employers on the 
site.
    You asked for worst case scenario. I am not suggesting the 
Department would take it as far as that, but I do believe they 
would take it that far if they thought the violation was 
something they thought was a significant hazard. While that may 
be a respectable position to take for worker safety, it is 
probably outside of her statutory authority.
    Did you have a second question?

    Ms. Bordallo. No. I think you covered it.
    Ms. Drummond. Okay.

    Ms. Bordallo. Thank you very much for the explanation.
    The next one, I have a question for Perry Bennett. I found 
your testimony very interesting, and it makes me wonder why 
bother to have standards or have an agency like OSHA if they 
cannot be bothered to modernize their standards.
    Am I correct in assuming, and I think you said that to 
comply with the law, they want you to go back and use an 
outdated 35-year-old standard. Is that correct?

    Mr. Bennett. Yes. They are citing people for violations of 
a 35-year-old standard.

    Ms. Bordallo. And they are perfectly acceptable with that?

    Mr. Bennett. Yes. It was kind of shocking to me to hear 
that the OSHA director, who is not any longer--

    Ms. Bordallo. Do you feel they are embarrassed over it?

    Mr. Bennett. There did not seem to be any embarrassment, 
no. I do not think so. I do not understand why, but that is 
what has kind of got us puzzled over this.

    Ms. Bordallo. That is right. If they are not embarrassed, I 
guess they are not thinking of changing anything.

    Mr. Bennett. No. I think it is much easier for them to try 
and regulate based on interpretation, but interpretation does 
not go to due process of law, which is what this country is all 
about.
    Interpretation is easier because you know you have to go 
through the Federal Register and public comment and so on, so 
it takes time and effort to do that.

    Ms. Bordallo. I cannot imagine any agency or any 
organization functioning with standards that are 35 years old 
and have not made any updates. I mean, that is incredible. The 
whole world has changed in 35 years. Certainly you would have 
to add or amend the regulations.
    Perhaps this is something the Committee should--

    Mr. Bennett. The worst case here too is where a small 
business would invest a lot of money to put in a sprinkler 
system beyond the protection that he needed. Even the 
interpretation says it has to be equal to or greater than the 
coverage that is in the existing rule.
    If you are going the other way where it is determined your 
processes are safer than previously thought or safer than they 
previously were, that interpretation would not help you any.
    I guess the point I am trying to make is that a larger 
business with more wherewithal is going to fight this and 
perhaps win. The small businessman is more likely to say well, 
I have to do what they say, and I have to pay up and go on with 
business. I mean, that is why they probably would suffer more.

    Ms. Bordallo. Tell me this. Would the safety standards 
include ADA requirements? I mean, this only occurred when was 
it? ADA requirements were in the 1990s, right? Yes.

    Mr. Bennett. Yes. I think they have updated many of their 
statutes.

    Ms. Bordallo. In other words, they have updated?

    Mr. Bennett. Certainly, but this particular one is--

    Ms. Bordallo. Is 35 years old. I was just curious.

    Mr. Bennett. They do not see any reason to update it. Not 
only have we asked them, but even the NFPA-33 Committee has 
asked them to update their code. They see no reason not to.

    Ms. Bordallo. But this particular one. Yes. All right. 
Thank you, Mr. Bennett.
    Ms. Lee, your point about more proactive outreach is an 
interesting one. You listened to Mr. Varnell's testimony about 
all the compliance assistance programs they have at the 
Department of Labor.
    Did they strike you as being passive in any way? By that I 
mean that a business has to know it has an obligation before it 
can go to DOL and find out about it. If they do seem passive to 
you, how would you suggest that the Department of Labor do a 
better job of finding businesses before disaster strikes?

    Ms. Lee. Yes, I agree. Passive, but also insensitive. That 
is what I took because typically the way I see most small 
businesses, especially when it is urban or rural communities, 
they want to do the right thing there. They want to do the 
business to the best of their abilities.
    I was very skeptical about how much outreach is actually 
occurring. In my written statement I talked about a New York 
case where a worker died and then OSHA appeared. That 
particular community was a Chinese community. I questioned how 
much outreach had occurred in that community with that 
particular builder and his workers.
    I think that much more could be done in terms of outreach 
in addition to the whole website development, and much more can 
be done in terms of educating those small businesses.

    Ms. Bordallo. You brought up something about a Chinese 
worker. Does the Department of Labor make any effort to use the 
different languages in trying to educate the small business 
community?
    Ms. Drummond. The Department of Labor currently has planned 
July 22, I believe, the Hispanic Summit, and they are trying to 
identify ways to reach at least the Hispanic community. That is 
a very big focus for them currently.
    I can say I know that in the construction industry our 
sectors, all the various sectors, National Association of Home 
Builders, I know we have done Spanish language materials. 
Again, this would be research intensive, but as an attorney I 
am always concerned about us translating regulations into a 
different language because we may change the definitions 
unintentionally.
    Of course, it would be wonderful if we could get some 
guidance--more guidance--in different languages. I think there 
has been different outreach, but it has been on a very limited 
basis.

    Ms. Bordallo. Speaking of different languages also brings 
to mind the fact that I do not know what the percentages are. 
The representative from the Department of Labor did not have a 
lot of the statistics with him. I do not know what the 
percentage of foreign owned--not so much foreign, but American 
nationals, you know, other ethnic groups.
    What is the percentage of small business owners? There must 
be many. Do you have any idea?
    Ms. Drummond. The Office of Advocacy keeps a lot of those 
statistics. I know some of the women-owned business statistics 
a little bit, but not--

    Ms. Bordallo. What are those?
    Ms. Drummond. Women-owned businesses are primarily self-
employed individuals, so they will make up something like 10 to 
20 percent, depending on how you calculate it.
    I do not know what the minority numbers are. This is 
something that businesses always complain about, paperwork, but 
one of the most valuable tools that we have to answer questions 
like yours is the business census that is conducted I believe 
every four years by the Bureau of the Census. The last was done 
in 2000.
    That is a great opportunity to collect critical information 
from business owners. It is statistically viable. It is done on 
a broad basis, and it can help Congress, as well as agencies, 
guide policies that are directed to these very communities.

    Ms. Bordallo. Absolutely. I agree. I think these statistics 
should be sought after. We need to have them. I know just from 
my small territory, we have many minority groups that have 
their own small businesses. It must be the case here in the 
United States as well.
    Ms. Drummond. There are many groups, such as the U.S. Black 
Chamber of Commerce that would have all that.

    Ms. Bordallo. They would have those numbers.
    Ms. Drummond. They are very good with outreach to those 
communities, as well as Ms. Lee's organization, but the Small 
Business Administration keeps those statistics based on census 
data.

    Ms. Bordallo. Are there any other comments that any of you 
wish to make?
    I would like to thank you for coming here this morning to 
testify. There being no further business, the meeting on small 
business, the Subcommittee, now comes to closure. The meeting 
is adjourned.
    [Whereupon, at 12:15 p.m. the Subcommittee was concluded.]

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