Stronger Contract Provisions Will Be Required When Using Independent Contractors.
By Nickole Winnett
In a recent decision, Judge Thomas McCarthy, an Administrative Law Judge for the Federal Mine Safety and Health Review Commission (Commission), confirmed that the Mine Safety and Health Administration (MSHA) has unfettered discretion to issue an imminent danger order against a mine operator for its independent contractor’s violations of the Mine Safety and Health Act of 1977 (the Mine Act) and MSHA regulations. See Cloverlick Coal Co., LLC v. MSHA, No. KENT 2012-669R (ALJ Aug. 5, 2014).
Judge McCarthy concluded, based upon Commission and U.S. Court of Appeals case law, that MSHA’s decision to issue an imminent danger order or, for that matter, any other type of citation against a mine operator for an independent contractor’s violations is unreviewable by the courts, even when MSHA departs from its own enforcement policies.
Simply put, mine operators will be unable to challenge MSHA’s decision to take enforcement action against them for violations committed by independent contractors on the grounds that it should have been issued to the contractor – although the mine operator can still challenge the existence of the violation or the proposed penalty.
The same is true with respect to citations issued to contractors for violations committed by the production operator or their independent contractors. In other words, no matter whether you are a contractor or an operator, the question of whether MSHA issued a citation to the proper party simply cannot be reviewed by a court.
As a result, mine operators and contractors should develop and examine their contractual relationships to protect their interests in the event that they are held liable for the violations created by the other party. While neither party can contractually waive its liability under the Mine Act, it can require each party to pay the costs of defending against MSHA citations. The operator can also require that contractors take other measures to reduce the likelihood that a citation will be issued in the first instance.
Responsibility for Violations
Every “operator” is subject to the requirements of the Mine Act and has “primary responsibility” for preventing unsafe mining conditions. 30 U.S.C. § 801(e). “Operator” is defined as “any owner, lessee, or other person who operates, controls, or supervises a coal or other mine or any independent contractor performing services or construction at such mine.” 30 U.S.C. § 802(d).
Based upon this broad definition, courts have routinely concluded that MSHA may define an “operator” to include the production operator, the independent contractor, or both for purposes of enforcing the requirements of the Mine Act and, therefore, may cite a production operator, an independent contractor, or both for a MSHA violation found during an inspection.
Courts have also held that a production operator can be held liable for MSHA violations created by its independent contractors, based on the understanding that the Mine Act assesses liability without regard to the individual operator’s fault. Thus, production operators may be found “jointly and severally liable” for the hazardous conditions created by their independent contractors even when they are not aware of the existence of a violation and are not supervising the day-to-day work.
In coming to this conclusion, the courts reasoned that the production operator is generally in continuous control of conditions at the mine and is more likely to know the federal safety and health requirements. Courts have also concluded that a production operator can be cited for independent contractor violations because the production operator could otherwise evade its compliance responsibilities by using independent contractors for most of its work.
Moreover, courts have further noted that production operators possess ultimate authority over independent contractors – retaining, supervising, and even dismissing them, if necessary, and that holding production operators liable for independent contractor violations encourages them to consider the safety records of their independent contractors before contracting with them.
While operators had historically been able to rely on language in the Program Policy Manual, the decisions of the appellate courts, followed by Judge McCarthy’s decision, make it clear that no court will even consider MSHA’s enforcement guidelines in future challenges. Moreover, MSHA may take enforcement actions against an operator for violations committed by its independent contractors regardless of the circumstances that led to the violation in the first place.
MSHA’s Decision is Unreviewable
Judge McCarthy’s Aug. 5, 2014, decision adopts the D.C. Circuit’s and Fourth Circuit’s holdings that MSHA’s decision on whether to cite a production operator, an independent contractor, or both for independent contractor violations is “committed to agency discretion by law” and therefore is unreviewable by the Commission or the appellate courts. See Speed Mining, Inc., v. FMSHR, 528 F.3d 310 (4th Cir. 2008); Twentymile Coal Co., 456 F.3d at 155.
While Speed Mining and Twentymile addressed MSHA’s authority to issue civil penalty citations, Judge McCarthy concluded that the courts’ underlying rational was equally applicable to MSHA’s decision to issue imminent danger orders.
The conclusion that MSHA’s decision is not reviewable is based on long-standing U.S. Supreme Court case law, which has ruled that “review [of an agency’s decision] is not to be had if the statute is drawn so that a court would have no meaningful standard against which to judge the agency’s exercise of discretion.” Heckler v. Chaney, 470 U.S. 821, 830 (1985).
Judge McCarthy, as well as the D.C. Circuit and Fourth Circuit held that the Mine Act and MSHA’s enforcement guidelines in the PPM do not provide a meaningful standard. In support of this understanding, Judge McCarthy concluded that MSHA’s enforcement guidelines “are merely a general statement of policy that do not curtail [MSHA’s] discretion” and “lack the certainty to bind the Secretary’s discretion in choosing which party to issue a citation and order.” See Cloverlick Coal Co.
Judge McCarthy ruled that “[t]he four enumerated instances when the Secretary may issue a citation or order to a production operator are merely illustrative examples to put the industry on notice of when it is ‘normally appropriate’ to deviate from the standard procedure of issuing a citation to the party responsible for the hazardous condition or practice.” Id. Thus, MSHA’s decision to issue an imminent danger order or penalty citation against a mine operator for independent contractor violations is unreviewable, even when MSHA departs from its own enforcement policies.
Under these recent court rulings, a production operator is foreclosed from requesting that the Commission or the appellate courts review MSHA’s decision-making for abuse of discretion or fairness, although the production operator still retains the right to challenge the existence of the violation or imminent danger, and the proposed penalty.
Interestingly, this understanding is in direct opposition to the Ninth Circuit’s holding in Cyprus Indus. Mineral Co., 664, F.2d at 1120, which applied an abuse of discretion test to MSHA’s decision to issue an imminent danger order to a production operator for violations committed by its independent contractor.
It is also in direct opposition to the Commission’s earlier arguments that it should and does have the ability to review MSHA’s ability to issue citations under the purpose and scope of the Mine Act. While the Cyprus decision is over 30 years old, operators or contractors located in the Ninth Circuit might wish to challenge Judge McCarthy’s decision to see whether that Circuit might take a position different from that taken by the D.C. Circuit and the Fourth Circuit.
Contractual Strategies to Reduce Risk
While a mine operator cannot contractually waive its liability under the Mine Act or challenge MSHA’s issuance of an order or citation for hazardous conditions created by independent contractors, clearer and stronger contractual provisions can be used to protect both parties’ financial and employee interests and reduce the likelihood that a citation will be issued.
Liability from violations committed by other parties can be reduced by reviewing the contracts and ensuring that the following provisions are included:
- Require each party to comply with all requirements under the Mine Act and MSHA standards and regulations. This is commonly done by simply requiring that the party comply with all state, federal or local laws and regulations. In view of the law surrounding liability for MSHA violations, you should carefully consider specific language regarding compliance with MSHA regulations.
- Require independent contractors to issue a plan to the mine operator about how it will complete the work in a safe manner and comply with all MSHA requirements.
- Require the independent contractor to provide safety records and prior MSHA citation history.
- Require the independent contractor to train employees on how to comply with applicable MSHA standards and requirements, and require documentation that such training has been performed.
- Require each party and its employees to stop work where an MSHA violation is obvious or if there is imminent danger of death or serious injury regardless of which party created it.
- Require the independent contractor to create and maintain all required reports and documentation showing compliance with Part 50 reporting and recordkeeping requirements, and to provide documentation to the mine operator that such records are being created and maintained. Also require that the operator have the right to audit such records upon request.
- Require that each party correct any hazards or violations within its control regardless of whether identified by the independent contractor or the mine operator in a reasonable timely manner and at no cost to the other party.
- Require each party to indemnify the other against MSHA citations or imminent danger orders issued as a result of the other’s actions, including, where appropriate, the cost of attorney’s fees for defending such litigation.
The use of standard contract language in these situations may well have high cost consequences for either party, even where each has a robust contractor safety and compliance program. What this means is that standard contract language may not be applicable or help solve disputes in this situation. Remember that contracts are intended to address disputes before they happen. If care is not taken to account for these unique circumstances, it is inevitable that that goal will not be achieved.