Today's hearing is on the Fair Access to Indemnity and Reimbursement, or FAIR, Act (S. 1158). This bill, introduced by Senator Hutchinson, is about giving small businesses and labor organizations the incentive to fight meritless claims brought against them by the Occupational Safety and Health Administration (OSHA) and the National Labor Relations Board (NLRB)two intimidating bureaucracies that sometimes strong-arm the "little guy" who doesn't have the resources to defend himself.
Earlier this year at this Subcommittee's field hearing in Indianapolis chaired by Senator Hutchinson, a small business employer named Randall Truckenbrodt testified that in one year alone, over thirty-six unfair labor practice charges were filed against his company. After a prolonged legal battle, Randall won all thirty-six charges. The cost of defending himself, however, totaled a whopping $80,000, a sum which he testified, "could have been triple had I not represented myself." As a former small business owner, I shudder to think that such a practice could ever occur--much less to a small businessand I am dumbstruck by reports that what happened to Randall happens all the time. Such practices are more than wrong, they should be stopped. I support the FAIR Act because, if passed, they would be.
What the FAIR Act says is that if a small business or labor organization wins its case against the NLRB or OSHA, it will automatically be allowed to recoup the attorney's fees it spent defending itself. The FAIR Act applies to any employer who has not more than 100 employees and a net worth of not more than $7 million. It is these smallest of small businesses that are most in need of the FAIR Act's protection.
Some have said that not only is the FAIR Act unnecessary, that it goes too far beyond what the Equal Access to Justice Act, or EAJA, already attempts to do. I'm not an attorney, but my first response to this is, "How can anyone say that the FAIR Act is unnecessary or too 'far-reaching' if small folks like Randall Truckenbrodt are spending tens of thousands of dollars defending themselves against meritless claims?" It just doesn't make any sense.
And as I've looked further into it, it turns out that EAJA really isn't working like it should be. I'm certain that Senator Hutchinson will have several thoughts on this as well, but I'd just like to briefly outline why EAJA is broken and why the FAIR Act is such a strong and solid remedy.
When the EAJA was made permanent law in 1985, the Congress made it clear in Committee report language that federal agencies should have to meet a high burden in order to avoid paying fees and expenses to winning parties. Congress said that for an agency to be considered "substantially justified" it must have more than a "reasonable basis" for bringing the action. The courts, however, have ignored this directive from Congress and interpreted "substantially justified" to mean that an agency does not have to reimburse the winner if it had any "reasonable basis in law or fact" for bringing the action. The short of it is that agencies have such a low burden that they can easily avoid paying fees even when employers win their case.
Not only that, but in many cases, small employers simply are unable to financially weather another full blown trial to get their attorney's fees paid for under EAJA. Considering that the cost of litigation under EAJA alone can be as high as $15,000, when you pile that on top of the tens of thousands of dollars small employers spend to defend themselves in the underlying action, small businesses often just cut their losses in order to put an end to the litigation. This fact is drastically compounded by the likelihood of losing an EAJA claim given the agency's low burden in proving the case was "substantially justified."
It is interesting to note that the Administration has always opposed the idea of fee shiftingwhether under a "substantially justified" standard like EAJA or an automatic one like the FAIR Act. In 1977, former Senator Gaylord Nelson (D-WI), Chairman of the Senate Small Business Committee, and Senator Domenici, coauthored the "original" EAJA bills which, much like the FAIR Act, provided for automatic fee shifting to the prevailing party. Despite bipartisan support and fourteen Congressional hearings on automatic fee shifting, the Administration remained in staunch opposition to the bills. At the suggestion of the Administration (not the Congress), the "substantially justified" defense was included in the final bill. Nevertheless, the Administration remained opposed.
The Administration's opposition rested firmly on their assessment of the potential cost and chilling effect that the legislation would have on the agency's ability to effectively enforce the law. However, it is interesting and important to note that the cost since passage of EAJA has been much, much smaller than originally anticipated. EAJA was originally estimated to cost at least $68 million per year, but according to the Administrative Office of the U.S. Courts, annual EAJA awards from 1988 to 1992 generally hovered around $5 to $7 million. This is despite the fact that litigants are winning more cases than anticipated.
It is clearly time to revisit this issue. When the FAIR Act was introduced in the House of Representatives by Congressman Bill Goodling, Chairman of the Education and Workforce Committee, he offered into the record some statistics showing just how bad the current system is. I want to repeat those statistics here. In Fiscal Year 1996, the NLRB received only eight EAJA fee applications, and awarded fees to a single applicantfor a little more than $11,000. During this same year, however, the NLRB received nearly 33,000 unfair labor practice charges and issued more than 2,500 complaints2,204 of them settled at some point post-complaint. Similarly at the OSHRC, for the thirteen fiscal years 1982 to 1994, only 79 EAJA applications were filed with 38 granted some relief, despite the fact that some 2,061 inspections resulting in citations were contested.
In 1995, Senator Russ Feingold at the time introduced an amendment to EAJA that would strike the "substantial justification" defense and put in place a loser pays strategy just like the FAIR Act. Senator Feingold said it so well that I'm just going to quote from his statement. Here's what he said:
"I realize some people are concerned that eliminating [the "substantially justified"] provision will open the floodgates of our Treasury. But let me refer to a study by Professor Krent which indicates that this is not the case. He indicates that fee awards in the cases we have had during this act were denied in only a small number of cases on the basis of successful substantial justification argument. Apparently that is because this technique of the Government to try to avoid paying fees in these cases...is routinely raised by Government attorneys as a way to...block the private litigant from getting their attorney's fees even though they have prevailed in the underlying case against the Government.
So this extra way out for the Government really allows the creation of...more litigation over whether or not their was a substantial justification for the lawsuit to be brought in the first place, even though the Government lost.
...That is one reason why Professor Krent believes that this extra way out for the Government, in his words, 'probably creates a perverse incentive to litigate' on the part of the Government attorneys."
I agree wholeheartedly with Senator Feingold. If the Government knows that there's almost no way it can lose, it has every reason in the world to litigate any and every case. The flip side of that coin is that small employers have absolutely no incentive to file an EAJA claim because they will likely lose and be out even more money.
The FAIR Act is part of the solution. Bottom line, the FAIR Act says that if the NLRB or OSHA brings a case against a little guy, it had better make sure that the case is a winner, because if it isn'tand the small business is put through the time and expense of defending itselfthen the government will have to reimburse the small employer for its attorney's fees and expenses. It's as simple as that. And as stated by former Senator Nelson, author of the EAJA bills,
"The argument will be made, and is made by some, that if the government is required to reimburse the attorney fees in those circumstances where they pursue an action and do not prevail, it will have a 'chilling effect.' I say, my God, I hope so. That's exactly what we want, a chilling effect. Government should not be pursuing cases where they can't prevail...We are loaded in this government with people who make mistakes and they are honest. Even if its an honest mistake, too bad; the government ought to pay for it. After all, the taxpayer is paying the money to support the person initiating the suit."
I recognize the ranking member, the distinguished Senator for Minnesota, for whatever remarks he might wish to make.