Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Cal. App. Ct.: OSHA prohibits use of UCL to impose massive penalties for workplace safety violations, (Sep 24, 2014)

By Jody Coultas, J.D.

The Orange County District Attorney could not rely on the California Unfair Competition Law (UCL) to penalize Solus Industrial Innovations, LLC for workplace safety violations, since UCL claims addressing workplace safety violations were preempted by the federal Occupational Safety and Health Act (OSHA), the California appellate court has held (Solus Industrial Innovations, LLC v. The Superior Court of Orange County, September 22, 2014, Rylaarsdam, W.).

Solus installed an electric water heater intended for residential use at the facility. In March 2009, that water heater exploded, killing two workers instantly. The Orange County District Attorney filed a UCL claims against Solus for failure to comply with workplace safety standards and for making false and misleading representations concerning its commitment to workplace safety and its compliance with all applicable workplace safety standards. Solus demurred, arguing that federal workplace safety law preempted any state law not specifically incorporated into the state workplace safety plan approved by the U.S. Secretary of Labor.

The trial court overruled the demurrer, but subsequently granted a request to certify the preemption issue as appropriate for early appellate review. The appellate court disagreed, finding that any part of a state plan not expressly approved was preempted. The court noted that the UCL was not even in effect when California’s plan was approved.

The Supreme Court’s transferred of this case back to the appellate court, with directions to reconsider our decision in light California Civil Code Section 3370.1, which was in effect from 1972 to 1977 and provided civil penalties for acts of unfair competition.

Federal OSHA. Congress intended to preempt essentially the entire field of workplace safety regulation when it passed OSHA. However, Congress provided states the option of side-stepping preemption, by allowing any state which “desires to assume responsibility for development and enforcement therein of occupational safety and health standards relating to any occupational safety or health issue [to] submit a State plan for the development of such standards and their enforcement.” The state law must be at least as effective as the federal standard and submitted to and approved by the federal Secretary of Labor.

The district attorney’s reliance on the UCL to address workplace safety violations was preempted by OSHA, according to the court. A state seeking to exempt itself from the federal preemption must specifically inform the Secretary of its proposed plan, detailing both the “standards [to be employed] and their enforcement.” The UCL was enacted in 1977, after the Secretary of Labor approved California’s workplace safety plan. Therefore, reliance on the UCL, in its current form, could not have been contemplated by the Secretary as part of the initial decision approving California’s plan. There was also no evidence that penalties for unfair competition under Section 3370.1, or the potential use of Section 3370.1 in connection with violations of workplace safety laws, were ever brought to the attention of the Secretary in connection with California’s plan. Even if the Secretary could fairly be taxed with presumptive knowledge that former section 3370.1 might be relied upon to impose additional penalties on employers that violate California’s workplace safety laws, such knowledge was insufficient to support an inference that the Secretary had approved the imposition of those penalties as part of California’s plan. Therefore, California could only exercise its regulatory power in accordance with the terms of its federally approved workplace safety plan, and could not rely on the UCL to provide additional means of penalizing an employer for its violation of workplace safety standards.

The case is No. G047661.

Attorneys: Brian A. Sun and Frederick D. Friedman (Jones Day) for Solus Industrial Innovations, LLC.

Companies: Solus Industrial Innovations, LLC

Cases: StateUnfairTradePractices CaliforniaNews