EPA's Small Business Compliance Policy
Introduction
This fall, the Environmental Protection Agency (“EPA”) releases its National Enforcement and Compliance Initiatives for Fiscal Years 2024 through 2027 (the “Initiatives”). The Initiatives include a renewed focus on mitigating climate change by focusing on reducing methane pollution and the use, importation and production of hydrofluorocarbons (“HFCs”), and a new priority specifically addressing environmental exposure to per- and polyfluoroalkyl substances (“PFAS”). These priorities, coupled with a raft of other regulatory changes, such as new reporting obligations for PFAS under the Toxic Substances Control Act (the “TSCA”)make it seem worthwhile to revisit points of stability in environmental policy. One important point of stability, and a potential refuge for small businesses, is the Small Business Compliance Policy (the “Policy”)[1].
Overview
In 2000, the Environmental Protection Agency (the “EPA”) introduced the Policy to promote environmental compliance among small businesses.
The Policy provides if a small business makes a good faith effort to comply with applicable environmental requirements by: (1) voluntarily discovering a violation, (2) promptly disclosing the violation within the required time period, and (3) expeditiously correcting the violation within the required time frame, then, the small business may receive protection under the Policy. In addition to the above Policy requirements, the entity must also meet certain criteria concerning past violation history, and lack of harm and criminal conduct, as discussed below. In return for full compliance, the Policy provides the EPA will waive 100% of the gravity component of the covered violations. Since the gravity component encompasses everything besides the economic benefit derived from the violation, the Policy could potentially eliminate all liability; provided the small business did not receive significant financial benefit from the violation. If significant financial benefits were received, those may have to be disgorged.
Applying the Policy
To be afforded the protections under the Policy if a potential violation is discovered, a business must be considered a “small business” and must: (1) voluntarily discover the violation; (2) promptly disclose the violation to the proper authorities; and (3) correct the violation.
What is a Small Business?
A “small business” is any person or entity that employs 100 or fewer people.
Voluntary Discovery
The first requirement of “voluntary” discovery is satisfied if the small business discovers the violation on its own. A discovery during an EPA or State inspection or through a monitoring or sampling requirement (example: pursuant to a NPDES wastewater permit) is not considered a voluntary discovery.
A discovery would be considered voluntary if the violation was discovered after the small business has received compliance assistance, conducted an environmental audit, participated in a mentoring program, or taken another action to proactively identify potential environmental violations. The voluntary requirement is meant to encourage small businesses to take a proactive approach to environmental compliance by encouraging participation in and development of comprehensive environmental compliance management programs, which may include the previously mentioned actions alongside the use of compliance checklists, the active seeking out of updates regarding environmental regulations and the attendance of training programs. These steps and others can be mixed and matched to tailor a comprehensive environmental compliance management program to the needs of each small business.
Disclosure Period
The second requirement, that the violation, once discovered, is promptly disclosed to the EPA or the relevant State agency is satisfied if the violation is reported within 21 calendar days.
For the purposes of the Policy, a violation is considered “discovered” once any officer, director, employee, or agent of the small business becomes aware of facts that would reasonably lead someone in their position to believe that a violation has occurred. In any case, disclosure must occur before the EPA or relevant State agency learns of the violation.
Disclosure not only includes the initial notification, but also subsequent good faith cooperation to requests for information from the EPA to determine the applicability of the Policy.
A small business can obtain the benefit of the Policy, along with receiving a correction period under an applicable confidential compliance assistance program, so long as the violation was properly disclosed within 21 calendar days of discovery to the EPA.
Correcting Violations
The third requirement, that the violation be expeditiously “corrected” may prove to be the most difficult. The relative difficulty, of course, depends on the severity and nature of the violation. Another factor increasing the difficulty of satisfying this requirement is what constitutes “correction” under the Policy. The Policy states that correcting a violation requires that any environmental harm be remediated and that procedures are put into place that prevent the same violation from occurring again in the future.
If a violation cannot be corrected within 90 calendar days, the small business must submit a written schedule to the EPA or relevant State agency within those 90 days. Additionally, the EPA or relevant State agency may choose to issue a compliance order with a schedule. The small business must correct any violations within 180 calendar days. However, the Policy does provide that if a small business intends to correct a violation by putting into place pollution prevention measures, then the time period to correct any violations will be extended by an additional 180 days, for a total of 360 calendar days after the discovery of the violation initially occurred.
Violations not corrected within these time periods will not receive the benefits of the Policy.
Limitations
The Policy will not apply if the small business:
1. Has previously received a warning letter, notice of violation, or has been otherwise cited or faced enforcement actions for the violation of the same requirement as the current violation within the past three (3) years.
2. Has been granted penalty reduction under the Policy for the same or similar requirement within the past three (3) years.
3. Has been subject to two or more enforcement actions for environmental violations in the past five (5) years.
Additionally, the Policy will not apply if the violation:
1. Had already been discovered by the EPA or relevant state environmental agency, unless the small business can show it was unaware that the EPA or relevant State agency had initiated an investigation and that the disclosure was in good faith,
2. Caused actual serious harm to public health, safety, or the environment, or
3. Involves criminal conduct.
Conclusion
The Policy has stood the test of time since it was first published by the EPA in 2000 and it still may provide valuable refuge for a small business that can comply with its requirements. However, these requirements are not simple matters and before choosing to disclose a small business should give serious thought about its capability to comply.
The Policy is one tool to assist in compliance. It may be the right tool in some circumstances. In other circumstances an alternate approach may have merit. Prior to disclosure it may be the right choice to consult with knowledgeable environmental counsel and the attorneys at McGrath North are prepared to assist small business making this difficult choice as well as assisting them in navigating the constantly evolving regulatory landscape.
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