Regulatory Flexibility Act

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5 U.S.C. §§ 601-612 (2012); enacted by Pub. L. No. 96-354, 94 Stat. 1,164-1,170, Sept. 19, 1980; amended by the Small Business Regulatory Enforcement Fairness Act of 1996, Pub. L. No. 104-121, Title II, §§ 241-245, 110 Stat. 864, Mar. 29, 1996.

Lead Agency:

U.S. Small Business Administration, Office of Advocacy

Overview

Requirements

The Regulatory Flexibility Act (Reg Flex Act) requires agencies to consider the special needs and concerns of small entities whenever they engage in rulemaking subject to the notice-and-comment requirements of the Administrative Procedure Act (APA) or other laws. In 1996, the Reg Flex Act’s coverage was expanded to include interpretive rules promulgated by the Internal Revenue Service (IRS) that contain small entity information collection requirements. Each time an agency publishes a proposed rule (or IRS interpretive rule) in the Federal Register, it must prepare and publish a regulatory flexibility analysis (RFA) describing the impact of the proposed rule on small entities (including small businesses, organizations, and governmental jurisdictions), unless the agency head certifies that the proposed rule will not “have a significant economic impact on a substantial number of small entities.”

The initial RFA, like the proposed rule itself, is subject to public comment, and the agency is encouraged to facilitate participation by small entities by providing actual notice of the proceeding to affected small entities, holding conferences and public hearings on the proposed rule as it affects small entities, and transmitting copies of its initial RFA to the Chief Counsel for Advocacy of the Small Business Administration (SBA).

Additional procedures are required to ensure small entities comment whenever the Environmental Protection Agency (EPA), the Occupational Health and Safety Administration (OSHA), or the Consumer Financial Protection Bureau (CFPB) promulgate rules. Prior to the publication of the initial RFA, these agencies must notify and provide the Chief Counsel with information regarding the potential impact of the proposed rule on small entities. The Chief Counsel then identifies individuals to represent small entities and gather comments and suggestions on the proposed rule. These agencies must also convene a regulatory review panel, consisting of employees from that agency, the Office of Management and Budget (OMB), and the Chief Counsel, to report on the agency’s information and small entity representatives’ comments and recommendations. This information becomes part of the rulemaking record, which can provide a basis for the agency to amend its initial proposed rule or RFA. The final rule adopted by any agency must be published with a final RFA that summarizes and responds to significant issues raised by the comments received.

The Reg Flex Act does not mandate any particular outcome in rulemaking; it encourages, but does not require, the “tiering” of government regulations through a number of techniques designed to make them less burdensome to small entities. An agency’s initial RFA must identify any “significant alternatives” to the proposed regulation that might achieve its goals while minimizing the impact on small entities. Approaches suggested in the statute include modifying compliance or reporting timetables, simplifying compliance or reporting requirements, using performance rather than design standards, and exempting small entities from certain requirements. The final RFA must explain why any such significant alternatives to the rule were not adopted and the steps taken by the agency to minimize the effects of the rule on small entities.

Agencies must publish semiannual regulatory agendas identifying upcoming and current rulemaking proposals that are “likely to have a significant economic impact on a substantial number of small entities” (5 U.S.C. § 602(a)(1)). In addition, the Reg Flex Act directs agencies to apply regulatory flexibility analysis to their existing rules, initially evaluating them over a 10-year period and reviewing them periodically.

In 2002, President Bush signed Executive Order 13272, Proper Consideration of Small Entities in Agency Rulemaking. For the most part, the Order simply restates the requirements of the Reg Flex Act. In addition, it gives prominence to the role of the Chief Counsel for Advocacy of the SBA and specifically requires that an agency provide the Chief Counsel with a draft of any proposed rule that may have a significant economic impact on a substantial number of small entities at the same time the agency provides it to the Office of Information and Regulatory Affairs (OIRA) under Executive Order 12866, Regulatory Planning and Review, or, if the draft is not required to be sent to OIRA, at a reasonable time prior to publication of the proposed rule. The Chief Counsel not only advises agencies as to his views on proposed rules, he also has from time-to-time participated in litigation as an amicus curiae in support of challenges to agency rules.

It should be noted that the Small Business Regulatory Enforcement Fairness Act of 1996 also contained provisions concerning “regulatory compliance simplification,” requiring agencies to prepare compliance guides and answer inquiries on compliance from small entities. It also required certain “regulatory enforcement reforms,” including the establishment (within the SBA) of a Small Business and Agriculture Enforcement Ombudsman and Regional Small Business Regulatory Fairness Boards, and authorization for agencies to waive civil money penalties assessed on small entities in certain circumstances.

Coverage

The Reg Flex Act’s limitations are important. It does not apply to the vast amount of administrative activity that is not rulemaking, from adjudication to the large variety of informal actions. Except for the limited set of IRS interpretive rules, the Reg Flex Act also does not reach rulemaking that is not subject to notice-and-comment, such as interpretive rules and other rules exempt from notice and comment by the provisions of § 553 of the APA. See, e.g., Or. Trollers Ass’n v. Gutierrez, 452 F.3d 1104 (9th Cir. 2006).

Judicial Review

As originally enacted, the Reg Flex Act expressly prohibited judicial review of agency compliance with any of its requirements. Echoing the statutory language, most courts limited review to a determination under the APA of the reasonableness of a final rule based on the record before the agency, which included the RFA and any comments from small entities expressing the hardships associated with a proposed rule. See, e.g., Michigan v. Thomas, 805 F.2d 176 (6th Cir. 1986); Thompson v. Clark, 741 F.2d 401 (D.C. Cir. 1984).

In 1996, after noting that agencies were too often ignoring the requirements of the Reg Flex Act, Congress amended it to provide judicial review of certain of the Reg Flex Act’s provisions, but such suits may only be brought by small entities, as defined in the Reg Flex Act, that are adversely affected or aggrieved by a final agency action. See W. Wood Preservers Inst. v. McHugh, 925 F. Supp. 2d 63 (D.D.C. 2013). Moreover, the Reg Flex Act expressly provides that agency compliance or noncompliance with any provision of the Reg Flex Act can be reviewed only as provided in the Reg Flex Act. See, e.g., Nat’l Ass’n of Home Builders v. EPA, 682 F.3d 1032 (D.C. Cir. 2012). Without limiting the possibilities for relief, the Reg Flex Act specifies the additional possibility of deferring enforcement against small entities while leaving the rule in place for non-small entities.

Courts are instructed to conduct their review in accordance with chapter 7 of the APA. The courts have recognized that the Reg Flex Act’s requirements for an initial and final regulatory flexibility analysis are purely procedural. See, e.g., U.S. Cellular Corp. v. FCC, 254 F.3d 78, 88 (D.C. Cir. 2001). In assessing compliance with those procedural requirements, courts have held that the standard of review is one of reasonableness, meaning that the agency must have made a reasonable, good-faith effort to carry out the requirements of the statute. Associated Fisheries of Me., Inc. v. Daley, 127 F.3d 104, 114 (1st Cir. 1997); see also S. Offshore Fishing Ass’n v. Daley, 995 F. Supp. 1411 (M.D. Fl. 1998). Under the reasonableness standard, an agency need only consider significant alternatives to a rule, rather than all alternatives, when doing a final RFA. Associated Fisheries, 127 F.3d at 116. Similarly, an agency must make a reasonable effort to facilitate participation by small entities, but the method and manner of accomplishing this is left to agency discretion, since the Reg Flex Act only offers suggestions. Id. at 117. Southern Offshore applied the reasonableness standard and concluded that the agency’s certification of no significant economic impact on a substantial number of small entities was unsatisfactory because the evidence contradicted many of the assumptions upon which the certification was based. Southern Offshore, 995 F. Supp. at 1436.

Several cases have involved challenges to the adequacy of an agency certification of no significant impact or final RFA by claiming that the agency failed to consider the effects of the proposed rule on a particular entity. The first, Mid-Tex Electric Cooperative, Inc. v. FERC, 773 F.2d 327 (D.C. Cir. 1985), determined that the certification was appropriate because the agency need only consider the rule’s direct impact on regulated entities and not the indirect impacts of the rule on entities not regulated by the agency. More recent cases have affirmed Mid-Tex’s holding. See, e.g., Cement Kiln Recycling Coal. v. EPA, 255 F.3d 855 (D.C. Cir. 2001); Motor & Equip. Mfs. Ass’n v. Nichols, 142 F.3d 449, 467 (D.C. Cir. 1998); United Distribution Cos. v. FERC, 88 F.3d 1105, 1170 (D.C. Cir. 1996); State of Colo. ex rel. Colo. State Banking Bd. v. Resolution Trust, 926 F.2d 931 (10th Cir. 1991). But see Aeronautical Repair Station Ass’n, Inc. v. FAA, 494 F.3d 161 (D.C. Cir. 2007).

In addition, when determining whether an impacted entity is a “small entity,” the agency is required to use the definitions found in the Reg Flex Act, the references made therefrom to the Small Business Act (15 U.S.C. § 632) and definitions promulgated by the Small Business Association (13 C.F.R. § 121.201). Nw. Mining Ass’n v. Babbitt, 5 F. Supp. 2d 9 (D.D.C. 1998).

Legislative History

95th Congress

The Reg Flex Act was introduced originally as S. 1974 by Senators John Culver and Gaylord Nelson. Hearings on S. 1974 as amended were held on October 7, 1977, and August 23, 1978, before the Senate Subcommittee on Administrative Practice and Procedure, which unanimously reported S. 1974 to the Judiciary Committee on September 9, 1978. The Senate passed the bill on October 14, 1978. In the House of Representatives, H.R. 11376, the companion bill to S.1974, was introduced on March 8, 1978, by Representatives Robert Kastenmeier and Alvin Baldus, but no further action was taken.

96th Congress

On January 31, 1979, Senator Culver reintroduced his original bill as S. 299. Three similar bills were introduced in the House of Representatives: H.R. 1971 (companion bill to S. 299, on February 8, 1979), H.R. 1745 (a similar bill, but cast as an amendment to the Small Business Act, on January 31, 1979) and H.R. 4660 (an expansion of H.R. 1745, on June 28). The last bill became the principal bill in the House.

After extensive hearings, the Senate bill, S. 299, passed the Senate on August 6, 1980, in the form of a substitute, imprinted amendment intended to recodify the bill from 5 U.S.C. §§ 551, 552 to a new chapter within title 5 (sections 601-612). See Senate “Description of Major Issues” accompanying the amendment at 126 Cong. Rec. S 10,934-43 (daily ed. Aug. 6, 1980).

On September 8, 1980, the House of Representatives passed the Senate passed version of S. 299 without amendment. The House held no separate hearings on the Senate bill; rather it simply adopted the Senate’s “Description of Major Issues” and section-by-section analysis. The House did offer its own three-page “Discussion of the Issues.” 126 Cong. Rec. H 8468-70 (daily ed. Sept. 8, 1980).

President Carter signed the bill into law on September 19, 1980.

103rd Congress

Although Congress repeatedly held hearings on the Reg Flex Act and the effects of regulation on small entities, no amendments were proposed until the 103rd Congress. See Oversight of Regulatory Flexibility Act (Part 1): Hearings Before the Subcomm. on Exp. Opportunities and Special Small Bus. Problems of the H. Small Bus. Comm., 97th Cong. (1981). Representative Thomas Ewing introduced the Regulatory Flexibility Act Amendments of 1993 as H.R. 830. Although H.R. 830 had over 250 cosponsors, the bill never progressed beyond the House Subcommittee on Administrative Law and Governmental Relations. The Senate passed a similar bill as an amendment to S. 4, which was considered in the House, H.R. 820, but this too failed to pass.

104th Congress

The Small Business Regulatory Enforcement Fairness Act of 1996 was originally introduced on June 16, 1995, by Senator Kit Bond as S. 942. It was referred to the Committee on Small Business, and hearings were held on February 28, 1996 (S. Hrg. 104-443). The Senate passed S. 942, as amended, on March 19, 1996. Three days later, the House began considering the measure as part of the Contract with America Advancement Act (H.R. 3136). The bill was referred to the House Committees on Ways and Means, Budget, Rules, the Judiciary, Small Business, and Government Reform and Oversight for consideration. On March 27, the House Rules Committee reported up a resolution, H.R. Res. 391, which provided for the consideration of H.R. 3136. H.R. Rep. 104-500 (1996). The next day, both the resolution and the bill passed the House, and the bill was read and passed without amendment by the Senate. President Clinton signed the bill into law on March 29, 1996.

The most extensive discussion of the Reg Flex Act’s original provisions is Paul Verkuil, Critical Guide to the Regulatory Flexibility Act, 1982 Duke L.J. 213 (1982). Although it does not include a discussion of the 1996 Amendments, the Guide may still be useful in some regard since the Amendments changed very little of the previous substantive requirements of the Reg Flex Act. The annual reports issued by the Small Business Administration’s Office of Advocacy contain a wealth of information on agency implementation of the Reg Flex Act, as well as on the Reg Flex Act’s strengths and weaknesses as identified by that Office. These reports, along with a host of other Regulatory Flexibility Act documents, can be found on the Office of Advocacy’s website.

Bibliography

Legislative History and Congressional Documents

  • The Regulatory Flexibility Act, Hearing Before the Subcomm. on Admin. Practices and Procedures of the S. Comm. on the Judiciary, 95th Cong. (1977).
  • The Regulatory Flexibility Act, J. Hearing Before the Subcomm. on Admin. Practice and Procedure, S. Comm. on the Judiciary and S. Select Comm. on Small Bus., 95th Cong. (1978).
  • S. Rep. No. 1322 (1978).
  • Regulatory Reform, Hearing Before the Subcomm. on Admin. Practice and Procedure of the S. Comm. on the Judiciary, 96th Cong. (1979).
  • H. Rep. No. 519 (1979).
  • President’s Statement on Senate Approval of S.299, 16 Weekly Comp. Pres. Doc. 1,508 (Aug. 6, 1980).
  • S. Rep. No. 878 (1980).
  • Regulatory Flexibility Act, J. Hearing Before the Subcomm. on Regulatory Reform, S. Comm. on the Judiciary and Subcomm. on Gov’t Regulation and Paperwork, S. Comm. on Small Bus., 97th Cong. (1982).
  • Regulatory Reform Initiatives, Hearing Before the S. Comm. on Gov’tal Affairs, 100th Cong. (1988).
  • S.917 and S.942: Implementing the White House Conference on Small Business–Recommendations on Regulations and Paperwork, Hearing Before the S. Small Business Comm., 104th Cong. (1996).
  • Providing for the Consideration of H.R. 3136, The Contract with America Advancement Act of 1996, H.R. Rep. No. 104-500 (1996).
  • The Regulatory Flexibility Act: Are Federal Agencies Using “Good Science” in Their Rule Making?, J. Hearing Before the Subcomm. on Gov’t Programs and Oversight, Subcomm. on Regulation Reform and Paperwork Reduction of the H. Comm. on Small Bus., 105th Cong. (1997).
  • Reducing Federal Agency Overreach: Modernizing the Regulatory Flexibility Act, H. Comm. on Small Bus., 112th Cong. (2011).
  • Regulatory Flexibility Act Compliance: Is EPA Failing Small Businesses?, Hearing Before H. Comm. on Small Bus., 112th Cong. (2012).
  • H.R. Rep. No. 114–14 (2015).

Executive Orders and White House Documents

ACUS Recommendations

GAO Documents

Other Government Documents

Agency Websites

Books and Articles

Statutory Provisions

Regulatory Flexibility Act

Title 5 U.S. Code

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