Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) of 1980 is a law designed to make government agencies review all regulations that they impose to ensure that they do not place a disproportionate economic burden on small business owners and other small entities. The Regulatory Flexibility Act was intended to extend protection to three different types of small entities in the United States: small businesses (as defined by the Small Business Administration); small organizations (nonprofit establishments that are independently owned and operated and not dominant in their field); and small governmental jurisdictions (defined as governments of cities, counties, towns, townships, villages, school districts, and other districts with populations of less than 50,000).

In the years following the enactment of the RFA, however, many small business owners contended that agencies too often ignored the law. Periodic attempts to revise the RFA failed until March 1996, when the Small Business Regulatory Enforcement Fairness Act (SBREFA) became law. This new legislation cast the Regulatory Flexibility Act in an entirely new light, for it amended the 1980 law to allow for judicial review of government agencies' compliance with it.

Before the 1996 law was passed, small business owners had had no legal recourse when faced with regulations that they felt were unfair to smaller companies. "There was no statutory requirement that forces an agency to do an analysis," explained one spokesman for the Senate Committee on Small Business in Nation's Restaurant News. With the passage of the Small Business Regulatory Enforcement Fairness Act, however, "a small entity, including businesses—if an agency rule seems unfair—can challenge it in court. And if they prevail, they can modify it or strike it to reduce the impact on that entity."

LEGISLATIVE HISTORY OF THE RFA

Prior to 1980, American small businesses were forced to adhere to the same regulations as far larger companies, even though they did not have nearly the same resources to bring to bear. Entrepreneurs and directors of nonprofits repeatedly charged that when regulations put forth by the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), and other agencies were applied evenly, without regard to the size of the enterprises affected, they sometimes did serious damage to smaller organizations. Such regulations had to do with taxes, workplace safety, and the environment, among other issues.

As the Small Business Administration noted in its Guide to the Regulatory Flexibility Act, "the costs of complying with a particular regulation '¦ may be manageable for a business with 500 or more employees, or revenue in the millions of dollars. On the other hand, a smaller company may not have the ability to absorb the expenses as easily, to set competitive prices, to devise innovations or even to continue as a viable entity." The Guide added that as more businesspeople and politicians investigated the situation, "evidence indicated that uniform application of federal regulatory requirements imposed increases in the economies of scale and affected small entities' ability to compete effectively. Reports '¦ cited these disproportionate economic burdens on small business as contributing to declines in productivity, competition, innovation, and the relative market shares of small business."

The passage of the RFA in 1980, then, was meant to blunt much of the burden that regulatory changes were laying on the shoulders of small businesses. According to the RFA, each agency was supposed to analyze how its regulations affected the ability of small businesses to compete. In addition, the RFA directed agencies to balance the needs of small business with the benefits of the regulation being considered. The law called for agencies to propose regulatory alternatives for smaller companies that would be unduly hurt if forced to adhere to the original regulations. The Regulatory Flexibility Act still allowed agencies to put together needed regulatory measures in such realms as workplace safety and environmental protection, but it meant to give a greater voice to small businesses by encouraging agencies to listen to small business concerns and study ways in which regulations could be adjusted for them.

During the 1980s, however, many entrepreneurs and other members of the business community came to feel that the RFA was an unacceptably weak law. The law—which actually went into effect on January 1, 1981—included no legal penalties that could be imposed on agencies that did not follow the Act's guidelines, so some agencies paid little attention to the RFA. Observers felt that some agencies were simply recalcitrant, while others, burdened by inadequate budgets, did not have the resources to satisfactorily address the issues laid out in the RFA. Most observers granted that the Regulatory Flexibility Act was valuable in certain cases, but by the early 1990s there was a growing clamor in the small business community and Congress for an amended RFA.

In September 1993 President Clinton signed Executive Order 12866, which highlighted the responsibilities of government agencies to adhere to the principles of RFA. That same year, the Clinton administration's National Performance Review task force formally recommended that agency compliance with the RFA be subject to judicial review. Less than three years later, in March 1996, a number of major amendments to the RFA—including provisions adding judicial review—became law with the passage of the Small Business Regulatory Enforcement Fairness Act.

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