Businesspeople who feel bullied by state agencies are getting some new weapons with which to fight back. A growing number of states have enacted laws that enable a small business to win reimbursement of its legal fees if a state regulator takes the company to court and loses.
The laws -- known as equal access to justice statutes, or small business litigation acts -- generally resemble the 1980 federal statute covering regulatory actions by the Occupational Safety and Health Administration, the Environmental Protection Agency, and other federal agencies. Proponents argue that such statutes are needed to protect companies wrongly accused of violating state regulations.
"Often, a small business person may be taken into court for failure to pay a fine or something of that nature," says David Stephenson, state legislative analyst for the National Federation of Independent Business (NFIB), which has lobbied hard for equal-access laws. "But many times, he will be discouraged from fighting the action, even if he feels it's unjustified, because -- win or lose -- he loses . . . He has to pay the legal fees to fight it."
David B. Baker Jr., chairman of Reese Press Inc. in Baltimore, faced just such a dilemma. In May 1982, Maryland Occupational Safety and Health slapped Baker's company, a small commercial printer, with a $380 fine for an alleged safety violation involving a protective device for a paper-cutting machine. Baker protested the charges and wanted to appeal. He and other company employees spent valuable time presenting the case themselves. Although they eventually managed to get the fine dropped and the charges substantially reduced, "the whole affair left a bad taste in my mouth," says Baker.
Angry over the experience, Baker joined other small business people in lobbying a Small Business Litigation Expense Bill through Maryland's General Assembly. The law permits small companies (defined as having 50 or fewer employees) to recover up to $10,000 in legal costs if they ultimately win their cases in court. It went into effect last July. Aside from Maryland, 5 other states (Connecticut, Iowa, Maine, North Carolina, and Utah) passed such laws in 1983. This brings to 16 the number of states with "equal access" legislation. (The others are Arizona, California, Illinois, Kansas, Kentucky, Louisiana, Nebraska, Oklahoma, Oregon, and Virginia.) In New York, meanwhile, small business litigation bills have twice emerged from the legislature, only to be vetoed, once by Gov. Hugh L. Carey and again by Gov. Mario Cuomo, under heavy pressure from officials at New York state agencies. Recently, similar legislation was vetoed by Wyoming's Gov. Ed Herschler.
That setback notwithstanding, the equal-access forces vow to keep up the fight. But even if laws are eventually enacted in every state, another challenge remains -- namely, getting people to use them. As it turns out, many small business people are unaware of their rights.
"I don't know of a case yet where [the equal access law] has been invoked in Illinois," says Michael Donahue, the NFIB's state director for governmental relations in Illinois, which has had a statute on the books since 1977.