Hardly a week goes by without the announcement of another measure being proposed to regulate the fireworks industry. This feeling is likely shared by most readers; and, your pain is aptly echoed by a far greater authority of regulatory behavior, Billie Vincent, a former security director for the Federal Aviation Administration, who declared “Do you put industry out of business in the process of making it safe?” While his remarks in The Wall Street Journal arose in the context of the struggles aviation experts confront in fashioning methods to strengthen cargo security, the sentiment also rings true for the fireworks industry. The increasing volume of regulation—all in the name of safety—is likely to forever alter the landscape by advancing the industry roll-up in primarily, the display industry and, to a lesser extent, the consumer industry.
The most activity continues to come from PHMSA. With the industry still digesting and adjusting to the changes recently caused by PHMSA’s June 29, 2011 clarification (that EX-# approvals shall only be issued to the manufacturer while, at the same time, either the manufacturer or its designated agent may apply), PHMSA waited only 90 days to issue a separate clarification that proposes to fundamentally change the methodology of obtaining approval of 1.1g fireworks. In brief, PHMSA will no longer recognize applications for 1.1g display fireworks filed, for instance, in accordance with APA 87-1; rather, PHMSA will now consider these applications only when accompanied by proof that the article has been examined and assigned an approved shipping description by a DOT-approved explosives testing laboratory. Regarding this clarification, PHMSA has requested comments by October 27, 2011.
Adding insult to injury, it appears that each clarification is being applied, ex post facto, to the extent that PHMSA has elected to deny applications that had been submitted prior to the release date of the clarification (ironically, applications in the pipeline are seemingly being ignored by the agency responsible for pipelines). Unfortunately, reasonable and sensible good faith efforts to comply with PHMSA goals have been met with resistance from PHMSA. The most glaring example is PHMSA’s complicated protocol governing the transfer of a valid EX number issued to a non-manufacturer on to a manufacturer; it appears that PHMSA requires the filing of a full and complete application as if one were submitting it for the first time which, obviously, defeats the purpose and convenience associated with a simple transfer. Interestingly, the regulations and the approvals themselves are silent regarding the issue of transferability, leading one to reasonably assume that they can be freely transferred. Indeed, an argument can be made that, to the extent that the ownership of a business, of which certain approvals are but one asset, can be transferred without incident, simple transfer of an approval, alone, can also occur without incident.
Separately, ATF has also sought to clarify the significance of the employee-possessor questionnaire, commonly referred to by its initials, ‘EPQ’. While it may be a matter of debate whether or not it has been officially announced, it seems that ATF will be demanding that any person filing an EPQ actually be an employee rather than an independent contractor. Efforts to fashion a sensible modification that is sensitive to industry practice may be in the works; the simplest solution is to merely convert the ‘E’ (employee) to ‘E’xplosives, allowing submissions of forms irrespective of worker classification in the name of Explosives Possessor Questionnaire. Alternatively, the ‘E’ can be changed to an ‘F’, so that it reads ‘fireworks possessor questionnaire’. The beauty behind each of these solutions is the ability to allow industry to continue to rely upon prior government pronouncements that it can classify certain workers as independent contractors rather than employees. The savings that industry has fought for before the Department of Treasury, and won, will be lost to the Department of Justice; ironically, ATF was a division of the Treasury until 2003.
All the debate about classification is further clouded by the IRS’s recently announced crackdown on employers, especially small businesses that improperly rely on independent contractors. This has the potential of challenging and jeopardizing agency rulings favorable to industry. As the industry has learned the hard way, there are no guarantees that an accommodation or practice will continue forever.
OSHA is requesting public comments on a Notice of Proposed Rulemaking announced in the June 22 Federal Register that updates two aspects of the agency’s recordkeeping and reporting requirements for work-related injuries and illnesses. Briefly, under the proposal, employers would be required to report to OSHA any work-related fatalities and in-patient hospitalizations within eight hours, and work-related amputations within 24 hours; currently, employers are only required to report any work-related fatality or work-related in-patient hospitalizations of three or more workers, and are not required to report amputations. While this regulation only applies to businesses with more than 15 employees, that level can be easily met by a display business if every possessor of explosives must be deemed an employee as per the ATF’s EPQ.
In addition to the foregoing federal agencies, the desire of EPA to regulate industry continues to mount, creating additional uncertainty about the costs and resources associated with maintaining good business practices. Apart from the federal government, each state has its own sets of regulations that attempt to replicate, mirror, enhance and, in some instances, discharge responsibilities concurrently with the federal government. Navigating through the regulatory nightmare requires a good library, a strong compliance officer and smart counsel; if not, some industry members may find themselves on the bumpy road to compliance.
