Home > Major Acts of Congress > Regulatory Flexibility Act (1980)

Jeffrey S. Lubbers

Excerpt from the Regulatory Flexibility Act

b. Each initial regulatory flexibility analysis ... shall contain—

1. a description of the reasons why action by the agency is being considered;
2. a succinct statement of the objectives of, and legal basis for, the proposed rule;
3. a description of and, where feasible, an estimate of the number of small entities to which the proposed rule will apply;
4. a description of the projected reporting, recordkeeping and other compliance requirements of the proposed rule ... ;
5. an identification, to the extent practicable, of all relevant Federal rules which may duplicate, overlap or conflict with the proposed rule.

The Regulatory Flexibility Act (P.L. 96-354, 94 Stat. 1164-1170) requires agencies to consider the special needs and concerns of small entities (small businesses, organizations, and governmental jurisdictions) whenever they engage in rule making that is subject to the notice-and-comment requirements of the Administrative Procedure Act (APA) or other laws. (Rule making is the process by which government agencies formulate and issue rules or statements designed to implement, interpret, or prescribe law or policy. Notice-and-comment requires that these rules be published in proposed form, giving the public an opportunity to comment on them.) The act also covers interpretive rules set forth by the Internal Revenue Service (IRS) that contain information collection requirements that affect small entities.

GENERAL STRUCTURE OF THE ACT

Each time an agency publishes a notice-and-comment rule (or the IRS publishes an interpretive rule) in the Federal Register, it must prepare and publish an initial regulatory flexibility analysis (RFA) describing the impact of the proposed rule on small entities. An exception to this procedure is made when 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 is subject to public comment. 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 participation by small entities in rule makings by either the Environmental Protection Agency (EPA) or the Occupational Safety and Health Administration (OSHA). Those two agencies must convene a regulatory review panel consisting of employees from that agency, the Office of Management and Budget, and the Chief Counsel for Advocacy of the Small Business Administration to review the rule and make recommendations to the agency from the perspective of 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 act 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.

Agencies must also publish semiannual regulatory agendas identifying upcoming and current rule-making proposals that may affect small entities. In addition, the act directs agencies to apply regulatory flexibility analysis to their existing rules, initially evaluating them over a ten-year period, and reviewing them periodically.

CIRCUMSTANCES LEADING TO THE ADOPTION OF THE ACT

Congress's special concern for the problems of small business dates back to the passage of the Small Business Act in 1953. That act established the SBA and provided small businesses with assistance in receiving government grants and loans. In 1976, Congress established the Chief Counsel for Advocacy as an independent office within the SBA to protect the interests of small business. One of the chief counsel's tasks included measuring the costs of government regulation on small businesses and making proposals for eliminating excessive or unnecessary regulations of small businesses. The establishment of the office of chief council was followed by an influential White House Conference on Small Business that recommended the elimination or reduction of burdensome regulations and reporting requirements. That same year, President Jimmy Carter supported the passage of several new laws intended to aid small business, including the Regulatory Flexibility Act.

EXPERIENCE UNDER THE ACT

As originally enacted, the act expressly prohibited judicial review of agency compliance with any of its requirements. Most courts limited review to a determination under the APA of the reasonableness of a final agency rule based on the record before it, which included the RFAs and any comments from small entities about the proposed rule.

In 1996, after noting that the requirements of the act were too often being ignored, Congress amended it. The amendments permitted judicial review of agency compliance with the act and allowed courts to send the rule back to the agency or defer its enforcement. These amendments, made by the Small Business Regulatory Enforcement Fairness Act, also (1) inserted the special provisions applying to EPA and OSHA (described above); (2) created a national small business ombudsman in the SBA to receive complaints relating to regulatory enforcement; (3) required that agencies produce compliance guides for small businesses; and (4) created a special regime for after-the-fact congressional review of agency rule making.

Since 1996, numerous cases have been brought challenging agency actions under the act. Most 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. Challenges to the adequacy of an agency certification or final RFA, claiming that the agency failed to consider the effects of the proposed rule on a particular entity, have been mostly unsuccessful. The Chief Counsel for Advocacy has, however, been very active in monitoring agency compliance with the act. The Office of Advocacy issues extensive annual reports on the implementation of the act as well as on the act's strengths and weaknesses as identified by that office. The General Accounting Office also provides regular reviews of the act's implementation, which it has characterized as a mixed success.

RELATIONSHIP WITH OTHER LAWS

The act is closely related to the Administrative Procedure Act because it supplements the APA's rule-making process, and, except for IRS rules, is applicable only to those rules that have to be issued after notice-and-comment procedures required by the APA or another statute. It also is linked to the legislation creating the SBA Office of Advocacy. Other related laws include such "small business relief" legislation as the Small Business Regulatory Enforcement Fairness Act and the Equal Access to Justice Act.

See also: ADMINISTRATIVE PROCEDURE ACT; SMALL BUSINESS ACT.