      TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN



                                      NO. 03-04-00073-CV



                          Skilled Craftsmen of Texas, Inc., Appellant

                                                v.

           Texas Workers’ Compensation Commission and Richard F. Reynolds,
                            Executive Director, Appellees




     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 53RD JUDICIAL DISTRICT
           NO. GN300684, HONORABLE PETE LOWRY, JUDGE PRESIDING



                                          OPINION


               The issue in this case is whether portions of the Texas Hazardous Employer Program

(the Program) that call for the designation of hazardous private employers are preempted by the

federal Occupational Safety and Health Act (OSH Act). Appellant, Skilled Craftsmen, argues that

the Program is preempted because it allows appellee, Texas Workers’ Compensation Commission

(the Commission), to implicitly regulate occupational health and safety standards already addressed

by the OSH Act. The district court held that the Program is not preempted by federal law and that

it is administered pursuant to valid rules. Because we agree with Skilled Craftsmen, we reverse the

district court’s ruling and render judgment that the Program is preempted by the federal law.
                                          BACKGROUND

The Hazardous Employer Program

                  The Workers’ Health and Safety Division (the Division) of the Commission is

statutorily directed to develop a program that identifies hazardous employers and analyzes injury

frequency. Tex. Lab. Code Ann. § 411.041(b) (West Supp. 2004-05). The Division determines that

an employer is hazardous when its rate of workplace injuries exceeds the rate reasonably expected

for its business or industry. See 28 Tex. Admin. Code § 164.1 (2004). To effectively identify

hazardous employers, the Division developed a formula that compares an employer’s normalized

injury rate with the expected injury rate for that type of employer; if the ratio of normalized to

expected injuries exceeds a pre-determined threshold ratio, the employer is designated hazardous.

Id. § 164.1(c).

                  Once the Division designates an employer as hazardous, it notifies the employer and

its workers’ compensation insurance carrier. Tex. Lab. Code Ann. § 411.042 (West Supp. 2004-05);

28 Tex. Admin. Code § 164.2(a) (2004). The notice must inform the employer (1) of the facts giving

rise to the designation, (2) of any actions that must be taken as a result of the designation, (3) that

an administrative review by the Division may be requested, and (4) that any information or

documents provided by the employer are subject to disclosure under the Open Records Act. 28 Tex.

Admin. Code § 164.2(b). An employer may also request a full hearing before an administrative law

judge to contest a hazardous designation. Id. § 164.2(b)(5).

                  In 1996, we held that the Program, as it was then administered, was preempted

because it regulated workplace safety issues already addressed by the OSH Act. Ben Robinson Co.



                                                   2
v. Texas Workers’ Comp. Comm’n, 934 S.W.2d 149, 158 (Tex. App.—Austin 1996, writ denied).

In response, the legislature amended the program by deleting all portions that contained occupational

and health standards for which a federal standard was in effect. See House Comm. on Bus. & Indus.,

Tex. H.B. 2514, 76th Leg., R.S. (1999). Because the OSH Act applies only to private employers,

the amendments and new rules established different guidelines for private employers while the

Program remained essentially the same for public employers. Under the amended Program, private

employers were still identified as hazardous but were no longer required to develop accident

prevention plans. The Commission’s intent was to comply with both Ben Robinson and the

legislative directive to develop a system of identifying hazardous employers. See Tex. Lab. Code

Ann. § 411.041 (West Supp. 2004-05); see also 23 Tex. Reg. 11812 (1998) (to be codified as

amendment to 28 Tex. Admin. Code §§ 164.1-.18) (proposed August 21, 1998).


Skilled Craftsmen

               Skilled Craftsmen is an agency that supplies temporary help to the manufacturing and

industrial trades, such as electronics, welding, assembly, and machinists. Persons placed by Skilled

Craftsmen remain its employees while they are working at a client company’s work site. Thus, these

employees are covered under Skilled Craftsmen’s workers’ compensation insurance. Between April

1, 2000, and March 31, 2001, the applicable audit period designated by the Commission for

identifying hazardous employers, three of Skilled Craftsmen’s employees suffered injuries that

resulted in more than seven days of lost time.1 As a result of these three injuries, Skilled Craftsmen

was identified as a hazardous employer.


       1
          An employer’s total number of injuries includes: lost time injuries, occupational diseases,
and fatalities. 28 Tex. Admin. Code § 164.1(b)(5) (West 2004).

                                                  3
               Skilled Craftsmen appealed the designation to the State Office of Administrative

Hearings.2 Before its administrative hearing, Skilled Craftsmen filed suit in district court seeking

a declaration that identifying and labeling private employers as hazardous under the current Program

is preempted by the OSH Act. Alternatively, Skilled Craftsmen argued that the formula used to

identify hazardous employers is invalid as applied to a temporary help agency. Specifically, Skilled

Craftsmen claimed that the results of the formula are arbitrary and unreasonable (1) because it fails

to address the differences between employers with static and dynamic workforces, (2) because the

Standard Industrial Classification code (SIC code) assigned to Skilled Craftsmen is too broad, and

(3) because none of the client companies for whom the employees were working when they were

injured was designated hazardous.

               In order to better understand Skilled Craftsmen’s as-applied challenge, a brief

explanation of the formula used to identify hazardous employers is helpful. As we stated above, the

formula compares an employer’s normalized injury rate with the expected injury rate for that type

of employment; if the ratio of normalized to expected injuries exceeds a pre-determined threshold

ratio, the employer is designated hazardous. An employer’s injury rate is determined by dividing

the total number of injuries by the highest employment during any one pay period and then

multiplying that figure by one hundred. An employer’s expected injury rate is determined by the

Bureau of Labor Statistics based on the SIC code assigned to the employer by the Texas Workforce

Commission. Skilled Craftsmen was assigned SIC code 7363, entitled Help Supply Services, which




       2
         The administrative hearing has been abated pending the outcome of Skilled Craftsmen’s
declaratory action.

                                                 4
includes all establishments primarily engaged in supplying temporary or continuing help on a

contract or fee basis. Other types of businesses included in SIC code 7363 are employee leasing

services, fashion show model supply services, other modeling services, manpower pools, office help

supply services, and usher services.

               Skilled Craftsmen argued to the district court that the formula is based on

assumptions that do not apply to a temporary help agency. For example, Skilled Craftsmen claimed

that the formula fails to take into account its dynamic work force. During the twelve-month period

used by the Commission to identify hazardous employers, Skilled Craftsmen employed a total of 414

people. However, the most people it employed in any one pay period was 89. Skilled Craftsmen

contends that the formula should take into account the total number of employees that were exposed

to possible injury rather than those employed during a single pay period. Skilled Craftsmen avers

that the formula functions adequately for most employers because the number of employees remains

relatively constant between pay periods. However, a temporary help agency’s workforce is highly

variable. If the Division had used all 414 employees instead of 89, the formula would not have

identified Skilled Craftsmen as hazardous.

               Skilled Craftsmen further argued that the SIC code and its corresponding expected

injury rate inadequately describe what it does as an employer. The SIC code assumes that Skilled

Craftsmen only places employees in clerical or office positions, when in fact its employees are

placed in industrial labor positions for client companies that are assigned SIC codes with

significantly higher expected injury rates. In this case, two of the three injured employees were




                                                5
working as general shop helpers, while the third was working as a pipe cutter. The three employees

were working at two separate job sites. The SIC codes for these work sites were 3498, for

Fabricated Pipe and Pipe Fittings, and 3533, for Oil and Gas Field Machinery and Equipment. The

expected injury rate for SIC code 3498 was 5 injuries per 100 employees at the time Skilled

Craftsmen was designated hazardous. The expected injury rate for SIC code 3533 was 1.4 injuries

per 100 employees. The expected injury rate for Skilled Craftmen’s SIC code 7363, is 1 injury per

100 employees. Had the Division used the expected injury rates for the work sites where the Skilled

Craftsmen’s employees were injured, the formula would not have identified Skilled Craftsmen as

a hazardous employer.

               The Commission contended that the Program, as it pertains to private employers, is

not preempted because (1) there is no federal standard for identifying hazardous employers, and (2)

the Program does not actually regulate occupational health and safety issues since it does not require

an identified private employer to take any action to alleviate the source of the hazard. The district

court held that the Program is not preempted by federal law and is being administered pursuant to

valid rules. This appeal followed.


                                       Standard of Review

               In this case, we must determine whether the Commission’s Program is preempted by

federal law. Because this determination is a pure question of law, we review the trial court’s

decision de novo. See State v. Heal, 917 S.W.2d 6, 9 (Tex. 1996) (stating that questions of law are

reviewed without deference to lower court’s conclusion).




                                                  6
                                           DISCUSSION

               Federal preemption of state law is grounded in the Supremacy Clause of the United

States Constitution, which provides that “the Law of the United States . . . shall be the supreme Law

of the Land; and the Judges in every State shall be bound thereby, and any Thing in the Constitution

or Laws of and State to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. Under the

Supremacy Clause, if a state law conflicts with federal law, the state law is preempted and “without

effect.” Maryland v. Louisiana, 451 U.S. 725, 746 (1981). Preemption can take one of several

forms. A federal law may preempt a state law expressly. Great Dane Trailers, Inc. v. Estate of

Wells, 52 S.W.3d 737, 743 (Tex. 2001). It may also preempt a state law impliedly, either (1) when

the scheme of federal regulation is sufficiently comprehensive to support a reasonable inference that

Congress left no room for supplementary state regulation or (2) if the state law actually conflicts with

federal regulations. Id. A state law presents an actual conflict when a party cannot comply with both

state and federal regulations or when the state law would obstruct Congress’ purposes and objectives.

Id.

               “The purpose of Congress is the ultimate touchstone” in every preemption case.

Retail Clerks Int’l Ass’n v. Schermerhorn, 375 U.S. 96, 103 (1963). Congressional intent is

discerned primarily from the statute’s language and structure. Medtronic, Inc. v. Lohr, 518 U.S. 470,

486 (1996). Also relevant is the purpose of the statute as a whole, which is revealed through “the

reviewing court’s reasoned understanding of the way in which Congress intended the statute and its

surrounding regulatory scheme to affect business, consumers, and the law.” Id.

               The OSH Act authorizes the U.S. Secretary of Labor to promulgate federal

occupational safety and health standards. 29 U.S.C. § 655 (West 1999). In the Act, Congress

                                                   7
endeavored “to assure so far as possible every working man and woman in the Nation safe and

healthful working conditions.” Id. § 651(b) (West 1999). By applying these standards to all

businesses affecting interstate commerce, Congress brought the federal government into a field that

traditionally had been occupied by the states. However, federal regulation of the workplace was not

intended to be all encompassing. Congress expressly stated that the Act does not “prevent any State

agency or court from asserting jurisdiction under State law over any occupational safety or health

issue with respect to which no federal standard is in effect.” Id. § 667(a) (West 1999). In addition

to reserving certain areas to state regulation, Congress also gave the states the option of displacing

federal regulation by submitting for approval a state plan developing and enforcing its own

occupational safety and health standards. Id. § 667(b).3

               The Supreme Court has stated, “the Act as a whole evidences Congress’ intent to

avoid subjecting workers and employers to duplicative regulation; a State may develop an

occupational safety and health program tailored to its own needs, but only if it is willing to

completely displace the applicable federal regulations.” Gade v. National Solid Wastes Mgmt., 505

U.S. 88, 100 (1992). In Gade, the Supreme Court held that non-approved state regulation of

occupational safety and health issues for which a federal standard is in effect is impliedly preempted

as in conflict with the full purposes and objectives of the Act, even if it merely supplements the

federal standard. Id. at 98-100. The Court further asserted, “A state law that expressly declares a


       3
          Section 667(b) of the Act states that “Any State which, at any time, desires to assume
responsibility for development and enforcement therein of occupational safety and health standards
relating to any occupational safety or health issue with respect to which a Federal standard has been
promulgated shall submit a State plan for the development of such standards and their enforcement.”
29 U.S.C. § 667(b) (West 1999).

                                                  8
legislative purpose of regulating occupational health and safety would, in the absence of an approved

state plan, be preempted by an OSH Act standard regulating the same subject matter.” Id. at 105.4

Essentially, the Court held that if a state wishes to regulate an issue of worker safety for which a

federal standard is in effect, its only option is to obtain the prior approval of the Secretary of Labor,

as described in section 667 of the Act. Id. at 103-04.

                Despite Gade, the Commission argues that the OSH Act does not preempt the Texas

Program for two reasons. First, there is no federal standard for identifying hazardous employers.

Second, the Program does not actually regulate occupational safety and health issues because

identified private employers are not required to take any action to alleviate the source of the hazard.

Therefore, the Commission contends that federal approval is unnecessary because it has complied

with section 667 of OSH Act. Because we hold that the practical effect of the Program is the

regulation of occupational safety and health issues for which federal standards do exist, we reject the

Commission’s position.

                In the letter notifying Skilled Craftsmen that it had been designated a hazardous

employer, Robert Giacomazza—the Chief of Inspections, Consultations, and Reviews—stated that

the explicit goal of the Program is to provide a safer and more healthful workplace for the workers

of Texas. Likewise, the Commission claims that the Program’s express purpose is to reduce injuries

by promoting workplace safety. The Commission avers that the identification of hazardous

employers increases awareness of occupational health and safety issues and consequently it could


        4
          When assessing the purpose of a challenged statute, we look beyond the name, description,
or characterization given it and also consider the practical impact of the law. Gade v. National Solid
Wastes Mgmt., 505 U.S. 88, 105-06 (1992).

                                                   9
reduce the number of workplace injuries. We find it doubtful that the knowledge that one employer

has been identified as hazardous would, by itself, spur another employer to address occupational

health and safety issues. Instead, it is more likely that the potential threat of being labeled hazardous

compels employers to tailor their operations to avoid being identified by the Commission.

                The Commission’s contention is that for preemption purposes, it is irrelevant why an

employer changes its behavior as long as it was not required to do so. This belief is grounded in the

notion that a hazardous employer designation has no actual effect other than notifying an employer

that its workplace injury rate exceeds the rate reasonably expected for that employer’s business or

industry. A letter would merely inform the employer of the problem. However, the Commission

also notifies the employer’s workers’ compensation insurance carrier and makes the identities of

designated employers available to the public. As we noted in Ben Robinson, a hazardous designation

can have a detrimental impact on a company’s business affairs. Ben Robinson, 934 S.W.2d at 152

(asserting that designation may provide current and future customers reason to do business elsewhere

and may also diminish overall value of company). Jerry Templeton, President of Skilled Craftsmen,

testified at trial that a hazardous designation would severely impair his ability to attract the type of

employees necessary to continue to operate his business and that, due to the competitiveness of the

market, his competitors would surely use the designation as way to market their services.

                It appears clear that the disparaging label, “hazardous employer,” is designed to make

an example out of an employer in order to coerce a change in the conduct of both the labeled

employer and other employers who wish to avoid such a stigma. We find it telling that the

hazardous designation remains effective for a year, regardless of any curative action taken by the



                                                   10
employer.5 In the preamble to the amended rules, the Commission explains that a year “allows

sufficient time for an identified employer to take action before the next audit period.” 23 Tex. Reg.

11812 (1998) (to be codified as amendment to 28 Tex. Admin. Code §§ 164.1-.18) (proposed August

21, 1998). This explanation evidences the Commission’s intent to effect a change in the behavior

of an identified employer. Furthermore, the fact that the designation remains effective for a year,

even if the identified employer has sufficiently alleviated the hazard, is evidence that the label is

punitive and designed to deter similar behavior of non-identified employers.

               The Commission uses the hazardous employer designation as a stick to compel

private employers to change their behavior even if the employer is fully complying with relevant

OSH Act standards. Accordingly, it is possible for an employer to be designated hazardous by the

Commission without ever violating the OSH Act. The formula used by the Commission to identify

a hazardous employer is not tied to the violation of any particular OSH Act standard. The formula

only states that an employer’s injury rate exceeds industry expectations; it does not inquire into the

causes of the injuries. However, since removal of a hazardous designation requires an employer to

take action to reduce the number of injuries, the Commission is implicitly regulating the causes of

the injuries. Because OSH Act standards cover such a wide spectrum of occupational health and

safety issues, it is difficult to envision how an identified employer could take action to reduce

workplace injuries without addressing an area for which a federal standard exists.6 While an action

       5
          However, a hazardous designation may be removed if it is found by administrative review
that the employer was erroneously identified. 28 Tex. Admin. Code § 164.16 (West 2004).
       6
        The OSH Act has standards that address: walking and working surfaces; exit routes,
emergency action plans, and fire prevention plans; powered platforms, manlifts, and vehicle-
mounted work platforms; occupational health and environmental controls; hazardous materials;

                                                 11
taken in response to a hazardous designation by the Commission might not contravene any OSH Act

standard, the Program is not saved from preemption because it supplements rather than contradicts

OSH Act standards. Gade, 505 U.S. at 100. The Supreme Court has held that Congress intended

to avoid subjecting workers and employers to duplicative regulation. Id.

               Although the Commission contends that the Program merely identifies hazardous

private employers, its purpose and intent is to implicitly regulate occupational health and safety

issues. The Program intimidates and coerces private employers to take action to correct occupational

health and safety issues in order to reduce workplace injuries. As a result, private employers are

placed in the unsettling position of having to comply with the OSH Act while also providing a

workplace in which the number of injuries will be less than industry expectations within the state.

This is exactly the type of duplicative regulation that Congress sought to avoid when it enacted the

OSH Act. Because the Program effectively obligates private employers, under penalty of being

publicly labeled as hazardous, to take action to reduce workplace injuries, it essentially regulates

occupational safety and health issues addressed by federal law. Therefore, the Program identifying

hazardous private employers is preempted by the OSH Act. Because we hold that the Program is

preempted by federal law, we do not address Skilled Craftsmen’s alternative argument that the rule

used to determine whether an employer will be designated hazardous is arbitrary and capricious as

applied to this employer.



personal protective equipment; general environmental controls; medical and first aid; fire protection;
compressed gas and compressed air equipment; materials handling and storage; machinery and
machine guarding; hand and portable powered tools and other hand-held equipment; welding,
cutting, and brazing; special industries; electrical issues; commercial diving operations; and toxic
and hazardous substances. See 29 C.F.R. § 1910, subparts (D)-(T), (Z) (2004).

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                                          CONCLUSION

               Although the Program likely supplements rather than contradicts existing federal

standards, it is preempted because it implicitly regulates workplace safety issues, thereby subjecting

employers to duplicative regulation. Accordingly, we reverse the ruling of the district court and

render judgment that the Program is preempted by the OSH Act.




                                               __________________________________________

                                               Bea Ann Smith, Justice

Before Chief Justice Law, Justices B. A. Smith and Pemberton

Reversed and Rendered

Filed: February 3, 2005




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