Regulatory Flexibility Act Procedures

Introduction

The Regulatory Flexibility Act (RFA) requires agencies to consider the impact of their rules on small entities and to evaluate alternatives that would accomplish the objectives of the rule without unduly burdening small entities when the rules impose a significant economic impact on a substantial number of small entities. Inherent in the RFA is Congress' desire to remove barriers to competition and encourage agencies to consider ways of tailoring regulations to the size of the regulated entities.

The RFA does not require that agencies necessarily minimize a rule's impact on small entities if there are significant legal, policy, factual, or other reasons for the rule's having such an impact. The RFA requires only that agencies determine, to the extent feasible, the rule's economic impact on small entities, explore regulatory alternatives for reducing any significant economic impact on a substantial number of such entities, and explain the reasons for their regulatory choices. Executive Order 13272, signed on August 13, 2002, requires that agencies establish procedures and policies to promote compliance with the RFA.

The following procedures, modeled on guidance issued by the Office of Advocacy at the Small Business Administration (SBA), should be followed whenever EEOC begins the regulatory process.

Is the Rule Subject to the RFA?

The RFA applies to any rule required to be issued after notice and comment under section 553(b) of the Administrative Procedure Act. The RFA does not apply, therefore, to procedural rules, interpretative rules, recordkeeping rules, or rules relating to agency management or personnel. It does apply to substantive rules.

Will the Rule Have a Significant Impact on a Substantial Number of Small Entities?

The RFA requires agencies to conduct sufficient analyses to measure and consider the regulatory impacts of a rule and to determine whether there will be "a significant economic impact on a substantial number of small entities." Since Congress did not define "substantial" or "significant," agencies must tailor the level, scope and complexity of their analysis to the regulated small entity community at issue in each rule.

Small Entities: There are three types of small entities.

• "Small businesses" are defined in section 3 of the Small Business Act, 15 U.S.C. . 632, and in the SBA's regulations at 13 C.F.R. . 121.201 (2002). 5 U.S.C. . 601(3).
• "Small organizations" are any not-for-profit enterprises that are independently owned and operated and not dominant in their fields (for example, private hospitals and educational institutions). 5 U.S.C. . 601(4).
• "Small governmental jurisdictions" are governments of cities, counties, towns, townships, villages, school districts, or special districts with a population of less than 50,000.

The size standard used by the Small Business Administration to define small businesses varies by industry; however, the SBA uses the "fewer than 500 employees" cut off when making an across-the-board classification. (A large percentage of small entities are not covered by EEOC laws, because they employ fewer than 15 employees.) If EEOC wishes to use a different definition for any of these types of small entities for purposes of an RFA analysis, it must consult with the Office of Advocacy at the SBA, publish the alternative definition for comment and publish the final definition in the Federal Register. If EEOC seeks to change the definition of small business in a general rulemaking context, it should contact the Administrator of the SBA.

Regulation writers can consult with SBA Office of Advocacy for assistance in defining small entities for purposes of making the RFA analysis.

Substantial number: The SBA's Office of Advocacy recommends that agencies use "more than just a few" within an industry as the criteria for applying the RFA analysis, at least initially.

Significant economic impact: In determining whether a rule will have a "significant economic impact" on small entities, the SBA advises that agencies should consider both adverse impacts and beneficial impacts, and can minimize an adverse impact by including beneficial impacts in the analysis. In the Legislative history of the RFA, Congress gave several examples of "significant impact:" a rule that provides a strong disincentive to seek capital; 175 staff hours per year for recordkeeping; new capital improvements beyond the reach of the entity; any impact less cost-efficient than another reasonable regulatory alternative; or any impact where the adverse cost impact is greater than the value of the regulatory good.

Certification of "No Significant Impact"

If an agency certifies that there will be no "significant economic impact on a substantial number of small entities," no further analysis is needed under the RFA. To date, EEOC has determined and certified in each of its rulemakings that its rules will not have a significant impact on small entities and has not prepared initial or final regulatory flexibility analyses.

Certifications must include a factual basis for the decision. The factual basis must include a sufficient record upon which a court may review an agency's actions. The certification and the factual basis must be provided to the SBA's Chief Counsel for Advocacy. Certification decisions are subject to judicial review. The SBA Office of Advocacy advises that, at a minimum, a certification should contain a description of the affected entities and the anticipated impacts that clearly justify the "no impact" certification. The reasoning and assumptions should be expressed in sufficient detail to enable public comment and ensure the certification is correct.

The RFA requires that the certification appear either in the proposed or final rule. The SBA recommends that agencies include a certification in the final rule, even if it also appeared in the proposed rule, as it demonstrates the continued validity of the certification after receipt of public comments.

The SBA Office of Advocacy recommends that the following certification language be used in the preamble to the rule:

Initial Regulatory Flexibility Analysis

If EEOC cannot certify that a rule will not have a significant impact on a substantial number of small entities, the RFA requires the preparation of an initial regulatory flexibility analysis (IRFA). The IRFA must be made available for public comment; it or a summary of it should be published in the Federal Register with the notice of proposed rulemaking. The RFA requires that agencies ensure that small entities have an opportunity to participate in any rulemaking that will have an impact on them. The statute suggests techniques such as inclusion in any advance NPRM of a notice that the proposed rule might have a significant impact on small entities, providing information about NPRMs to publications likely to be obtained by small entities, direct notification of interested small entities, or holding conferences or public hearings concerning the rule for small entities. The IRFA also must be submitted to the SBA Chief Counsel for Advocacy.

The IRFA must: (1) describe the impact of the proposed rule on small entities, and (2) describe any alternatives to the proposed rule that would minimize the impact while accomplishing the stated objectives of the applicable statutes. In describing the impact of the proposed rule on small entities, an IRFA must contain the following information:

1. a description of the reasons why action by EEOC is being considered;
2. a succinct statement of the objectives of, and legal basis for, the proposed rule;
3. a description 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, including an estimate of the classes of small entities that will be subject to the requirement and the long-term and short-term compliance costs
5. an identification, to the extent practicable, of all relevant federal rules that may duplicate, overlap or conflict with the proposed rule.

The SBA Office of Advocacy suggests that agencies, in developing and evaluating regulatory alternatives, identify them at the earliest stage of rulemaking, consult with small entities and consider and assess the comparative benefits of the rule to large and small entities. The RFA provides that agency analyses should discuss alternatives such as establishing different compliance or reporting requirements for small entities, clarifying or simplifying compliance or reporting requirements for small entities or exempting certain or all small entities from all or part of the rule.

Additional guidance on the preparation of an IRFA can be found in the SBA's Regulatory Flexibility Act Implementation Guide, found at https://advocacy.sba.gov/resources/the-regulatory-flexibility-act/a-guide-for-government-agencies-how-to-comply-with-the-regulat. The SBA Office of Advocacy recommends that agencies consult with them early in the preparation of a draft rule.

Final Regulatory Flexibility Analysis

Analysis of the comments on the proposed rule will help determine whether the final rule will have a significant impact on a substantial number of small entities. If there will be a significant impact, a final regulatory flexibility analysis (FRFA) must be prepared to be published with the final rule in the Federal Register. If there will not be a significant impact, a certification may be published with the final rule, with the factual basis, as discussed above under Notice of Proposed Rulemaking. Rulemakings may not progress directly from a certified proposed rule to a final rule containing an FRFA.

The requirements for a FRFA are somewhat different than those for an IRFA, although the central focus remains the requirement that agencies evaluate the impact of the rule on small entities and analyze regulatory alternatives. The RFA lists the requirements as:

1. a succinct statement of the need for, and objectives of, the rule;
2. a summary of the significant issues raised by the public comments in response to the IRFA, a summary of the assessment of the agency of such issues and a statement of any changes made in the proposed rule as a result of the comments;
3. a description of, and an estimate of the number of, small entities to which the rule will apply or an explanation of why no such estimate is available;
4. a description of the projected reporting, recordkeeping, and other compliance requirements of the rule, including an estimate of the classes of small entities that will be subject to the requirement and the compliance costs; and
5. a description of the steps the agency has taken to minimize the significant economic impact on small entities including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final rule and why each of the other significant alternatives to the rule considered by the agency was rejected.

The RFA permits agencies to prepare IRFAs and FRFAs in conjunction with, or as part of, other analyses required as long as the RFA's requirements are satisfied. For example, for major rules that require preparation of a regulatory impact analysis under Executive Order 12,866, agencies may prepare the two analyses together.

Judicial Review

The RFA permits judicial review of agency compliance with certain provisions of the RFA, most importantly, the agency's certification as a rule's anticipated impact on small entities and its use of small entity definitions.