Articles, Alerts & Perspectives

EPA Final Rule Adds Vapor Intrusion to Hazard Ranking System

The Voice

The United States Environmental Protection Agency (EPA) published a final rule, effective February 8, 2017, adding vapor intrusion as an exposure pathway for consideration under the Hazard Ranking System. 82 Fed. Reg. 9754 (Jan. 9, 2017). The Hazard Ranking System is the screening mechanism used by the EPA to determine whether to place sites on the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) National Priorities List—the list of priority sites warranting further investigation and possible remediation under the Superfund program. The rule and its potential implications at current and future sites are addressed in this article.

Vapor Intrusion

Vapor intrusion occurs when vapor-forming chemicals from a subsurface source, such as soil or groundwater, migrate into an overlying building through cracks in the foundation or utility lines. Volatile chemicals are most susceptible to vapor intrusion because they evaporate easily. Common examples of vapor-forming chemicals include volatile organic compounds (i.e., trichloroethylene and benzene), semivolatile organic compounds (i.e., naphthalene), and pesticides.

The New Rule

Adding vapor intrusion to the Hazard Ranking System arose out of a May 2010 report of the Government Accountability Office (GAO) concluding that if vapor intrusion is not assessed, there is a concern that sites posing a serious human health risk will not be addressed. The GAO asked the EPA to consider adding vapor intrusion and the effect that it may have on the number of sites that it might add to the National Priorities List. On January 31, 2011, the EPA published a notice asking for public comments on the potential addition of vapor intrusion. In the rationale, the EPA noted that there are contaminated sites that did not qualify for listing on the National Priorities List under the current Hazard Ranking System, but they may be listed if the exposure threat from vapor intrusion is included in the ranking system. Before the new rule, the Hazard Ranking System evaluated four exposure pathways: (1) groundwater migration, (2) soil exposure, (3) surface water migration, and (4) air migration. None of these exposure pathways captured threats from vapor intrusion.

On February 29, 2016, the EPA published a proposed rule to add vapor intrusion, and it received comments from 15 parties. The commenters included state and federal agencies, industry associations, community groups, consultants, and private citizens. The EPA made no conceptual or structural changes based on the comments received. Many of the comments addressed the sampling methods to be used during the site investigation. The EPA explained that it cannot determine actual exposure for all possible receptors, or perform a site-specific, quantitative risk assessment at each candidate site. The Hazard Ranking System is not designed to require that level of site specific data. The EPA will consider the need for future guidance on implementation of the vapor intrusion component, and it will likely examine the existing procedures used by states.

A number of comments asked about reevaluation of sites previously assessed under the Hazard Ranking System but not placed on the National Priorities List. The EPA said that it does not plan to reevaluate sites categorically to determine whether placement on the National Priorities List is now appropriate. However, sites not on the National Priorities List, whether under oversight of federal agencies or not, may need to be reevaluated if new information or consideration of vapor intrusion threat indicates that the overall threat at the site may be unacceptable. In response to a comment on resource implications, the EPA acknowledged that by adding vapor intrusion to the Hazard Ranking System, the number of National Priorities List-qualifying sites may increase, and thus, the number of sites in the CERCLA inventory may increase.

After considering public comments, the EPA published the final rule on January 9, 2017. The new vapor intrusion component expands the number of available options for the EPA and state and tribal organizations to evaluate actual and potential threats from releases of hazardous substances. Vapor intrusion is added as a component of the preexisting soil exposure pathway. The amended pathway is called the “soil exposure and subsurface intrusion pathway,” and it considers exposure through direct contact with contaminated soil and inhalation of gas vapors from subsurface contamination. It identifies two areas in which exposure to vapor intrusion exists or is likely to exist: (1) areas of observed exposure; contaminant intrusion into regularly occupied structures has been documented; and (2) areas of subsurface contamination; subsurface contamination underlying regularly occupied structures has been documented, but indoor intrusion has not been confirmed. An area of subsurface contamination is an area where subsurface contamination exists at levels significantly above background concentrations, and the increase is attributed at least in part to the site. Therefore, the vapor intrusion component considers observed exposure and potential exposure. Evaluating potential exposure involves predicting the probability of exposure based on structural features of the building, a hazardous substance’s physical and chemical properties, and the physical subsurface properties that influence the probability of intrusion. Factors considered include structure containment, depth to contamination, vertical migration, and vapor migration potential. With respect to targets for exposure, the evaluation includes individuals living, attending school or daycare, or working in a regularly occupied structure. Workers are weighted to reflect that their exposure is limited to the time present in the workplace. There is no similar limitation for individuals attending school or daycare, likely because children are a vapor intrusion-sensitive population.

Practical Implications

The potential effects of the new rule are (1) more sites being listed on the National Priorities List; (2) increased costs at sites being remediated under CERCLA, the Resource Conservation and Recovery Act (RCRA) or a similar state statute; (3) increased toxic tort lawsuits alleging exposure to vapor intrusion; and (4) increased due diligence costs in real estate transactions in which the buyer or lessee demands investigation and mitigation.

While the EPA downplayed some of these practical implications in its response to comments and the final rule, these concerns are not unwarranted. For example, a site with groundwater contamination from volatile compounds may not have a Hazard Ranking System score warranting listing on the National Priorities List (28.5 or higher) based on the groundwater pathway alone. However, such a site also may have vapor intrusion concerns. The combination of Hazard Ranking System scores for groundwater and vapor intrusion could qualify a site for listing. Further, CERCLA § 121 requires a five-year reevaluation of remediated sites where hazardous substances remain on site to determine if the remedy is and will continue to protect human health and the environment. Sites that already have a final remedy in place may require vapor intrusion evaluation or remedial action as part of the five-year review process.

Lastly, while the Trump administration could have an effect on the EPA’s resources and the level of regulation, the focus on vapor intrusion is sure to pique the interests of environmental groups and plaintiffs’ attorneys, who are expected to be more active under the new administration.

Alana E. Fortna is a litigation attorney and associate with Babst Calland Clements & Zomnir PC in Pittsburgh, Pennsylvania. Her practice focuses on complex commercial litigation in the environmental and tort context, and she has defended clients in jurisdictions across the country. Ms. Fortna has experience litigating cost-recovery actions under CERCLA, RCRA, and state statutes, as well as citizens’ suits under the Clean Water Act. She is a member of the DRI Toxic Torts and Environmental Law Committee and admitted to practice in Pennsylvania and the District of Columbia and Seventh Circuits.

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An ounce of prevention: Employer-employee agreements

PIOGA PRESS

Your company has worked hard to stay competitive in the oil and gas industry—developing a robust customer list, inventing cutting-edge industry techniques and strategizing to ensure successful reactions to rapidly-changing market conditions. Jane is a valued member of your organization, an important leader in your sales group and a part of your strategic planning team. One day, Jane walks into your office and asks for a few minutes of your time. Jane informs you that she is pursuing other opportunities and gives her two weeks’ notice.

You thank Jane for her efforts on behalf of the company and wish her well, but after she leaves you begin to feel panicked. You’ve trusted Jane with your customers and with confidential company information. What happens if she goes to work with a competitor? If she then calls your customers and asks them to move their business to her new employer? If she discloses confidential information, allowing her new employer to steal your competitive advantage?

Advance planning increases business protection and employer control

Now imagine that in response to Jane’s resignation you thank her and wish her well, and then remind her of her post-employment obligations as contained in the non-compete and confidentiality agreement she signed when she began working at the company. Jane may respond that she’s moving forward with the agreement in mind and tell you about her exciting new opportunity in a different field.

If instead Jane expresses her intent to violate the agreement or gives a non-committal response, you are prepared. You immediately develop a course of action to protect your company, by engaging with Jane and/or her new employer and enforcing your rights under the agreement.

Having an agreement like Jane’s in place requires advance planning. In Pennsylvania, restrictive covenants such as noncompetition and non-solicitation agreements are enforceable if they are (1) part of an employment relationship between the parties and supported by adequate consideration; (2) reasonably necessary to protect the business interests of the company; and (3) reasonably limited in duration and geographic scope.
Although confidentiality agreements are frequently included as part of employer-employee agreements, they are not technically considered restrictive covenants. As a result, Pennsylvania courts have held that companies may require employees to enter into confidentiality agreements without consideration and without regard for the reasonableness of the agreement’s geographic scope or duration.

No universal approach

Restrictive covenant agreements offer companies a valuable tool to protect their business interests, but there is no one-size-fits-all approach regarding the specific restrictions an agreement will contain. The most common types of provisions in employeremployee agreements are non-competition, non-solicitation and non-disclosure or confidentiality provisions.

As a general matter, non-competition provisions place restrictions on the type and location of an employee’s future work and future employers, for a specified period of time. Non-solicitation provisions prevent employees from contacting or doing business with entities such as customers or suppliers for a specified period of time. Nondisclosure or confidentiality provisions restrict employees from using or disclosing confidential business information such as customer lists, financial data, trade secrets and business processes or methods— essentially any business information that is not publicly available and provides a company with a competitive advantage. Although Pennsylvania and federal law provide certain protections to trade secrets, confidentiality provisions can protect information a business considers to be confidential that does not necessarily qualify as a trade secret.

Companies may want to use different agreements for different types of employees. For example, a company may choose to have all employees sign a basic confidentiality agreement, but utilize an additional agreement containing restrictive covenants for key employees who have contact with customers and suppliers, access to financial data and strategic planning or access to proprietary industrial and scientific information. Restrictive covenant agreements are not just for employees who have an employment contract for a particular term, but are equally available for at-will employees.

Restrictions must be reasonable and relate to protectable business interests
Pennsylvania courts will not uphold a restrictive covenant agreement to prevent a former employee from competing simply for a company’s economic advantage. Employers should approach restrictive covenant agreements by examining what protectable business interests are at stake and what type of agreement is reasonable to protect those interests. Some examples of protectable business interests in Pennsylvania are trade secrets, confidential information and customer goodwill.

A restrictive covenant agreement must also be reasonably limited in geographic scope and duration. Although a court will make its decision based upon the facts of each particular case, Pennsylvania courts have upheld non-competition agreements that are closely tied to the geographic area of the employee’s duties and the company’s customers. Non-solicitation provisions are typically given more geographic latitude, because non-solicitation agreements only prevent an individual from engaging in business with specific customers and entities. As to duration, Pennsylvania courts have generally upheld restrictive covenants with a post-employment term of one year to two years as reasonable and depending on the particular circumstances may uphold a longer post-employment term.
Although they are frequently a part of employer-employee agreements that contain restrictive covenants, non-disclosure or confidentiality agreements are not themselves technically considered “restrictive covenants” in Pennsylvania. Rather, they are agreements that protect the property rights of a company in its business information. Therefore they are not limited by the reasonableness criteria (geographic scope and duration) that apply to non-competition or non-solicitation provisions.

Employee must receive consideration for entering into restrictive covenant agreement

Courts in Pennsylvania will also refuse to enforce a restrictive covenant agreement containing non-competition and non-solicitation provisions if the employee did not receive adequate consideration in exchange for signing the agreement. Pennsylvania considers entering into a restrictive covenant as part of the commencement of employment (i.e., as a condition of hiring) to be adequate consideration.

Unlike some other states, Pennsylvania does not view continued employment alone as sufficient consideration. Therefore, companies who wish to enter into restrictive covenants with existing employees must provide those employees with additional consideration. The adequacy of that consideration is evaluated based upon the specific facts of a particular case, but is usually composed of some combination of a raise, promotion and/or bonus.

No consideration required for confidentiality agreements

Non-disclosure or confidentiality agreements are not restrictive covenants, and new or existing employees need not be provided with consideration in exchange for signing such agreements. Companies can require employees to sign confidentiality agreements at any time during the employment relationship. In fact, in 2016 the Commonwealth Court of Pennsylvania ruled that one company’s existing employees who were terminated after refusing to sign a confidentiality agreement were ineligible to receive unemployment    compensation benefits.

In Greenray Indus. v. Unemployment Comp. Bd. of Review, a company informed its employees that continued refusal to sign a confidentiality agreement would result in termination of their employment. The Commonwealth Court held that the employees’ refusal to sign amounted to a refusal to accept an offer of continued employment, equivalent to a resignation, and denied them unemployment compensation on the basis the employees had voluntarily left work without cause “of a necessitous and compelling nature.”

The future applicability of the Greenray ruling will depend on the particular facts and circumstances of each individual case. However, companies should strongly consider using confidentiality agreements to emphasize to employees (1) what information a company considers as confidential business information and (2) that the company explicitly expects all employees to maintain the confidentiality of that information.

Best practices

If they do not have one already in place, companies should consider requiring existing employees to sign a confidentiality and non-disclosure agreement. Such an agreement can then be integrated into a new employee on-boarding process so that all employees are covered, with the goal of maintaining the confidentiality of a company’s confidential business information.

Companies should also consider whether non-competition and/or non-solicitation restrictive covenants are appropriate for new or existing employees, particularly key employees. Any employer-employee restrictive covenant should be tailored to the particulars of your company’s business, and consideration is easiest to establish at the time new employees are hired. Prospective employees should be notified during the hiring process if a noncompetition or non-solicitation agreement will be required as a condition of employment. Restrictive covenants may not prevent employee departures, but when employees like Jane depart such agreements can help protect a company’s customer relationships, confidential information and trade secrets.

Molly E. Meacham is a shareholder in the Employment and Labor, Litigation, and Energy and Natural Resources groups of law firm Babst Calland. For more information about employment and labor challenges in the oil and gas industry, contact her at 412-394-5614 or mmeacham@babstcalland.com.

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Pennsylvania Governor Signs Act Authorizing Municipalities to Provide Fire and EMS Volunteers with Tax Credits

The Public Record

On November 21, 2016, Governor Tom Wolf signed Act 172 of 2016 (Act 172) into law. Act 172 authorizes municipalities to offer tax credits against the earned income and real estate tax liability of certified fire company and nonprofit emergency medical services agency (EMS) volunteers. The purpose of the law is to incentivize current fire and EMS volunteers to remain active and increase recruitment of new volunteers.

Under Act 172, municipalities may establish, by ordinance, an earned income tax credit up to the full amount of the volunteer’s municipal income tax liability, and a real property tax credit up to 20 percent of the volunteer’s municipal real estate tax liability. In this ordinance, the municipality must, among other things, set forth the total amount of the tax credit that will be offered to a volunteer, a process to reject a request by a volunteer who does not satisfy the criteria for a tax credit, and a procedure by which a volunteer can appeal a rejected request.

In order to qualify for a tax credit authorized by Act 172, a volunteer must be an active volunteer, subject to the tax of a municipality that has authorized a credit pursuant to Act 172, and certified pursuant to the municipality’s established “volunteer service credit program.”

Once a municipality authorizes an earned income and/or real estate tax credit, it must create a “volunteer service credit program” with annual volunteer certification requirements. Pursuant to this program, municipalities must consider the following factors when determining a volunteer’s certification eligibility: (1) the number of emergency calls to which the volunteer responds; (2) the volunteer’s level of training and participation in formal training and drills; (3) the amount of time the volunteer spends on administrative and other support services in aid of the fire company or EMS; and (4) the amount of time the volunteer spends on other events and activities that aid the financial viability, emergency response or operational readiness of the fire company or EMS.

In conjunction with the establishment of a volunteer service credit program, a municipality, with advice from the fire chief and/or EMS supervisor, must adopt guidelines necessary to implement the credit program. The guidelines must include an application form for certification. A volunteer becomes certified and thus eligible for the tax credit(s) after the fire chief and/or EMS supervisor approves his or her application pursuant to these guidelines. In order to remain qualified for the tax credit(s), a certified volunteer must obtain re-certification from the municipality annually. If a volunteer is injured during a response to a call and his or her injury prevents service as an active volunteer, the volunteer remains eligible for the tax credit(s) for five tax years following the injury.

Once a tax credit program is in effect and volunteers are certified to receive tax credit(s), Act 172 requires that the fire chief and/or EMS supervisor maintain a log documenting the activities carried out by the certified volunteers. These logs are subject to review by the State Fire Commissioner, the Auditor General and the governing body or bodies where the fire company or EMS is located and/or provides service.

A municipality considering the adoption of an ordinance providing tax credits to qualified volunteers must provide public notice of its intent to adopt the ordinance at least thirty days prior to adoption. The municipality must also hold at least one public hearing, pursuant to public notice, on the ordinance prior to adoption. Finally, upon adoption of an ordinance establishing a tax credit, the municipality must notify the State Fire Commissioner.

Act 172 took effect on January 13, 2017. If you have any questions about enacting a tax credits in your municipality, please contact Stephen L. Korbel at 412-394-5627 or skorbel@babstcalland.com or Alyssa Golfieri at 412-773-8701 or agolfieri@babstcalland.com.

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Employment Law Issues in Pennsylvania’s Medical Marijuana Act

The Legal Intelligencer

The Pennsylvania Storage Tank and Spill Prevention Act and Oil and Gas Operations

PIOGA Press

As we begin the New Year, many of us in the environmental sector automatically look at our new calendars and realize that this is the beginning of a new season of annual regulatory requirements. These requirements range from annual emissions statements and waste reporting to various certification and registration renewals. For those that have containers at one or more sites, you may be (or should be) asking yourself whether any of those containers must be registered pursuant to Pennsylvania’s Storage Tank and Spill Prevention Act, 35 P.S. § 6021, et seq.

What is the Tank Act?

The Tank Act was enacted on July 6, 1989, to: (i) protect surface waters and soil from releases of regulated substances from storage tanks; (ii) provide a statutory mechanism for the cleanup of such releases; and (iii) provide a statutory mechanism to fund the cleanups of releases from underground storage tanks. The regulations promulgated pursuant to the Tank Act can be found in 25 Pa. Code Chapter 245. These regulations cover both aboveground storage tanks (ASTs) and underground storage tanks (USTs).

How the Tank Act applies

Like many environmental statutes, applicability of the Tank Act is dependent on definitions, most notably the definitions of an AST and a UST. Without directly quoting 25 Pa. Code Chapter 245.1 for the definition of an AST, which is too long for this article, there are five main requirements to meet the definition of an AST. The tank must: (i) be aboveground; (ii) be stationary; (iii) have a capacity greater than 250 gallons; (iv) contain a regulated substance; and (v) the tank does not meet any of the 19 exemptions from the definition of an AST.

Similarly, the four main requirements in the definition of a UST are: (i) the tank must be below ground; (ii) the tank must have a capacity greater than 110 gallons; (iii) the tank must contain a regulated substance; and (iv) the tank must not meet any of the 19 exemptions from the definition of a UST.

Confusion has surfaced regarding several potential issues with these definitions, such as whether an AST is considered to be stationary or if a tank located within a vault below ground is considered a UST. But in general, if a tank appears as though it may meet either of these definitions, it may be subject to the Tank Act and applicability should be closely evaluated.

Exemptions for oil and gas operations

Typically, there are four exemptions that are applied to oil and gas operations. These exemptions include:

1. Pipeline facilities, including gathering lines, regulated under the Natural Gas Pipeline Safety Act of 1968, 49 U.S.C.A. App. § 1671 et seq. (NGPSA.)
2. A nonstationary tank liquid trap or associated gathering lines directly related to oil and gas production or gathering operations.
3. A flow-through process tank, including, but not limited to, a pressure vessel and oil and water separators.
4. Tanks used to store brines, crude oil, drilling/frac fluids and similar substances or materials and are directly related to the exploration, development or production of crude oil or natural gas regulated under the Oil and Gas Act, 58 P. S. § 601 et seq.

All four of these exemptions can be found under the definition of an AST, whereas only the first three of these exemptions can be found under the UST definition.

It can be troublesome to determine whether any of these exemptions apply at a given facility. For example, the determination of whether or not all equipment at a pipeline facility regulated under the NGPSA is covered by the first exemption listed above often is a fact-specific determination based on the nature of the equipment and how it is connected to the transmission lines. Further, although oil/water separators are exempted from the definitions of an AST and UST, tanks connected to oil/water separators that are used to store the oil are not exempted.

In addition, questions have surfaced regarding the phrases, “directly related to oil and gas production or gathering operations,” in the second exemption and “directly related to the exploration, development or production of crude oil or natural gas,” in the fourth exemption.

The Department of Environmental Protection has provided some guidance on the applicability of the Tank Act to oil and gas operations. Based on presentations and discussions with the Storage Tank Advisory Committee, DEP has maintained a rule of thumb that tanks located on a well pad are not subject to the Tank Act. However, DEP has indicated that ASTs or USTs located at an ancillary facility, such as a site used only for storage of frac fluid or a compressor station, may be subject to the Tank Act. With that being said, it is still possible for tanks at ancillary facilities to meet one or more of the remaining exemptions from the definitions of an AST and UST.

For tanks that are regulated by the Tank Act, there are a host of requirements that must be met depending on the capacity, contents and use of the tank. Some of these requirements, such as registrations and inspections, are recurring requirements that should be reviewed and scheduled on your 2017 calendars.

Currently, DEP is considering widespread changes to the storage tank regulations including, but not limited to, what modifications may be performed on tanks based on specific tank handler certifications, the permitting process and permit-by-rule requirements, and leak detection and prevention requirements. DEP is working with the Storage Tank Advisory Committee, and the revisions are anticipated to be proposed in the Pennsylvania Bulletin in 2017.

For additional information about developments described in this article, contact Timothy S. Bytner at 412-394-6504 or tbytner@ babstcalland.com or Jean M. Mosites at 412-394-6468 or jmosites@babstcalland.com.

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Release of draft permits marks beginning of new era in air permitting

PIOGA Press

On the eve of Thanksgiving, the Pennsylvania Department of Environmental Protection released two draft general permits that, if finalized, would result in significant changes to the air permitting regime for oil and gas industry sources.

The first general permit is a revised version of the existing plan approval/operating permit known as GP-5 for compressor stations and processing facilities. Although the draft revised GP-5 includes a number of conditions that would create more burdensome obligations for industry, midstream operators are already accustomed to dealing with a general permit. GP-5 (in some form) has been around for a decade. The second draft general permit, known as GP-5A, represents an even greater departure from the status quo, as it would require operators to obtain an air permit for production facilities for the first time. Production facilities are currently authorized pursuant to an air permitting exemption known as Exemption 38.

DEP released the draft permits in anticipation of an Air Quality Technical Advisory Committee (AQTAC) meeting scheduled for December 8. AQTAC advises DEP on the technical, economic and other social impacts of major program changes like this one, and typically reviews a DEP proposal before the formal public comment period begins.

A lot can be said about how this program shift may impact day-to-day operations and possibly increase the cost of doing business in Pennsylvania. But keep things in perspective: these permits are still in draft form and therefore remain subject to change. Although major concepts such as whether to even have a general permit for well sites are unlikely to change, the finer details of the permits will be worked out through a future public comment process. Nevertheless, operators would be wise to obtain a copy of the permits (available at www.dep.pa.gov/Business/Air/BAQ/AdvisoryGroups/AirQuality-Technical-Advisory-Committee/Pages) and take a closer look at the proposed conditions. This article highlights just a handful of the issues that warrant further review.

How did we get here?

Under the current permitting framework, minor source compressor stations and processing facilities are eligible for authorization under GP-5. DEP issued GP-5 for the first time in 2006 and issued revised versions of the permit in 2011, 2013 and 2015. Exemption 38 was substantially revised as of August 10, 2013, to require that unconventional well sites demonstrate compliance with certain criteria in order to qualify for the exemption. In contrast, DEP treats unconventional well sites established prior to August 10, 2013 and conventional well sites as unconditionally exempt from the obligation to obtain an air permit.

On January 19, Governor Tom Wolf announced a sweeping new regulatory strategy for reducing methane emissions from oil and gas operations. The methane reduction strategy anticipates that DEP will, among other things, revise GP-5 to impose more stringent requirements and also develop a new general permit for unconventional well sites. The release of the draft general permits means DEP is making good on its pledge to regulate methane emissions. At the same time, DEP seems to be taking advantage of this opportunity to address some of the GP-5 and Exemption 38 implementation issues that have surfaced over the years.

New scope and applicability

The revised GP-5 and GP-5A share many of the same or similar conditions, such as new requirements for truck load-outs, but differ in scope and applicability. In general, the revised GP-5 would be available for natural gas compressor stations, processing plants and, for the first time, transmission stations. GP-5A would authorize “unconventional natural gas well site operations” and “remote pigging stations.” DEP has indicated it will amend Exemption 38 as part of the transition to GP-5A. When revised, according to DEP, Exemption 38 would apply to unconventional well sites that were constructed between August 10, 2013, and the effective date of the amendment to the exemption list. Presumably, Exemption 38 would not change for conventional well sites.

What will happen to existing facilities? Under the proposed permitting scheme, existing facilities would continue to comply with the requirements of Exemption 38 and earlier versions of GP-5, and new or modified facilities would need to meet the requirements of the new general permits. This means facility changes (engine swap, anyone?) and ownership changes may have the effect of “upgrading” a facility to the new GP-5/GP-5A.

Methane controls

The most significant policy change in the proposed permitting scheme is DEP’s new focus on methane emissions. DEP previously did not specifically regulate methane for air permitting purposes. As proposed, both general permits would, for example, require that glycol dehydration units and storage vessels reduce methane emissions by 98 percent or more if uncontrolled potential emissions are greater than or equal to 200 tons per year.

Noise, dust and pigging

DEP is using the draft permits to address three topics that have caused quite a stir in recent years: noise, dust and pigging. As a practical matter, operators are already subject to noise and fugitive dust limitations, namely those found in local ordinances and the generally applicable regulations at 25 Pa. Code Chapter 123 (Standards for Contaminants). It is, however, unusual that DEP would attempt to regulate noise under the Air Pollution Control Act. The general permits expand on existing obligations by requiring operators to document the measures used to minimize noise and dust, and by requiring specific measures for dust control.

Perhaps the more significant change is with respect to pigging, which until now was not clearly subject to permitting. Emissions from pigging are generally considered to be de minimis, but may vary based on the nature of the gas (wet versus dry), frequency of pigging activity and other factors. Both the revised GP-5 and GP-5A identify “pigging operations” as a source subject to detailed requirements, including equipment specifications.

Expanded monitoring, recordkeeping and reporting

In addition to more stringent air pollution control standards, the draft general permits are also replete with new monitoring, recordkeeping and reporting requirements. For example, both permits would require operators to notify DEP at least 24 hours before any scheduled blowdown or venting, and within 24 hours after an unscheduled event. There are many new provisions relating to electronic reporting and email submissions. Permittees under GP-5 and GP-5A would be required to certify and submit an annual compliance report, which would be an entirely new exercise for production facilities.

 Where do we go from here?

Pay attention to what is said at December’s AQTAC meeting and, if you have not already done so, start digging into the draft permit materials. DEP’s timeline for the formal comment period should become clear after the AQTAC meeting. In the meantime, watch for updates from PIOGA’s Environmental Committee and plan to participate in the public comment process. Pursuant to 25 Pa. Code §127.612, DEP must provide a minimum of 45 days for the public to comment on a proposed general permit.

Many practical questions will need to be answered in the days ahead. For instance, which general permit will apply when a well site is co-located with a compressor station? Are the general permit conditions consistent with overlapping federal requirements? Dig in, stay tuned and be prepared to provide input.

For additional information about developments described in this article, contact Meredith Odato Graham at 412-773-8712 or mgraham@babstcalland.com, or Michael H. Winek at 412-394- 6538 or mwinek@babstcalland.com.

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Pipelines are safe

They already are the safest way to transport energy – and getting safer

Pittsburgh Post-Gazette
By Keith J. Coyle

United States District Court Enjoins Enforcement of New Overtime Rule

As discussed in Babst Calland’s Employment Bulletin on May 20, 2016, the United States Department of Labor (DOL) published a Final Rule titled Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees (the “Final Rule”). Among other things, the Final Rule more than doubled the salary threshold required for employees to qualify for the executive, professional, or administrative exemptions allowed by the Fair Labor Standards Act (FLSA) and contained automatic updates to the salary thresholds. The Final Rule was set to go into effect on December 1, 2016.

On November 22, 2016, however, the United States District Court for the Eastern District of Texas granted an emergency injunction to enjoin the application of the Final Rule. The injunction was filed against the DOL by twenty-two states and requested that the DOL be enjoined from enforcing the Final Rule. In granting the injunction request, the district court reasoned that the DOL was without statutory authority to issue and implement the Final Rule. Accordingly, the court enjoined application of the Final Rule, on a nationwide basis. Specifically, the court ruled that the DOL is enjoined from implementing and enforcing the Final Rule. Accordingly, until further notice, employers do not have to change overtime practices to comply with the DOL’s Final Rule.

Babst Calland’s Employment and Labor Group will continue to keep employers apprised of further developments related to this and other employment and labor topics.If you have any questions or need assistance in addressing the above-mentioned area of concern, please contact John A. McCreary, Jr. at (412) 394-6695 or jmccreary@babstcalland.com, Stephen A. Antonelli at (412) 394-5668 or santonelli@babstcalland.com, or Christopher M. Helms at (412) 394-6477 or chelms@babstcalland.com.

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NLRB Reinstitutes Employer’s Obligation to Bargain Before Disciplining Employees

The Legal Intelligencer

Employers who are currently negotiating an initial collective bargaining agreement should be mindful that the National Labor Relations Board (NLRB) recently reaffirmed its analysis in Alan Ritchey, 359 NLRB 396 (2012), regarding an employer’s obligation to bargain before disciplining individual employees when a union has been certified, but has not yet entered into a collective bargaining agreement with the employer.

On Aug. 26, in Total Security Management Illinois 1 & International Union Security Police Fire Professionals of America (SPFPA), 364 NLRB 106 (2016), the NLRB reiterated that an employer may not impose discretionary discipline when it is engaged in negotiations for an initial collective bargaining agreement with a recently certified union. Rather, the NLRB held, before imposing discipline on an employee within the bargaining unit, an employer must provide the union with notice and an opportunity to bargain unless the employee’s continued presence on the job presents a serious, imminent danger to the employer’s business or personnel. The NLRB’s ruling in Total Security essentially revived the legal principles asserted in Alan Ritchey, which the U.S. Supreme Court invalidated on procedural grounds in 2014.

In Total Security, the employer, a provider of security planning and security services, discharged three of its security guards without providing their union any notice or opportunity to bargain. The union had been certified as the exclusive representative of a bargaining unit that included the three discharged guards. At the time of the discharges, the employer and the union had not reached an initial collective bargaining agreement. As a result of the discharges, the employer was charged with allegedly violating Section 8(a)(5) of National Labor Relations Act (NLRA), which makes it an unfair labor practice for an employer to refuse to bargain collectively.

The NLRB administrative law judge, relying on Alan Ritchey, found the employer’s discharge of the guards to be unlawful. However, Alan Ritchey was subsequently invalidated by the Supreme Court in National Labor Relations Board v. Canning, 134 S.Ct. 2550 (2014), because the Ritchey board included two members whose appointments had been constitutionally infirm. Accordingly, the NLRB was tasked in Total Security with re-examining de novo whether an employer has a statutory obligation to bargain before imposing discretionary discipline on unit employees, when a union has been certified or lawfully recognized as the employees’ representative but has not yet entered into a collective bargaining agreement with the employer.

The NLRB concluded that: the imposition of discipline on individual employees alters their terms or conditions of employment and implicates the duty to bargain if it is not controlled by preexisting, nondiscretionary employer policies or practices; discretionary changes to the terms or conditions of employment cannot be unilateral; and employers would not face an unreasonable burden if they needed to bargain before imposing discipline. Consequently, the NLRB held that unless an employer has a reasonable, good-faith belief that an employee’s continued presence on the job presents a serious, imminent danger to the employer’s business or personnel, an employer may not unilaterally impose discipline on bargaining unit employees when the union and the employer have yet to agree on a grievance process governing disciplinary disputes. Instead, the employer must provide the union with notice and an opportunity to bargain before imposing discipline on bargaining unit employees.

Fortunately for employers, recognizing the possible delay that a bargaining obligation might cause in implementing discipline, the NLRB minimized the burden on employers to the “greatest extent possible.”

First, the NLRB held that the pre-imposition obligation attaches only with regard to the discretionary aspects of those disciplinary actions that have an inevitable and immediate impact on an employee’s tenure, status, or earnings, such as suspension, demotion, or discharge. Accordingly, warnings, corrective actions, counseling, and the like do not require pre-imposition bargaining so long as they do not automatically result in more serious discipline.

Second, where the pre-imposition duty to bargain exists, the employer’s obligation is simply to provide the union with notice and an opportunity to bargain before discipline is imposed. This requires the employer to give sufficient advance notice to the union, and provide the union with relevant information, if a timely request is made. The employer is not required to bargain to agreement or impasse before imposing discipline, so long as it exercises its discretion within existing standards. If the parties do not reach agreement, the employer may impose the selected disciplinary action and then continue bargaining to agreement or impasse.

Furthermore, as mentioned above, the pre-imposition duty to bargain is not triggered where an employer has a reasonable, good-faith belief that an employee’s continued presence on the job presents a serious, imminent danger to the employer’s business or personnel. In this situation, an employer may act unilaterally and impose discipline without providing the union with notice and an opportunity to bargain.

Lastly, an employer has no duty to bargain over those aspects of its disciplinary decision that are controlled by nondiscretionary elements of existing policies and procedures. For example, the NLRB indicated that in a workplace where the employer has an established practice of disciplining employees for absenteeism, the decision to impose discipline for this conduct would not give rise to an obligation to bargain over whether absenteeism is generally an appropriate grounds for discipline. If the employer consistently suspended employees for absenteeism but the length of the suspension was discretionary, then bargaining would be limited to only the length of the suspension.

The NLRB applied its decision prospectively, because the uncertainty about the validity of Alan Ritchey, and dismissed the complaint against the employer. However, the NLRB noted that if its ruling was applied retroactively, the employer’s failure to provide notice to the union and bargain over the discharges would have amounted to a violation of Section 8(a)(5) of the NLRA. Accordingly, employers must be aware that they risk violating the NLRA if they take disciplinary actions that alter the terms or conditions of an employee’s employment (e.g. discharge) while initial negotiations with a recently certified union are ongoing. If disciplinary action is necessary, the employer must be cautious in providing the union with notice and an opportunity to bargain.

*Reprinted with permission from the 11/9/16 issue of The Legal Intelligencer. © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited.  All rights reserved.

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Commonwealth Court Reiterates Standards When Interpreting Zoning Ordinances

The new Chapter 78a regulations have arrived

The PIOGA Press

After years of rulemaking activity, the Pennsylvania Department of Environmental Protection’s new Chapter 78a regulations for surface activities associated with unconventional wells became effective on October 8. This article will review the status of the regulations and the next steps for implementing Chapter 78a across the Commonwealth.

 Timing

The Chapter 78 (conventional wells) and 78a (unconventional wells) Subchapter C rulemaking was adopted in February by the Environmental Quality Board (EQB). However, as discussed in the July issue of The PIOGA Press, the passage of Act 52 of 2016 abrogated the portion of rulemaking applicable to conventional oil and gas development. After review by the Attorney General’s Office and the Commonwealth Joint Committee on Documents, DEP withdrew all proposed amendments applicable to conventional oil and gas wells, making changes in Chapter 78 only to clarify its scope and remove all references to unconventional wells. Chapter 78a will be published in substantially the same form as approved by EQB in February and the Independent Regula – tory Review Commission in April.

DEP published the final Chapter 78a rules, titled “Environmental Protection Performance Standards at Oil and Gas Well Sites,” in the Pennsylvania Bulletin on Saturday, October 8. The new rules became effective upon publication, with some provisions for future registration and modification of permitting facilities, such as fresh water and centralized impoundments. DEP was required to complete all the new forms and guidance referenced in Chapter 78a before publication.

Training

In August and September, DEP presented training webinars on topics associated with the final Chapter 78a rulemaking for operators, contractors and any other interested parties. Training topics included pipelines and horizontal directional drilling, waste management, emergency response, secondary containment, spills and releases, well permits and reporting, water management plans, area of review, erosion control, and site restoration. Audio recordings of the webinars, along with DEP’s slideshows, are available for reference on DEP’s website. DEP has also created frequently asked questions (FAQ) documents for each webinar topic, covering matters that were raised by participants during the live training sessions. Full-day training sessions conducted by DEP in September covered the same material as the webinars.

Implementation

To implement Chapter 78a, DEP has prepared or updated more than 20 forms for unconventional operations. Many provisions of the new rules allow the agency to request information in addition to what is specified in the regulations, making the forms themselves a critical part of rule implementation. The new forms include a monthly tank maintenance checklist, well site restoration reporting forms, requests for approval of alternative waste management practices and well site restoration extensions, and a variety of forms related to the Area of Review requirements in § 78a.52a. All of the new forms are available on DEP’s eLibrary, www.elibrary.dep.state.pa.us/dsweb/HomePage.

Under Chapter 78a, almost all operator submissions are required to be electronic. The rules require unconventional operators to submit notifications, requests, well permits and reports electronically, and DEP states that it has updated its Greenport system to accept these submissions. The Greenport system has a revised version of “eWell” for electronic submissions of unconventional well permits and an updated “DEP Notifications” application for well operator and pipeline operator notifications to the department. DEP also created a new application, “eSubmission,” for reports and requests under other sections of Chapter 78a. For example, eSubmission will be used to request extensions for the well site restoration period, to register borrow pits or underground tanks and to submit pre-drill survey sample results. DEP is providing webinars about the eWell, DEP Notifications and eSubmission applications in October, and the recorded webinars will be available on the agency’s website for future reference.

Pipeline operators in particular may be new to DEP’s electronic reporting system because pipelines have never been within the scope of Chapter 78 until now. Under Section 78a.68a, pipeline operators conducting horizontal directional drilling (HDD) beneath a body of water or a watercourse are subject to notification requirements. As a result, pipeline operators intending to use HDD beneath water must register as users on Greenport if they are not currently registered. The rule requires such operators to use the DEP Notifications application in Greenport to notify DEP at least 24 hours prior to beginning HDD beneath a body of water or watercourse and, in the case of a water supply complaint, to report the complaint to DEP within 24 hours of receipt. DEP will also be issuing several technical guidance docu ments (TGDs) associated with the Chapter 78a rules, including guidelines for implementing the Area of Review regulatory requirements and a policy on replacing and restoring private water supplies. Draft guidance documents on those two topics were provided for public review at the Oil and Gas Technical Advisory Board meeting in June and also were published in the October 8 Pennsylvania Bulletin as interim final rules, with a 60- day comment period. Industry representatives have participated in the workgroups for these TGDs, but the final policies could reflect additional public comment at the end of the comment period.

Major components of Chapter 78a

Unconventional well operators should look closely at provisions affecting well permitting, site construction, PPC plans, prefracturing diligence, waste handling, secondary containment, impoundments, pipelines, borrow pits, site restoration, water replacement and spill remediation. Each of these has a substantive change from existing law that will affect operations over the life of the well.

One major revision to the rules arises in sections 78a.15(f) and (g), which set out the pre-application requirements for a well permit at a location that “may impact a public resource.” This provision requires operators who propose to drill a well in such locations to notify the public resource agency, which now by definition includes schools, municipalities and owners of playgrounds or water supplies, and to provide additional information to DEP. The regulation applies if the limit of disturbance of the well site is located in any of eight specified areas, including “in a location that will impact other critical communities” and “within 200 feet of…a playground.” The public resource agency must be notified at least 30 days prior to the submission of the well permit application to DEP to allow the agency to provide written comments to DEP and the applicant. The applicant may provide a response to the comments. DEP will then consider various factors, including the comments submitted by both the public resource agency and the applicant, before setting conditions for the well permit based on impacts to public resources.

PIOGA has challenged EQB’s authority to promulgate the new rules related to public resources in light of two Pennsylvania Supreme Court decisions holding and clarifying that the statutory authority for such rulemaking has been enjoined. Robinson Township, et al. v. Commonwealth of Pennsylvania, 623 Pa. 564, 83 A.3d 901(Pa. 2013); Robinson Township, et al. v. Commonwealth of Pennsylvania, —- A.3d —- (Pa. Sept. 28, 2016). PIOGA filed an appeal of the Commonwealth Court decision in PIOGA v. DEP, No. 321 MD. 2015, —-A.3d —- (Commw. Ct., Sept 1, 2016) in the Supreme Court on September 29.

DEP has altered the water replacement/restoration standard in Section 78a.51(d)(2) to require replacement water supplies to meet or exceed Safe Drinking Water Act (SDWA) standards, whereas the prior regulation required replacement water supplies to meet SDWA standards or be comparable to the water quality prior to impact if those supplies did not meet that standard. In effect, the SDWA is now the floor, rather than the ceiling for the water quality standard of replacement water supplies. As PIOGA has noted in its comments on the rulemaking, this obligation may create costly obligations, and in some cases, obligations that cannot be met even with the provision of a public drinking water supply. In its comments, PIOGA has disagreed with DEP that the new rule is the correct interpretation of Act 13, Section 3218(a).

An entirely new obligation is the Area of Review provision in Section 78a.52a, which requires operators to submit a report identifying the surface and bottom hole locations of active, inactive, orphan, abandoned, and plugged and abandoned wells within 1,000 feet of both the vertical and horizontal wellbores. Operators must review DEP’s well databases, review historical sources of information and mail a questionnaire to landowners within the specified area in order to gather information. Operators must create a monitoring plan and provide notice, as now required in Section 78a.73, to owners and operators of nearby wells that may penetrate the same formation being stimulated in the new well. Operators must cease operations if communication occurs and may not resume without DEP authorization.

The revised Section 78a.58 allows operators to conduct processing of fluids (including mine-influenced water) and drill cuttings on the well site with DEP approval, similar to the existing OG-71 approval process. In addition, operators may mix fluids with freshwater, aerate fluids and filter solids from fluids without DEP approval, provided that the activities are conducted within secondary containment. For any onsite processing activities, the operator must develop an action plan for monitoring and responding to radioactive materials.

The new rules completely overhaul the requirements for reporting and remediating spills. Section 78a.66 requires immediate reporting of spills that cause or threaten to pollute waters of the Commonwealth and requires reports within two hours for any spill or release of 5 gallons or more over a 24-hour period that is not completely contained on secondary containment. Remediation procedures for spills of at least 42 gallons (or spills that threaten to pollute waters of the Commonwealth) require attainment of Act 2 standards within new reporting and time limits that are not required within Act 2 or applied to any other industry.

Finally, the use of pits for temporary storage on unconventional well sites is entirely prohibited under section 78a.56, and three new provisions establish rules for off-site impoundments. Section 78a.59a sets requirements for impoundment embankments. Section 78a.59b provides for the registration, location and construction of well development impoundments (freshwater impoundments). The bottom of well development impoundments must be at least 20 inches above the seasonal high groundwater table, as certified by a soil scientist or similarly trained person. Section 78a.59c requires the closure of all centralized impoundments within three years, unless a permit is obtained under the Solid Waste Management Act. Closure plans must be submitted within six months.

The department plans to begin revisions to Subchapter D of Chapter 78a, Well Drilling, Operations and Plugging, sometime later this year.

For additional information about developments described in this article, contact Jean M. Mosites at 412-394-6468 or jmosites@babstcalland.com or Abigail F. Jones at 814-235-8430 or ajones@babstcalland.com.

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Old Quiet Title Making New Racket

Oil and Gas Committee Newsletter
(ABA Section of Environment, Energy, and Resources)

The growth of the U.S. economy in recent decades, along with contemporaneous expansion in industrialization and energy use abroad, has caused an explosion in demand for oil and natural gas. During that same time, oil and natural gas exploration and production companies have innovated new methods and techniques for extracting natural resources that were once considered inaccessible. New geologic reserves of hydrocarbons are being discovered at a rapid pace and the ability to develop new reserves has improved dramatically.

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State Courts Are Clarifying Legal Authority of Local Governments to Regulate Oil and Gas Activities

The Foster Report

As opponents of oil and gas development increasingly look for ways to exert local control, key state court rulings over the last few years have attempted to clarify, in so-called preemptive challenge cases, what the role of local governments actually is in regard to regulating oil and natural gas activities, explained panelists at the recent Shale Insight Conference in Pittsburgh, Pennsylvania.

Driven by citizen pressure or their own volition, local governments throughout the Appalachian Basin in West Virginia, Ohio, and Pennsylvania are increasingly attempting to limit or ban unconventional shale development through the adoption of ordinances or referenda.

The question in West Virginia and Ohio appears to be a bit clearer, due to court rulings confirming that local governments do not have the authority to regulate oil and gas activities. However, in Pennsylvania, a state that may one day be the nation’s largest producer of gas, the legal authority remains murky, said conference presenter Krista-Ann Staley, an attorney at Babst Calland.

Staley told the Foster Report October 5, that the Pennsylvania Supreme Court’s ruling on September 28 didn’t change the scope of local authority to regulate oil and gas development. Rather, the court ruled to strike provisions concerning the PUC’s and Commonwealth Court’s ability to review ordinances and related penalty provisions. With those provisions of Act 13 stricken, along with the related provisions stricken in the Robinson II decision, the scope of local regulatory authority and the ordinance review process fall back to existing statutes. The existing statutes, interpreted in the 2009 Huntley and Range cases, allow local governments limited powers to regulate oil and gas development in MPC (i.e., zoning, subdivision and land development) and floodplain ordinances. The local ordinances still cannot supersede state regulation of oil and gas development.

West Virginia. Two court cases in West Virginia with “clear outcomes,” according to Staley, confirmed the stance of the state’s existing Oil and Gas Act (in Code 22-6) that there is no local authority to regulate oil and gas development in the state. In the first case, Northeast Natural Energy, LLC v. City of Morgantown(No. 6285), Judge Susan Tucker of the Monongalia County Circuit Court on 8/12/11 ruled in favor of exploration and production company Northeast, and overturned an ordinance from the City Council of Morgantown that banned drilling and fracking of natural gas. The court held the ban was unconstitutional and preempted by the state code, which provides for the exclusive control of the state’s Department of Environmental Protection (DEP) to regulate oil and gas development. There is no exception in the law to allow the City of Morgantown’s ordinance imposing a ban on fracking.

The city contended it had the authority to enact and enforce the ordinance. Nonetheless, Judge Tucker found that the legislative purpose of the DEP was clear: and it has the primary responsibility to protect the state’s environment. “The exclusive control of this area of the law is within the hands of the DEP,” said Tucker. The ordinance encroached on the state’s all-encompassing authority regarding oil and gas development, and therefore, is invalid.

In the second, more recent case, EQT Production Company v. Wender (Case 2:16-cv-00290), Fayette County Commissioners Matthew Wender, Denise Scalph, and John Lopez sought a permanent injunction to enforce a county ordinance banning the storage, disposal, or use of oil and natural gas waste (including waste water from underground injection control wells). On 6/10/16, U.S. District Judge John Copenhaver confirmed that County commissions are artificial entities created by state statute and as such, possess only the powers expressly granted to them by the state constitution or laws. The county commissioners claimed that the ordinance was an exercise of the county commission’s sovereign powers. The court ruling found, however, that local ordinances are subordinate to state laws. Where an activity, such as oil and gas development, is sanctioned by the state, a local government cannot legislate independently to prohibit or impede that activity. All authority to oversee gas and oil exploration and production in West Virginia resides with the DEP, and at no point is any power to regulate such matters expressly granted to the county commissions.

The county commissioners also challenged EQT’s use of underground injection wells under the federal Safe Water Drinking Act (SWDA), which established a national program for regulating injection wells in order to protect drinking water (known as the UIC Programs). The EPA issued standards for the programs and states must meet minimum requirements to be granted primary enforcement authority. West Virginia, as approved by the EPA, has primacy over its UIC Program and vested the DEP with the authority for its implementation. The permitting program allows for the underground injection of wastewater, and the proposed ordinance attempting to prohibit permanent disposal of wastewater directly violates the statutory requirement, the court said. The state has undertaken to allow UIC wells, an action that operates to diminish a county’s powers to prohibit them. The county commissioners cannot unilaterally prohibit conduct that federal and state law both expressly permit.

Furthermore, the existing regulatory scheme demonstrates that wastewater injection as permitted is a heavily regulated activity in West Virginia, contrary to the commissioners’ claims. Wastewater properly injected into UIC wells pursuant to state and federal law “does not become pollution simply because the county commissioners say so,” the court ruling indicated.

West Virginia has concluded that oil and gas extraction is a highly valuable economic activity subject to centralized environmental regulation by the DEP, the court said, and the county commissioners therefore cannot interfere or impeded with the state’s goals.

Ohio. The preemption of ordinances from municipalities or local governments in regard to oil and gas activities in Ohio is less clear than in West Virginia, Staley said. Based on state court rulings in Ohio, “there is likely no local authority” to regulate oil and gas activities. The outcome of state court rulings in regard to five ordinances did leave the door open for the next case, the attorney warned.

In State ex rel. Morrison v. Beck Energy Corp., the Ohio Supreme court ruled in a 4-3 decision on 2/17/15 that the City of Munroe Falls, near Akron, could not discriminate against, unfairly impede or obstruct oil and gas activities and operations. Beck Energy obtained a permit in 2011 from the Ohio Department of Natural Resources (DNR) to drill an oil and gas well on property in Munroe Falls. The city attempted to stop the energy company from drilling based on five of its own municipal ordinances. The issue in the case was whether Munroe Falls had the power to enforce its own permitting scheme atop the state’s system. The court held that the city did not have that power.

Similar to West Virginia, Ohio’s Chapter 1509 centralizes regulatory authority to state government, entrusting the DNR with sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations within Ohio, except for certain activities regulated by federal laws. The DNR promulgated regulations regarding wells and well permitting, including standards that address the safety of drilling and operations, well spacing requirements, protection of water supplies, surface facilities, waste containment and disposal, access roads, and noise mitigation. Beck Energy’s state permit to drill in Munroe Falls included 67 conditions.

While the state’s laws do preserve regulatory powers granted to local governments — including the power to control public highways, streets, sidewalks, public grounds, bridges, and aqueducts – Chapter 1509 expressly prohibits a local government from exercising those powers against oil and gas activities.

Soon after Beck Energy began drilling, Munroe Falls issued a stop-work order and filed a complaint seeking injunctive relief in the Summit County Court of Common Pleas, alleging that Beck Energy was violating multiple provisions of Munroe Falls ordinances, and that it had powers to self-govern under the so-called Home Rule Amendment to the state’s constitution. Beck argued that the city’s ordinances conflicted with the statewide regulatory scheme.

In determining whether or not the city’s ordinances represented a valid exercise of its home-rule power, the court found that the Home Rule Amendment does not allow municipalities to exercise their powers in a manner that conflicts with general laws. A municipal ordinance must yield to a state statute if: (1) the ordinance is an exercise of the police power, rather than of local self-government, (2) the statute is a general law, and (3) the ordinance is in conflict with the statute. The court ruled that the ordinances constituted an exercise of the police power, restricted an activity that a state license allows, and therefore could not be enforced.

One of the judges, Judge J. O’Donnell, concurred in the judgment only on the issue that the statute preempted local permitting ordinances applicable to the construction and operation of oil and gas wells within the municipality. The judge emphasized that the decision was limited in scope, holding to the five municipal ordinances at issue in the case. The case did not present the question whether Chapter 1509 conflicted with local land use ordinances that only address the traditional concerns of zoning laws without imposing a separate permitting regime applicable only to oil and gas drilling. “Thus, in my view, it remains to be decided whether the Ohio General Assembly intended to wholly supplant all local zoning ordinances limiting land uses to certain zoning districts without regulating the details of oil and gas drilling expressly addressed by Chapter 1509,” O’Donnell said.

Not deterred by the Ohio Supreme Court’s decision, Munroe Falls then attempted to pursue the matter through traditional zoning ordinances, Staley explained, and filed suit on 5/27/16 in the lower Summit County Court, in Kostoff v. Beck Energy. The city sought a declaratory judgement on its right to enforce its zoning ordinances. A ruling from that court on 7/14/16 upheld the state’s sole authority to enforce regulations in regard to oil and gas development.

Pennsylvania. The situation is less clear in Pennsylvania, Staley observed. The statutes do allow for local authority, but in areas where oil and gas activities occur, municipals cannot regulate the features of a well. As companies in the state quickly expanded into oil and gas development, local governments responded with ordinances directed at zoning, streets, bridges, noise, air pollution, and civil disobedience, among other things. The number of ordinances have grown dramatically: localities issued 96 ordinances in 2014, 105 in 2015, and, so far in 2016, issued 62.

Starting with arguments in 2008, courts began to try and flesh out the role of local governments. The first ruling came in Range Resources-Appalachia, LLC v. Salem Township (964 A.2d 869 (Pa. 2009), decided on 2/19/09. On appeal from the Commonwealth Court, the Pennsylvania Supreme Court ruled that the ordinances issued by Salem Township to regulate many aspects of oil and gas drilling (including strict requirements for well permitting) are preempted by the Pennsylvania Oil and Gas Act.

Next, the same court’s decision in Huntley & Huntley, Inc. v. Borough Council of the Borough of Oakmont(964 A.2d 855, 2009 WL 413723 (2009)) confirmed the preemption issue to some extent, concluding that the Oil and Gas Act’s preemptive scope is not total in the sense that it does not prohibit municipalities from enacting traditional zoning regulations that identify which uses are permitted in different areas of the locality. This would apply only to the technical aspects of oil and gas well functioning, rather than a well’s location. The court clarified that the holding is not suggesting that all or any zoning regulations of oil and gas development would be allowable.

Then, on 2/8/12, the state passed legislation to overhaul the Oil and Gas Act to increase the oversight and development of oil and natural gas resources in the state. Among other things, Act 13 placed limits on the regulatory authority of local governments in regard to the development. A year later, however, parts of the statute were challenged by seven municipalities, two local elected officials, the Delaware Riverkeeper Network, and a physician. Since then, state courts have issued four rulings in Robinson Township v. Commonwealth, starting with the Commonwealth Court in Robinson I rejecting some of the various challenges to Act 13.

In the latest ruling on September 28, known as Robinson IV, the court, led by four Democrat judges, struck down more of Act 13 (see related article in this Foster Report).

Regarding the preemption issues, the Robinson IV ruling decided that the state’s Public Utility Commission (PUC) has no authority to review municipal land use determinations to determine consistency with the requirements of Act 13. The Supreme Court found that provisions of Act 13 “severely curtailed” the ability of local municipalities to regulate the oil and gas industry. The Act prohibited municipalities from enacting any local ordinance via the state’s Municipalities Planning Code (MPC) or the Flood Plain Management Act, which is the Supreme Court deemed unconstitutional.

Act 13 had provided a mechanism for the PUC and the Commonwealth Court to determine whether a local ordinance violated the MPC or state law, with the PUC either reviewing proposals from municipalities to implement an ordinance or reviewing requests from oil and gas operators aggrieved by the enactment/enforcement of a local ordinance, and allowing a de novo review in the Commonwealth Court. The law also included penalties for municipalities if their local ordinances failed to comply with the requirements of the MPC or state laws, and made local governments liable to pay reasonable counsel fees and costs of a prevailing plaintiff in an action seeking to invalidate or enjoin an ordinance if the Commonwealth Court determined that the ordinance was reckless.

The Robinson II decision in December 2013 found that these sections of Act 13 violated state law guaranteeing the right of the people to directly enforce obligations to natural resources. The General Assembly, in creating Act 13, did not have the authority to abrogate, via legislation, the duties and responsibilities owed by municipalities to their citizens under the Pennsylvania Constitution. In the Robinson IV decision, the Pennsylvania Supreme Court agreed that the portions of Act 13 were not severable from the sections of the act that were invalidated by the Robinson II decision, including the portions giving the PUC the jurisdiction to review local zoning ordinances.

By Kimberly Underwood KUnderwood@fosterreport.com

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How many employees are on your field location (for purposes of the FLSA)?

The PIOGA Press

By now you have probably heard that on December 1 the salary threshold required for employees to qualify for the executive, professional or administrative exemptions allowed by the Fair Labor Standards Act (FLSA) will double. While certainly significant, this recent update to the overtime regulations was not unexpected, as the salary threshold has not been increased since 2004.

This change is of course not the only recent wage and hour development of which oil and gas employers must be aware. In addition to the fact that Wage and Hour Division of the United States Department of Labor (DOL) has been specifically targeting the oil and gas industry since 2012, there are other, far less distinct trends that have been taking shape over the past year. The DOL and the National Labor Relations Board (NLRB) have announced new rules and cases that could increase employee headcounts and expand the concept of joint employment. In short, for purposes of the FLSA, some oil and gas employers may actually have more employees than their payrolls indicate.

Determining whether independent contractors are actually employees

In response to the trend of increasing employee misclassification investigations and private wage and hour lawsuits, last summer the DOL issued a 15-page interpretative memorandum with an aim to provide “additional guidance” for determining who is an employee and who is an independent contractor under the FLSA. Although classification as an independent contractor can be advantageous (or even preferable) for workers and businesses alike, improperly classified workers do not receive certain workplace protections such as the minimum wage, overtime compensation, unemployment insurance and workers’ compensation. Improper classification also frequently results in lower tax revenues for the government and an unfair advantage against those employers that do properly classify their workers.

The FLSA broadly defines the word “employ” as “to suffer or permit to work.” According to the United States Supreme Court in U.S. v. Rosenwasser, 323 U.S. 360 (1945), and as acknowledged in the DOL’s interpretive memorandum, the “suffer or permit” standard is the broadest definition that has ever been included in any one act and it was designed to ensure as broad a scope of statutory coverage as possible.

The economic realities test determines whether an individual is an employee or an independent contractor. It involves a balancing of several factors, including whether the potential joint employer controls the supposed independent contractor and the employment conditions; the permanency of the relationship; the repetitiveness of the work being performed; whether the work is integral to the potential joint employer’s business; whether the work is performed on the potential joint employer’s premises; and whether the work qualifies as routine administrative work. According to the DOL, these factors should not be analyzed “in a vacuum, and no single factor, including control, should be over-emphasized.” The ultimate determination to be made is whether the individual at issue is in business for him or herself or is instead economically dependent on the employer. According to the DOL, many companies misapply this “broader concept” of the economic realities test and as a result “most workers are employees under the [FLSA].”

NLRB’s expanded joint employer test

Just over one year ago, in August 2015, the NLRB applied an expanded joint employer test in Browning Ferris Industries, et al., 362 NLRB No. 186 (2015), a case in which it held that, for the purpose of a union representation election, Browning Ferris Industries was a joint employer with Leadpoint, a staffing agency. The decision was based upon the concept that it is the “existence, extent and object” of the putative joint employer’s control that matters, not whether that control is actually exercised. Though the Browning Ferris decision is limited to union representation elections, regulatory agencies and the plaintiffs’ bar may attempt to apply a similarly expansive joint employer concept for purposes beyond collective bargaining, such as wage and hour matters. Moreover, many temporary employee and contractor arrangements have been structured in reliance of the NLRB’s pre-Browning Ferris emphasis on the actual exercise of control as the determinative factor rather than the potential for such control. Those arrangements may now be susceptible to attack under the more expansive Browning Ferris test.

DOL’s joint employment guidance

Earlier this year, the DOL issued enforcement guidance on the topic of joint employment. Many employers have decreased the size of their workforce in recent years by relying upon staffing firms to provide temporary employees or by outsourcing certain job functions entirely through contracts with independent businesses. Despite this, employers may still face potential liabilities under the joint employment doctrine. As the traditional direct employment model has changed, these so called “fissured workplaces” have been targeted as alleged joint employers. As a result, traditional labor and employment laws and regulations might be applied to businesses that do not view themselves as the “employer” of temporary or contracted employees.

Many oil and gas employers may be surprised to know that they may be jointly responsible for paying workers overtime along with the entity that actually issues the workers a Form W2. Regardless of whether the potential joint employment involves a horizontal or vertical arrangement, joint employers are jointly responsible for adhering to wage and hour laws. Horizontal joint employment involves workers who are employed by two technically separate yet related or intermingled entities. Vertical joint employment, on the other hand, is the classic staffing agency model.

Very recently, oil and gas workers have begun to file complaints against only one (but not all) of the alleged joint employers. For instance, one plaintiff recently alleged that an operator “or its client” violated a wage and hour law. Another alleged that an operator “or its contractor” misclassified the plaintiff. Perhaps this strategy is the result of genuine confusion as to which entity was the plaintiff’s actual employer. A more likely conclusion may be that plaintiffs are targeting the entity they presume to have deeper pockets. Regardless of plaintiffs’ intentions, oil and gas employers should be aware of the possibility that, for purposes of the FLSA, they may be responsible for workers who do not appear on their payrolls.

Stephen A. Antonelli is a shareholder in the Employment and Labor Practice Group of law firm Babst Calland. For more information about employment and labor challenges in the oil and gas industry, contact Stephen A. Antonelli at 412-394-5668 or santonelli@babstcalland.com.

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Nonconforming Use Certificates Cannot Extinguish a Nonconforming Use

The Legal Intelligencer

On July 14, the Commonwealth Court rendered a decision in Hunterstown Ruritan Club v. Straban Township Zoning Hearing Board, 2016 Pa. Commw. LEXIS 327 (Pa. Commw. Ct. 2016), confirming that a property owner’s failure to register a nonconforming use with a municipality and obtain a nonconforming use certificate is not fatal to the continuance of the use.

The law in Pennsylvania regulating legal, nonconforming uses is well settled. A nonconforming use is a use that predates a prohibitory zoning regulation; it constitutes a vested, constitutional property right that may be continued unless the use is a nuisance, abandoned, or extinguished by eminent domain, as in Hafner v. Zoning Hearing Board of Allen Township, 974 A.2d 1204, 1210 (Pa. Commw. Ct. 2009). For example, an existing legal auto body shop does not have to move upon the adoption of a zoning ordinance that prohibits the shop in its present location. Rather, the shop can continue to operate as a nonconforming use.

The burden of proving the existence of a nonconforming use falls upon the property owner. In order to establish a nonconforming use, a property owner must present objective evidence that the subject property was devoted to such use at the time the prohibitory zoning regulation was enacted, as in Appeal of Lester M. Prange, 647 A.2d 279, 281 (Pa. Commw. Ct. 1994). Finally, property owners with a legal, nonconforming use have a constitutionally protected right to expand the use, notwithstanding its status as nonconforming, as in Lench v. Zoning Board of Adjustment of the City of Pittsburgh, 852 A.2d 442, 444 (Pa. Commw. Ct. 2005). This right of natural expansion is not, however, unlimited. Pennsylvania courts have consistently concluded that while a property owner may increase the intensity of a nonconforming use (e.g., an increase in the number of users or an increase in the frequency of the use), a nonconforming use may not be expanded if it would be: inconsistent with the public interest; not an expansion of the current use, but rather an addition of a new use; or excessive, as in Domeisen v. Zoning Hearing Board, 814 A.2d 851, 856 (Pa. Commw. Ct. 2003).

In order to document legal nonconformities, many municipalities require property owners to register them pursuant to a procedure set forth in the municipality’s zoning ordinance. Upon registration, a municipality will typically issue a certificate of nonconformance acknowledging the existence of the nonconformity. Many zoning ordinances state that failure to comply with the registration procedure extinguishes the right to continue the use. However, such provisions are inconsistent with Pennsylvania case law. Most recently in Hunterstown the Commonwealth Court rejected a municipality’s attempt to partially extinguish a nonconforming use because the property owner’s nonconforming use certificate did not fully describe the extent or scope of the vested nonconformity.

In Hunterstown, the Hunterstown Ruritan Club in 1955 purchased 14 acres of property located in Straban Township for the purpose of providing the community with recreational opportunities. The property is partially surrounded by homes and at the time of purchase the township did not have a zoning ordinance. After purchasing the property, the club began to informally use the property for go-cart racing and in 1982 formalized the use by entering into a written lease with Hunterstown Kart Club. Ten years later, the township adopted its first zoning ordinance. Under the new zoning ordinance, go-cart racing was not a permitted use on the property. Nevertheless, the township verbally acknowledged the existence of the go-cart operation and agreed it could continue to operate as a nonconforming use. At that time, go-cart racing primarily took place on Saturdays, but races also were held occasionally on Sundays.

Over time, the club incrementally increased the intensity of the use of the property for go-cart racing and expanded its hours of operation. In 2011, due to this increased utilization, the township’s zoning officer issued a notice of violation to the club. In response, the club applied for a certificate of nonconformance, requesting the township’s formal recognition of the use of the property for racing on Saturdays and Sundays. The township issued the requested certificate, but limited the existing nonconforming use to Sunday racing. The township informed the club that in order to expand the use of the property to permit go-cart racing on Sundays, the club would need to seek special exception approval from the township zoning hearing board.

Disagreeing with the township’s exclusion of Sunday racing from the certificate of nonconformity, the club, pursuant to the township’s direction, sought special exception approval to expand the existing nonconforming use. To prove that Sunday go-cart racing predated the adoption of the zoning ordinance, the club produced a treasurer’s report from 1972 that showed racing took place on at least two Sundays that year. Additionally, the president of the kart club testified that: while Saturday racing was more popular in the 1990s, Sunday is now the more popular day; the ability to hold races on Sundays is essential to the continued existence of the kart club; approximately 250 people raced on the Sunday before the board hearing; alcohol is not permitted on the property; trash is picked up the day after every race; the kart club oversees parking of cars, trucks and trailers and patrons are directed to parking places; if patrons park on the street, they are asked to move their cars; and all audio speakers face the track. In opposition to the club’s request, two township residents who live adjacent to the property testified that Sunday racing did not begin to take place until after 2000.

The board was unpersuaded by the club’s evidence. While acknowledging that the club was a pre-existing nonconforming use, the board concluded that the club failed to satisfy the standards for a special exception and denied the application. The board found that: the proposed use did not meet applicable buffering or parking requirements; the proposed use will significantly devalue neighboring properties; the club did not establish planning with respect to environmental issues and the manner in which it would mitigate the increased noise, traffic, parking needs and pedestrian use of the property; the club did not provide fencing or screening; the club did not establish the number of parking spaces required or mark the parking spaces for standard vehicles and handicapped parking; and the club did not establish the adequacy of illumination of the property or its effects on adjacent properties.

The club appealed the board’s denial to the trial court, arguing that it was not proposing to change or expand the nonconforming use, but sought only to conduct the same racing that had occurred on the property for the past several years. In response, the board argued that the issue was not whether there was a prior nonconforming use for Sunday racing, but whether the club was able to meet the special exception requirements under the zoning ordinance to expand racing to include Sundays. Agreeing with the board, the trial court concluded that the club was not challenging the limitation of its nonconforming use certificate to Saturday only, but was seeking to expand the use to include Sundays, and dismissed the club’s appeal.

Before the Commonwealth Court, the club again argued that it never abandoned the nonconforming use of go-cart racing on Sundays and its nonconforming use includes racing on both Saturdays and Sundays. Agreeing with the club, the Commonwealth Court concluded that Sunday racing was entitled to constitutional protection and reversed. In doing so, the court found, among other things, that the board erred in concluding that the club was not entitled to continue its nonconforming use because the use was not adequately described in the township’s certificate of nonconformance. After summarizing applicable Pennsylvania case law related to nonconforming uses, the court explained that the granting or denial of a nonconforming use certificate, the purpose of which is merely to document the existence of a nonconforming use, has no bearing on an individual’s constitutionally protected property rights. Thus, the court reiterated that the issuance of a nonconforming use certificate does not grant a landowner any additional property rights, nor does the absence of a certificate deprive the landowner of the right to continue a lawful nonconforming use. Accordingly, the court found that the club’s failure to appeal the terms of its certificate of nonconformance resulted only in a procedural disadvantage and not in a restriction or limitation on its constitutionally protected property right to continue the use on Sundays.

The import of Hunterstown is that while a nonconforming use certificate is a useful tool for municipalities to document nonconforming uses and for property owners to defend against zoning enforcement actions, the absence of or an inaccuracy in a certificate does not negate the right of a property owner to continue a nonconforming use. Rather, it merely deprives a property owner of the most efficient method of proving the existence and scope of the use.

*Reprinted with permission from the 8/26/16 issue of The Legal Intelligencer. © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited.  All rights reserved.

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