Ending the Under-Regulation of the Railroads

When an apparent contract impasse between rail unions and management threatened to bring about a national shutdown late last year, the Biden Administration was quick to act. Unfortunately, the action it took was to ban the walkout without requiring any concessions from the giant rail corporations.

Two months later, a freight train operated by one of those corporations, Norfolk Southern, derailed in East Palestine, Ohio. Many of the 150 railcars—which included tankers filled with hazardous materials such as vinyl chloride—caught fire and burned for days. During this time, the Biden Administration was widely criticized for failing to act promptly.

After a couple of weeks, the administration did catch up, especially once the Environmental Protection Agency got more directly involved. Now the EPA is in charge of the response and is finally requiring Norfolk Southern to remediate the area under plan approved by the agency rather than doing the voluntary cleanup the company had previously promised.

Like many accidents before it, the East Palestine derailment has brought to light some disturbing truths about the way in which the federal government regulates—or fails to regulate—the railroad industry. It is in the wake of these incidents that all the claims by rightwing legislators and corporate executives about heavy-handed oversight of business are revealed to be baseless.

Instead, the problem with railroads is that they are under-regulated and that government officials are too chummy with the major carriers. This is especially true with regard to the Federal Railroad Administration, the unit of the Transportation Department responsible for rail safety.

The FRA’s gentle approach to regulation goes back many years. Here’s an excerpt from a 1996 article in the Los Angeles Times:

The National Transportation Safety Board on Wednesday blamed the Federal Railroad Administration, the Burlington Northern Santa Fe and the railroad industry as a whole for February’s disastrous freight train wreck in the Cajon Pass near San Bernardino…The board said the runaway train derailment apparently occurred because the FRA, the industry and the Santa Fe division of the newly formed Burlington Northern Santa Fe railroad failed to ensure that the train was equipped with a backup electronic brake system that probably could have stopped the train after its main braking system failed… “The problem is that we asked the FRA to do something immediately, and they didn’t do it,” Robert Lauby, chief of the NTSB’s railroad division, told the board.

A 2004 article in the New York Times documented close personal ties between FRA officials and industry executives and lobbyists, adding: “Critics of the agency say that it has, over the years, bred an attitude of tolerance toward safety problems, and that fines are too rare, too small and too slowly collected.” A 2005 audit of the FRA by the Transportation Department’s inspector general expressed concern about the agency’s failure to adequately address systemic safety problems in the industry.

In 2015, following a series of derailments and spills of trains carrying crude oil, the FRA proposed new regulations that were widely criticized as inadequate by members of Congress, state and local officials, and safety advocates.

The Obama Administration did, however, try to implement new rules requiring trains carrying “high hazardous materials” to install electronic braking systems to stop trains more quickly than conventional air brakes. The rule was finalized in 2015, only to be repealed as part of the Trump Administration’s crusade to eliminate regulations.

Reporting published since the East Palestine disaster depicts Norfolk Southern as having taken full advantage of the FRA’s lax oversight and as one of the most aggressive opponents of a proposed regulation that would bar railroads from operating trains with only a single crewmember.

In recent years the company has boosted profits while its accident rates have grown, leading to charges that it is cutting corners on safety to fatten the bottom line. A USA Today analysis found that Norfolk Southern has had the second-highest rate among the major railroads each year since 2019.

The exact cause of the East Palestine derailment is not yet known. If the National Transportation Safety Board finds it was something preventable, that will put heat on both the company and the FRA. The company will face calls to invest more to upgrade its equipment, even at the cost of profits. And the agency will feel new pressure to end its cozy relationship with the industry and show that it is serious about protecting the public.

A Harebrained Response to Labor Shortages

At a time of widespread labor shortages, one might expect policymakers to welcome asylum seekers and economic migrants eager for an opportunity to make a living in the United States. Instead, as the Washington Post reports, legislators in some states have come up with a harebrained proposal for filling those jobs: loosening the restrictions on child labor.

Lawmakers in Wisconsin lifted restrictions on working hours during the school year, but the measure was vetoed by the governor. The Ohio Senate passed a similar bill but it died in the House. Even worse are bills introduced in Iowa and Minnesota that would allow teens as young as 14 to work in dangerous occupations such as meatpacking and construction.

It is unclear whether these legislators are aware that labor activists and social reformers fought for many years in the 19th and early 20th centuries to restrict the exploitation of children in factories, mines, mills and other workplaces. They eventually made progress at the state level, leading to the passage of the federal Fair Labor Standards Act in 1938. The FLSA barred young workers from some occupations and limited the hours they could work in others, both for safety reasons and to prevent adverse effects on educational attainment. Adoption of strong child labor laws came to be viewed as one of the hallmarks of a humane society.

While the FLSA and state regulations eliminated the worst forms of child labor, they did not end abuses entirely. Violation Tracker documents more than 4,000 cases over the past two decades in which an employer paid a penalty for breaking the rules. The fines imposed in these cases amount to $99 million, or an average of about $24,000 per case—a reflection of the fact that penalty levels are far from harsh.

Most child labor violators are small firms, but some large corporations have also committed the offense. Chipotle Mexican Grill has the highest penalty total, mainly due to a $7.75 million settlement the company reached in 2022 with the New Jersey Department of Labor and Workforce Development. An audit conducted by the agency of Chipotle outlets had found over 30,000 violations across the state. Two years earlier, Chipotle reached a $1.87 million settlement with the Massachusetts Attorney General over child labor and other wage and hour violations.

Among the other big companies with substantial child labor penalties from multiple cases are: CVS Health ($464,099), Albertsons ($337,790) and Walmart ($317,378).

Most child labor violations are related to potential harm to young workers, but there are also cases in which the harm is real and even deadly. A 2018 report by the Government Accountability Office cited estimates that workers aged 17 and under sustain thousands of injuries each year. That same report included data showing that work-related fatalities for that same age group totaled 452 for the period from 2003 to 2016. The largest numbers of deaths were in agriculture, followed by construction and mining.

The sensible response to all these statistics would be to tighten the rules regarding child labor, not to weaken them. There are better ways to address labor shortages.

Biden’s Catalogue of Corporate Abuses

There was not much soaring oratory in President Biden’s State of the Union address, but the speech was an unapologetic call for a full set of progressive policy initiatives. It was also a bold critique of big business practices affecting workers, consumers and communities. Biden offered what amounted to a catalogue of corporate misconduct.

Although Biden implicitly praised the private sector for strong job creation during the past few years and explicitly hailed companies planning to make big investments in U.S. semiconductor production (with generous federal subsidies), he also spoke of the prior decades during which corporations moved large numbers of well-paid manufacturing jobs overseas and devastated many communities.

Biden chastised Big Pharma for charging exorbitant prices and generating high profits, warning that he would veto any attempts by Congress to repeal new legislation that will require the industry to negotiate Medicare drug prices for the first time.  

Calling the tax system unfair, Biden lambasted large companies that have managed to avoid paying anything to the federal government and praised the adoption of a 15 percent minimum. Addressing those corporations, he stated: “just pay your fair share.”

Citing Big Oil’s record profits over the past year, Biden criticized the industry for not investing more in domestic production and instead using the windfall for stock buybacks that boost share prices. He called for quadrupling the tax on those transactions.

Biden went after insurance companies for surprise medical bills and called out nursing homes “that commit fraud, endanger patient safety, or prescribe drugs they don’t need.” He took credit for cracking down on shipping companies that charged excessive rates during the supply-chain crunch.

Touting a bill called the Junk Fee Prevention Act, Biden lashed out at hidden surcharges and fees imposed by hotels, airlines, banks, credit card companies, cable TV and cellphone providers, ticket services, and other sectors. “Americans are tired of being played for suckers,” he declared.

Biden took aim at large employers that require workers, even in low-skilled positions, to sign non-competition agreements, blocking them from taking a job with a competing company. Saying he is “sick and tired of companies breaking the law by preventing workers from organizing” unions, he called for passage of the PRO Act.

Speaking of the efforts to keep small business afloat during the pandemic, he vowed to double-down on efforts to prosecute corruption in those programs.

Biden also joined the chorus of voices denouncing the tech giants, stating “we must finally hold social media companies accountable for the experiment they are running on our children for profit.” He called for legislation to “stop Big Tech from collecting personal data on kids and teenagers online, ban targeted advertising to children, and impose stricter limits on the personal data these companies collect on all of us.”

There was a lot more to the speech, but this was a remarkable recitation of the sins of unbridled big business. It is significant that Biden delivered this critique without ever using the word “regulation,” which the Right has endlessly demonized. Yet he spoke repeatedly of both administrative and legislative initiatives to address the abuses.

The latter category is dead in the water in the new divided Congress. It will be up to the Biden Administration to show what it can do through executive action to turn his critique into significant change.

Handling Crime in the Suites

Figuring out how to get corporate executives to obey the law has been a perennial challenge. The Justice Department has apparently concluded that the key to compliance may be to threaten something CEOs and other C-Suite bigwigs love dearly: their annual bonuses.

As Law360 reports, compliance experts are abuzz about an unusual provision the DOJ included in the plea agreement it recently negotiated with Denmark’s Danske Bank. The company had agreed to forfeit $2 billion and plead guilty to fraud in connection with allegations that its lax anti-money-laundering (AML) controls allowed shady customers from Russia and other eastern European countries to funnel suspicious funds through Danske’s subsidiary in Estonia.

What is remarkable in the plea agreement is a requirement that Danske tie its executive bonuses to compliance with the stricter AML procedures the bank agreed to implement. The agreement states:

“The Bank will implement evaluation criteria related to compliance in its executive review and bonus system so that each Bank executive is evaluated on what the executive has done to ensure that the executive’s business or department is in compliance with the Compliance Programs and applicable laws and regulations. A failing score in compliance will make the executive ineligible for any bonus for that year.”

The bank is also supposed to structure its compensation system to “incentivize future compliant behavior and discipline executives for conduct occurring after the filing of the Agreement that is later determined to have contributed to future compliance failures.”

Tying executive compensation to compliance is not entirely new. For example, last year the SEC adopted a rule requiring executives at publicly traded companies to return bonuses in the event of erroneous financial reporting. The use of such clawbacks was raised in the 2010 Dodd-Frank Act and took a dozen years to come into existence.

I am of two minds about this innovation. On the one hand, it is encouraging that DOJ is experimenting with new ways to punish corrupt behavior in the corporate world. Imposing consequences on individual executives is an improvement over the usual practice of simply having the company pay a monetary penalty to make the case go away.

On the other hand, it is a bit dismaying that the punishment being contemplated for those executives is quite so mild. Taking a hit to a bonus worth six or seven figures may be unpleasant to a corporate executive, but it is far from a multi-year prison sentence.

The focus on financial incentives and disincentives for individual business offenders is consistent with the approach DOJ tends to take when cases are brought against companies. As I wrote about recently, the Department is offering corporations new inducements – in the form of reduced monetary penalties — to get them to voluntarily disclose misconduct. This is addition to continuing the practice of allowing companies to enter into leniency agreements known as deferred prosecution and non-prosecution agreements so they do not have to plead guilty to criminal charges.

Time and again, we see corporate miscreants treated with kid gloves. The repeated calls for getting tough on crime never seem to apply when the offenses occur in the suites rather than the streets.