The little guy myth: the Fair Act's victimization of small business.

Author:Peters, Melissa A.
Position:Fair Access to Indemnity Act; attorneys' fees for small business suits against OSHA, NLRB

Big business dominates the media. We are inundated with news of billion-dollar mergers and corporate takeovers, but that is not the American Dream. For many years, the United States has had a love affair with small business. Americans may shop in megamalls and Super Wal-Marts, but they admire and respect the entrepreneurial spirit embodied in the many small businesses that increasingly drive our economy.(1) The passion and concern the public has for small businesses, particularly entrepreneurs, is unparalleled.(2)

One significant example of such passion and concern is the proposed Fair Access to Indemnity Act (FAIR Act), which seeks to award attorneys' fees to small businesses that prevail against the Occupational Safety and Health Administration (OSHA) and the National Labor Relations Board (NLRB) in litigation. Significantly, the Act is not reciprocal in that the agencies are not entitled to attorneys' fees when they prevail against the guilty small business. Although proponents claim that the rationale behind the FAIR Act is to "even the playing field" between large government agencies and small businesses, this Note illustrates that the true rationale is the clandestine desire to give small businesses advantages that are perhaps unwarranted.

If it seems equivocal that small businesses are well protected and cared for, one need only look at the legislation supporting small businesses within the last fifteen years. The first section of this Note focuses on the enactment and development of the Equal Access to Justice Act (EAJA)(3) as a way to "protect" small business employers from incurring legal costs in litigation against government agencies.(4) The second section analyzes the sentiment surrounding the EAJA's failure, and the more extreme bill that has been proposed to increase such "protection."(5) In particular, the FAIR Act takes a stronger stance than the EAJA because it awards attorneys' fees to prevailing small businesses, even when the government agencies may have been justified in bringing the claim. Assessing the language used in support of the bill reveals that many people in this country believe that small businesses are not well protected. Such a notion is completely ill founded, and, furthermore, the proponents of the FAIR Act are aware of the shaky foundation upon which their argument rests.

The third and fourth sections explain the true rationale underlying legislation such as the FAIR Act: the political ideal that small businesses are evidence of the American Dream. The third section dispels the myth that small businesses are "victims" of governmental abuse in need of further protection.(6) Finally, the fourth section asserts that if the public wants further protection for small firms, an argument not without merit, it should honestly advocate such a policy without relying on the "victim" theory that corrupts bills such as the FAIR Act.(7)


The prevailing scheme regarding attorneys' fees in this country is the American rule, which states that each party is accountable for paying his own legal fees regardless of who is vindicated.(8) Despite the longevity of the rule, many judicially created and statutory exceptions exist.(9) These exceptions exemplify the various arguments against the American rule, and suggest why it is the minority rule among industrialized democracies.(10) In 1980, Congress passed the EAJA, a pivotal exception to the American rule, on behalf of small businesses.(11) When first enacted, the Act was experimental; it became permanent in August 1985.(12) The EAJA awards small businesses and individuals attorneys' fees when they prevail against government agencies, unless the government proves it is "substantially justified" in its position.(13)

The EAJA qualifies as an "extreme" exception when one considers the pervasive doctrine of governmental immunity: "Traditionally, the United States [government] was even less vulnerable to an award of attorneys' fees than a private litigant."(14) More surprisingly, it is a one-sided provision, because the government can never recover fees.(15) The only time the government's stance is evaluated is when it loses: the government must then prove that it was "substantially justified" in its position to avoid compensating the small business or individual for its legal fees.(16)

The early EAJA cases reflect the difficulty courts had in defining "substantially justified."(17) Courts split over whether the government had to be justified in only its litigation position(18) or in both its prelitigation and litigation positions.(19) Congress responded to this debate by choosing the latter in the 1985 Amendments.(20) The legislative history also provides that "substantially justified" requires a showing of more than reasonableness.(21) an issue that was heavily debated prior to the Amendments.(22) Of course, the assertion that "more than reasonableness" is somehow a clearer standard than "substantially justified" is superficial at best. "The legislative history gives no further guidance except to echo the previously followed premise that determinations of substantial justification must be made on a case-by-case basis."(23)

The Asserted Rationale

The EAJA was designed primarily to give individuals and small businesses the resources to defend their rights and deter the government from bringing arbitrary or fruitless claims.(24) Even as an answer to the cries that small businesses were being "targeted" by government agencies, the introduction of the EAJA was not mainly a deterrent of governmental injustice, but an advocate of fairness to small businesses.(25) "In essence, the EAJA is Congress's attempt to level the litigation playing field."(26) The inequity alluded to is the disparity in resources that exists between government agencies and small firms.(27) The argument is that if small firms have a real chance to recover fees from the government, two positives will result: (1) small firms will be more likely to fight the government instead of succumbing to settlement as a way to avoid legal costs; and (2) the government will hesitate before bringing meritless claims.(28)

The language used to describe the purpose of the EAJA was quite strong. Small businesses were described as "victims" and the government's behavior was characterized as "abusive."(29) The Act was intended to stop the government from "pick[ing] on" small firms.(30) Such language embodied fears that the "little guy" would be trampled by large and wealthy government agencies.(31) This sentiment transformed the focus of the EAJA from advocacy on behalf of small business to support of "an `anti-bully' law."(32) In order to stop these bullies, Congress believed that a "little guy" who prevailed against big government should be made "whole" by recovering its litigation costs.(33) The notion of Small businessmen as underdogs became clear simply because the government, at times the prevailing party, is never made whole.(34)

The Success of the EAJA

While the language of the Act diminished its strength of purpose, successes of the EAJA are important to consider because the FAIR Act may be viewed as a response to its failures.(35) The FAIR Act's chief sponsor, Senator Tim Hutchinson (R-Ark.), argued that a legislative change is necessary because the eighteen-year-old EAJA "is not providing the relief it was meant to provide"--giving small business owners an incentive to defend themselves and reimburse them for their defense costs if they win.(36)

Although some may see the EAJA as successful,(37) the many inconsistencies in its application suggest an imprecise purpose. A 1998 case illustrated the murkiness of the "substantially justified" standard. The court stated that it "falls somewhere between the no justiciable issue standard of [state law] and an automatic award of fees to a prevailing party."(38) In the fifteen years that have elapsed since the 1985 Amendments, it is astonishing that the standard remains so unclear.(39)

One of the best ways to measure the impact of the EAJA is to compare the projected expense of the Act with the actual expenditures. The EAJA was originally estimated to cost $68 million a year, but during the period between 1988 and 1992, the total awards amounted to approximately $6 million a year.(40) In 1996, the NLRB received eight EAJA applications and awarded fees to one applicant.(41) OSHA received seventy-nine applications between 1982 and 1994, and granted awards in thirty-eight cases.(42) In the House and Senate, proponents of the FAIR Act view this disparity between projected and actual expenditures as indicative of the EAJA's failures.(43)


Since it is clear the EAJA is underutilized at best, and at worst simply not working, the FAIR Act imposes a flat rule: If you are a small business, or a small labor organization, and you prevail against the Board or OSHA, then you will automatically get your attorneys' fees and expenses.(44) The FAIR Act(45) was introduced in the House of Representatives on May 27, 1999.(46) The Act would Amend the National Labor Relations Act and Occupational Safety and Health Act, both of which regulate small business practices.(47) This amendment would allow for recovery of attorneys' fees by entities with no more than 100 employees and a net worth of no more than $7 million.(48) Employers and unions who qualify for an award of fees would receive them, even if the government was "`substantially justified' in bringing the action."(49) Consequently, the FAIR Act is termed an "automatic award" provision. It ensures recovery to small businesses without consideration of the government's justification or lack thereof.

Fifteen years after the EAJA was amended and permanently reinstated, the disparity between the EAJA "in theory" and "in actuality" has become an impetus for change.(50) The EAJA's goal of inciting small businesses to fight back has...

To continue reading