Regulatory Flexibility Act of 1980

The Regulatory Flexibility Act of 1980 (referred to here as the Act), Public Law No. 96–354, was signed by President Carter on September 19, 1980. The Act had a major impact on the rule-making activities of government agencies as it attempted to minimize any disproportionate effect of federal regulations on small entities. This Act was part of a stream of legislation and executive acts, beginning in the 1970s, that sought to increase the flexibility and effectiveness of federal regulation. A number of new regulatory tools were implemented, sometimes across regulatory issue areas. The Act reflected a newly proposed regulatory design often referred to as “tiering,” in which the burdens of regulation were adjusted for the size of the complying organization, so that the burdens faced by smaller organizations would be reduced. Through tiering, compliance would improve because it would become more feasible for small organizations to comply. This design was also viewed as a more equitable way to regulate, because it removed what some viewed as unjust, unreasonable burdens from small organizations. Tiering was sometimes incorporated into regulation via specific size guidelines, for example, being triggered by a specific number of employees such as 25 or 50. In the case of the Act, this size limit was left undetermined, leaving the agencies required to do regulatory flexibility analyses to indicate the appropriate reach of the regulation in question. The Act required all independent federal regulatory agencies and executive agencies to perform various analyses, calculate cost impacts, and evaluate alternatives with regard to the impact of their proposed regulation on small entities. Enforcement of the Act is performed by the Small Business Administration (SBA).

Passage of the Act resulted from complaints from small businesses that were going broke and drowning in federal forms as a result of federal regulations. Prior to 1980, small entities experienced the same burdens of regulations as their larger competitors, but with fewer resources. The Act recognized that the size of a small entity frequently has a bearing on its ability to abide with federal regulations. Compared with larger entities, a small entity may not be able to absorb the costs of complying with a particular regulation. These costs include staff time, direct compliance costs, record keeping, outside expertise, and others.

The burden of these extra costs, which may be manageable for larger businesses, may not allow small businesses to set competitive prices, expend funds on development activities, or even remain in business.

The Act had three main goals. The first goal was to improve governmental agencies' understanding and awareness of the impact of their regulations on small entities defined as small business, small not-for-profit organizations, and small government jurisdictions. The second goal was to require agencies to communicate to the public by explaining their findings through various reports. Finally, the Act encouraged agencies to be flexible and provide regulatory relief by attempting to find an easier, less burdensome way for these small entities to comply with the regulations.

When proposing a new regulation, the Act requires governmental regulatory and executive agencies to publish a general notice, then prepare and make available to the public an initial regulatory flexibility analysis (RFA). The RFA was developed to place the burden on governmental agencies to review all proposed regulations to ensure that they do not unduly inhibit the ability of small entities to invent, produce, and compete while accomplishing their intended purpose. The initial RFA contains the objective and legal basis of the proposed rules and describes the agencies it applies to and the requirements for reporting and record keeping. In addition, it contains significant alternative proposals that could satisfy the objectives of the proposed rule at a cheaper cost to small entities and states any duplicative, overlapping, or conflicting federal rules. An RFA analysis is not required if the agency head certifies that their proposed rule will not have a significant economic impact on a substantial number of small entities.

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