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How the Administrative State Targets Small Business Owners

June 29, 2023

While sometimes portrayed as merely a threat to big business, the true victims of the Administrative State are small to medium-sized businesses. NCLA’s cases, Polyweave Packaging v. DOT and gH Package Product Testing and Consulting v. DOT, are each case studies of such practices, which demonstrate the material effects of agencies’ unconstitutional procedures on hardworking Americans.

Small businesses suffer from agency enforcement of vague and opaque regulations far more than large and established firms. The Administrative State systemically targets small businesses because they struggle most with following debilitating agency rules and cannot effectively contest the enforcement of such rules, making them easy targets. While supporters often portray administrative power as a check on big business and the bulwark of consumer and investor protection, administrative agencies often evolve into bloated and unaccountable bureaucracies, led and staffed by former employees of the companies they regulated, who serve to protect established companies from nascent competition. These assertions are not mere speculation—they are readily observable from agency enforcement patterns. NCLA’s work representing small businesses subject to agencies’ abuse has made us intimately familiar with the challenges faced by these businesses and the imperative to curb agency authority—for the benefit of the American economy and our constitutional system.

As NCLA’s briefs in Polyweave Packaging v. DOT and gH v. DOT have demonstrated, the Administrative State (in this case, the Pipeline and Hazardous Materials Safety Administration (PHMSA), an agency under the Department of Transportation) essentially forces small businesses, who cannot afford the cost of compliance or the cost of fighting back, to accept harsh penalties for violating vague and imprecise regulations which transform the rule of law into the mere discretion of an agency inspector. In Polyweave, an agency employee told the firm that its product was “combination packaging” rather than “composite packaging,” and thus required less frequent testing. Years later, PHMSA turned around and concluded Polyweave’s packaging was in fact “composite packaging,” and the firm had thus violated testing requirements, leading to a substantial monetary penalty. The definitions of each are extremely unclear and allow arbitrary enforcement by the agency.

NCLA’s representation of Polyweave shed light on the difficulties faced by such small businesses in agency enforcement proceedings. Dragged through a grueling multi-year process, Polyweave was only able to contest PHMSA’s claims thanks to pro bono representation and the willpower to endure a years-long appeals process. Generally, businesses cannot afford the legal expense required to endure the agency’s drawn-out process for appeals, which (until recently, see NCLA’s unanimous Supreme Court victory in Cochran v. SEC) did not allow a business subject to an enforcement action to have their claims heard in an actual court. Administrative adjudications themselves offer little recourse to affected parties since the agency acts as both prosecutor and adjudicator. NCLA research has revealed that in eighteen administrative appeals filed within PHMSA since 2017, a finding of violation was affirmed in every single case.

Plaintiffs with the stamina and courage required to fight the Administrative State are rare, and our work at NCLA would not be possible without individuals like Neil Werthmann, the President of Polyweave Packaging. Neil’s willingness to stand up for his constitutional rights, even when doing so meant a long, drawn-out legal process, is critical to NCLA’s efforts and will be appreciated by all small business owners affected by administrative overreach, and the entire American economy.