Gregory J. Reigel
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December 29, 2017

The FAA's New Part 120 Voluntary Disclosure Reporting Program: Should An Employer Use It?

The FAA has released a new AC 120-117 Voluntary Disclosure Reporting Program ("VDRP") specifically for employer disclosure of 14 C.F.R. Part 120 violations. Some might say "this is a good thing." Others may say "it's about time." And still others may say the VDRP is "better than nothing." And none of these statements is entirely wrong. But we need to look at the Part 120 VDRP to understand why it may evoke these responses.

As you may know from previous articles, the FAA's Drug Abatement Division is the office within the FAA responsible for development, implementation, administration, and compliance monitoring (and enforcement) of aviation industry drug and alcohol testing programs. And it has always been very rigid and unforgiving when it comes to violations of the drug and alcohol testing regulations. Even after the FAA issued its new Compliance Philosophy, Drug Abatement didn't really change how it approached or handled these types of violations. So, when I saw the Part 120 VDRP I was initially encouraged.

The Part 120 VDRP functions much like the VDRP under AC 00-58B with similar policy considerations. The FAA believes an employer's use of the Part 120 VDRP will "encourage compliance with the regulations, foster safe operating practices, and promote the development of self-audits", which is consistent with the Compliance Philosophy's goal of returning an employer to compliance and preventing reoccurrence. In order to qualify for the VDRP, an employer must satisfy the following conditions:
  1. The employer has notified the FAA of the apparent violation immediately after detecting it and before the FAA has learned of it by other means;

  2. The apparent violation was inadvertent;

  3. The apparent violation does not indicate a lack, or reasonable question, of qualification of the employer;

  4. Immediate action, satisfactory to the FAA, was taken upon discovery to terminate the conduct that resulted in the apparent violation; and

  5. The employer has developed or is developing a comprehensive fix and schedule of implementation satisfactory to the FAA. The comprehensive fix includes a follow-up self-audit to ensure that the action taken corrects the noncompliance. This self-audit is in addition to any audits conducted by the FAA.

Once the employer completes the requirements of the Part 120 VDRP, the FAA will issue written correspondence to the employer rather than issuing a Notice of Proposed Civil Penalty (which is the FAA's standard operating procedure for Part 120 violations). However, while this initially sounds like a good thing, the Part 120 VDRP also contains some "gotchas."

First, the Part 120 VDRP states that "[o]rdinarily, the FAA does not accept a voluntary disclosure if the violation is discovered during, or in anticipation of, an FAA investigation/inspection or in association with an accident or incident." But this is typically when an employer first discovers a potential Part 120 violation. So this seems to rule out use of the Part 120 VDRP in most of the common situations faced by an employer.

Next, the FAA can refuse to accept the disclosure, or if at any time after it accepts the disclosure the FAA becomes aware that the disclosure did not meet the requirements for acceptance under the VDRP, it can withdraw its previous acceptance. If that happens, the FAA may use the evidence gathered in connection with a Part 120 VDRP disclosure to support an enforcement action (civil penalty or certificate) against the employer. So, by attempting to comply with the Part 120 VDRP an employer could very well be helping the FAA to build its case against the employer.

So, is the Part 120 VDRP a good thing? In very limited circumstances, yes, I believe it can be a good thing for an employer. However, given the FAA's past attitude and actions in response to Part 120 violations, as well as Drug Abatement's refusal to fully embrace the Compliance Philosophy, let's just say I am more than a little skeptical about how/whether the Part 120 VDRP will provide any significant relief for employers.

Employers will need to analyze their circumstances very carefully to determine whether a situation satisfies the Part 120 VDRP criteria. And employers should work with an aviation attorney to evaluate/mitigate any risk associated with a disclosure or the potential for the FAA to refuse to accept a disclosure.

For more information on the procedures for making a Part 120 VDRP disclosure, you should read AC 120-117. Also, for information regarding a general Voluntary Disclosure Reporting Program under AC 00-58B, please refer to my article: Voluntary Disclosure Reporting Program.

If you have questions about or need help with a VDRP disclosure, I would be happy to help.

Posted by Greg

December 22, 2017

LLC Statements: What You Need To Know

Have you ever tried to register an aircraft with the FAA on behalf of a limited liability company ("LLC") only to be told by the FAA that you need to submit a "statement in support of registration by a limited liability company" (an "LLC Statement")? Or have you submitted an LLC Statement only to have the FAA reject the statement for one reason or another?

If so, you are not alone. The FAA has very specific requirements for LLC Statements. Some of these requirements are mandated by regulation. Others are internal FAA requirements. In any event, complying with all of these requirements can be challenging if you don't know what is required.

Fortunately, once you know why the FAA needs the LLC Statement and what information must be included, complying with these requirements is pretty straightforward. To learn more about LLC Statements, please read my latest article on the topic: The “Ins” And “Outs” Of LLC Statements In Support Of Aircraft Registration.

Posted by Greg

December 15, 2017

When Must An Employer Add An Employee To Its DOT Random Drug/Alcohol Testing Pool?

If are an employer holding a certificate that requires you to have a drug and alcohol testing program, then you should be familiar with the requirement that all of your employees performing safety-sensitive functions must be subject to random drug and alcohol testing. This means that the employees are included in a "pool" from which a certain percentage of employees are randomly selected to submit to drug and alcohol testing. Currently the annual rate for random selection is 10% for alcohol testing and 25% for drug testing.

Although it is usually pretty clear to employers which employees must be included in the random pool, sometimes the circumstances make that decision a little more difficult. And, unfortunately, the consequences of being wrong could be pretty significant. But with a proper understanding of who needs to be in the pool, when they need to be added and how you may be able to deal with unusual circumstances, you can increase your chances of correctly determining which employees do and do not need to be included in your random testing pool.

If you would like more information on this topic, please read my latest article: When Must An Employer Add An Employee To Its DOT Random Drug/Alcohol Testing Pool?.

Posted by Greg

December 08, 2017

What Happens To An Aircraft’s Registration If The Corporation Or LLC Owner Is No Longer Qualified To Do Business?

Many aircraft owners use a corporation or limited liability company to register and hold title to their aircraft. Oftentimes, the owners set up their legal entity and then forget about it. Unfortunately, many states require legal entities to file an annual renewal/registration or pay fees to stay “active.” If an entity does not perform the required filing, the entity could become “inactive”, “suspended”, “not in good standing”, or it could be “administratively dissolved.”

Fortunately, in most of those states the entity can be reactivated/reinstated, have the suspension removed, or be placed back in good standing by accomplishing the required filing (and usually paying an associated fee). But what happens to an aircraft’s registration if this happens to a business entity that holds title to that aircraft? Can the aircraft still be legally operated while the entity is “inactive” or “suspended”?

According to a recent Legal Interpretation issued by the FAA’s Office of the Chief Counsel, the short answer is “no.” But to understand why the answer is “no”, it is helpful to look at the regulations that govern registration of an aircraft by a business entity.

14 C.F.R. §47.3(a)(3) permits a corporation (or a limited liability company, which is also treated as a legal entity similar to a corporation) that otherwise meets the U.S. citizenship requirements, to register an aircraft with the FAA. 14 C.F.R. §47.43(a)(3) tells us that an aircraft’s registration is invalid if, at the time of that registration, the business entity applicant was not qualified to submit an application under 14 C.F.R. Part 47.

This means a business entity that did not have legal status at the time it submitted its registration application to the FAA would not have been qualified to submit the application. And by extension, according to the FAA, “a business entity that does not have or has lost legal status in the State in which it has been incorporated is neither eligible to register an aircraft nor operate that aircraft.”

However, whether a business entity has “lost legal status” will depend upon the facts of the situation and also the applicable state law. As a result, the applicable state law must be analyzed to determine the business entity’s true legal status if it is in this situation.

So, how does the FAA find out about an invalid registration? Well, since the FAA does not make determinations about the legal status of a business entity at the time of registration, or even while the aircraft is registered, this issue usually comes to light during an investigation or an enforcement action.

And if the FAA learns the business entity has lost its legal status and that the aircraft’s registration is therefore invalid, it could pursue enforcement action against anyone who operated the aircraft when the registration was invalid in violation of Section 47.3(b). It could also pursue the business entity owner for failing to return an invalid or ineffective registration certificate as required by Section 47.43(b).

The Moral of the Story: If you are going to use a corporation or limited liability company to own an aircraft, don't create the entity and forget it. Make sure you keep up with the required formalities and filings, including payment of fees etc., to ensure your business entity remains active and in good standing.

Posted by Greg

December 01, 2017

Does That Certificate Of Insurance Really Say You Are Covered?

If someone operates an aircraft that is insured by another party (e.g. a lessee leasing the aircraft from the aircraft owner or another operator of the aircraft where that lessor has an existing policy insuring the aircraft) and the lessee doesn't obtain its own insurance coverage, one option is to be added to the existing policy as an "additional insured." In this situation, the lessee typically receives a "certificate of insurance" that identifies the applicable insurance policy, the policy limits, coverage, that the lessee is an additional insured and other provisions that the lessee expects are included in the insurance policy.

One issue that has recently become more common than I would like arises when the certificate of insurance does not always identify the coverage the lessee/additional insured expects and needs. For example, the certificate will state that the additional insured is covered for operations by the "insured." However, the "insured" is usually the aircraft owner or lessor who purchased the insurance policy. This means that the additional insured is covered for the aircraft owner's or lessor's operation of the aircraft. It does not say that coverage is extended to the lessee for its operation of the aircraft and, unfortunately, could leave the lessee without coverage.

In order to ensure that the lessee has the appropriate coverage, the certificate should also state the the insurance policy extends coverage to the lessee for its own operation of the aircraft. This way the insurance underwriter will know that the lessee will also be operating the aircraft and that the policy should cover the lessee for its operations, as well as for operations conducted by the aircraft owner or lessor.

Finally, it is important to understand that the certificate of insurance is NOT an insurance policy. Rather, it is for informational purposes to confirm information that should be in the actual insurance policy issued by the insurer. Certificate holders should always get a copy of the actual insurance policy to ensure that the information on the certificate matches what is actually in the policy. But since it takes an insurer time to issue a new or updated policy including the new additional insured, the certificate of insurance is a good place to make sure the necessary coverage will be in place once the policy is issued.

Insurance coverage is critical when you are operating aircraft. Don't simply rely on an insurance broker's promises that you are covered. Review the certificate to confirm that it states the terms you need included in the policy. And if you are unsure whether the certificate/policy includes what you need, contact me and I will be happy to review the certificate/policy and work with your insurance broker/insurer to make sure you are covered.

Posted by Greg

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