Thursday, 6 November 2014

Connecting dots

If the government makes company directors personally liable for criminal charges if they've not exercised sufficient due diligence around employee health and safety risk, should we act all surprised when companies start deciding that a lot of things are too risky?

Earlier this year, MBIE sent around the draft guidelines. It's not law yet, but it's coming. Here's one precis:
Having already released a Guideline document for Directors on managing health and safety risks [Good Governance Practices Guideline for Managing Health and Safety Risks ] the government has now released an Exposure Draft for the proposed new legislation, expected to replace the Health and Safety in Employment Act 1992 sometime in 2014.  The Exposure Draft contains a raft of wide-ranging reforms.  However, the purpose of this article is narrow; to look at the new Directors’ obligations under the proposed legislation. 

What is changing?

The new Health and Safety at Work Act will impose an active duty on those in a governance role to proactively manage workplace health and safety.  Under the present legislation, the Directors of a company can only be held liable for a breach of the Act where they have participated in, contributed to, or acquiesced in their company’s failure.  The new laws will impose a due diligence role on Directors with regard to health and safety. 


What happens if an Officer doesn’t meet the obligations?

An Officer of a PCBU can be convicted of a failure to meet the due diligence requirements whether or not the PCBU has also been convicted of an offence.  However, if an Officer hasn’t met his or her specific duty, chances are pretty good that the PCBU itself has also fallen down somewhere along the line.  Consequently, a Director of a business could be facing liability in respect of his or her Officers’ duties, as well as the business facing liability as a PCBU in relation to the same event.

There are three tiers of liability under the proposed legislation:

Reckless conduct (where a duty-holder engages in conduct that exposes any individual to a risk of death or serious injury or illness, and is reckless as to that risk):Failing to comply with duties and exposing individual to risk of death or serious illness or injury:
Failing to comply with any duty (including the due diligence requirements for Officers):
Individual but not a PCBU or OfficerUp to $300,000 fine and/or up to 5 years’ imprisonmentUp to $150,000 fineUp to $50,000 fine
Individual who is a PCBU or OfficerUp to $600,000 fine and/or up to 5 years’ imprisonmentUp to $300,000 fineUp to $100,000 fine
Body CorporateUp to $3m fineUp to $1.5m fineUp to $500,000 fine
Is it any surprise that Solid Energy reckons that Pike River still isn't safe enough to enter?

Kevin Hague is likely right to point to personal liability as a potential issue; I wouldn't follow him in characterising this as putting commercial interests ahead of grieving families though.

It is heroic to require corporate directors to assume heavy personal liability including up to five years' imprisonment if their due diligence on entry risk wasn't 100% up to spec, under a new incoming legal liability regime with great uncertainty about potential application.

One wonders what other risky, but efficient, actions might be deterred under the new regime.


  1. Eric, my impression of health and safety laws in New Zealand is that hardly anyone faces a serious penalty under them.

    People can get killed in work through terrible negligence and there is still only a fine and very rarely a large fine that would put a business out into bankruptcy.

    Don't know of anyone has ever been sent to prison for killing someone and workplace in New Zealand through negligence.

    In countries where you can sue in addition to whatever you get under workers compensation, such as in my home country of Australia, this at least leave some chance that the real cowboys can be driven into bankruptcy.

    My recollection is where workers compensation all does not abolish the right to Sue, it does deduct dollar for dollar from any damages received from any prior compensation paid to you. This means only when the workers compensation payment is woefully inadequate, seeking vindication in court is also profitable.

    workers compensation replaces the right to sue with the less generous, but more certain payment. This includes that bizarre table where you are compensated we get $5000 for a finger and $10,000 for an if you lose it in a workplace accident

  2. What examples of "risky, but efficient, actions " where you thinking of.

  3. I wasn't thinking of specific examples. Just that we could be moving from a fairly lax regime to one that could easily overshoot.