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Directors to carry bigger load in the new health and safety regime

17 December 2013

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​This article first appeared in Infratructure, December 2013

The scale of the Pike River tragedy demanded a proportionate response, which is why the government sent in the heavy artillery - a Royal Commission and an Independent Taskforce on Workplace Health and Safety, both with assurances that their recommendations would be taken very seriously.

Draft legislation was released by the government on 30 October for preliminary consultation.  This will be followed by a Health and Safety Reform Bill, which will be introduced into Parliament in 2014 for implementation in 2015. 
New Zealand’s workplace injury rates are disgracefully high - twice Australia’s and almost six times Britain’s – so the Taskforce was told to be ambitious and design a package capable of cutting the incidence of work-related fatalities and serious injuries by 10 per cent within three years. 

To achieve an improvement of this order within this timeframe is clearly going to require significant cultural change at every level of the organisation, including from the board.  The prescription the Taskforce has come up with relies on exposing “PCBUs” to new statutory duties and a heavier penalty regime.  “PCBU” is an acronym of Person Conducting a Business or Undertaking and applies to a wide range of people.

The Taskforce looked to Australia for inspiration, drawing heavily on the Model Work Health and Safety Act passed by the Federal Government in 2011 and since enacted by all of the State governments with the exception of Victoria and Western Australia.

Stronger obligations

The draft Bill creates a positive “due diligence” duty on company officers (directors and senior management) to ensure that the PCBU eliminates risks to health and safety “so far as is reasonably practicable” and, where risks cannot be eliminated, minimises them “so far as is reasonably practicable”.

Although the financial costs involved in risk management can be treated as a relevant consideration, boards must exercise “a clear presumption in favour of safety ahead of cost”.  This presumption exists in the Australian Model Law, but not in the current New Zealand Health and Safety in Employment (HSE) Act.

In judging what constitutes an appropriate standard of care, the courts are likely to have regard to the Good Governance Guidelines drawn up by the Ministry of Business, Innovation and Employment (MBIE) and the Institute of Directors.  These state that:

“Directors need to be aware of the organisation’s hazards and risks.  They should have an understanding of hazard control methods and systems so that they can identify whether their organisation’s systems are of the required standard.  They should understand how to measure health and safety performance so they can understand whether systems are being implemented effectively”.

The Guidelines identify four governance elements to an active HSE strategy: policy planning, policy delivery, policy monitoring through the application of specific targets, and periodic policy review.

Boards are enjoined to develop a charter setting out their role in leading health and safety within the organisation and the role of individual directors.  Functions can be delegated to a special committee or to an individual board member with particular expertise, and the board may seek expert external HSE advice as necessary.  But, while tasks can be delegated, directorial responsibility cannot.

Directors will be required as an absolute minimum to:

  • understand the nature of the company’s operations and any associated risks and hazards, and
  • ensure that there are appropriate resources, systems and processes to manage these risks.
The incentives on them to meet these standards will be much higher than they are now so we would expect a strong take-up rate from boards. 

Penalties

The maximum penalty for a director under the current Act is a fine of $500,000 and/or imprisonment for up to two years.  These apply only when it can be demonstrated beyond reasonable doubt that the director knowingly “directed, authorised, assented to, acquiesced in, or participated in, the failure”.  This is a hard test to meet with the result that there have been very few convictions under the Act.

Less serious offences, when the director failed to take “all practicable steps” to remove or mitigate the risk which gave rise to the injury but did not intend to create the offence and had no knowledge of it, are limited to penalties of $250,000.

But it is rare for a director to be charged under the current Act, and those that have been were directors of very small businesses. 

The Taskforce recommended, and the government has adopted, the Australian three-tiered approach:

Category 1 - reckless conduct; fines up to $600,000 for a director and/or five years in gaol

Category 2 - exposing a person to serious harm; up to $300,000

Category 3 – breach of duty; up to $100,000.

Enforcement will also be more vigilant with the establishment of WorkSafe – a dedicated HSE regulator which will have access to powers and tools not available to the Labour Department Inspectorate.

But while many officers are understandably concerned about what the new duties will mean, there is unlikely to be a deluge of prosecutions once the new Act is in place.  MBIE, and before it the Department of Labour, prosecute in only 2 per cent of serious harm accidents. 

Chapman Tripp expects this figure to rise under WorkSafe, but not exponentially.

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