The Sentencing Council's new guidelines will apply to health and safety, corporate manslaughter and food safety and hygiene cases and it is coming into force on 1 February 2016 and will apply regardless of the date the offence was committed. The courts will be required to assess the overall seriousness of the offence based on the offender's culpability and the risk of serious harm irrespective of whether any harm was actually caused.
This will be the first time that courts in England and Wales will have comprehensive sentencing guidelines covering the most common regulatory offences and the Guidelines continue the trend of significant increases in the level of fines that have been imposed. The Guidelines state ‘The fine must be sufficiently substantial to have a real economic impact which will bring home to both management and shareholders the need to operate within the law’.
For large organisations with a turnover of £50 million or more, the new guideline penalties for health and safety offences for ‘very high culpability’ offences there is a starting point of £4 million and scope for fines of up to £10 million.
In cases concerning Corporate Manslaughter organisations with a turnover of £50 million or more, the new guideline penalties has a starting point of £7.5 million and scope for fines of up to £20 million. For very large organisations, the Guideline suggests increasing these amounts even further.
For breaches of food safety and hygiene regulations for large organisations with a turnover of £50 million or more, the new guideline penalties for ‘very high culpability’ offences there is a starting point of £1.2 million and scope for fines of up to £3 million.
Individual company directors who have been found guilty of "consent, connivance or neglect" in relation to the offence will face potentially unlimited fines and prison sentences of up to two years.
Summary of the Guidelines
The level of fines are now linked to the turnover of the defendant company and for larger companies fines measuring in the millions are likely to be common.
The Courts will look the risk of harm being caused by breach as well as actual harm and from 1 February 2016, when the Guidelines come into force the courts, following conviction, will be required to consider a number of separate steps including:
the seriousness of the offence by determining the risk of harm (low, medium or high) and culpability of an offender;
the appropriate starting point and category range for an offence, based on a company's turnover, using tables provided in the Guideline. There are five categories of organisation ranging from micro (where turnover is not more than £2 million) to "very large" (where the offending organisation's turnover very greatly exceeds the threshold for large organisations, namely £50 million and over).
a range of factual elements providing the context of the offence to establish if further adjustment of the fine within the category range is required (the aggravating and mitigating features).
whether the proposed fine fulfils the objectives of sentencing these types of offences (i.e. reflecting the seriousness of the offence and the financial circumstances of the offender). The court may adjust the fine upwards or downwards, including outside the range, by looking at factors such as profitability and the impact of the fine on the ability of the offender to improve conditions in the organisation.
any factors which indicate a reduction, such as assistance to the prosecution and a reduction for guilty pleas.
Assessment of fines and Turnover of a group of companies
It is of crucial importance that businesses understand that the turnover of a whole group of companies may fall to be considered by the sentencing courts and not just the turnover of the defendant company.
The courts have often looked beyond the named defendant to the means of the wider corporate structure and the approach has found favour) by the Court of Appeal which has ruled that a sentencing tribunal may, in fact, have regard to the “economic realities” of a group of companies. Consequently, companies are required to reveal to the court the nature of group ownership and the financial relationship between entities within the same group. This has the effect of highlighting the “economic realities” of any subsidiary company’s affairs.
The Guidelines use the term “organisation” rather than “defendant” and the use of the work organisation seems indicative that the courts will apply the “economic reality” test in identifying whether or not a defendant company should be looked at in isolation or as part of a group.
It is interesting to note from the HSE Enforcement Guide that when determining the ‘means of the defendant’ for assessment of a fine the section entitled ‘Preparing for sentencing hearings’ states:
- For corporate defendants the documentation should include copies of accounts filed at Companies House (although these are likely to be abbreviated accounts which may not tell the whole story). For companies with a turnover of less than £5.6 million full member/shareholder (internal accounts) are likely to be much more detailed.
- In the case of a corporate defendant, the information usually will include details of the defendant’s corporate structure; annual profit and loss accounts, or extracts; annual balance sheets, or extracts; details of shareholders’ receipts; and details of the remuneration of directors or other officers.
- When the defendant is a partner /partnership then the Partnership accounts are likely to be produced.
- When analysing accounts features to consider will include
The amount and changes to Turnover and Profit (Gross and Net)
Liabilities and the reasons for (and amounts of) debts and the identity of debtors
Director’s salaries, dividends, loans and pension contributions. (the financial position may be healthier when loans are repaid and increases in salaries may distort the financial position)
Contingencies (monies may have been set aside in anticipation of enforcement action)
The corporate structure may reveal that the company is part of a wider group (the defendant may be the parent/holding company or a subsidiary). There may be inter- company transactions (loans/payments) between the companies which if repaid could have an impact on the liquidity of the defendant.
Action to take
Before the Guidelines comes into effect on 1 February 2016 businesses should carefully review their existing risk management and assessment systems to ensure regulatory compliance and that can be easily evidenced with supporting documentation if required at short notice.
At boardroom level a Director should be specifically appointed to have responsibility for health and safety within the business and assessment will need to be undertaken as to the extent that a parent company’s health and safety policies apply to subsidiary companies.
Where the reviews identify concerns detailed assessments and actions to remedy the concerns including training will need to be undertaken promptly to ensure the risk (and consequences) of breaches of health and safety law are avoided or at least reduced as far as possible.