This article first appeared in the Institute of Directors' Boardroom magazine.
Tweak the words to one of the world’s most inane but catchiest songs and you have a four word philosophy to take into the framework which will be created by the new Health and Safety Reform Bill – Don’t worry, be ready.
The Bill will be reported back to the House on 29 May and is now not expected to come into effect until late this year, the timetable having been set back to accommodate the very large number of submissions received.
Some nervousness about the legislation is to be expected given that it is designed to achieve cultural change of an order capable of reducing the workplace fatality and serious injury rate by 25 per cent within five years, and that it seeks to do this through a mix of stronger governance duties, greater worker participation, harsher penalties and more intense enforcement.
But WorkSafe is a very different animal to the Department of Labour inspectorate – bigger, much better resourced, more accepting of a leadership function and more proactive. It already has a staff of more than 500, including 167 inspectors, and it is still recruiting.
For the regulated, this means that non-compliance is more likely to be detected. But there are also clear benefits in having a regulator which is prepared to front-foot issues.
WorkSafe first demonstrated this in December 2013 when it published a note advising employers and building owners that it would not take action against them in relation to safety concerns arising from the seismic integrity of their workplaces provided they were in compliance with the standards laid down in the Building Act.
More recently, it has provided detailed information on how the Bill will affect “officers” – a definition which captures directors, partners in a partnership and those members of senior management with the authority to make decisions affecting the whole or a substantial part of the business (generally the CEO and the COO, but not the CFO).
The fact that WorkSafe has gone to the trouble of setting out its expectations is a source of comfort in itself but there is also much within the content of the advice which is comforting. Hence our theme: don’t worry, be ready.
WorkSafe confirms that the Bill does not move liability from the company to its officers because the main duty of care will sit with the PCBU, the person conducting the business or undertaking.
The officers’ duty is to exercise due diligence to ensure that the PCBU is fulfilling the organisation’s obligations. These two duties - of care and of due diligence - are independent of each other with the effect that, where a PCBU (meaning the company, the partnership or the organisation) is in breach but the officers have been diligent, the PCBU rather than the officers will be held to account.
Further, WorkSafe considers that the Bill is “fairer” to officers than the current system and more consistent with their governance role. This is because the incentives under the two different regimes work in opposite directions.
Under existing law, the incentive on directors is not to enquire too closely into health and safety matters because liability is incurred only for those failures by the company which the officer or director directly authorised, sanctioned, agreed to or participated in, and where the officer or director had clear knowledge that the situation was unsafe.
Under the Bill, officers will only be liable if it is proved beyond reasonable doubt that they failed to carry out proper due diligence.
WorkSafe rightly makes the point that due diligence as defined in the Bill is broadly similar to the discipline which directors have traditionally applied to managing financial risk. It includes taking reasonable steps to:
- maintain an up-to-date knowledge of workplace health and safety matters
- understand the nature of the operations of the business and any associated risks and hazards, and
- ensure and verify that the PCBU has access to and uses the resources, information and processes needed to eliminate or, if elimination is not possible, to minimise safety risks.
WorkSafe is specific. Officers do not need to get involved in day to day health and safety management or to carry out site audits.
“Officers provide governance, managers manage. Officers are leaders, and they make the major decisions that influence health and safety. These include strategic direction, securing and allocating resources and ensuring that the company has the right people, systems and equipment in place to eliminate or minimise workplace risks.”
On sites where two or more businesses work side by side (as in large construction or infrastructure projects) and where PCBUs may have overlapping duties, the officer’s due diligence obligations relate only to their own business.
Although much is made of the increased sanctions in the Bill, WorkSafe considers that the most likely practical effect for officers of the proposed new penalty regime will be for lighter penalties.
Yes, the maximum fine for a failure to exercise due diligence which results in an individual being exposed to a risk of death or serious injury has been increased slightly from $250,000 to $300,000. But for offences involving lesser risk it has been reduced significantly - from $250,000 currently to $100,000.
And although reckless conduct, which is the Category 1 offence in the Bill, can attract a fine of up to $600,000 and five years’ imprisonment, or both; WorkSafe notes that prosecutions are likely to be “very rare” because of the high burden of proof required and because other charges under the Crimes Act will often be more appropriate.
We are aware that most boards are taking the Bill very seriously and have sought legal advice to ensure that they will be able to comply with the new law. But the former Justice Minister, Judith Collins, now sitting on the Transport and Industrial Relations Select Committee, has said that some directors, particularly in inherently dangerous industries, have told her they will consider resigning if the Bill introduces criminal liability and passes in its current form.
Of course, the prospect of jail time is designed to make people sit up and take notice. But we would hope that the points we have made here and which WorkSafe is making will give you confidence that the environment created by the new Act will allow both officers and workers to operate within an appropriate and acceptable level of risk.