The Court of Appeal gives guidance on the potential for parent companies and organisations to be liable for health and safety breaches by their subsidiaries.

It has long been an established principle of health and safety law that healthcare providers  can be liable under health and safety law for incidents involving employees of their contractors or other third parties to whom they delegate work part of their undertaking. This principle is born out of section 3 of the Health and Safety at Work etc. Act 1974 and has been displayed in cases such as Associated Octel [1996] in the House of Lords. What has been less clear is the potential for parent healthcare providers to be liable for risks or actual harm being caused to the health and safety of employees working for their subsidiary companies or organisations. The decision of the Court of Appeal last week in Chandler v Cape PLC [2011] (a case in which the parent was accused of having responsibility for the health and safety of employees of a subsidiary company) has therefore been eagerly awaited.

The Facts of the Case

Between 1959 and 1962, Mr Chandler was an employee of a subsidiary of Cape plc and was involved in the manufacture of asbestos.  In 2007 he discovered that he had asbestosis as a result of exposure to asbestos dust whilst employed by the subsidiary company who no longer existed.  Mr Chandler brought a civil personal injury claim against Cape plc on the basis that it should be held jointly and severally liable with the subsidiary company for damages.  Cape plc based their defence on the fact that since the subsidiary was a distinct legal entity, Cape plc, as its parent company, could not be held liable for its actions.

The Court was asked to determine whether a duty of care was owed by Cape plc to Mr Chandler.  The Court considered the degree of control exercised by the parent over the subsidiary company's operations as well as the level of knowledge it had over it's activities.  Whether a duty of care could be established from Cape plc to Mr Chandler  was dependent on the three stage test of (i) foreseeability of damage, (ii) proximity, and (iii) whether it was fair, just and reasonable for a duty of care to Mr Chandler to exist. The Court found in favour of Mr Chandler.

The Court’s main reasoning on the three stage test was:

  1. Cape plc had actual knowledge of the working conditions that Mr Chandler was exposed to
  2. The risk of an asbestos related disease from exposure to asbestos dust was obvious  
  3. Cape plc had employed a scientific officer and a medical officer who were responsible for the health and safety issues not just at Cape plc, but at the subsidiary company
  4. Even though each subsidiary company had its own safety committee and had its own health and safety responsibilities, on the basis of the evidence provided the Court stated that Cape plc still “dictated policy in relation to health and safety issues … .  At any stage it could have intervened and Cape Products [the subsidiary company] would have bowed to its intervention.”

Health and safety law?

The first instance decision of the Court of Appeal did not consider the specific question whether the parent company held specific criminal responsibilities under the Health and Safety at Work etc. Act 1974 (HSWA). Indeed, the case was primarily a civil personal injury case, and most cases civil personal injury cases will not have any direct impact on criminal health and safety law as the various legal tests differ. However, some recent cases have opened up the possibility of the principles established in civil claims being used in criminal health and safety cases. In particular, the recent personal injury civil case of Baker v Quantum Clothing referred to principles of ‘foreseeability’ in health and safety law and has subsequently been used in arguments advanced in later health and safety cases.

Civil law and Health and Safety Law

If the civil principles of Chandler v Case plc from the first instance judgment had been transposed into health and safety law, the likely impact could be to extend the duty of care of parent companies or organisations (established from section 3 of the HSWA 1974) beyond merely contractors or sub-contractors so that they could be responsible for employees of subsidiary companies or organisations provided it could be shown they were affected by the parent’s “undertaking”, ie. by its actions or responsibilities. For example, if it could be shown that the parent company or organisation retained effective control over the health and safety policies, procedure, and expenditure of the subsidiary (i.e. did they have the final say at safety committee meetings and when it came to making policy changes or financial spend). In practice, this sort of arrangement would be the case for many parent and subsidiary relationships and so the first instance Court of Appeal decision in Chandler v Case plc created a certain amount of worry for parent and groups of companies or organisations.

The Appeal Decision

The primary grounds of appeal for our purposes was that the judge applied the wrong test for the imposition of liability on a parent company and that the judge failed to identify the scope of the duty of care which he found.

The Appeal was dismissed, but the leading Judge in the case did make some valuable contributions to the area of health and safety responsibilities of parent companies for employees of their subsidiaries:

  1. Parent Companies or organisations do not have an automatic duty of care/responsibility in health and safety law to the employees of subsidiary companies or organisations – it will depend on what the parent company or organisation actually does in each individual case. Financial input by the target company in health and safety matters does not necessarily prove that the target company has responsibility for health and safety at the subsidiary company. The primary Judge stated:

“There is no imposition or assumption of responsibility by reason only that a company is the parent company of another company. The question is simply whether what the parent company did amounted to taking on a direct duty to the subsidiary’s employees.”

  1. In the particular facts of this case, the fact that the parent company (Cape) knew more about the specific health and safety risk to the subsidiaries’ employees than the subsidiary (Cape Products) did was a key factor in determining that they were responsible. The Judge stated:

“Given Cape’s state of knowledge about the Cowley Works, and its superior knowledge about the nature and management of asbestos risks, I have no doubt that in this case it is appropriate to find that Cape assumed a duty of care either to advise Cape Products on what steps it had to take in the light of knowledge then available to provide those employees with a safe system of work or to ensure that those steps were taken.”

  1. The Judge’s concluding remarks are important in considering when a parent company or organisation may be held to have responsibility for the health and safety of subsidiary employees:

“In summary, this case demonstrates that in appropriate circumstances the law may impose on a parent company responsibility for the health and safety of its subsidiary’s employees. Those circumstances include a situation where, as in the present case:

  1. the businesses of the parent and subsidiary are in a relevant respect the same (e.g. they carry out the same sort of business production);
  2. the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry;
  3.  the subsidiary’s system of work is unsafe as the parent company knew, or ought to have known; and
  4. the parent knew or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the employees’ protection.”

While the risks of parent healthcare providers being held liable for health and safety offences committed by their subsidiaries are still very rare, the recent Court of Appeal decision of Chandler v Cape plc is an important warning to parent healthcare providers to ensure that they are clear as to where the legal responsibilities for health and safety reside between themselves and their subsidiaries. The work that the subsidiary employees are doing is obviously connected to the interests of the parent company or organisation and they will want to retain some measure of financial control over the subsidiary, so there will always be a risk (usually a very small risk) that section 3 of the 1974 Act (as stated above) could be used against a parent company or organisation. Key questions in determining where ultimate responsibility and control for health and safety at a subsidiary will lie will include:

  • Does the parent or subsidiary carry out health and safety training? Is it specific to the subsidiary or group wide?
  • Who controls the content and form of risk assessments and ultimately reviews these and determines when and how health and safety audits are done – the parent or subsidiary?  
  • Are health and safety policies and procedures predominantly influenced by group-wide issues or decisions, or are they specifically determined by the subsidiaries working only with reference to the parent company or organisation?

A good comparison can be found when looking at the management of contractors.  While both a client and a contractor will each have its own health and safety duties for its own employees, the client will also have a degree of responsibility (pursuant to Section 3 HSWA) for the contractors’ (and any sub-contractors’) operations.  It is also a fine balance between monitoring or managing a contractor by reference to the contractor’s own methodology, and stepping too far towards directing the operations of the contractor at which point the risk of incurring liability increases.  The key is therefore a clear understanding as to the respective roles and responsibilities of all parties, and in that sense an awareness and clarity of understanding of a subsidiaries’ activities is important.  The more a parent company or organisation directs what a subsidiary should do (in health and safety terms), the more it potentially attracts additional Section 3 HSWA responsibilities.

A parent healthcare providers therefore may wish to consider ensuring that ultimate responsibility and control for compliance with group rules and procedures rests with officers of the individual subsidiary companies or organisations, rather than with the parent. In any event, any responsible parent healthcare providers will be aware of the reputational issues that will hurt them even if only the subsidiary is prosecuted, and will want to maintain interest and co-operation in health and safety issues with the subsidiary.