This article first appeared in the April/May issue of boardroom magazine.
The Health and Safety Reform Bill, once passed, will become a key part of director training and initiation so central will it be to the task of governance.
Given this future significance, it is worth looking at the events and influences which fashioned the Bill and at the timetable ahead.
19 November 2010: the date of the Pike River Coal Mine disaster in which 29 miners died, the event which triggered the largest rewrite of New Zealand’s health and safety law in 20 years.
30 October 2012: the Royal Commission releases its report. It says that New Zealand has had an underground mining tragedy every generation or so but that the lessons of these tragedies have been forgotten. This time, they must be remembered.
The inquiry is persuaded by the supple logic of James Reason’s Swiss cheese model of accident causation. This imagines an organisation’s defences against failure as a series of barriers or Swiss cheese slices, each one of which has holes or weaknesses. When these holes align, they create “a trajectory of accident opportunity”.
It concludes that the best defence against catastrophe is “an organisation-wide safety culture” and that this must be led from the top, beginning with a review of the statutory responsibilities of directors.
The Commission’s recommendations are fed into the work of the Independent Taskforce on Workplace Health and Safety, appointed by the Government on 6 June 2012 and tasked with designing a reform package capable of cutting the incidence of work-related fatalities and serious injuries by 25 percent before the end of 2020.
30 April 2013: the Taskforce reports. Its principal recommendation is that New Zealand follows the Australian Model Law, passed by the Federal Government in 2011 and since enacted by all of the State governments except Victoria and Western Australia.
10 March 2014: the Health and Safety Reform Bill is introduced to Parliament. As the Taskforce recommended, it is closely modelled on the Australian system.
Those provisions in the Bill of most direct relevance to directors are:
- the creation of a positive “due diligence” duty on officers to ensure that risks to workplace health and safety are eliminated “so far as is reasonably practicable” and, where they cannot be eliminated, are minimised “so far as is reasonably practicable”
- officers are defined as directors and those persons who make decisions that affect the whole or a substantial part of the business
- this definition captures very senior management (in our view, likely to be only the CEO and the COO. The exposure draft released last year expressly included CFOs but this reference has been removed from the Bill)
- extension of the timeline for bringing prosecutions from six months to two years after the breach comes to WorkSafe’s notice or up to one year after the coroner releases findings that an offence may have occurred, whichever is the later, and
- much tougher penalties, including a fine of up to $600,000 for an individual and/or a prison sentence of up to five years for the most serious offences.
The maximum penalty for directors under the current Health and Safety in Employment (HSE) Act is a fine of $500,000 and/or imprisonment for up to two years. A conviction can be obtained only when it can be demonstrated beyond reasonable doubt that a 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; all in small, private operations.
The Bill is now with the Transport and Industrial Relations Committee, which will report it back to the House by 13 September for passage before the end of the year.
1 April 2015: the new Act comes into force. This is a long gestation period and will give the market ample time to prepare for the new regime. Chapman Tripp’s experience is that there is a high level of awareness that change is coming and that many boards are already gearing up to meet the new requirements.
Excellent guidance is available in the Good Governance Guidelines drawn up by the Institute of Directors and the Ministry of Business, Innovation and Employment and in the supporting material that the Institute has prepared.
The new due diligence duty will require officers to develop a comprehensive knowledge of the nature of the company’s operations and any associated risks and hazards and to ensure that there are appropriate resources, systems and processes in place to manage these risks.
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 present HSE Act.
The full scope of the new obligations on directors will become clearer over time as prosecutions flow through the courts. An advantage of following the Australian approach is that New Zealand can draw on Australian jurisprudence.
This is fairly limited since the Australian law is still relatively new and untested but – to the extent it exists - should help reduce the uncertainty which always accompanies any legislative change.