In brief - A company's leaders have personal responsibility for health and safety compliance
Officers of corporations must exercise due diligence to ensure that the person conducting a business or undertaking (PCBU) complies with its health and safety duties. (This article is a continuation of our earlier article Work health and safety: the PCBU's duty to do what is reasonably practicable.)
Duties of officers of the PCBU
An important duty holder under the Work Health and Safety Act 2011 (NSW) (WHS Act) is the officer of the PCBU. Section 27 of the new Act imposes a personal duty of due diligence on officers to ensure the PCBU complies with its duties under the Act.
What section 27 does is provide, for the first time, an upfront positive non-delegable duty of care on the officer to be proactive and take preventative action. In the past, an officer was able to say in his or her defence that he or she did not have influence or control over the particular matter in issue. However, now it is more the case that if officers do not have influence or control, they need to take steps to ensure that they acquire it.
Prosecution must prove that officer did not exercise due diligence
This represents a significant shift away from past or other existing models of officer liability in Australia. Under section 26 of the old OHS Act in NSW, an officer was deemed to be liable for the offences of his or her corporation unless the officer could prove that he or she exercised all due diligence to prevent the offence, or was not in a position to influence the corporation when the offence occurred.
Now it is up to the prosecution to prove that an officer has not exercised due diligence to ensure that the PCBU complies with its duties under the WHS Act.
Duty of due diligence more stringent than "reasonable care"
Section 27 is essentially directed at high level office holders within an organisation - directors, company secretaries, CEOs, CFOs and not middle managers.
Volunteer officers are subject to the duty and can be compelled to comply by having an improvement notice issued on him or her, but cannot be prosecuted for breach (section 34(1)).
Previously, the NSW OHS Act extended liability for the corporation’s breaches to all persons "concerned in the management" of the corporation.
The new due diligence requirement for officers is about safety leadership from the top tiers of the organisation. As these officers are the most senior key people in an organisation, the duty of due diligence imposed on them is more stringent than that of reasonable care.
Six things an officer applying due diligence should do to ensure WHS compliance by a PCBU
Section 27 provides a non-exhaustive list of the steps which an officer must take to demonstrate due diligence.
1. Acquire and keep up-to-date knowledge of work health and safety matters
• Officers should be trained in the legislation and on the company’s safety management systems.
• Regular briefing sessions should be provided to the board. These should include briefings on changes in legislation and briefings from site managers, particularly on how the company has responded to safety incidents.
• Subscribe to publications which provide regular and specific updates on safety practice and legislative changes, or receive presentations and briefings from OHS professionals regarding developments in safety standards.
• The officer should be provided with safety performance reports showing trends in safety performance and emerging issues, as well as showing the results of safety inspections and audits or the implementation of risk controls.
• Having received this information, it is critical for the officer to act on it if the information identifies a need for steps to be taken.
• The officer should have access to information and advice through the appointment of a safety professional with an appropriate mix of professional qualifications and practical experience, as well as from industry or employer associations and the regulators' websites.
2. Understand hazards and risks associated with the nature of the business
• Officers must have some understanding of how their business operates and should have thought about the risks that may be involved, at least the more serious risks.
• They should ensure that safety is discussed at all levels within the company through the inclusion of safety items in meeting agendas, including AGMs, board meetings, board committee meetings and so on.
• Board and management reports should include safety information.
• Ensure that there is a process in place where the work which gives rise to these risks is reviewed regularly. Make your focus the more dangerous risks, even though they may occur less frequently and then work your way down to lesser risks.
• Find out which activities require specific regulation or licensing, such as confined spaces or electrical work and make sure your business is complying with the law. Check whether there is an appropriate process in place to ensure, for instance, that licenses are renewed in a timely manner.
3. Ensure the business has appropriate resources and processes to eliminate or minimise risks
Resources include people with the right experience and skills for the job. Ensure there is an appropriate governance structure with the right people in place who are appropriately authorised and accountable to enable WHS to be properly attended to.
This should start at the very top with the inclusion of a statement in the Board Charter outlining the responsibilities of the board with respect to safety.
Also consider including a safety governance policy in a company’s safety management system which sets out the safety responsibilities of officers and how the officers will specifically take action to meet their safety duty.
Officers should query whether the PCBU has resources which are appropriate for the type and size of the business. If the company has the resources to support the expenditure and is in a high risk industry, then the company should employ or engage an appropriate number of dedicated safety professionals.
Ensure that there is ongoing consultation with workers about safety. Safety should be a feature of the business’ budget and appropriate provision should be made for it.
4. Ensure the business has appropriate processes for receiving and considering information about incidents, hazards and risks and responding in a timely fashion
Having gained an understanding of the risks and provided the appropriate resources, the officer then needs to remain vigilant as to how the risks are being managed. Processes need to be put in place for the officer to receive information in relation to safety and for him or her to act on it.
Determine what is going to be reported, when and by whom. Have a process in place for the review of incident data and injury frequency rates, as well as the percentage of hazards identified and risks controlled during hazard inspections or risk assessments.
Once information is received, there needs to be a process for the officer to respond in a timely way.
5. Ensure the business implements processes for complying with its duties
This duty is not satisfied by merely having a safety management system or safety policies in place. To comply with this duty, an officer should ensure a legislative compliance audit is conducted for the business and that any shortcomings are then adequately addressed.
Section 27 provides the following examples of PCBU duties which an officer can ensure are complied with, by implementing processes to ensure compliance:
• Reporting notifiable incidents
• Ensuring that health and safety representatives receive their entitlements to training
• Consulting with workers
It is impossible for an officer to ensure all PCBU duties are complied with at all times, but it is possible for the officer to ensure that the requisite processes for compliance are in place.
6. Verify the provision and use of resources and processes
It is not enough just to provide the systems. The officer must review them from time to time and verify that the systems have been implemented and are actually being used. This can be done by reviewing accident investigation and safety audit reports or by commissioning an independent review of the company’s safety systems on a periodic basis.
How a court can be expected to apply the due diligence duty
Although we now have a different standard imposed on officers under the WHS Act than that previously imposed under section 26 of the old NSW OHS Act 2000, a case decided in the NSW Industrial Relations Commission, Inspector Ken Kumar v David Aylmer Ritchie  NSWIRComm 323, can give us some insight and guidance as to how a court can be expected to apply the due diligence duty under the WHS Act.
Under section 26 of the old Act, each director and person concerned in the management of a corporation was to be taken to have contravened the same provision breached by the company, except if they were not in a position to influence the conduct of the corporation in relation to the contravention, or they were in a position of influence in the corporation, but used all due diligence to prevent the contravention.
Mr Ritchie was a director of Owens Container Services Australia Pty Ltd, which pleaded guilty to a charge of failing to ensure the safety of a yard manager who was killed by an explosion while cleaning a tank with a combustible solvent brought under section 8(1) of the OHS Act 2000. Mr Ritchie was also the CEO of the parent company, Owens Group.
Owens Group was a public company which owned 30 companies around the world and employed around 1600 staff. Mr Ritchie lived in New Zealand, where the Owens Group head office was situated. Mr Ritchie was also charged with breach of section 8(1) of the OHS Act 2000 by operation of section 26(1) of the Act.
Director argues that he relied on divisional managers
Mr Ritchie pleaded not guilty. He argued that he was too remote from the day to day operations of the yard to effectively be able to influence the conduct of Owens Container Services and therefore relied on his divisional managers. Given his responsibilities within Owens Group, he would spend only one day a month on average considering matters relating to the Owens operations in Australia.
Not surprisingly, the court rejected Mr Ritchie’s defence that he was not in a position to influence and held that by virtue of his role as director, he was in a position to influence the conduct of Owens Container Services in relation to safety at the yard.
Director claims that he exercised all due diligence
Mr Ritchie then argued that if it was accepted he was in a position to influence Owens Container Services, then he had used all due diligence to prevent the contravention by his involvement in setting up and maintaining the safety systems Owens Container Services had in place.
Haylen J of the Industrial Relations Commission of NSW also rejected this argument, saying that as a director he could have done more to:
• Equip himself with knowledge of the hazardous nature of Owen Container Services’ operations
• Improve safety by ensuring appropriate safety auditing and reporting
• Check that persons with appropriate safety expertise were appointed within Owens Container Services
Haylen J also stated that a director could not make out the defence in section 26 by saying that he was too busy with other aspects of the business or other businesses to take steps to ensure safety.
Director found to be insufficiently proactive in health and safety
The decision in Ritchie is now effectively embodied in the new officer duty found in section 27 of the WHS Act. No matter how busy Mr Ritchie was running a large organisation and how remote he was physically from the yard where the accident took place, he was in a position by virtue of the fact that he was a director to influence safety, but had not been proactive enough in this regard, leaving safety to be dealt with by middle management.
No business can afford non-compliance with WHS laws
No business can afford to remain ignorant of the potential reach of legislation of this nature, because the cost of non-compliance with WHS laws these days is far too high for any business, no matter how large or small.
Work health and safety must be made a priority within any organisation, not only because of the introduction of hefty fines and potential imprisonment for breaching the laws, but also the indirect costs to businesses, such as the legal costs incurred in defending prosecutions, the adverse publicity which a prosecution may attract, lost production and the decline of employee morale.
This article is based on a seminar presented in Sydney in October 2012.