Personal liability of directors and officers under the Health and Safety Law Reform Bill

This post is by Giles Ellis, Director at GECA Chartered Accountants based in Newmarket.

Personal liability of directors and officers

Historically there has been no personal liability of directors and officers under the Health & Safety in Employment Act 1993 (HSE). Companies themselves have been primarily liable, and broadly directors have only been personally liable where they had clear knowledge that a situation was unsafe or a clear breach of the HSE.

This is all about to change.

Reforms of the HSE are aimed at inducing directors and senior management to proactively manage health and safety. It will not be sufficient for directors and other senior management to instruct lower level management to ensure appropriate provision for workplace health and safety is made.

There will be a positive obligation to exercise due diligence and personal liability for breaches. The Reform Bill introduces a new concept of officer, which is defined to include not only directors but also any person who makes or participates in decisions that affect the whole, or a substantial part, of the business.

This would include the CEO, CFO, COO and others at an equivalent level in an organisation. Officers must exercise due diligence to ensure that the company complies with its duties under the HSE legislation.

What do the Due Diligence Duties of Officers mean?

This requires more than simply receiving a positive report from management. It would require:

  • Having up to date knowledge of work health and safety matters
  • Understanding the operations of the organisation and the hazards and risks
  • Ensuring there are appropriate resources and processes to deal with the risks and comply with the legislation and that these are used
  • Ensuring there are appropriate information-gathering processes about risks
  • Verification that the resources and processes have been provided and are being used.

The penalty for breaching these obligations is a fine of up to $600,000 and/or imprisonment of up to five years (for individuals). Officers will want to ensure that there is a directors and officers insurance policy that covers them, but this will be of little comfort when faced with imprisonment.

What does this mean for me in practice?

In summary, once the legislation is in force, which is now expected to be towards the end of 2015, the new due diligence obligation on directors and certain other senior managers will require them to:

  • Understand where the risks are
  • Be proactive
  • Understand health and safety culture and risks
  • Be informed and ensure the company meets its obligations, for example do site visits and really get to know the business
  • Ensure that there are risk management and worker participation practices in place and that these are followed
  • Be more involved with health and safety risks, trends, audits investigations and cultural information
  • Obtain external audits to verify compliance.

All of the directors on a board will need to understand the health and safety risks. They will not be able to delegate this responsibility to a sub-committee. Health and safety literacy will become as important as financial literacy. Directors and officers will be personally liable, and cannot insure against fines or possible prison sentences.

The thinking behind the legislation and the new due diligence duty being individual to each director and officer is that these people set the direction and provide leadership in health and safety for their organisation, including making resource decisions.

Many businesses will already have good processes in place, but directors and officers will need to satisfy themselves that this is the case. Businesses where directors in general have more direct influence on health and safety may find there is little change, but particularly in high risk sectors and businesses that subcontract out, could be in for substantial work.

The Health and Safety Reform Act marks a substantial shift in focus onto the obligations of directors and officers in this area.

If you are at all concerned about this, or would like to discuss the obligations in more detail, please call Giles Ellis on 0800 758 766 or Sarah Davies on 09 969 1216.