Australia: Important changes to Australian work health and safety law - what do they mean for directors and officers?

Insurance Update March 2012

In January 2012, important changes to Australian Occupational Health & Safety (OHS) laws came into effect in NSW, Queensland, the Commonwealth, the ACT and the NT. Those changes are likely to be implemented in other States and Territories over the next 12 months. Directors and Senior Managers need to be aware of the potential personal and professional consequences of these changes. These include fines of up to $600,000 and/or jail sentences of up to five years.

What are the OH&S changes that Directors and other Officers need to be aware of?

The changes in Australian OHS laws are the most significant for over 30 years. The new laws represent a trade-off, that is: the acceptance of vastly increased criminal liability for corporate and individual decision-makers in return for the promised reduction in OHS compliance costs, which it is claimed will flow from having a "single" OHS system across Australia. The ideal is that businesses that operate across State and Territory boundaries will have less jurisdictional differences to manage.

The references in the media to a "single" or "uniform" OHS system in Australia are, however, misleading. We do not have a single national system from 1 January 2012 - we still have nine different OHS systems (one for each State, Territory and the Commonwealth). However, each system is based on model provisions for a principal OHS Act and model provisions for regulations and codes of practice. Importantly however, we have nine different regulators, nine different prosecutors and nine different first instance courts – these differences are not insignificant, and over time, the likelihood is that further jurisdictional differences will emerge; sabotaging the promised reduction in OHS compliance costs.

What are the main features of the so called 'common legislation'?

There are four main features.

First, the "employer" is no longer the primary OHS duty holder - it is now, the "Person Conducting a Business or Undertaking", which is commonly referred to as the "PCBU". A PCBU can be an individual or a corporation and a PCBU can operate a business or undertaking alone or with others (i.e. with other PCBUs).

Second, the duty of care held by the primary PCBU is broader than that currently held by employers. The duty is to keep safe to the extent "reasonably practicable" a vastly increased group of people, which now includes all workers (a much broader concept than employees) and "any other person" who is put at risk by the activities of the business that is being run by the PCBU.

The definition of "worker" picks up everyone from an employee through to a volunteer (and everyone in between) and "any other person" means literally anyone else who is affected by the business (they do not have to have any connection with the PCBU's workplace). This means that activities that may once have only been actionable under public liability laws and negligence laws will also be a breach of OHS laws.

Third, an issue directly relevant to Directors and other Officers is the imposition of a positive and personal obligation on persons who are classed as 'officers' under the new OHS laws (the category 'officers' replaces the director and manager liability under the "old" OHS legislation).

Under the new OHS laws "officers" have a personal and proactive duty to exercise due diligence to ensure that their organisation complies with its duty under the new OHS legislation. There are six elements of due diligence defined in the legislation. Those elements include taking reasonable steps to:

  1. Acquire and maintain up to date safety knowledge
  2. Gain an up to date understanding of business risks
  3. Provide and use appropriate resources
  4. Consider incidents, hazards and risks
  5. Ensure legal compliance
  6. Verify compliance with (1)-(5) above (audit and review).

The point here is that the elements of due diligence are quite specific, quite onerous and personal to each "officer" – leadership in OHS is not about good intentions, it is about doing very specific things. Importantly, this will be a criminal jurisdiction, so even low level breaches could result in a criminal record, with all the personal and professional consequences that entail.

Fourth, a new duty has been placed on concurrent duty holders. Essentially, if more than one person has an OHS duty in respect of the same matter, each person with the duty, must, so far as is reasonably practicable, consult, cooperate and coordinate activities with all other persons who have a duty in relation to the same matter. This duty requires duty holders to ensure that they have policies and procedures in place to provide for compliance with this new duty.

What should companies be doing now to prepare themselves for these changes?

First, companies need to ensure there is a high level of awareness at executive and board level about the new laws and how they will affect them as individuals and the operation of corporate governance systems – clearly, OHS will be a key corporate governance issue in 2012.

In terms of practical steps, there are two major streams of work: the OHS management stream and the due diligence stream.

The OHS management stream requires companies to perform a gap analysis of their current system to identify what needs to be done to comply with the new legislation. This audit should identify rectification actions including the need to revise OHS policies, review contracts, develop new consultation procedures with different groups of workers and new approaches to union right of entry for OHS purposes.

The due diligence stream is about developing mechanisms that ensure that the organisation's officers can comply with the detailed and onerous officers' duty discussed above. Individuals will not typically be able to meet those obligations, unless there is an organizational due diligence framework established to assist them with compliance. Accordingly, companies should audit their existing corporate governance systems to determine the extent to which they need to be amended to accommodate OHS in decision-making.

Do companies have any discretion as to whom they appoint as 'officers' for OHS purposes?

No. The term "officer" has the same definition as it has in the Corporations Act. This includes any director (formal or shadow director), company secretary, and any person who makes or participates in making, decisions that affect the whole or a substantial part of the business of the corporation. The identification of officers will be a question of fact.

Importantly, the term 'officer' may include parent companies that have extensive influence on the operation of subsidiary companies (i.e. the parent may be a shadow director for the subsidiary company and therefore an officer for it). Equally, it should be noted that the fact that an 'officer' is located overseas will not diminish in any way their duty of care as an officer.

What should Directors and Officers be doing about this now?

Directors and officers must ensure their OHS management systems are audited, that the required rectification work is undertaken and that training is undertaken in relation to the changes. This task is generally simple, although time consuming.

More challenging, but necessary, is the need to develop and implement a due diligence framework that identifies officers (not always easy) and ensures that they are assisted in the fulfilment of their new and onerous duty of care.

Impact on Directors and Officers Liability Insurance

Directors and officers liability insurers need to appreciate that the jurisdiction previously regulating OHS was generally regarded as quasi-criminal and one jurisdiction was a civil jurisdiction. Whereas before the company needed to have breached its duty before the director or officer could be liable, this is no longer a pre-requisite as there is now a positive duty on directors/officers to comply with due diligence obligations. The likelihood of directors being prosecuted and held liable for breaches is expected to increase under the new legislation. It is imperative for directors and officers insurers to ensure that their company's OHS management system is audited to account for the changes in legislation and that gaps are rectified. This risk management step is the best way to safeguard directors and officers against OHS claims.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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