The recent New Zealand High Court decision of Department of Labour v Hanham & Philp Contractors & Ors1 signals a new benchmark, confirming that employers must expect a 'significant uplift' in the level of fines for breaches of the Health & Safety in Employment Act 1992 (Act).
Employers are still required to pay any fine imposed as a fine cannot be insured. However, the upside to the High Court's decision is that it clarifies a fine will be reduced by 10 - 15% if reparation is also ordered, even if an employer has taken the prudent step of arranging insurance cover for any reparation payable to the injured party. So there is value in having insurance, in addition to the policy paying the reparation and legal defence costs.
WHAT RANGE OF FINES CAN EMPLOYERS EXPECT NOW?
In 2002 the maximum fine for a breach of section 50 of the Act was increased from $50,000 to $250,000. However, the High Court noted that levels of fines imposed have remained fairly low relative to the new maximum penalty. The penalties under section 50 apply to breaches where the Department of Labour does not have to prove the employer knowingly took the risk of serious harm, so these limits apply to 'run of the mill' accidental breaches of the Act.
The High Court has laid down a straightforward methodology for sentencing in these cases.
First, the Court will assess a sum to be paid to compensate the injured party. In broad terms that is likely to reflect the 'emotional harm' suffered (short of mental injury). Loss of earnings is currently a contentious issue and is the subject of an awaited Supreme Court decision, but the shortfall between what the Accident Compensation Corporation (ACC) actually pay and earnings lost is also awarded at present. This element of any Court award (and an employer's legal defence costs) are commonly insured.
Second, the Court will fix the amount of the fine. The starting points for fines under section 50 will be fixed according to the new scale below.
- Up to $50,000 for low culpability.
- $50,000 to $100,000 for medium culpability.
- $100,000 to $175,000 for high culpability, though the upper limit remains $250,000.
The High Court emphasised that these figures reflect starting points before taking into account an employer's financial capacity to pay, payment of reparation or any other aggravating or mitigating factors.
So from that figure, the Court will then make the following deductions:
- Up to one third for an early guilty plea, cooperation with the Department of Labour and response to the injured party.
- 10 - 15% to reflect any payment of reparation by the employer, or the employer's responsible approach in securing insurance cover to pay that reparation.
- A deduction to reflect the employer's financial capability to pay the fine. Employers can take some reassurance from the fact that they will not be ordered to pay a fine they cannot pay, though of course the objective of the Court is to punish the offender.
The third and final step is for the Court to review the total penalty of reparation and fine to ensure it is proportionate to the circumstances of the offence.
While the starting points above are significantly increased, if there is a guilty plea and the employer is well-advised, a discount of up to 50% can be achieved. Any fine is always subject to the employer's financial capacity to pay. For many employers this will still mean that the fines to be paid are considerably higher than has historically been the case. Of importance, the fine cannot be insured, so must be paid by the employer itself.
THE COURT'S APPROACH TO INSURANCE
Until recently, the Court usually discounted fines for defendants who were ordered to pay reparation, regardless of whether or not they were insured for reparation awards. There was some inconsistency of approach and often resistance by the employer/insurer in disclosing the presence of insurance at all (on the ground it is irrelevant). Then in Street Smart,2 the High Court decided that an employer would receive no credit for having insurance which indemnified it for any reparation payment. This effectively penalised insured employers.
Now we have some certainty and comfort for insured employers from a decision that will be preferred over Street Smart (and the appeal in that case was abandoned as a result). The High Court held the existence of insurance cover was relevant to assessing an offender's financial capacity to pay reparation and fines, but at the same time, an offender should not be penalised because it has arranged the cover. In effect, the same credit is given to the employer if it pays the reparation itself, or for having prudently insured for it.
EXAMPLES OF HIGHER FINES APPLIED
In this case the High Court considered the District Court fines imposed against three companies:
- It doubled mining company Black Reef's $10,000 fine for a mine flood in which an employee died. It also increased reparation to the employee's widow from $50,000 to $75,000.
- In the District Court, construction company Hanham & Philp Contractors had been fined $5,000 for an accident where a contractor's employee fell over four metres from 'obviously inadequate' scaffolding on a building site. The High Court increased the fine ten-fold to $50,000.
- The District Court had imposed a fine of $15,000 on Cookie Time for an accident where an employee's arm was caught in a conveyor belt. The High Court more than doubled this to bring it to $40,000. The employer knew the conveyor belt was missing a guard which would have prevented the accident.
PREVENTING WORKPLACE ACCIDENTS MORE IMPORTANT THAN EVER
Employers can now expect heavier fines for health and safety breaches. The High Court has sent a strong signal to the District Court that previous fines have been inadequate.
The Department of Labour's purpose is plain. They seek higher fines by way of deterrence for non-compliant health and safety practices in the workplace. Acting appropriately after the event will only reduce a fine by about 50% of what are now considerably increased starting points, designed to be more that a 'licence fee' and to 'bite'.
The answer for employers must be a heightened focus on active compliance in this area and insurance cover remains an important element of health and safety risk management.
1. Randerson & Panckhurst JJ, 18 December 2008, HC Christchurch, CRI 2008-409-000002, CRI 2008-409-000034, CRI 2008-418-000009
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