Employment Law Update - June 2020
Insurance to cover a WHS fine to be an offence - amendments to the Work Health & Safety Act, (NSW)
The tragic death of Christopher Cassaniti in the scaffolding collapse at Macquarie Park, New South Wales in April 2019 has refocused attention on work health and safety. In response to a concerted and very public campaign by Christopher’s mother, on 26 February 2020 the Work Health and Safety Amendment (Review) Bill, 2019 (‘Bill’) was introduced to the NSW Parliament proposing a number of amendments to the Work Health and Safety Act, 2009 (NSW) (‘Act’).
The key amendments of the Bill are:
the introduction of the concept of ‘gross negligence’ to a Category 1 offence;
extending the powers of Inspectors to issue notices for requests for evidence;
a move away from a fixed maximum fine through the penalty unit system;
making it illegal to take out and use an insurance policy that covers the fine.
Amendments to Category 1 Offences
The existing Category 1 offence outlined in s 31 of the Act creates an offence for a person who engages in ‘reckless’ conduct which exposes an individual to the risk of death or serious injury. It currently carries a maximum penalty of $300,000 and/or 5 years imprisonment for an individual, $600,000 and/or 5 years imprisonment for an officer and $3,000,000 for a corporation.
The Bill proposes to amend s 31 to insert the concept of ‘gross negligence’ in addition to reckless conduct.
‘Gross negligence’ is a concept which has caused great consternation for lawyers over many years and the Courts have long had difficulty in identifying what it means with any specificity. A recent decision in Western Australia in a civil case (GR Engineering Services Ltd v Investmet Ltd [2019] WASC 439) considered the definition:
‘Gross negligence is not a term with a precise meaning; and its meaning is to be ascertained from the context in which it is used. In some cases, it has been held to encompass more than mere negligence…However, any distinction between gross negligence and mere negligence is one of degree and not of kind. [306]’
Further, at [307] Ball J held:
‘…in my opinion the phrase “gross negligence” encompasses more than mere negligence, but it would at least include a deliberate decision not to undertake enquiries or investigations required by the consent.’
Although unclear, the legal position is that ‘gross negligence’ must be more than mere negligence and must have some form of deliberate or intentional act.
By incorporating the term ‘gross negligence’ into the definition of a Category 1 offence, doubt is created as to what type of conduct would constitute gross negligence for the purposes of the Act. The amendments also run the risk of traversing back to the approach under the previous Occupational Health & Safety Act where there was no requirement to consider mens rea or intention when determining guilt. Such an approach has been rejected by the High Court in Kirk.
Extended Investigative Powers
The existing s 171 of the Act empowers an Inspector to issue a notice whilst on premises requesting the production of documents and the answering of questions. The Bill now extends the Inspector’s powers such that a notice can be issued on a PCBU to produce evidence and answer questions if the Inspector is on the premises or has been on the premises within the last 30 days.
This amendment has the effect of extending an inspectors powers under s 171 and may see an increase in s 171 notices being issued where an Inspector does not have to be physically present on the premises when exercising the power as opposed to using s 155, which is a more cumbersome tool.
Increased Penalties
The Bill also proposes a move from the fixed maximum penalty to a penalty unit system which can be indexed from year to year with the insertion of the new Division 2A. The commencement point is $100.00 per penalty unit for the 2020 financial year and for each financial year it will be indexed in accordance with the CPI.
The penalties for each offence have also proposed to be increased as follows:
This represents a substantial increase in exposure for many businesses.
Illegal Insurance Contracts
The most alarming change for businesses proposed under the Bill is, however, the amendments with respect to insurance contracts. For the last decade the insurance market has been flooded with products that provide insurance coverage in the event of a workplace accident not only in respect of the costs of defending a prosecution but also in respect of any penalty imposed. This includes D&O (directors and officers) and management liability policies.
There has been debate in legal circles for many years about whether these products are against public policy because they negate one of the essential elements of any penalty or sentence.
An essential element of sentencing criteria applied by a court is deterrence – whether general or specific. Specific deterrence is where the court considers what component of the penalty must be included to specifically deter the defendant from reoffending. General deterrence refers to the need to protect the public from the crime and also to deter any unlawful behaviour from any other potential defendants. Where an insurance policy covers that risk, there is no amount of the penalty that would act as specific deterrence which defeats the purpose of that element and is contrary to the intention of sentencing.
The Bill creates four new offences in relation to insurance contracts. The proposed s 272A creates the following offences:
it is an offence where a person, without reasonable excuse, enters into a contract of insurance or indemnity which covers that person for a monetary penalty under the Act;
it is an offence where a person provides insurance to cover that risk; or
it is an offence where a person takes a benefit from such an insurance policy that covers that risk.
The penalty will be $50,000.00 for an individual and $250,000.00 for a body corporate.
Section 272B creates an offence for an officer of a PCBU where they aid, abet, counsel, procure, induce or conspire for the PCBU to commit an offence under s 272A. The maximum penalty is set at $125,000.00.
The most interesting aspect of s 272A is that it has been framed to effectively act retrospectively. In accordance with the amendments, entering a policy of insurance after the commencement of the section would constitute an offence but existing policies would not be caught. However, a PCBU or individual will commit an offence when they attempt to claim on the policy which may have been entered into prior to the commencement of the section. The provision has been drafted to bring to a rapid conclusion the use of insurance policies.
It should be noted however that the offence does not apply to the payment of costs in defending the prosecution but only the amount payable in respect of the fine.
The Future
The Bill has passed the Lower House and was presented to the Upper House on 24 March 2020. Having regard to the current COVID-19 restrictions, it is difficult to determine when the Bill will be enacted but the amendments to the insurance coverage will have a dramatic effect on the WHS landscape moving forward.
Simon Berry - Partner
If you require any further information, please do not hesitate to contact the Hilliard & Berry Solicitors’ office on (02) 8324 7500 asking for the Workplace Relations Team.