9.05.2018

First sentencing under Health and Safety at Work Act; time to count the costs

There has been a abundance of commentary following the imposition of a $100,000 fine in the first sentencing for a conviction under the Health and Safety at Work Act 2015 (Act): WorkSafe New Zealand v Budget Plastics (New Zealand Limited) [Link to decision]

Under the Act, the maximum fine that can be imposed where a ‘person conducting a business or undertaking’ (PCBU) fails to comply with a duty that exposes an individual to a risk of death or serious injury/illness is $1.5 million.  The maximum equivalent under the previous legislation was $250,000.

The Budget Plastics Case

In Budget Plastics, the defendant company had identified, but failed to guard a piece of machinery used in recycling plastic. Some six weeks after the problem was identified, an employee’s hand was dragged into the machine’s auger, and mostly  amputated as a result.

At sentencing, WorkSafe advocated for a starting point for the fine of $900,000.

The Court considered that the defendant company’s culpability was moderate, and identified a starting point for a fine within a band of $400,000 to $600,000.

The Court then assessed the aggravating and mitigating factors (and in particular, the company’s guilty plea, and their apparently dire financial circumstances) and imposed a fine of $100,000. Had it not been for the defendant company’s financial circumstances, it is likely that the fine would have been in the vicinity of $275,000 – 175% more what was ultimately imposed for the fine.

Increased Fines

Budget Plastic’s eventual fine of $100,000 was higher than comparable incidents under the previous legislation.  As recently as 2015, similar incidents of insufficient machine guarding causing amputations of fingers or limbs have resulted in fines of around the $40,000 mark (for example, WorkSafe New Zealand v Solly’s Freight (1978) Limited).

The message from the District Court in this case is clear – fines for breaches of health and safety duties will bite, and bite hard. A sentencing judge will now consider imposing fines of up to $300,000 for low culpability offences, $300,000 to $600,000 for medium culpability, and between $600,000 to $1.05m for high culpability.

As with the previous legislation, these fines cannot be insured against, and clearly at these levels could well have a significant impact on a business’ ability to pay or even its ongoing viability. In Budget Plastics, the company pleaded poverty and this was taken into account by the Court, however hardship will not be a consideration that is accepted readily – where a PCBU does not have the ability or has a reduced ability to pay a fine, it will need convincing accounting evidence to prove this.

Enforceable Undertakings

The significant fines that can (and will) be imposed, mean that a PCBU that finds itself in hot water would be well advised to consider “enforceable undertakings” (EUs).

An EU is an enforcement option under the Act, as an alternative to prosecution.  Essentially it is an agreement between the PCBU and WorkSafe.  An EU will set out remedial work which is required to achieve higher standards of health and safety for the PCBU’s workers, industry and community. It will also require the PCBU to make amends (reparation) to any victim(s) and contribute to WorkSafe’s enforcement costs. If the EU is breached, it can be enforced by WorkSafe for non-compliance (including by other enforcement action)

An EU is not offered by WorkSafe and requires the PCBU to first apply to WorkSafe for a suitability assessment. An EU will not be considered where there is an allegation of reckless conduct. The suitability assessment requires WorkSafe to assess a range of variables including the harm caused, and potential for harm; the PCBU’s prior conduct; relevant Government policy; and the victim(s) and/or union’s views.

To date, there have been three enforceable undertakings that have been accepted by WorkSafe.

The EUs to date have cost the PCBUs involved significant sums of money – between $85,000 and $129,000, plus reparation sums – however, in light of the fine imposed in Budget Plastics, it would appear that an EU makes good financial sense, and is well worth considering.  Many businesses will also feel that an EU, which allows them to invest in constructive health and safety initiatives which they control, is a better use of their money than a fine which goes to the Crown.

Invariably though, as with all health and safety matters, prevention will be better (and significantly cheaper!) than the ‘cure’.

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