New Health and Safety Sentencing Guidelines Could Send Some Companies Bust

25/11/2015

In the most dramatic shake-up to health and safety laws since the Health and Safety at Work etc Act 1974, on 3^rd November 2015, the Sentencing Council (the Council) published the Guidelines on Health and Safety, Corporate Manslaughter and Food Safety and Hygiene Offences (the Guidelines).

These new guidelines will come into effect on 1^st February 2016.

Without wanting to sound too negative on the subject, the fact is that these new sentencing guidelines could send some organisations to the wall, as well as making a custodial sentence a stronger possibility for directors and employees.

How the Sentencing Guidelines Work for Companies

The Guidelines state that when sentencing the Court should have regard to;

• The culpability of the organisation; and         

• The harm caused

Culpability

The Court must decide whether the culpability of the organisation is:

• Very high ie there was a flagrant disregard for health and safety laws         

• High          

• Medium

• Low ie health and safety failings were minor and the incident could be classed as a ‘freak’ accident

Harm

When assessing harm, the Court does not require proof that caused harm, only that the offence created a risk of harm being caused.

Once the harm has been sorted into a category, the Court must then consider:

         i.            Whether the offence exposed a number of workers or members of the public to the risk of harm.

       ii.            Whether the offence was a significant cause of actual harm.

So the Court can make an accurate assessment of the defending company’s financial status in order to set a fine, the company will need to provide three years worth of financial statements. 

The important factor to note is that the fine will be based on turnover, not profit. 

Although the defendant company’s profit is a factor the court is obliged to consider, the recent dismissal of an appeal by Thames Water against a £250,000 fine suggests that the Courts are hardening their attitudes towards large organisations found guilty of committing health and safety breaches.  In the Thames Water decision, Mr Justice Mitting issued an ominous warning by stating, “We would have had no hesitation in upholding a very substantially higher fine.  This appeal is dismissed”.

The Unfairness of Basing Fines on the Turnover of a Company

A large number of construction organisations work on thin margins.  According to the KPMG report “Construction Barometer: Recovery in Sight?” operating margins in construction continue to be squeezed. From a high of 2.8% across the industry in 2010, operating margins fell to an average of just 1.2% in 2013. Persistent inflation in the sub-contractor market suggested that pressure on margins was unlikely to ease anytime soon.

In another, more recent report, Construction News stated that profit margins among the UK’s biggest contractors have declined markedly, with the overall margin for the top 25 firms dipping below 1.5 percent.  However, falling profitability comes as the overall turnover of the leading 100 companies broke through the £60bn barrier for the first time in five years.

The great concern within the industry is that the trend of rising turnover and falling profitability may cause companies who are in the unfortunate position of being found guilty of health and safety breaches by the Court to face ruination, caused by massive fines being levied that simply cannot be paid.  Particularly worrying for large organisations is the fact the Guidelines state: 'Where an offending organisation's turnover or equivalent very greatly exceeds the threshold for large organisations, it may be necessary to move outside the suggested range to achieve a proportionate sentence.'  This means fines of over £10 million are possible where turnover greatly exceeds £50 million.

The Guidelines contain a list of factors that may be used to increase or reduce the fine.  For example, a fine may be less if the defender has no previous health and safety convictions, co-operated with the investigation fully and accepted responsibility.  

Taking into Account Profitability when Sentencing for Health and Safety Breaches

The Guidelines state that “The profitability of an organisation will be relevant. If an organisation has a small profit margin relative to its turnover, downward adjustment may be needed. If it has a large profit margin, upward adjustment may be needed.”

It is important to note that profitability is not a mandatory consideration (the word ‘may’ is employed, rather than ‘shall’), and the Guidelines go on to say, “Whether the fine will have the effect of putting the offender out of business will be relevant; in some bad cases this may be an acceptable consequence.”

The Court can also consider factors such as the impact the fine will have on the organisation to pay compensation to the victim or his or her family, and the wider consequences for the staff, suppliers and community as a whole if the company were to go into liquidation because of the penalty imposed.

A plea of guilty by the defendant will also be taken into account as a mitigating factor in accordance with section 144 of the Criminal Justice Act 2003 and the Guilty Plea guidelines.

What Steps Should Companies Take in Light of These New Sentencing Guidelines?

It is imperative that construction, engineering and manufacturing companies take the consequences that may evolve from the Guidelines seriously.  The Courts have been warned they must be prepared for a barrage of guilty pleas from companies wanting to have their sentence handed down under the existing guidelines, rather than wait until after February next year when the new guidelines come into force.

It will take some time for the first case to be decided under the new guidelines by a senior court.  Only then will we have some idea as to how the Judiciary will interpret them.  In the meantime, companies need to ensure:

• Their health and safety procedures and risk assessment policies are up to date and fully compliant         

• They co-operate fully with any investigation made if a workplace accident takes place          

• They seek experienced legal advice if they have any concerns about their health and safety compliance or need an emergency response to an incident