The Boardroom and Shop Floor Divide

26/09/2016

How Much Should Director’s Know About What Goes On Within Their Company?

Earlier this week, Michael Ashley, owner of Sport’s Direct, confessed on BBC Breakfast that he had a lack of intimate knowledge regarding the running of his business warehouse.

Mr Ashley said, 

"You would be surprised how little I knew about what was going on and that's really where the failing was.

"How do I know what a night shift does from 12 at night to seven or eight in the morning? I don't work there on Saturdays and Sundays and there are lots of hours I am not there.

"Should I have known more? Yes. Was I aware of the some of the things that were going on? Absolutely not."

More A Workhouse Than A Warehouse

The reports on the conditions of the Sports Direct Shirebrook warehouse make for grim reading.  MPs claimed the employment practices at the distribution centre resembled those of a “Victorian workhouse”.  Employees, who are mainly foreign and do not speak English, are paid £6.70 an hour (in reality, many receive less according to a report in The Guardian). 

MPs found that workers were  often chastised for excessive/long toilet breaks, time wasting, excessive chatting, horseplay, wearing branded goods and using a mobile phone in the warehouse. Workers caught doing any of these thing six times in six months could face dismissal.

But perhaps most humiliating of all, staff were subjected to a search at the end of every shift.  This involved workers lining up before being ordered to strip to the final layer above the waist and empty their pockets. They were then asked to roll up their trouser legs to reveal the brands of their socks and underwear. 

Mr Ashley’s comments on BBC Breakfast raise the question - Should director’s be aware of every minute detail of how the shop floor is run?  If so, what is the point of employing managers, foreman and supervisors?

And when it comes to health and safety law, is ignorance of risky practices and breaches ever a defence for directors?

S37 Of The Health And Safety At Work etc Act 1974

Section 37 says a director can be prosecuted if an offence committed by the company or other body, “is proved to have been committed with the consent or connivance of, or to have been attributable to any neglect on the part of any director, manager, secretary or other similar officer of the body corporate”.

In the Scottish case Wotherspoon V HM Advocate [1978] JC 74 held that in considering neglect, the court must consider whether the accused had, “failed to take some steps to prevent the commission of an offence by the corporation…if the taking of those steps either expressly falls or should be held to fall within the scope of [his/her role]”

This test was approved by the Court of Appeal in R v P Ltd and G [2008] ICR96 which held that that if the director:

“…had no actual knowledge of the relevant state of facts, the question would always be whether, nonetheless, he should have been put on inquiry by reasons of the surrounding circumstances whether the relevant safety procedures were in place…"

This decision makes it clear that being unaware of health and safety issues does not negate the responsibility of a director if he or she should have been aware of a breach occurring.

 As to how the court establishes whether or not a director has taken reasonable steps to make themselves aware of any potential breaches, the Court of Appeal commented in R v P Ltd and G:

“If there is a proper system set up for health and safety that will usually be sufficient for [a director] to say “I have done my duty.  I have set up that system”, in the absence of material to make it plain to him that something was actually wrong with it.”

Stricter Health And Safety Sentencing Guidelines

New sentencing guidelines for health and safety offences, corporate manslaughter, food safety and hygiene offences came into force on 1^st February 2016. The guidelines have statutory force and apply to cases sentenced after 1^st February 2016 regardless of the date of the offence/s. Every court must follow the guidelines unless satisfied that it would be contrary to the interests of justice to do so.

The maximum custodial term for breaching s37 is 2 years.  The impact of the new guidelines is that the threshold for custody has been lowered making imprisonment a real possibility particularly where the prosecution follows a fatal incident.

In 2014 Mervyn Owen director of Mobile Sweepers (Reading) Ltd, was fined £183,000 and banned from being a company director for five years after pleading guilty to breaching s37. The prosecution followed the death of an employee killed while working on machinery. His company pleaded guilty to corporate manslaughter. If sentenced today it is likely Mr Owen would have been sent to prison.

In Conclusion

Although it is clear that ignorance of health and safety breaches will not always provide a defence, the courts have demonstrated in the case of R v P Ltd and G that they will take into account the commercial reality of a director’s position.  After all, delegation is a key part of a director’s role.  

Directors need to be able to demonstrate there are appropriate safety systems and procedures in place, that they have competent people doing and managing the work, and that there is in a system in place for auditing and managing the company’s working practices and management of risk.

And this is important not only from a safety but also a business perspective.  In the words of Lord Cullen in his report into the railway industry following the Ladbroke Grove train crash 

“There is a clear link between good safety and good business.”

Fisher Scoggins Waters are a London based law firm who specialise in construction, manufacturing and engineering law.  Michael Appleby, our H&S partner, defended the Managing Director in the case of cR v P Ltd and G who was acquitted of all charges under s37 of the Health and Safety at Work etc Act 1974.