All States and Territories of Australia will soon have a new Work Health and Safety Act (the model Act), which will place on those governing businesses a duty to take positive steps to ensure compliance by the business with its health and safety obligations.
Barry Sherriff, an Occupational Health & Safety partner explains due diligence in the context of Occupational Health and Safety (OHS) risk management and corporate governance in a recent address to Safety professionals at the Safety in Action conference in Melbourne. As a member of the government panel that recommended this area be clarified to assist officers, Barry lends his experience and insights on this topic and addresses components necessary for compliance and effective governance:
How are Officers defined?
The model Act adopts the definition of officers found in s9 of the Corporations Act. This will represent a change in a number of jurisdictions, which currently have different tests.
This definition will ensure that the focus is on corporate governance, rather than micro level operational issues. It can, however, capture directors or managers of a company (e.g. a holding company or franchisor), on whose directions the directors of another company (subsidiary or franchisee) are accustomed to act.
The emphasis is on active involvement in safety by officers
Officers may currently be liable for offences committed by the corporation that are attributable to a failure of the officer to meet a relevant standard (due diligence or reasonable care).
Under the model Act, officers may be liable even in the absence of a breach by the company, the offence of the officer flowing directly from the failure of the officer to exercise due diligence to ensure compliance by the corporation.
The intention of the positive duty is to ensure engagement and leadership by officers in OHS management, better providing for sustainability and improvement in OHS performance.
What will officers need to do for due diligence in OHS?
The model Act will, for the first time, define what due diligence is for OHS. In summary, officers will be required to take 'reasonable steps' to:
- inform themselves about OHS hazards, risks and compliance obligations
- ensure proper allocation and use of resources and the availability of policies and procedures to provide for compliance and hazard management, and
- verify that the resources and policies are providing for effective OHS risk management and compliance.
What should business now be doing to meet the due diligence requirements?
Existing corporate governance structures and processes, as they apply to OHS, may not meet the new due diligence requirements. Businesses should now review the following essential elements of a legally compliant governance system:
- an appropriate structure, with clear charters and KPIs etc, to provide for proper communication and accountabilities
- effective reporting processes for timely, credible information to officers
- ensuring officers are given the right information to meet their obligations
- means for ongoing advice and decision making
- auditing and other processes for verification of compliance
- documentation demonstrating due diligence activities.
Increased penalties for non-compliance by Officers
As part of the review of the OHS regulatory system, penalty requirements around corporate governance structures and due diligence have been reviewed, resulting in significantly higher penalties for officer offences. The maximum penalty for an officer for a breach of the duty to exercise due diligence will be $600,000 and/or up to five years gaol, where there has been recklessness on the part of the officer. The maximum penalty for a breach by an officer without recklessness will be $300,000.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
