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Directors' duties – Follow the leader20 September 2012
Enforcement data suggest that, perhaps due to a combination of legislative and policy factors, those at the top of organisations are now coming under increased scrutiny for health and safety failures. In light of this evidence, Lee Hughes considers whether the time is right for positive directors’ duties to be introduced.
HSE figures provided in response to recent Freedom of Information (FoI) requests show an increase over the past few years in prosecutions of senior managers and directors under section 37 of the HSWA 1974, and a corresponding decrease in prosecutions of employees under section 7 of the same Act.1,2
In response to an article in SHP, which reported the figures and offered brief commentary on how the data could be interpreted,3 the HSE denied that there has been any change in its prosecution policy and refuted any suggestion that it is “deliberately targeting senior managers, or their employees”.4
While the FoI responses cannot be relied on for full accuracy, they are interesting and appear to counter anecdotal evidence from other practitioners, who have suggested that there has, in fact, been an increase in the prosecution of employees in recent years.
It is not suggested that there has been a deliberate targeting of either group recently; however, it can be argued that the effect of enforcement and voluntary guidance, legislation and court judgments over the past four years has been that directors are increasingly finding themselves the focus of investigations. As a result, prosecutions of these individuals have increased and, perhaps as a consequence of this focus on managers, prosecutions of employees are becoming less frequent.
The following analysis attempts to identify what changes have occurred recently in the areas of directors’ duties and prosecution of individuals, and examine whether positive duties for directors should now be introduced.
What is section 37?
Section 37 doesn’t apply just to directors but to all persons acting in positions of “real authority”.5 It is an offence punishable with up to two years’ imprisonment and an unlimited fine.
Directors and senior managers can be prosecuted under s37 of the HSWA if, through their consent, connivance, or neglect, a company commits a criminal offence (the prosecution has to prove such a commission but the company itself doesn’t necessarily have to be prosecuted).
By contrast, section 7 of the Act makes it a duty for every employee, while at work, to take reasonable care for the health and safety of himself and others who may be affected by his acts, or omissions.
How many people have been prosecuted under s37?
The HSE’s response to a FoI request last year indicates that prosecutions of directors under section 37 have increased in recent years, although the Executive warns that the data is unvalidated and therefore may not be entirely accurate.1
Prosecutions under section 37 averaged 23 each year between 2000/01 and 2010/11. From a low point in 2005/06 director prosecutions have increased each year to a period high of 43 in 2010/11.
By contrast, there has been an average of 20 prosecutions each year under section 7.2 However, since 2009/10 the number of section 7 prosecutions has been below average, with just 13 prosecutions instigated in 2011/12. It is also worth noting that since 2008/09 there have been fewer prosecutions each year under section 7 than there have been under section 37.
After 2008/09, the conviction rate for section 37 offences improved for the following two years, from an 11-year period low of 36 per cent to 75 per cent, and then to 81 per cent, nearing the HSE’s general prosecution success rate for other matters (94 per cent in 2010/2011).6
This improved success rate could be attributable to a number of changes to the legal framework surrounding s37, and prosecutors and courts becoming more familiar with those changes. Discussed more fully below, these include: the introduction of new guidance for directors; enforcement policy changes; a notable judgement in the courts; and the impact of both the Corporate Manslaughter and Corporate Homicide Act 2007 (CMCHA) and the Health and Safety (Offences) Act 2008.
There is a marked contrast here, when you consider the average conviction rate of employees in section 7 prosecutions, where the legal framework surrounding it has largely stayed the same over the last few years (aside from the increase in potential penalties under the Health and Safety (Offences) Act). Nevertheless, prosecutions under section 37 would be even easier if there were defined legal duties, to which directors could be held.
What responsibilities do directors have?
In the absence of explicit legal duties dealing with directors’ responsibilities for health and safety, there is only voluntary guidance to inform directors of what good management of health and safety entails.
An evaluation in 2009 of the current guidance, ‘Leading Health and Safety at Work’,7 which was published in 2007, found that just 25 per cent of organisations in Britain with five or more employees were led by directors who were aware of the guidance.8 Around 13 per cent of all organisations in Britain with five or more employees were run by directors who had read the guidance at the time of the survey.
A second evaluation of this guidance, published in 2010,9 estimated that by November 2009, around 36 per cent of organisations in Britain with five or more employees would be led by directors who were aware of the guidance. Only around 19 per cent of respondents had read the guidance.
While the evaluative studies were somewhat flawed in focusing only on large organisations, the most startling figures are those demonstrating non-compliance. It is a worrying statistic that only 19 per cent of respondents had read the guidance, and the true figures, if small organisations were taken into account, would likely be smaller still.
What has led to the rise in prosecutions?
It is worth remembering that in 2007, chair of the HSE Judith Hackitt claimed that the ultimate measure of the effectiveness of the voluntary guidance would be fewer workplace fatalities and more prosecutions. While it is not clear if the voluntary guidance has played a direct part in the increase in prosecutions of individuals, it is interesting to note that, in 2008/09, the HSE revised its Enforcement Policy Statement (EPS)10 – which it uses when considering whether to prosecute individuals – and specifically raised the issue of the prosecution of directors. Furthermore, the HSE’s Operational Circular 130/6 (version 2)11 said this approach went beyond the previous policy in its focus on the management chain and directors, signifying a clear shift towards the prosecution of individuals.
The second version of the Operational Circular 130/812 also took a hard line against individuals when it confirmed that prosecutions were no longer limited to “substantial failings” but were to be considered in other circumstances as well.
This policy seems in line with the judgment in R v P ,13 which had the effect of making it easier to prosecute a director under section 37. The case confirmed the duty on directors only insofar as they are required to put themselves on notice in respect of the functions of their role. This is not a positive duty and doesn’t require them to do anything to improve health and safety, or ensure that the business complies with the HSWA. The case has, however, reduced the burden on prosecutors to the extent that they do not have to prove wilful neglect.
Other developments include the CMCHA 2007, which has led to greater focus on senior management failure during investigations of fatalities, and the introduction of the Health and Safety (Offences) Act 2008, which increased the penalties available to the courts where directors are convicted of s37 offences. This may have had the effect of indicating to prosecutors that health and safety offences are, in fact, more serious than the previous sentencing regime may have led people to believe.
However, all this does not amount to s37 being an offence in itself. There is also no research, or evidence to indicate that these developments, together, have improved health and safety management and compliance.
Why reform section 37?
The continuing absence of positive duties for directors means that a director may neglect his health and safety responsibilities without risk of prosecution unless the employer commits an offence also. This indirect approach to personal responsibility is at odds with the positive duties on employers and employees.
As well as strengthening the HSWA, introducing positive duties for directors would improve the CMCHA (as it would provide identifiable duties which, if breached, could form the basis of a senior management failure). Introducing positive directors’ duties might also have the effect of improving director disqualification rates. This sanction is notoriously underused in health and safety,14 perhaps because it seems harsh to disqualify a director for not meeting a standard that they did not know they had to reach.
In 2005, Professors Wright and James recommended the codification of directors’ duties.15 Prof James stated that there were “reasonably good, evidence-based” reasons for attempting the legislative route, while maintaining that it was impossible to demonstrate conclusively that positive duties would act significantly to improve health and safety management and performance.
At the time, the Health and Safety Commission opposed introducing new duties, citing fears of risk aversion and increasing bureaucracy.16 The HSE later claimed that the combination of the CMCHA and the Health and Safety (Offences) Act would negate the need for directors’ duties, in any event.
The campaign for positive duties did not end there, however, and it was given an added injection following Baroness Rita Donaghy’s inquiry in 2009 into the underlying causes of fatal accidents in construction. Her report, ‘One death is too many’,17 recommended that “there should be positive duties on directors to ensure good health and safety management through a framework of planning, delivering, monitoring and reviewing”.
Acknowledging that the issue of director responsibilities had been the subject of heated debate, Baroness Donaghy posed the following four questions regarding the efficacy of section 37, for which I have provided my own answers below.
- Are the implied duties on directors contained in various Acts, including the Companies Act 2006 and the HSWA, sufficient to persuade a director of a company to take health and safety seriously?
Arguably not. The available research points to the failure of the voluntary guidance.
- Would the imposition of individual director duties undermine the principle contained in the HSWA that employers (collectively) have responsibility for the health and safety of their employees?
No, it would not. An examination of the Regulatory Reform (Fire Safety) Order 2005, notably Articles 3 and 5, demonstrates how responsibility, while mostly resting with an employer, can be shared. Furthermore, there is no suggestion that employee duties undermine the responsibility of employers. It is accepted that employees should have positive duties towards their colleagues and members of the public, as should directors.
- Is not section 37 sufficient to prosecute an individual director in certain circumstances?
Section 37 allows for the prosecution of directors, and its use appears to have increased since 2007/2008. However, that does not indicate that it is being used in every case in which it should. Furthermore, the ease of prosecution is not as important as the effect of positive duties on directors in improving health and safety.
- Will the introduction of the Health and Safety (Offences) Act 2008 (increasing fines and risk of imprisonment) not have the desired effect?
The Act has not been used to its full extent and appears to have had very little effect, if any, so far. Few, if any, directors have been sent to prison solely for committing an offence under s37 of the HSWA.
The trades unions’ response to Baroness Donaghy’s paper was “overwhelmingly positive”, and it received support from the Work and Pensions Committee.18 However, in April last year, the HSE confirmed that further regulation in the area of directors’ duties would not, for the time being, be pursued.19
How could section 37 be reformed?
Other jurisdictions have introduced legislation imposing positive duties on directors, reverse burdens, or the potential for increased sentences.
In 2007, the Centre for Corporate Accountability was commissioned to prepare an international comparison of health and safety responsibilities of company directors in nine countries for the HSE.20 The report found that imposition of positive duties was not found to result in director flight, or risk aversion. However, as no research had been identified in relation to whether positive duties actually improved health and safety, there could be no guarantee that there would be any improvement in health and safety.
Significant developments highlighted in Australia or the Republic of Ireland by barrister Gerard Forlin QC21 might improve health and safety compliance among employers in the UK.
Some Australian states have, for example, introduced positive director duties – a director must exercise “due diligence” (a concept English lawyers may be familiar with) to ensure that the company complies with its health and safety duties. Failure to undertake such due diligence is an offence in and of itself, and does not require the commission of an offence by a company. Depending on the category of offence, imprisonment for five years can be imposed in the event of conviction.
In the Republic of Ireland, there is a reverse burden of proof on directors, which requires them to show, in the event of a breach by the company, that the offence is not attributable to their consent, connivance, or neglect.
Either the ‘due diligence’ approach, or the admittedly less attractive ‘reverse burden’ approach, and the associated increase in personal liability for directors, would likely have the effect of forcing them to do more to ensure health and safety compliance within their organisations.
Changes to the Enforcement Policy Statement, albeit in 2008, signified a shift in intention toward directors. There has been no shift in policy in the last year, or so but the apparent upward trend in director prosecutions has only really become discernible in the last year.
It seems to have come about because of a combination of new legislation, case law and guidance, all of which have played a part in spelling out to inspectors and prosecutors alike the type of evidence they should be looking for to secure a conviction under section 37. This shift should be welcomed, as leaders should lead on health and safety, just as they do in other areas of business. Moreover, raising awareness of the responsibilities of directors plays an important educational role in the improvement of workplace health and safety.
One way to improve the HSWA, as well as the CMCHA, would be to introduce positive duties on directors, as are found in some other countries, including Commonwealth jurisdictions. If documents such as ‘Leading Health and Safety at Work’ reflect how businesses should be run in the opinion of the HSE and Institute of Directors, then the poor uptake of the guidance is perhaps something that needs to be addressed via a regulatory route.
While we cannot be certain that positive duties would improve health and safety, it is very likely that they would act as a motivator in ensuring directors focus more of their time and energy in this area. Positive duties for directors would also serve to bring equality to the HSWA, given that employers and employees are already subject to definitive duties.
According to the HSE: “Prosecution is intended to bring home to directors/managers the extent of their responsibilities, and to bring them to public account for their failings, where appropriate”.22 Without imposed legislative duties, it is difficult to see how that can happen.
5 Simon Brown LJ, in R v Boal (1992), 95 Cr App R 272
8 HSE (2009): Evaluation of guidance for directors and board members, Research Report 695, prepared by Databuild Ltd for the HSE
9 HSE (2010): Second evaluation of guidance for directors and board members, RR815, prepared by Databuild Ltd for the HSE
13 EWCA Crim 1937 (2007)
18 Select Committee for Work and Pensions (2009): Fourth report of session 2008-09, volume 1, Report, together with formal minutes, paragraph 45, HC 635-I
21 Forlin, G (2011): ‘Developments in health and safety’, in Archbold Review, 2011
Lee Hughes is an associate in the safety, health and environment team at Pannone LLP.
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