No More Work Health & Safety Net

Major WHS Changes for Companies & their Officers

Following findings of the Federal Senate Inquiry –‘They never came home – the framework surrounding the prevention, investigation and prosecution of industrial deaths in Australia’ into the model Work Health & Safety Act and its operation since 2011 the NSW Parliament has been the first state to act to implement key recommendations arising from this inquiry without waiting for changes to the model act or other states.

Insurance & Indemnity Safety Net to be Banned

The most controversial and worrying of these changes for companies and their and officers[1] are proposed amendments to the Work Health & Safety Act 2011 (NSW) (The Act) which will make any form of insurance to cover penalties under the Act for work health and safety offences illegal and to make it an offence to take out any such insurance, offer such insurance or to enter into any type of agreement for an indemnity in relation to penalties.

The Work Health & Safety Amendment (Review) Bill 2019 was introduced to the Legislative Assembly of NSW Parliament on 12 November 2019 and which inserts a new section 272A into the act making it an offence to enter into a contract of insurance or other form of indemnity arrangement if a person is convicted and found liable for a monetary penalty under the Act or to take the benefit of a contract of insurance or other form of indemnity arrangement for a monetary penalty under the Act.

In addition to a prohibition on such insurance and indemnity arrangements the proposed amendment provides for penalties for breaching the insurance/ indemnity prohibition in the case of individuals of up to $50,000.00 and in the case of a body corporate up to $250,000.00.

The amendments also provide for offences by Officers if they ‘aid, abet, cancel, induce with threats or promises, or conspire to effect the commission of the offence’ of taking out such insurance or providing such indemnities.[2]

The proposed amendments will commence upon the passing of the bill, however will not have retrospective operation for insurance or indemnity agreements that existed at the time of the commencement of the bill, that is, existing arrangements for insurance will not be considered to be illegal under the Act and could potentially be relied upon if a person is prosecuted for an offence that occurred prior to the passing of the bill.

Current Insurance for Work Health & Safety Offences

Currently a range of insurers offer insurance products which purport to interact with a work health and safety event and provide coverage for costs associated with regulator investigations and prosecutions and also for any penalties which may be imposed upon companies and individual officers and directors. These insurance products are in the form of specialised work health and safety insurance products, statutory liability policies and directors and officer’s insurance.

The existence of these policies has been somewhat controversial since they became available in the insurance marketplace over the last 10 years. There has been a significant legal view that insurance for at least the payment of penalties, under the Act, for what are criminal offences, is against public policy and should be considered illegal.[3] Notwithstanding this view however insurers have written such policies of insurance and taken premiums from their insureds and indeed have made payments to insureds who have been prosecuted by regulators under the various state work health and safety legislation (model legislation).

To some extent it has been surprising that regulators have not drilled down into the insurance issue to a greater level when prosecuting matters as the existence of a policy would be a relevant factor in sentencing.[4]

Executive Contracts & Indemnities / Deeds of Indemnity & Shareholder Agreements

It has been a known practice particularly for executives and directors to negotiate terms in their executive contracts/ contracts of employment that provide for indemnities to be given to them for any offences/penalties which they may be found guilty of under the Act. Under the proposed amendments to the Act this practice will become illegal and unenforceable.

Further, it is also common practice for directors and shareholders to obtain deeds of indemnity or have provisions in shareholder agreements tied to directorships, to seek indemnities from the relevant corporate entity which may in certain circumstances extend to such liabilities under the Bill. These may now become illegal and unenforceable.

Of concern, is that persons who provide advice about such indemnities and deeds such as accountants, solicitors, insurance brokers and advisors, could potentially be knowingly concerned in or party to the commission of an offence and guilty, of an offence under the Bill.

New Category 1 Offence

The Bill also introduces a new offence in relation to Category 1 offences being that of gross negligence. This is in addition to the already existing Category 1 offence of recklessness to the risk to an individual of death or serious injury or illness.

The legal test for gross negligence is a lesser fault element than recklessness and will make it easier for prosecutors to successfully commence proceedings under the category 1 offence provisions. The penalties for such offences will be increased under the bill to 5 years gaol and $346,500 for individuals per offence and $3,463,000 for companies per offence.

Other Proposed Amendments

In addition, the bill seeks to make other amendments to the Act to clarify duty holders, making it clear that a person conducting a business and undertaking (PCBU) can have multiple duties and also be a worker under the Act.

The other key change is the introduction of indexation of penalty units under the Act to the Consumer Price Index (CPI) which will see further increases to penalties automatically and annually. For now, however the bill increases penalties for all 70 odd offences under the Act for the first time since its commencement in 2011. The increases are said by Government to be equal to all CPI increases since 2011 to date.

Recommendations Arising from Proposed Amendments

Overall the bill seeks to implement significant changes to the current Act. Roberts Legal strongly recommends that companies and their officers undertake a review of their current work health and safety systems and policies and given the distinct possibility that insurance for work health and safety offences will become obsolete it is now more important than ever that companies and Company Officers ensure compliance with the Act and Regulations.

Roberts Legal suggests that you undertake a review of your current insurance program/regime to identify any insurance products which may fall foul of the prohibitions of the new prohibition on policies of insurance for penalties arising from work health and safety offences.

Whilst policies that are in existence at the time that the bill is eventually passed will not lead to a breach of the provision, any renewal of such policy would be considered to be a new policy of insurance and as such in breach of the new provisions.

Accountants, insurance brokers and even legal advisors providing general advice on insurance director/shareholder agreements and indemnity issues must be cautious that they are not providing advice that may lead to them being knowingly concerned or party to the commission of the new offences under the Bill.

We would encourage you to seek advice in relation to such insurance products as there may be aspects of the policies which will not be illegal, in particular, in relation coverage for legal costs and related expenses incurred during a regulator investigation into a serious work health and safety incident and the obtaining of legal advice and/or the legal costs associated with any prosecution or other proceedings arising from alleged breaches of the Act.

WHS Compliance Products & Training

Roberts Legal is able to assist companies and their officers and has a package of compliance products which can ensure your legal compliance and limit the risks to your business and to you personally as an officer. These compliance products are set out below;

1. Desktop Legal Compliance Review / Report
We will review your existing WHS documentation and systems and consider the risks and hazards based upon your industry sector. Roberts Legal will provide a compliance and systems gap analysis report in terms of legal compliance which will be undertaken under legal professional privilege and cannot be used as evidence of non-compliance by a regulator.
Price $5,500.00.

2. Director & Officer Training
We have a program of Director and Officer training on WHS and Officer due diligence requirements to ensure that Officers are aware of their obligations under the Work Health & Safety Act and the requirements to exercise due diligence together with practical and legal steps and advice to ensure protection of risks from individuals being prosecuted.
Price $2,500.00 plus negotiated travel time.

3. Incident Management Training
We are able to provide training in regard to management of a serious workplace incident and/or regulator investigations and assist in the development of a disaster management plan to ensure that in the event of a serious workplace incident and regulator investigation you are properly protected legally.
Price $2,500.00 plus negotiated travel time.

4. Insurance Review
We are able to undertake an independent review of your company’s insurance program of policies for interaction and protection from WHS risks and existing penalties for companies, directors, officers and employees and provide a gap analysis and recommendation in regard to changes to your insurance program. Roberts Legal is able to recommend appropriate insurance products from reputable brokers.
Price $2,500.00

5. Master Disaster Incident Management Guide & Response
Roberts Legal has developed a legal guide to dealing with a serious safety incident and disaster response management. This is a 100-page electronic document authored by Jeremy Kennedy and includes access to regular updated materials.
Price $1,000.00.

6. Combined Package
Roberts Legal is able to provide a combined package of all of the above products for the sum of $8,500.00.

By Jeremy Kennedy,
Special Counsel

[1] Officer as defined in section 4, Work Health & Safety Act 2011 (NSW)

[2] New section 272B to be insert in to Act

[3]‘Insuring Directors Against Criminal OHS Wrongdoing’ – Professor Neil Foster – University of Newcastle Law School February 2011.

[4] Hillman v Ferro Con (SA) Pty Limited (in liquidation) & Anor, SAIRC, 22 July 2013