National Review Into Model Occupational Health & Safety Laws

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1 11 July 2008 National OHS Review Secretariat Department of Education, Employment and Workplace Relations 64N1 GPO Box 9880 CANBERRA ACT Dear Sir/Madam National Review Into Model Occupational Health & Safety Laws The Australian Institute of Company Directors (AICD) welcomes the opportunity to make a submission to the Review. AICD has over 23,000 individual members from a wide range of corporations: publicly-listed companies, private companies, not-for-profit organisations, and government and semi-government bodies. Our membership is drawn predominantly from the small to medium (SME) and public sectors. As the principal professional body representing a diverse membership of directors, we therefore provide a broad-based director perspective to the OHS policy debate. AICD supports stringent OHS laws with appropriate penalties and is committed to the health and safety of employees in the workplace. The jurisdictional differences in law are stark in many OHS areas, despite some common themes and provisions. However, the laws in this area must be fair, balanced and consistent. Laws can be drafted with large companies as their focus. However, the majority of businesses in Australia are medium to small in size. The burden of regulation disproportionately impacts these businesses and the Review should consider such unintended consequences in making its recommendations. AICD s answers to the specific questions posed by the Review (see attached Submission), are underpinned by the following key principles: laws should be uniform; mutuality of obligation between employers and employees; burden of proof should not be reversed; no automatic liability for company officers; and reasonable reach of the law. Our Submission should be read together with this covering letter which gives context and further explanation to our answers. SUBM cover letter to OHS review Page 1 of 7

2 Uniform OHS Law AICD welcomes the outcome of the Council of Australian Governments (COAG) Meeting in Sydney on 3 July 2008 acknowledging that the harmonisation of occupational health and safety regimes is a key issue for business, with the inconsistencies of current approaches resulting in unnecessary cost and complexity, particularly for those businesses that operate across jurisdictions. COAG s emphasis on a seamless national economy is important as jurisdictional differences in such an important area as OHS have no place in a modern economy 1. AICD also welcomes the Inter-Governmental Agreement for Regulatory and Operational Reform in Occupational Health and Safety (Agreement). Particularly important is the agreement that OHS harmonisation means national uniformity of the OHS legislative framework complemented by a nationally consistent approach to compliance policy and enforcement policy 2. National uniformity will benefit employers, employees and best serve the national interest. AICD has reservations about those provisions of the Agreement which requires each jurisdiction to enact or otherwise give effect to their own laws that mirror the model laws as far as possible having regard to the drafting protocols in each jurisdiction. Also, we have concerns about the provision that the model legislation is not intended to prevent jurisdictions from enacting or otherwise giving effect to additional provisions provided these do not materially affect the operation of the model legislation. Both of these provisions may mitigate against the important outcome of national uniformity. AICD is aware of the difficulties the National Transport Commission (NTC) has faced in implementing nationally consistent road transport reforms in the heavy vehicle mass, dimension and load restraint areas and now in the heavy vehicle driver fatigue area. The term nationally consistent is not defined in the legislation nor as far as we have been unable to identify has it been defined in any other statute or considered judicially in Australia or overseas 3. In the road transport area it has enabled some States to adopt different approaches which are not nationally consistent. AICD s submission makes the point that national uniformity is of paramount importance and that there should be no room for fundamental jurisdictional differences. AICD notes that the Australian Capital Territory Government issued an Exposure Draft for a proposed new Work Safety Bill 2008 on 6 June 2008 with final submissions due by 21 July The Victorian Government also issued its response to the review of the Occupational Health and Safety Act 2004 by Mr Bob Stensholt MP on 17 June We hope that the timing of both, after this Review was announced, although well before the Inter-Governmental Agreement, does not inhibit the important outcome of a national uniform OHS law. 1 Council of Australian Governments Meeting 3 July 2008 Communique 2 Inter-Governmental Agreement for Regulatory and Operational Reform in Occupational Health and Safety paragraph Section 3 of the National Transport Commission Act 2003 provides for the establishment of the NTC with an ongoing responsibility to develop, monitor or maintain uniform or nationally consistent regulatory and operational reforms relating to road transport. The NTC has focused on nationally consistent reforms. 4 Available at 5 Media Release by Minister for Finance 17 June 2008.The report by Mr Stensholt (issued in December 2007) and the Government s response is available at SUBM Cover letter to OHS Review Page 2 of 7

3 Mutuality of Obligations Approach The mutuality of obligations approach is enshrined in the Victorian Act and in most other jurisdictions. OHS must be a shared responsibility between employers and employees based on consultation and cooperation, not an adversarial relationship. The focus of the legislation should be on prevention not punishment. The union right of prosecution is inconsistent with these approaches, as is the payment of a moiety to unions for successful prosecution 6. Mr Chris Maxwell QC, (now President of the Victorian Court of Appeal), in his report to the Victorian Government on the Occupational Health and Safety Act 1985 stated: The prosecution of persons for criminal offences is a matter of the utmost seriousness. It is in my view, properly the exclusive function of the State, and should be performed by a State agency - whether a Crown Prosecutor (subject to the DPP) or a prosecuting authority such as EPA or VWA I can see no justification for conferring on any other party whether a union, a worker or anyone else a statutory right to bring a prosecution 7 OHS should not be an industrial relations issue but it is an industrial relations portfolio responsibility in some jurisdictions 8. Perceptionally, this could be seen to work against the notion of the shared obligation between employees and employers. It is also inappropriate that industrial relations tribunals have jurisdiction in this area, especially where criminal penalties apply. Burden of Proof A reversal of the burden of proof should not form part of the Model Law accompanied as it often is with automatic liability for company officers. The Corporations and Markets Advisory Committee (CAMAC) has expressed an unequivocal view on this issue: The Committee is of the view that, as a general principle, individuals should not be made criminally liable for misconduct by a company except where it can be shown that they have personally helped in or been privy to the misconduct, that is, where they were accessories. The Committee is concerned about the trend in various pieces of legislation to treat directors or other corporate officers as criminally liable for misconduct by their company unless they can make out a relevant defence. Provisions of this kind are objectionable in principle and unfairly discriminate against corporate personnel compared with the way in which other people are treated under the criminal law: the deeming of individuals to be guilty of an offence, by reason of an office they hold or a role they play, unless they can establish a defence, offends ordinary notions of fairness the reversal of the onus of proof inherent in such provisions is contrary to the general presumption of innocence in criminal law 9 6 Occupational Health and Safety Act 2000 (NSW) section 106 gives the secretary of an industrial organisation authority to prosecute. Clause 217 (2) The Work Safety Bill 2008 (ACT) also contains this form of authority 7 Occupational Health and Safety Act Review March 2004 Chris Maxwell QC paragraphs The Commonwealth, New South Wales and South Australia are 3 jurisdictions we have identified 9 Corporations and Markets Advisory Committee Personal liability for Corporate Fault September 2006 paragraph 3.4 SUBM Cover letter to OHS Review Page 3 of 7

4 A reversed burden of proof stands at odds with the fundamental, time honoured and internationally recognized principles of natural justice and the availability of a fair trial for every citizen. It is at odds with important principles and laws such as: principles enshrined in Universal Declaration of Human Rights 10 ; Charter of Human Rights and Responsibilities Act 2006 (Vic) 11 ; Human Rights Act 2004 (ACT) 12 ; and Legislative Standards Act 1992 (Qld) 13. In his report to the Victorian Government, Chris Maxwell QC said: It is a fundamental principle of criminal law that the prosecution should bear the onus of proving all the elements of an offence. This principle should be departed from in the most exceptional circumstance 14 The Federal Minister for Superannuation and Corporate law, the Hon Nick Sherry, has indicated that the Commonwealth Government will take steps to ensure that corporate law strikes the right balance between promoting integrity and facilitating responsible risk-taking 15. Specifically, in relation to the liability of company directors, the Chairman of the Australian Securities and Investments Commission, Mr Tony D Aloisio said: it may be time for a stock take in this area of personal liability - to assess this balance between ensuring our boards take risks (so that our economy keeps growing) with protection of shareholders and creditors and consumers where individual liability may be appropriate 16 A reversed burden of proof unfairly discriminates against company officers and directors relative to the way in which other people are treated under the criminal law. It ultimately makes directorship a less attractive endeavour for talented individuals since it tips their personal risk/reward paradigm inequitably toward risk. It can also lead to a focus on compliance in boardroom deliberations to the detriment of more value-adding activities. Both of these outcomes undoubtedly have a negative impact on shareholder value and ultimately our national economic prosperity without necessarily contributing to improved safety outcomes in the workplace. Automatic Liability Automatic liability for company directors and officers should not form part of the Model Law. AICD estimates there are over 500 State or Territory statutes that hold directors liable for corporate breaches in circumstances where the director may have had no personal involvement in the breach. Unfortunately the OHS statutes in all jurisdictions provide for automatic liability with some including 10 Article 11 (2). The full text is available at Article 14(2) of the International Covenant on Civil and Political Rights is in similar terms 11 Section 25(1) A person charged with a criminal offence has the right to be presumed innocent until proved guilty according to law 12 Section 22(1) Everyone charged with a criminal offence has the right to be presumed innocent until proved guilty according to law 13 Section 4 (3) (d) provides that whether legislation has sufficient regard to the rights and liberties of individuals depends on whether the legislation does not reverse the onus of proof in criminal proceedings without adequate justification 14 Occupational Health and Safety Act Review paragraph Senator the Hon. Nick Sherry Corporate Governance in Today s Volatile Market Conditions, Speech to Riskmetrics Group Australia Governance Conference, Melbourne 28 April Tony D Aloisio An Update on ASIC S Priorities for 2007/2008 and How These Relate To AICD Members, Australian Securities and Investments Commission, 2007 SUBM Cover letter to OHS Review Page 4 of 7

5 a reverse onus of proof. Even the Victorian Act, which places the burden of proof on the prosecution, provides for automatic liability. This is one of AICD s fundamental concerns with the Victorian Act 17. AICD does not consider that The Criminal Code is entirely a satisfactory regime for dealing with corporate criminal responsibility. Under the Code, the burden of proof rests on the prosecution and beyond a reasonable doubt so that is positive 18. The concept of corporate culture is too uncertain and elastic a concept upon which to base criminal responsibility 19. An illustration of the unfairness of the automatic liability provision is the Ritchie Case where the NSW Industrial Commission found an overseas director liable for the breaches of the NSW Act. 20 In recent cases, the NSW Industrial Relations Commission has also found independent directors and non-executive directors liable for breaches by corporations in areas in which they can only possibly have had marginal theoretical control 21. In recent years, WorkCover NSW has prosecuted around 20 directors per year 22 on the basis of these automatic attributions of guilt, and left those directors with the onus of proving their innocence. In the majority of cases, with the legislation so heavily weighted in favour of the prosecution and against the individual, the director or person concerned in the management of the business simply pleads guilty to the charges. This is not a fair or just outcome for any citizen subject to the law. This approach is about punishment and not prevention and it is not clear how it assists in preventing workplace injury or death. Automatic liability for conduct of the corporation imputes to directors a capacity to control the acts of individuals in the corporation that does not reflect the way modern companies work and the practical realities of business. Any effective legislative system, particularly one which has criminal consequences, must be and must be seen to be fair and reasonable. OHS is too important an area, and the consequences too serious, to compromise compliance by an unfair regime of personal liability and this is at odds with the mutuality of obligations approach. In relation to liability of directors and officers we draw the Review s attention to sections 199A, 199B and 199C of the Corporations Act These sections limit the ways in which a company can indemnify an officer or arrange Directors & Officers Liability Insurance (D&O cover). The provisions and the terms of the D&O cover need to be taken into account in any given case, but in general terms, such insurance will not extend to pay any fine or legal costs of a director or officer found guilty of an offence against OHS law which is criminal in nature. D&O cover may also not cover any fine which is of a civil, non-criminal nature. The principle of limited liability, despite erosion in recent years is still an important principle. The United Kingdom Government has said: In considering the potential liability of corporations in the criminal law, the Government has borne in mind the reasons why corporations were established in the first place. The vital success and benefits that have been brought to the country through incorporated organisations and the continuing need for the successful operation of commercial organizations especially companies incorporated under successive Companies Acts to be able to function as corporations. In particular, in civil law, the great advantage of incorporation has been and is that it allows for a liability limited to the assets held by 17 Occupational Health and safety Act 2004 section Criminal Code Act 1995, sections 13.1 and Criminal Code Act 1995 section 12.3 (6). Part 2.5 Division 12 is generally relevant 20 Ken Kumar v David Aylmer Ritchie [2006] NSWIRComm See for example: WorkCover Authority of New South Wales (Inspector Belley) v Akerman-Apache (Joint Venture) Pty Ltd, Jonathon Dwyer Herbert and John Lindsay Walker [2006] NSWIRComm Information collated from publically available materials and trend indicated from 2005 onwards SUBM Cover letter to OHS Review Page 5 of 7

6 corporation itself, which is considered to be a separate legal entity from those individuals who run it 23 This is just as applicable to Australia where business is predominantly carried on through the limited liability model. The principle of limited liability has enabled citizens to take calculated risks in return for limited personal liability through company structures. This has resulted in widely spread economic activity and prosperity. Accordingly, company officers are not, and should not be guarantors of the performance by their company of any legal obligations. Criminal liability on a civil standard of proof should not form part of the Model Law. Even in those jurisdictions where the burden of proof rests upon the prosecution, the burden of proof does not depend on proof of intent (mens rea) and proof beyond reasonable doubt. Appeals should be available according to the court hierarchy in the relevant jurisdiction and there should not be any privative clause that prevent a superior court from reviewing a decision of an inferior court. Extending liability under OHS law to those outside the employer/employee relationship may void other types of insurance such as professional indemnity, product liability and public liability insurances. The general principle of insurance law is that criminal liability voids insurance cover. This could be to the severe detriment of employees or consumers. Any law reform in this area requires very careful consideration to avoid such unintended consequences. In relation to the issue of directors of Phoenix companies, that is a matter that falls within ASIC s jurisdiction. We draw the Review s attention to section 206F of the Corporations Act 2001 which gives ASIC the power of disqualification. ASIC actively enforces the law in this area and its latest Annual Report states that 46 directors were banned for a total of 154 years with another 53 potential bannings in place 24. It is also not possible for a solvent company to go into liquidation to avoid payment of a fine. Company directors have strict obligations and in this regard we refer in part to sections 180, 181, 182 and also sections 588V, 588W and 588X of the Corporations Act Reasonable Reach The Victorian Act includes psychological health in its definition of health 25 which came out of a recommendation in the Maxwell Report. Physiological and psychological needs are also referred to in one of the objects of the NSW Act 26. AICD is concerned that this concept takes the reach of OHS Law further than is reasonable or appropriate and makes the following points in support of that view: the difficulty in determining what the concept means other than some form of overall obligation to look after an employee s mental welfare; privacy, equal opportunity and anti-discrimination legislation provide considerable restraints upon the ways in which an employer may deal with employees in other than a strict personal safety sense; each employee is different - they respond to domestic, social and work situations in different ways and develop and deal with stress in different ways; the obligation imposes unfair and unacceptable obligations upon employers who are not equipped or qualified to deal with the demands the obligation seeks to impose; 23 Proposal Paper, Reforming the Law on Involuntary Manslaughter, May ASIC Report of Operations Enforcing the Law, 19. See also Media Release Phoenix crackdown reaps results Monday 8 January Occupational Health and Safety Act 2004 section 5 health includes psychological health 26 Occupational Health and Safety Act 200 section 3(c) SUBM Cover letter to OHS Review Page 6 of 7

7 some of the largest employers may have the specialist staff and resources to attempt to deal with such a subjective obligation but this may not be possible for small businesses; it is an area in which the uncertainty of the obligation and its potential scope may lead to a costly regulatory burden on the businesses least equipped to deal with them. We would be pleased to expand upon any of these views and provide any further information the Review may require. Please contact Gabrielle Upton, Legal Counsel, on (02) if you have any questions. Yours faithfully John H. C. Colvin CEO-elect Australian Institute of Company Directors SUBM Cover letter to OHS Review Page 7 of 7