One of the most discussed posts on this blog concerned an insurance company that paid the fines awarded against a company director. The company director had been found guilty of OHS breaches that led to the death of a worker. Yesterday, South Australia’s Deputy Premier and Minister for Industrial Relations. John Rau, said that he will be taking action to close the loophole that allows for this situation. But this is unlikely to succeed and may be a distraction from the more significant issue of new penalties for deterrence.
In a media release, not yet available online, Rau states that
“Insurance should not be the preference over safe equipment and safe workplace standards….
Whilst most employers do the right thing, this dodge effectively means that the incentive for a company to provide a safe environment for its workers is diminished or eliminated.”
Rau’s current strategy for closing this loophole, which is not really a legal loophole at all, is weak. Rau, a Labor Party politician, says that he will bring the matter to the attention of the Federal Minister for Workplace Relations, Bill Shorten. However, Australia is ten days away from an election that the current (Labor) government is tipped to lose.
Rau needs to also raise this matter with the Conservative politician most likely to be the next Workplace Relations Minister, Eric Abetz, but Abetz has not been a fan of the harmonised OHS laws and uses OHS as a platform for his own ideological agendas in similar ways to what he accuses the trade union movement of doing.
Of more likely success is Rau’s intention to implement a State-based solution as he is in a stronger electoral position to do so. But what could that be?
South Australia is one of the States that implemented occupational health and safety laws based on the model national Work Health and Safety (WHS) laws. Several States tweaked these laws to address their own peculiarities (or political needs) and to have the new laws pass Parliament. They remain State-based laws so there is good scope for local action to be taken.
Who did wrong?
However, this may be trying to change WHS laws for a non-WHS reason. The director of the company, Ferro Con, and the insurance company have done nothing legally wrong but they do seem to have, to quote Monty Python, “transgressed the unwritten law”. As much as the payout by the insurance company is distasteful to OHS professionals, the insurance company offered, or created, a policy the company director paid for. The insurance company would have assessed the claim and, in this case, chose to pay. It is difficult to see how WHS laws could be amended to affect this strictly commercial activity.
And at who should we aim our outrage? The company director may have taken out the policy for good economic reasons although this seems unlikely as the company went into liquidation. According to the Industrial Magistrate the company had “a general insurance policy which apparently included indemnification of its Director for fines imposed for his criminal conduct.” It seems unlikely that he took out this policy to cover intentionally poor safety management. Perhaps, we should be looking at the commercial morality of the insurance industry.
Rau is more likely to have greater success investigating the range of insurance products on offer. But it would be a courageous political move to question insurance companies.
Penalties and Deterrence
To step away from the insurance issues for a moment perhaps the discussion point should be about the continuing value of applying financial penalties to corporate and OHS breaches. Most penalties applied to large corporations are easily paid from profits. In 2010 BHP Billiton was penalised $A75,000 after the death of a worker, Scott Rigg. At the time I asked:
“The Australian Government has been willing to apply a 40% tax on the mining industry’s profits but is unlikely to apply a percentage penalty in relation to OHS. It could be argued that well-funded corporations have the financial resources to establish safety prevention units and strategies, have existed for decades and should know better on workplace safety issues, so why should they be subjected to an arbitrary set of financial penalty units? “
Ferro Con is not nearly in the same league as BHP Billiton but a percentage penalty of profits or some other corporate element could be an effective deterrent.
Name and Shame
Also, an increasingly important motivation for OHS compliance or other corporate compliance is the fear of reputational damage for such damage can ruin careers and affect stock market performance. “Name and Shame” should be considered again in light of Ferro Con. Michael Tooma was in favour of such an approach several years ago. Tooma was reported as saying
“”It focuses regulatory attention and resources where it is needed the most. By naming the employers, it also applies pressure on the companies concerned to lift their game,” he says.
“Obviously it should be used with other compliance and enforcement strategies since workplace accident injury statistics alone are not an effective measure of safety performance. But in combination with other initiatives, it may be effective in shifting ‘rusted on’ attitudes on ‘acceptable performance’ in some industries.”
Discussions on such an approach still occasionally appear but the challenge is how should the shame be applied in a world where a full-page apology in a newspaper is much less effective as the influence of newspapers has declined. Placing an apology on a corporate website is possible but how sustainable would the shame be?
Rau is unlikely to succeed in closing a loophole that is simply the offering of a commercial insurance product. It is perhaps better to let the case of Ferro Con slide as a very unfortunate lesson and to instead undertake a detailed review of penalties and punishments for OHS breaches. If an OHS penalty, regardless of the type, is intended to deter others from repeating the breach, ie, endangering someone’s life or health, what type of penalty can be applied now, in light of the Ferro Con case, that will have a similar or better level of deterrence?
The Ferro Con case deserves broad discussion on the perspectives of regulators, the courts and the policy and lawmakers. The case is of far more significance than the Baiada case from which various labour lawyers are making mileage. Many lawyers denied that any insurance company would ever pay the fines of a company or director. It was against longstanding principles, they said. Well, it happened and those longstanding principles are no more.
The OHS situation, the corporate accountability, insurance coverage, has changed. That change needs to be accepted and new approaches on penalties and deterrence are required. Or maybe the time has come for the application of old alternatives to financial penalties, alternatives that have been given half-hearted attention by the courts and the regulators in the past. Monetary penalties may not work as deterrence anymore, if they ever did.
Close the loophole, if it exists, but do more. Be creative. Be innovative, but above all, be brave,