Safety & Environment fines hit £100 million plus
11 August 2015
Louis Wustemann (Chief Editor, HSW) presents lawyer Paul Verrico’s analysis of a legal judgment that could mean safety and environment fines hit £100 million plus for the biggest offenders.
Thames Water recently appealed a £250,000 fine for polluting a river in a nature reserve. Far from quashing the fine, the Court of Appeal upheld it, saying the penalty “had to bring home the appropriate message to the directors and shareholders of the company”.
The court considered how to set an appropriate fine for a “very large” organisation, since the guidelines only class employers as small, medium or large. The court said that a defendant company’s finances should be considered as a whole, looking at profitability as well as the simpler measure of turnover. It was not willing to use a simple mathematical multiplier on tariffs applicable for large companies to decide the range for very large ones.
“In such a case,” the court said, “the objectives of punishment, deterrence and the removal of gain (for example by the decision of the management not to expend sufficient resources in modernisation and improvement) must be achieved by the level of penalty imposed.
When sentencing the most serious breaches, where the defendant has caused great harm by way of deliberate action or inaction, the court was clear on what offenders should expect. “In such a case,” the court said, “the objectives of punishment, deterrence and the removal of gain (for example by the decision of the management not to expend sufficient resources in modernisation and improvement) must be achieved by the level of penalty imposed.
“This may well result in a fine equal to a substantial percentage, up to 100%, of the company’s pre-tax net profit for the year in question (or an average if there is more than one year involved), even if this results in fines in excess of £100 million. Fines of such magnitude are imposed in the financial services market for breach of regulations.”
The idea that an offending company might be fined its entire net profit for a year is a new one in this area of law.
This year’s consultation document on safety fines from the Sentencing Council stated “the Council proposes to adopt the same basic structure for sentencing organisations for health and safety, corporate manslaughter and food safety and hygiene offences as was used in the definitive environmental guideline.”
There is good reason to think that this latest gloss on the upper end of the environmental tariff will also be applied by the courts to safety offences.
Last year’s dismissal of appeals by Sellafield against safety penalties in the low hundreds of thousands of pounds, followed by the new fine tariffs in the draft sentencing guideline suggested the judiciary was taking a tougher line on big organisations who fail to protect their workers. This latest decision could signal even harsher treatment for the largest offenders.
Charles Corrie, (Secretary of the OHSAS Project Group), says:
“Companies can improve your relationship with regulatory bodies such as the HSE, who are likely to be more lenient about the rate at which they come and surveil your organization and its’ OHS system. And, if there are problems that arise, they’ll probably deal with you on a more constructive basis if they think that you’ve been proactive and put a good OHS system in place.”
Over 90,000 organisations holding certification to OHSAS 18001 may be protected to a degree or at least able to show the intention and commitment to ‘best practice’ in health and safety management within a court of law, however this leaves a large percentage of unprotected organisations more exposed to high impact costs for failing to mitigate risks.
Biffa achieved a 40% reduction in serious incident levels with their OHSAS 18001 system in place.
Read the Biffa guide to improving safety KPIs with OHSAS 18001 HERE.
A longer version of this article appears in the current issue of Health and Safety at Work, www.healthandsafetyatwork.com.
The court considered how to set an appropriate fine for a “very large” organisation, since the guidelines only class employers as small, medium or large. The court said that a defendant company’s finances should be considered as a whole, looking at profitability as well as the simpler measure of turnover. It was not willing to use a simple mathematical multiplier on tariffs applicable for large companies to decide the range for very large ones.
“In such a case,” the court said, “the objectives of punishment, deterrence and the removal of gain (for example by the decision of the management not to expend sufficient resources in modernisation and improvement) must be achieved by the level of penalty imposed.
When sentencing the most serious breaches, where the defendant has caused great harm by way of deliberate action or inaction, the court was clear on what offenders should expect. “In such a case,” the court said, “the objectives of punishment, deterrence and the removal of gain (for example by the decision of the management not to expend sufficient resources in modernisation and improvement) must be achieved by the level of penalty imposed.
“This may well result in a fine equal to a substantial percentage, up to 100%, of the company’s pre-tax net profit for the year in question (or an average if there is more than one year involved), even if this results in fines in excess of £100 million. Fines of such magnitude are imposed in the financial services market for breach of regulations.”
The idea that an offending company might be fined its entire net profit for a year is a new one in this area of law.
This year’s consultation document on safety fines from the Sentencing Council stated “the Council proposes to adopt the same basic structure for sentencing organisations for health and safety, corporate manslaughter and food safety and hygiene offences as was used in the definitive environmental guideline.”
There is good reason to think that this latest gloss on the upper end of the environmental tariff will also be applied by the courts to safety offences.
Last year’s dismissal of appeals by Sellafield against safety penalties in the low hundreds of thousands of pounds, followed by the new fine tariffs in the draft sentencing guideline suggested the judiciary was taking a tougher line on big organisations who fail to protect their workers. This latest decision could signal even harsher treatment for the largest offenders.
Charles Corrie, (Secretary of the OHSAS Project Group), says:
“Companies can improve your relationship with regulatory bodies such as the HSE, who are likely to be more lenient about the rate at which they come and surveil your organization and its’ OHS system. And, if there are problems that arise, they’ll probably deal with you on a more constructive basis if they think that you’ve been proactive and put a good OHS system in place.”
Over 90,000 organisations holding certification to OHSAS 18001 may be protected to a degree or at least able to show the intention and commitment to ‘best practice’ in health and safety management within a court of law, however this leaves a large percentage of unprotected organisations more exposed to high impact costs for failing to mitigate risks.
Biffa achieved a 40% reduction in serious incident levels with their OHSAS 18001 system in place.
Read the Biffa guide to improving safety KPIs with OHSAS 18001 HERE.
A longer version of this article appears in the current issue of Health and Safety at Work, www.healthandsafetyatwork.com.