The Increasing Cost of Health and Safety Prosecutions

16 April 2018

Since the 2016 change in sentencing guidelines, HSE enforcement has risen, accompanied by soaring fines and costs. How can these be minimised?

In November 2008, nuclear plant operator Sellafield was fined £150,000 following the death of a worker who fell 95m from an unprotected ledge in its Cumbria plant.

Nine years later, in March 2017, white goods manufacturer Whirlpool was fined £700,000 for health and safety act breaches following the death of a contractor in its Yate plant, near Bristol. The victim had fallen from a platform and died from his injuries several days later. The fine was reduced on appeal to £300,000 in January 2018.

Accounting for inflation, Sellafield’s fine would have tallied up at £198,000 in 2018. Whirlpool was fined £100,000 more. Why?

The two cases are separated by a key date in 2016. On 1 February that year, tougher sentencing was introduced by the Health & Safety Executive (HSE), ushering in a punitive new landscape for companies in Great Britain.

Since that date, there has been an increase in prosecutions for both companies and individuals. Custodial sentences have also risen. There has been a trend for companies being prosecuted even where injuries had not occurred as a result of their breaches. Investigation costs at corporate rates (£129 p/h) were introduced, with the companies being scrutinised having to foot the bill.

FINES AND PRISON SENTENCES: HOW YOU AND YOUR COMPANY ARE AFFECTED

HSE is prosecuting more frequently, and fining ‘guilty’ companies more heavily, according to its own figures.

The 2016/17 data on prosecutions showed a large annual increase in the total amount of fines handed down. Financial penalties rose from £38.8 million in 2015/16 to £69.9 million in 2016/17. This amounted to an average penalty of about £126,000 per case resulting in conviction. This is more than double the average fine in 2015/16.

This was the second consecutive year of large increases in fines resulting from convictions for health and safety offences. 2016/17 was the first full year where new sentencing guidelines have been in effect. The figures for 2017/18 have not been released yet, but a continuing upward trend is expected.

The conviction rate is high: 93%. A conviction was secured (for at least one offence) in 554 of the 593 cases where a verdict was reached in 2016/17.

It goes without saying that health and safety should be a top priority for all business owners. Risk awareness, assessment and mitigation are crucial for the safety of staff and subcontractors alike and, as an extension, for the financial health of your company.

Changing prosecution trends since the 2016 rule changes, however, mean that contractors might need to reappraise their approach and their procedures.

HSE PROSECUTIONS: HOW CONTRACTORS’ COSTS HAVE RISEN SINCE 2016

The huge price of undergoing a HSE investigation

Corporate rates, of about £129 an hour, are charged by the HSE. Even without a prosecution, a company could be left with a hefty bill simply for being investigated.

Managers are being targeted as well as companies

Simultaneous prosecutions are now routine, with companies and their executives placed under legal scrutiny. Since 2016, the HSE has increased those sections of the 1973 Health and Safety at Work Act under which it prosecutes.

Traditionally, prosecutions were brought under Sections 2 and 3 of the act, which pertained to a company’s duty to its employees and other persons. But now prosecutions are also arising under Sections 7 and 37, which cover the duties that individual managers have to their staff.

This increase in prosecutions has financial implications that go beyond investigation costs and the potential fine. Defence costs escalate if, for example, two or more managers are prosecuted. To avoid conflicts of interest, each needs defending by separate legal teams, which increases defence costs. Plus, of course, there is the cost of defending the company itself.

Compensation payouts are rising

As a result of changes to the PIDR, compensation costs have risen, as discounts to the lump sum paid by unsuccessful companies have been slashed. With the devastating effects of injuries, financial stakes are high and risk mitigation is essential. Talk to your construction insurance broker about risk exposure, the appropriate insurance and the surrounding legal issues.

Reputational damage: The hidden cost of HSE breaches

The rise of social media and 24/7 news means that a company’s reputation has never been more vulnerable. This is amplified if a so-called unpopular company is being prosecuted.

When a company is blighted by a bad reputation, business is more difficult – and costly - to conduct. It becomes an uphill struggle to retain customers, employees, shareholders and stakeholders. The price of a bad online reputation is difficult to quantify. But, according to US-based advisory firm, ReputationManagement.com, the annual cost to businesses is more than USD 537 billion.

While the hit to a company’s reputation can be devastating, an additional blow could come with the realisation that such damage is not covered by traditional forms of insurance. Talk to your broker about reputational insurance cover.

“WHAT SHOULD I DISCUSS WITH MY BROKER?”

Your insurance policy needs could be more complex than you think. With a construction broker’s input, you will enjoy bespoke policies that cater to your company’s needs, plus those of your key executives.

They can advise also on coverage that addresses legal costs and reputational damage, should an investigation or a court case arise.

GET EXPERT INSIGHT ON HOW TO MINIMISE YOUR RISK

JLT is hosting a training seminar on 26 April, where our experts will discuss practical HSW considerations for construction companies and their senior management teams.

Construction remains a hazardous industry, accounting for almost 30% of all fatal injuries to workers making it a focus for HSE. We will be highlighting proactive risk mitigation strategies that help minimise exposure for construction companies.

Hosted by Mike Johnson (Contractor Group Leader, JLT Construction). we are pleased to welcome:

  • Richard Salvini, Partner at Plexus
  • Chris Foulkes, Partner at Plexus
  • Jon Fitzsimons, Claims Consultant at JLT Construction.

Topics covered include:

  • The change in HSE’s prosecution strategy
  • The implications for construction companies and their senior management teams
  • A review of the insurance coverage available in these circumstances
  • Practical advice in maximising the recovery from insurers and simplifying the conduct of claims.