Officers and the WHS Act

Why do I need to identify who is an officer in my organisation?

It is critically important to identify who are officers in your organisation.

Officers have new, specific duties to exercise due diligence. 

Under the new duty, an officer can have breached the WHS Act even where the PCBU has complied with the legislation.

For example  Workplace Health and Safety Queensland guidance material  on the officer’s duty states:

This duty … applies whether or not there has been an incident and irrespective of whether the corporation is prosecuted. For example, a work health and safety inspector may, during a routine audit or inspection, ask a corporate director to produce evidence that the director is meeting his or her due diligence requirements.

If satisfactory evidence is not produced, the inspector may issue the director with an improvement notice. If the failure to demonstrate due diligence is serious, reckless or flagrant, the inspector might commence prosecution proceedings against the officer.”

Therefore, regardless of a business or undertaking’s  compliance with WHS obligations, officers  face  ongoing exposure to personal liability including court proceedings, fines and criminal conviction if they fail to exercise due diligence to the standard expected by the regulator.

So identifying who is an officer  and understanding what due diligence involves is critical for compliance.

Definition of officer

Who is an officer?

The starting point is to identify the PCBU and then work out its officers. For larger organisations this may include international entities and personnel.

In the WHS Act  "officer" is as defined in the Commonwealth Corporations Act 2001. This is a person

i) "who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation or
(ii) who has the capacity to affect significantly the corporation’s financial standing; or
iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation)…”.

 

NSW WorkCover fact sheet tells us that an officer includes

•a secretary or director of a corporation
•someone who makes, or participates in making, decisions that affect the whole, or a substantial part, of a corporation
•someone who has the capacity to significantly affect a corporation’s financial standing
•someone who is accustomed to having their instructions actioned by the board – this does not include those who provide advice to the board as part of their role.

Those decision makers who affect whole of company clearly caught- CEO, CFO, MD.  But the definition is not confined to these. Have to also consider who:
 
· Makes or participates in making  decisions

· Has capacity to affect significantly corporation’s financial standing

· What does whole or substantial part of the business entity mean?

 

The use of the words “whole, or a substantial part” appears to narrow the definition by comparison with the previous NSW OHS legislation, which referred to “each person concerned in the management of the corporation”.

In making its recommendations for the WHS Act, the Panel  found the NSW OHS Act 2000 definition had been broadly interpreted by the courts and extended to middle management and supervisors. They expressed a concern that it should be narrowed. Why? Because they wanted  very specific and onerous duties on those people they considered make decisions  which affected safety performance.

So the Panel  recommended that  officers should be those persons who act for, influence or make decisions for the management of the relevant entity.

The Panel was very clear in its distinction between officer duties, and worker duties:

The standard of due diligence is significantly higher than the standard of reasonable care  that we have recommended be applied to a worker.  The lower standard for a worker recognises that the decisions that can be made and action taken in relation to particular work will be subject to decisions made in relation to the overall management of the corporation.

It seems the Panel’s intention was to impose the duty on more senior management. We have yet to see how the regulators and courts interpret this definition.

What is meant by “participation in decision making”

Safe Work Australia guidance material tells us:

A person may be an officer even though they do not make the relevant decisions or have the authority to do so, if they participate in the making of those decisions. What this means is that the person is actively involved in the process through which the decisions are made and occupies a role that may directly contribute to, promote or affect the decisions.

For example, courts have found that corporate counsel, chief financial officers and other senior ‘advisors’ within a corporation may be officers if they are present and involved in discussions when the decisions are made, but are not officers if they simply provide advice for the consideration of the decision makers or are only involved in administration of a process.

A person may be considered to participate in the making of decisions where they have an ongoing or repeated involvement in the process through which decisions are made.

The decisions need not be directly related to work health and safety. Decisions may affect work health and safety indirectly. How an organisation is structured, what areas of business it is involved in, and what resources are allocated to particular parts of a business may all affect how work health and safety is managed. 

Assessing whether a person is an officer will therefore depend on the particular circumstances and the extent of the individual’s capacity to influence or participate in decision-making and the frequency of their involvement.

So making the decision about who are your officers could be highly subjective and uncertain -  with plenty of room for dispute with regulators.

What is a “substantial part of the business or undertaking?"

A person may be an officer if they participate in decision making that affects a substantial part, but not the whole of the organisation.

Again, a high degree of subjectivity may be involved in deciding what is a “substantial part”.

Safe Work Australia’s guidance material tells us:

The courts have not provided clear guidance on what is a substantial part of a business and that will need to be determined on the facts of each case, with reference to the structure and activities of the organisation. A corporation that operates nationally may have regional divisions (e.g. northern division incorporating the Northern Territory and Queensland, and southern division incorporating New South Wales, Victoria and Tasmania). A business may have various, defined divisions based on product or service categories. Each of the divisions may each be a substantial part of the business depending on their role within the organisation as a whole.

Some or all of the following criteria are relevant in identifying whether a part of a business is a substantial part:

1. The degree to which the part contributes to the revenue or financial standing of the business

2. The degree to which the part is significant to the reputation of the entity

3. Whether the part is considered to be a core part of the business, or ancillary to the core business

4. The proportion of personnel of the whole business who are engaged in activities within the part

5. Whether those who manage that part of the business make significant strategic or policy decisions, or whether those decisions are made at a higher level.

These and other relevant factors should be considered together, and the significance of any element will depend on the circumstances of the particular case.

So ‘substantial part’ is also open to question and uncertainty. It will depend on circumstances and the exercise of judgement. 

What is meant by “capacity to affect significantly the corporation’s financial standing”?

Safe Work Australia guidance material again shows uncertainty in this element of the definition:

A person may have the capacity to affect significantly the financial standing of a company where they are involved in the financial management of it (for example, a chief financial officer) or are involved in decisions relating to significant investments or projects. A court has held, however, that a person whose role it was to trade in shares was not an officer even though the amount of money they were authorised to deal in was very large.

 

Executive and non executive directors

Both have a duty as officers. There is nothing in WHS Act s 9 which requires the person designated as an officer to be an employee.

In general the standard expected of a director in discharging their obligations is related to the proximity of the director to the operation of the company; that is, the closer the director to the operations of the business, the higher the standard that is expected of them.

However, cases concerning breaches of directors’ duties under earlier OHS legislation demonstrate that courts will hold all directors to high objective standards and expect, at a minimum, that they exercise reasonable care and skill in carrying out their functions.

Volunteer officers

A volunteer who is an officer will be expected to comply with the duty provided by s 27 of the WHS Act but cannot be prosecuted for failing to comply with that duty (s 34 (1))

Regulators can enforce the volunteer officer duties by issuing an improvement notice.

Can officers insure against prosecution costs and penalties?

Penalties for officer offences under the WHS Act are significant.

For officers penalties range from maximum penalty of $100,000 (Category 3); $300,000 (Category 2);$600,000 or 5 years imprisonment (Category 1)

Criminal offences are void against public policy — cannot indemnify for a criminal offence.

Indemnities by corporations provided to officers are limited to extent permitted by law. However these can cover  legal fees. This is an important consideration as  legal fees can (and often do) exceed the penalty!