Director’s new due diligence duty

One of the most significant changes to be introduced by the proposed Act is the new due diligence duty, which will be owed by “officers” personally.  Breach of the due diligence duty will expose officers to a criminal conviction carrying a maximum of five years’ imprisonment and a fine not exceeding $600,000 for the most serious category of offence.  

Who is an officer?

“Officer” is defined in the proposed Act to include persons in governance roles, including executive and non-executive directors (and people who are in comparable positions to directors), partners, and people who make decisions that affect the whole or a substantial part of the business of the PCBU.  The last part of that definition gives a CEO as an example, and may also include other high-ranking executives and senior managers such as CFOs, HR managers and health and safety managers. 

PCBU’s primary duty of care 

The primary duty holder under the proposed Act is a “person conducting a business or undertaking” (or PCBU), rather than the employer.  The concept applies to any business or “business-like” activity, and is broad enough to include all types of modern working arrangements, such as unincorporated JVs and partnerships.  PCBUs will owe a primary duty of care to ensure “so far as is reasonably practicable” the health and safety of its workers.  The definition of “workers” is widely defined to include workers not directly employed by the PCBU, such as employees of contractors and sub-contractors, labour-hire workers, trainees, and volunteers.  

Obligations of officers

The proposed Act imposes a personal due diligence duty on officers of PCBUs to ensure that the PCBU complies with its duties.  

An officer must discharge the due diligence duty personally, and cannot delegate, modify or transfer the duty.  The duty requires officers to be proactive, rather than be reactive and passive by waiting for someone to raise a health and safety concern.  The due diligence duty will stand apart from the PCBU’s duty and will be individual to the officer.  If an officer exercises due diligence, he or she will not be held personally liable regardless of the conduct of the PCBU or other officers.  

The diligence duty includes taking reasonable steps to carry out the following six due diligence elements. 

Knowledge of work health and safety matters

An officer must acquire, and keep up-to-date, knowledge of work health and safety matters.  In short, officers will need to be health and safety literate, just as directors are expected to be financially literate, so that they can understand and test the information presented to them, and make informed decisions.  Officers will need to know about matters such as safety leadership, safety culture, the PCBU’s legal obligations, their own due diligence requirements, the PCBU’s risk management system, how the PCBU investigates incidents, and audit methodology. 

Understanding the nature of operations 

An officer must gain an understanding of the nature of the operations of the PCBU’s business, the risks arising from those operations and the control measures in place.  This element may require officers to get out of the office and into the vineyard or factory.   

Resources and processes 

An officer must ensure the PCBU has available for use, and uses, appropriate resources and processes to eliminate or minimise risks to health and safety from work carried out as part of the conduct of the business.  That refers to both financial and human resources (i.e. ensuring staff and contractors are suitably skilled, competent and qualified.  

Monitoring Performance

An officer must ensure the PCBU has appropriate processes for receiving and considering information regarding incidents, hazards, and risks and for responding in a timely way to that information.  The focus of this obligation is on analysing and learning from incidents and near miss data. 

Legal Compliance

An officer must ensure that the PCBU has, and implements, processes for complying with any duty or obligation of the PCBU under the proposed Act, as well as regulations, codes of practice, industry standards, etc.   

Verify

Finally, officers must verify the provision and use of the resources and processes referred to in the previous five elements.  This might be achieved through internal and external audits, periodic formal reviews, safety observation or peer reviews. 

Further Information

Following the Pike River Coal Mine tragedy (but before the Bill was introduced), the Ministry of Business, Innovation and Employment together with the Institute of Directors published a Good Governance Practices Guideline for Managing Health and Safety Risks.  While the Guide is voluntary, it provides “best practice” guidance, and is consistent with the due diligence duties under the proposed Act.  Therefore, directors should be familiar with it.