Stuart Pill
Partner •
Melbourne
Better to be safe… : Victoria removes indemnity for penalties for workplace safety breaches from directors and officers
Amendments to Victorian legislation will prevent companies from indemnifying individual directors and officers against penalties for safety breaches in certain circumstances.
Once upon a time, there were no statutory prohibitions under occupational health and safety / workplace health and safety legislation in Victoria, which expressly prohibited a company from either:
- indemnifying its directors in respect of OH&S/WHS liabilities; or
- paying a premium for an insurance policy that insures directors from prescribed liabilities.
Neither was there an express statutory provision that prohibited insurers from providing liability insurance against OH&S/WH&S penalties. However, academic commentators have argued that contracts which purport to cover criminal penalties arising pursuant to workplace injuries are void at common law. This is because, as a rule of public policy, insurance policies cannot cover criminal penalties exacted in criminal proceedings where there is an element of "personal fault" in the offence. The consequence being that coverage that purports to provide indemnity for a criminal penalty is not valid.
The Victorian Government has recently introduced the Occupational Health and Safety and Other Legislation Amendment Bill 2021 (the OHS Bill) into Parliament. This will amend the Occupational Health and Safety Act 2004 and will prevent directors and officers from being indemnified by a company or insured for breaches of workplace safety laws. In part, the OHS Bill is a response to concerns that the ability of businesses to insure or indemnify against pecuniary penalties undermines the effectiveness of penalties under safety legislation and reduces deterrence for employers.
Victorian workplace safety legislation carries significant pecuniary penalties for offences, including the recently introduced industrial manslaughter offence, which carries a maximum penalty of up to 20 years' imprisonment for an individual.
Summary of reforms
Under the OHS Bill, a term of a contract or other agreement that purports to insure or indemnify a person for their individual liability to pay a pecuniary penalty is void. This provision applies to any kind of arrangement which provides the prohibited cover, including contracts of insurance and contracts of indemnity (for example, a director's deed of indemnity and a directors and officers insurance policy).
The OHS Bill also creates three offences relating to contracts that purport to insure or indemnify a person for the person's liability to pay a pecuniary penalty.
The Bill prohibits:
- entering into, offering to enter into or being a party to such a contract or arrangement;
- receiving a benefit under a term of a contract or other arrangement; and
- providing a benefit under such a contract or arrangement.
These are indictable offences, with a maximum penalty of approximately $49,566 for individuals and $247,830 for companies.
It is important to note that these provisions do not affect terms which insure or indemnify an individual director or officer for the cost of defending a prosecution or for court-ordered damages.
These amendments apply equally to the Occupational Health and Safety Act 2004, the Dangerous Goods Act 1985 and the Equipment (Public Safety) Act 1994.
Attention employers and directors
Once the OHS Bill has been passed, any offending contract terms will be void from the date of commencement. However, the offences and penalties under the OHS Bill will not come into effect until 12 months after the commencement date.
Employers should:
- conduct a detailed review of their contracts of insurance and indemnities for any terms that may be void after the commencement of the OHS Bill; and
- where any terms constitute an offence under the OHS Bill, employers must ensure they remove these terms within 12 months of the commencement date of the OHS Bill. Failure to do so could expose the company to significant penalties.
Directors should:
- ensure that the above review is undertaken by the employer as failure to do so may expose him/her to penalties; and
- take steps to ensure that the employer complies with relevant OHS and WHS legislation so as to avoid the potential for personal penalties being imposed, which now may not be the subject of an indemnity or insurance payment in favour of the director.
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