The Enterprise and Regulatory Reform Act and its impact on Employers Liability by Terry Renouf, partner, Berrymans Lace Mawer

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1 The Enterprise and Regulatory Reform Act and its impact on Employers Liability by Terry Renouf, partner, Berrymans Lace Mawer Thank you for inviting me to speak today to CII members. I am talking to you about a profound and fundamental change in civil liability for employers liability claims. On that date, the Enterprise and Regulatory Reform Act 2013 came into force and changed the law in relation to the enforcement of Health and Safety Regulations at least insofar as it affects civil liability and the obligation to pay compensation. Today I am going to have a look at the legal position, the exceptions, the likely challenges, the impact on employers, how the Courts might react, the possible impact on arguments around contributory negligence. I also want to consider the impact of this change on two other recent policy changes: the introduction of the Fixed Recoverable Costs Regime that was implemented at the end of July 2013 and the Health and Safety Executive s Fee for Intervention Regime that started on 1 October Generational Change At a technical level this change is fundamental. The Government has been intervening through Statute and Regulation in the way that industry and business conducts its affairs for hundreds of years and much of that legislation, as the country industrialised came to focus on the social consequences and dangers associated with urbanised collective activity. And so there are cases that go back to the nineteenth century that consider how those regulations affect the duties and obligations that are owed in the civil arena between employer and employee. Consequently every lawyer in the country for several generations has been trained that when presenting a case arising from an accident at work he or she has to consider, firstly, whether his client can establish that his or her employer was negligent and secondly and alternatively whether the employer was in breach of statutory duties owed to that employee. If either can be established then the claim succeeds: if neither can be established the claim fails. It is important to understand the distinction between the two because the legal change that I am considering in this talk means that from 1 October 2013 only negligence will found a claim for civil liability. The Tort of Negligence 1

2 So negligence. I am sure that you will all be very familiar with the common law tort of negligence: legal text upon legal text, shelves full of them, millions of words but for the purposes of this talk the key concept that I need to emphasise is that it is fault based. At common law a duty is owed to an employee to provide a safe system of work. Where the employer is in breach of that duty and the employee suffers damage which, of course, in this context is injury and the consequential losses, usually of earnings, then compensation is payable subject to one or two qualifications and exceptions the principal one that I want to mention is that the damage or injury has to be foreseeable. So duty and breach leading to foreseeable damage or injury are the components that constitute the tort of negligence and the first limb of a claim for compensation which, as I have mentioned above, has been taught to lawyers for generations. Breach of Statutory Duty But the matter did not end there because legally the employee could also establish his or her claim for compensation if his or her employer was in breach of statutory duty. Every court document on which a claim was based would plead firstly particulars of negligence and also and alternatively particulars of breach of statutory duty. This latter would involve a recitation of the numerous applicable regulations relating to the health, safety and welfare that applied to that employee in his or her particular workplace and how those regulations had been breached. The importance of this alternative cause of action arises because the standards and thresholds applicable do vary and in many instances the standard of care is held to be stricter and thus easier to breach, and with a different test of foreseeability. Thus, it was quite possible for an employee to fail to establish that his employer was negligent at common law perhaps because the employer had taken all reasonable steps to prevent harm or that the harm which resulted was not reasonably foreseeable but the employee could succeed in establishing a liability because there was a breach of statutory duty as interpreted by various cases handed down by the Courts. There are many cases where the interpretation of words used in regulations and the consequences have been considered but the most often cited is that of Stark v Post Office. Stark v Post Office Mr Stark was a postman who, in 1994, was hurt when the brakes on his bicycle failed. He was acting in the course of his employment and brought a claim against his employer, the Post Office. It was found that the failure of those brakes would not have been apparent upon a 2

3 reasonable inspection or system of inspection and so the claim would have failed at common law. However, Mr Stark succeeded, with his case (which was eventually decided in the Court of Appeal in 2000) because he was able to show that the Post Office was in breach of statutory duty the second alternative limb on which a claim can be based. In this case there was an obligation on his employer imposed by the Provision and Use at Work Equipment Regulations that he would be provided with safe equipment. A failed brake was not safe equipment and thus although the claim at common law failed, Mr Stark s claim succeeded because of a breach of statutory duty despite the fact that his employer could not be found to have done anything wrong at common law. So this case is often used as the example illustrating the difference between the two alternative causes of action but there are numerous others which also apply. Policy Change It is this distinction that the legislation that I mentioned at the beginning, the Enterprise and Regulatory Reform Act 2013 changes and it is fair to say that the introduction of this legislation was the subject of heated debate in both the House of Commons and in the House of Lords. In considering the consequences of the change it will be useful to consider some of the history of the debate that surrounds the legislation and in fact a policy debate that has been going on for several years. In many respects, we are walking in the footsteps of two Prime Ministers who had concerns about the compensation culture. Tony Blair is said, because of concerns about restrictions on school trips and visits, to have initiated the introduction of the Compensation Act 2006 which amongst a number of other changes introduced a defence that allowed desirable activities. Continuing concerns around the compensation culture also prompted a second Prime Minister David Cameron to ask Lord Young to report on that issue. He did so in October 2010 in a report called Common Health, Common Safety, which concluded that there was a perception of a compensation culture which did affect society and that steps should be taken, if I may quote from the Report to free business from unnecessary burdens and fears of having to pay unjustified claims and legal fees. Amongst other recommendations to achieve this objective he included a proposal to review Health and Safety Regulations. Professor Lofstedt 3

4 This further review was undertaken by Professor Ragnar Lofstedt an eminent academic who reported in November He considered the issues surrounding the different and higher thresholds imposed by Health and Safety legislation and regulation and concluded that (and again if you do not mind me quoting directly from his report) awarding compensation on the basis of a technical breach where there was no opportunity for the defendant to be aware of the danger and no actions could have been taken to prevent the accident clearly has the potential to stop employers taking a common sense approach to health and safety. The argument seems to be that because some liabilities are so strict that unnecessary precautions are taken and an additional expense is thereby imposed on business. In considering how those duties should be modified, Professor Lofstedt recommended that regulatory provisions that imposed strict liability should be reviewed by June of 2013 and (quoting again) either qualified with reasonably practicable where strict liability is not absolutely necessary or amended to prevent civil liability from attaching to a breach of those provisions. Thus, the recommendation was that in cases involving Regulations that impose strict liabilities (as in the case of Mr Stark) that these should be modified to more accurately reflect the common law position and that reasonable practicability would be the benchmark in relation to statutory and regulatory duties as to whether sufficient steps had been taken to protect the employee from harm. A radical Government The Government response was however more radical. The legislation which imposes a civil liability for breach of statutory duty is Section 47 of the Health and Safety at Work Act The Government by Section 69 of the Enterprise and Regulatory Reform Act 2013 reverses the position in respect of civil liability attaching for breaches of statutory duty now only breaches of common law will establish a civil claim for negligence in EL claims. The Government in its policy paper of June 2013 explained that this change will address the potential unfairness that arises where an employer can be found liable to pay compensation to an employee despite having taken reasonable steps to protect them. The policy decision taken by the Government is that fault will lie at the heart of the process for establishing compensation by an employee against his or her employer and that the relevant test is, and is only, that of the common law duty and breach leading to a foreseeable risk of harm and damage. Regulations relating to health and safety are irrelevant as far as a civil remedy is concerned BUT they remain wholly relevant to an employer because they will be in force 4

5 through the criminal process. It is very important to understand that Health and Safety Regulations have not in any way been repealed but remain in force and effective through criminal penalties and sanctions that are enforced by the Health and Safety Executive or such other relevant prosecuting authorities. The Government has determined that the enforcement mechanisms for health and safety in the workplace are, in the civil area of compensation through the mechanism of the common law tort of negligence and for regulatory enforcement the mechanism of criminal process and prosecution by the HSE. Stark v Post Office revisited The practical consequences of this new regime would be illustrated were Mr Stark to be riding his bicycle again in If he were to have precisely the same accident on 30 September 2013 his claim would again fail at common law but he would succeed because he would be able, once again, to establish a breach of the relevant Regulations relating to the safety of his brakes. If however Mr Stark, for whatever reason, were not able to make it into work on the 30 th September and his bicycle remained padlocked and in its shed until the following day and Mr Stark had his accident on the 1 st October, his claim would fail in the Civil Courts. He, again, would be unable to establish his claim at common law and, on this occasion, because the Enterprise and Regulatory Reform Act comes into effect for accidents on or after the 1 st October 2013, he could not now rely on a breach of the Health and Safety Regulation which established the liability in his original claim and in this situation, where his accident occurs on the 1 st October 2013, his claim would fail. Exceptions to the Rule As I have said, however, the legislation is controversial and there are going to be arguments about it. We do know however that the stricter tests that are imposed by Health and Safety Regulations will still apply to a Claimant who is pregnant when the accident occurs. Thus if Mr Stark were in fact Mrs Stark and was working for the Post Office on 1 st October 2013 and she suffered the self same accident arising from a brake failure, she would be able to present a claim for breach of statutory duty if on the day of accident she were pregnant. This arises because of a European directive, the Pregnant Workers Directive, which the Government considers requires the member state to provide an employee with the means to enforce their rights in those specific circumstances. Thus a pregnant employee will continue to have the right to bring an action for breach of statutory duty (in addition to common law negligence) with the benefits of higher thresholds and in some circumstances strict liability. The 5

6 Government has already introduced a Statutory Instrument to allow the claim for breach of statutory duty by the pregnant employee. We are also anticipating that public bodies may find that they will be subject to the higher duties and threshold tests which are imposed by breaches of some Regulations. Again, this arises because of European directives which are directly effective against (to use European terminology) emanations of the state. This will potentially cover many public bodies and institutions such as the police. One example of a case where this issue was relevant was the case of King v Sussex Ambulance Trust, where, although the claim ultimately failed, it was agreed by the parties that the Trust was an emanation of the State and that rights and duties under the Manual Handling Operations Regulations were directly effective against it. In contrast to the situation of the pregnant worker there is no Government Statutory Instrument being introduced but we should anticipate claims and cases on the point with the potential outcome that we will establish a two tier system of compensation with stricter duties and consequently of successful claims depending in this instance on the identity of the employer and whether it is a public body, an emanation of the state or not. Practical consequences So, if we are looking at the consequences of the introduction of Section 69 of the Enterprise and Regulatory Reform Act, we can probably say that there will be fewer successful claims. Subject to the exceptions just mentioned (of pregnant workers certainly; of public bodies possibly) those cases where common law negligence cannot be established which previously got home because there was a breach of a Health & Safety Regulation are not now going to succeed. Regulations, as I have said, however remain effective because of the criminal sanction but it is also seems to me that a breach of a Regulation is going to be evidence itself of negligence where the relevant regulation is subject to the test of reasonable practicability. It is going to be very hard to argue that where a Regulation is in force imposing a statutory duty which is very similar to a common law duty, that a breach of the Regulation although not of itself giving rise to a liability, will not be evidence of a breach of the common law duty. So many regulations will remain relevant is establishing liability not directly but indirectly as an evidential standard of the common law test. 6

7 Contributory Negligence Subject to those points and qualifications the general position is that the common law test of duty, breach and foreseeable risk of damage is the benchmark. Strict liability and other higher thresholds that were imposed on employers have fallen away leaving fault and test of the conduct of the reasonable and prudent employer at the heart of the civil liability process. And so with fault at the centre of the liability decision, it does seem to me that in theory there must be, for cases arising from accidents after 1 October a better prospect of either achieving some degree of contributory negligence where none was previously achieved or perhaps of achieving a greater deduction than in those cases where stricter liabilities were imposed as a consequence of a claim also based on breach of statutory duty. Other Practical considerations Whilst the theory is that fewer cases will succeed and that there are better prospects of achieving a deduction for contributory negligence where there is still a liability there may are other practical consequences that need to be considered. In practice did the breach of statutory duty in effect provide a fast track liability decision? In those instances where the threshold test was higher, was the investigation process shorter, liability was cut and dried and quickly conceded with the case moving quickly on to an assessment of damages? In a number of those cases, (perhaps many) there may have been an underlying common law liability but now we find that investigations need to be more thorough and so the quick investigation, quick win decisions, may now involve more resource, with an impact on cycle times and if more time is being spent by claimant (and his or her representatives) and defendant employer (and its representatives) on investigation, then costs and demands on resources will be greater. ERRA impact on other policy changes I also mentioned at the outset that I wanted to look at the impact of this change of policy on a couple of other areas where there has been recent change in the claims process and in this respect I want to consider the interplay with the recently extended portal process which now includes EL claims with a value to 25,000 and the Fixed Recoverable Costs regime that accompanies it. The extended portal applies to all EL accidents that occur on or after 31 July 2013 and so includes all EL accident claims that are now subject to the common law / negligence only test of liability under the Enterprise Act. 7

8 Yet there is a tension which arises because as I have said decisions which now lie at the heart of civil liability are fault based yet the commercial and economic drivers within the portal and driven by fixed recoverable costs regime do push very firmly in the direction of early and full concession of liability with significant financial consequences if the liability denied or contrib. argued at the outset is later conceded or awarded at Trial. Whilst I have said that in theory there are better arguments available on fault issues the decision to argue contributory negligence causes the claim to fall outside the stage one and two settlement process where relatively low costs are payable. The higher costs that become payable at later stages do push the liability decisions firmly in the opposite direction to the legal theory. And in addition, we may well also face arguments that under the new liability regime where more costs are to be incurred and a new liability landscape where liability is harder to argue, that cases are exceptional and thereby fall outside the fixed recoverable costs regime entirely. My personal view is that a standard employers liability claim based upon common law should not be regarded as exceptional and should not default to an hourly rate regime for legal costs but I can predict with a degree of certainty that where a claimant lawyer can argue the point for higher costs that the argument will be raised. Some other practical consequences of the introduction of the common law only test for civil liability involve the need for ongoing training and maintaining knowledge of the old regime for several, perhaps many years. I have mentioned that the trigger for the new civil liability regime arises from accidents which occur on the 1 st October 2013 and afterwards. There is obviously going to be quite a long tail of claims which are going through the system where the accident occurred prior to that date. In most employers liability cases involving accident and traumatic injury, this tail will last for three years. However, in respect of disease cases where generally there are on-going breaches often going back many, many years, the tail where civil liability can be established because of a breach of statutory duty, the liability for breach of statutory duty will need to be considered for many, many years into the future. It is quite realistic to see a situation where a first notification of a disease claim is going to occur in five of more years time which will include allegations that arise before 1 October In the instance of long tail disease claims the period could be far longer. We are also going to have the slightly unusual situation where the exposure or breaches could fall either side of 1 st October with different threshold tests for liability arising before and after that date and a liability that might be established for precisely the same employer conduct before 1 st October 8

9 2013, but no liability after that date. The Courts have had to deal with the reverse situation over the years where a liability was imposed after a certain date but have not really had to deal with the situation where a liability ceases from a certain date. This is going to cause some very challenging causation points to be considered and also some interesting issues in the apportionment of damages and loss between liable and non-liable periods. There will no doubt be many bizarre and unusual circumstances which could give rise to some interesting challenges for the Courts. The Employer As far as consequences for the employer are concerned, we must remember that there is no change to the duties imposed upon the employer. Breach of the common law will give rise to a sanction which is compensation through the civil process and breach of Health and Safety Regulations will give rise to prosecution, fines and other criminal sanctions pursued through the criminal courts and processes. It would be a foolhardy employer who considers that he can ignore Health and Safety Regulations. In mentioning the criminal sanctions, it is worth remembering that 1 st October 2013 is the first anniversary of the introduction of the Fee for Intervention. This is the scheme whereby the Health and Safety Executive can charge an employer which it considers to be in material breach of Regulations the costs of investigation even where there is no Court prosecution or fine. It remains relatively early days as far as this new scheme is concerned but we do know that in the first two months following introduction, the Health and safety Executive raised some 1400 invoices where they considered that there had been a material breach of Regulations and these 1400 invoices raised 700,000 in fees for the Health and Safety Executive. Where the investigation follows an injury, this is a notifiable occurrence under the terms of an insurance policy and, as I have mentioned, the material breach of the Regulations evidence of breach at common law. Payment of relatively small invoices might be made for commercial reasons but no doubt HSE or claimant lawyers in civil proceedings will argue that such payment does constitute an admission, either in respect of the incident itself or where an attempt is made to establish that it was the system of work generally that was unsafe. Either way, there are going to be arguments surrounding admissibility and whatever those arguments, it is the case that fees paid to the HSE under this scheme should be disclosed to insurers on renewal. Conclusion 9

10 So, to conclude, it is inevitable that with such a substantial change to the legal test of liability taking place for accidents after 1 October 2013 that the Judiciary and legal practitioners are going to be testing and understanding the new boundaries where civil liability thresholds have changed. The theory is that there should be fewer successful civil claims because the stricter liabilities imposed by breach of statutory duty has now fallen away. This outcome may not apply to emanations of the state and we must anticipate cases that will arise where public bodies have additional liabilities imposed upon them by directly effective European legislation. We might anticipate some additional costs of investigation where the quick wins of strict liability now fall away and we should also consider that with fault lying at the heart of the process, there are better arguments for contributory negligence where liability is established at common law but acknowledge that there does remain that tension between that legal theory and the commercial and economic pressures which arise from the fixed recoverable costs regime. These issues and tensions should be clearly understood and appropriate strategies and tactics developed to deliver the optimal outcomes for all parties involved in the claims and civil litigation process. For the employer it is important to remember that the Health and Safety Regulations continue to apply and that the duties on employers remain essentially the same. The mechanism of enforcement has changed with a clear distinction between the civil and criminal process of enforcement and sanction. Whether as a consequence these changes, as Lord Young hoped, business is freed from unnecessary burdens and fears of having to pay unjustified claims and legal fees, only time will tell. Terry Renouf Partner, Berrymans Lace Mawer 10

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