Proposed new fines for certain regulatory offences could put offending companies out of business, warns expert

Out-Law Analysis | 02 Dec 2014 | 4:43 pm | 3 min. read

FOCUS: Companies committing certain regulatory offences can expect hefty fines and even being put out of business if new guidelines are adopted.

The sentencing guidelines for health and safety offences, corporate manslaughter and food safety and hygiene offences (124-page 675KB PDF) proposed by the Sentencing Council are the subject of a consultation that runs until 18 February.

The proposed guidelines follow the recent trend of increasing penalties for regulatory offences in the UK. They follow this trend by:

  • imposing significant fines even when no actual harm results but where there was the potential for such harm;
  • examining in detail the structure, turnover, profitability and director's remuneration of large companies in determining the appropriate level of any fine, to bring the message home to those benefiting from the company's profits.

In publishing the proposed guidelines, the Sentencing Council said that it was responding to criticism that fines for these offences have in the past been criticised for being too low and  because there is no comprehensive guidance in relation to them..

Organisations should act now to make sure that they have robust compliance programmes in place to avoid the possibility that they will face these increased penalties.

The guidelines use the same structure as that used for environmental offences. They are tariff based with specific starting points and ranges.

In determining the level of fine which should be imposed on an organisation, the proposed guidelines require, firstly, an assessment of the overall seriousness of the offence, the offence category, which is determined by the degree of culpability and risk of harm. Within each category of offence the court is then given a starting point and range of possible fines. The figures depend on the size of the organisation's turnover and range from £50 to £20 million.

Consideration is then given to any mitigating or aggravating factors which may make it appropriate to move outside the recommended category range. Mitigating factors include that the organisation:

  • has no previous convictions or no relevant/recent convictions;
  • has taken steps to remedy the wrong;
  • has a demonstrated a high level of cooperation with the investigation, beyond that which will always be expected;
  • has effective health and safety/food safety/hygiene procedures in place;
  • has a good health and safety/food safety/hygiene record;
  • has self-reported, cooperated and accepted responsibility.

Aggravating factors include that the organisation:

  • has committed previous relevant offences;
  • has breached any relevant court order;
  • has obstructed justice;
  • has a poor health and safety/food safety/hygiene record;
  • has deliberately concealed the offence;
  • committed the offence for financial gain.

Having arrived at a level of fine, the court must still consider if there are any other factors which may justify an adjustment: for example, if an organisation has a small profit margin relative to its turnover, downward adjustment may be needed. If it has a large profit margin, upward adjustment may be needed. Any economic benefit derived by the organisation from the offence should also be added to the fine. Significantly, whether "the fine will have the effect of putting the offender out of business will be relevant; in some bad cases this may be an acceptable consequence".

Fines against charitable or public bodies should normally be reduced if they would impact on the organisation's ability to provide their services, according to the guidelines, which also said that a reduction should be considered if the organisation has assisted the prosecution or entered an early guilty plea.

Consideration must also be given as to whether a compensation or other ancillary order, for example a publicity order or hygiene prohibition order, is appropriate. Where loss or damage has been caused by the offence compensation must be considered and its payment takes priority over any other financial penalty

Organisations will be required to provide significant financial information to the court, so that an accurate assessment of its financial circumstances can be made. A detailed forensic analysis of an organisation's finances is likely, with an emphasis on director's/partners remuneration/drawings, loan accounts and pension provisions.

The overarching aim of the proposed guidelines is that any fine:

  • must reflect the seriousness of the offence;
  • must take into account the financial circumstances of the offender;
  • should reflect the extent to which the offender fell below the required standard, and
  • should meet in a fair and proportionate way the aims of punishment and deterrence. 

Where several charges emanate from the one incident, the proposed guidelines highlight the need to ensure that courts are imposing total penalties that are fair and proportionate.

Laura Cameron is a health and safety specialist at Pinsent Masons, the law firm behind Out-Law.com