Steep penalties for corporate manslaughter

It may be the season of good cheer but organisations found guilty of corporate manslaughter next year will not be so happy to discover the size of fine they could face if last month's draft guidelines are adopted. The recommendation is that companies breaching the Corporate Manslaughter Act should pay substantial fines of seldom less than £500,000. In addition, those organisations found guilty of lesser health and safety offences causing death could be fined at least £100,000, rising to several hundred thousand pounds. Brokers must ensure that their clients are prepared.

Previous recommendations had suggested linking fines to organisations' annual turnover but the recent guidelines have decided that this would not be appropriate, given the different financial structures and circumstances of organisations in the private, public and voluntary sectors. Instead, they have indicated some minimum thresholds for fines. These are likely to have a greater financial impact on smaller organisations which, as the guidelines acknowledge, could put them out of business.

While the guidelines recognise that both commercial and public sector organisations should be held to the same behavioural standards when considering the level of fine, the effect on the provision of services to the public will be a relevant consideration that might justify a different approach to determining the fine.

Visible punishment

Publicity orders for offences under the Corporate Manslaughter Act are likely to be imposed in virtually every case. The size of any press advertisement publicising an offence will be linked to the organisation's size and a notice should also appear on the offending organisation's website for at least three months. For larger organisations for which reputations depend on strong health and safety performance, these sanctions may cost their businesses more than any fine.

While the fine itself will not be covered by insurance, all businesses must ensure that they have adequate levels of cover for the legal defence costs, which are likely to be significant given how contentious these cases are expected to be. This is even more so now that defence costs for successfully defended cases are limited to Legal Aid rates, so only a proportion of such costs will be recovered.

Brokers must ensure that the extent of their clients' cover is adequate. This should include both the organisation itself and individual directors and officers that may become embroiled in these serious health and safety investigations and that remain at risk of individual prosecution for gross negligence, manslaughter or health and safety offences that target individuals.

The guidance is subject to consultation and should be finalised in the New Year, in time for the first trial of an offence under the Corporate Manslaughter Act, which is due to take place in February 2010. If the defendant - Cotswold Geotechnical Holdings, a small family-run business - is convicted, this will be the first test of whether or not the minimum threshold of £500,000 will be applied, even to small businesses.

Andrew Stokes, partner and head, and Duncan Reed, associate, safety, health and environment group, Beachcroft