New rules on regulation
5 November 2007
A new draft bill has been proposed that will impact on all businesses and employers. It allows regulators, including the Health and Safety Executive (HSE) and local authorities, to impose alternative penalties on employers who commit regulatory breaches, including on-the-spot fines.
The Regulatory Enforcement and Sanctions Bill is a response to the Macrory Review, which identified inconsistencies and restraints in powers available to regulators. The Macrory Review found that the use of criminal prosecutions can be a disproportionate response in many instances of regulatory non-compliance and that penalties handed down by the courts often failed to act as a sufficient deterrent. It recommended an extension of monetary penalties and a strengthening of statutory notices to work alongside the criminal law.
The bill empowers ministers to make orders allowing regulators to use different types of civil sanctioning powers as an alternative to fines imposed in a criminal court. This would give the HSE and other regulators, such as the Food Standards Agency, much greater powers. They could sanction employers without having to meet the time and monetary cost of criminal proceedings.
If enacted, the bill will establish a new statutory body called the Local Better Regulation Office. The bill creates new sanctions available to regulators including fixed monetary penalties, discretionary requirement notices, cessation notices and enforcement undertakings. The options available under the bill will give wider whistleblowing opportunities to employees and greater sanctioning options to the regulators. In addition employers are likely to feel greater pressure because the regulators will be able to speed up punishment and therefore cut delay in dealing with backlogs.
The Local Better Regulation Office would work with local authorities to identify and spread best practice by issuing guidance to regulators and ensuring that they are carrying out their relevant function effectively. The aim is that the Local Better Regulation Office will improve co-ordination and consistency of sanctioning between local authority offices.
Fixed monetary penalties would be available for low-level, minor- or high-volume instances of non-compliance and would be imposed directly by the regulator without the need to resort to criminal prosecution. It is proposed that the amount of the fines would be relatively low and predetermined by legislation. If the relevant offence is triable in the Magistrates Court only, the level of fixed fine would not exceed the maximum fine available for the offence.
All funds collected by the penalties would go to the Consolidated Fund held by the Treasury. It is hoped that because the regulators will not receive a financial benefit, there will be no incentive for regulators to issue a disproportionate number of penalties.
Under the Bill, businesses issued with a penalty would not be criminally prosecuted for the same offence and the penalty will remove liability for criminal prosecution or any other sanction. There will be right of appeal to the fixed penalties.
The Macrory Review recommended that the current statutory notices available to regulators needed to be improved and extended. The bill therefore empowers regulators to issue Variable Monetary Penalties, Compliance Notices and Restoration Notices.
Variable monetary notices will be issued by regulators for more serious offences. They require the defaulting party to pay an “appropriate level of penalty” with the amount determined by the regulator taking into consideration the aggravating and mitigating factors.
The regulator will serve a notice explaining that a monetary penalty will be imposed and the recipient has the option to offer an undertaking that the act or omissions will not be repeated, that they will restore the position to what it would have been had the failure not occurred, or that they will do something, including a financial compensation, to benefit anyone affected by the act or omission. If they fail to comply with the voluntary undertaking within the specified time period, an additional financial penalty can be imposed.
Compliance notices will require a defaulter to take specified steps to ensure that the act or omission does not continue or recur.
Restoration notices will require a defaulter to take specified steps to restore the position before failure occurred. As with the variable notices, the defaulter would be able to make voluntary undertakings to mitigate non-compliance and the regulator would take any undertakings into account when issuing the final notice. The defaulter has the option to appeal a restoration notice.
If any of the discretionary requirement notices are not complied with, or the defaulter breaches a voluntary undertaking, liability for criminal prosecution or alternative civil sanctions are revived.
A cessation order, which can be temporary or permanent, orders the defaulter to cease an activity if it presents a significant risk of serious harm to human health or the environment, and where the regulator is satisfied that the defaulter is committing an offence. A temporary order can be for a period of up to six months, whereas a permanent order can only be issued if the defaulter has been previously convicted for the same offence.
Due to the draconian nature of cessation orders, the Government proposes that a stringent test will need to be met before they are served. In addition, the bill envisages that the orders will be challenged by way of direct access to an appellate body and that compensation schemes would be available in the event of a successful appeal or where the notice is withdrawn by the regulator.
The regulator can accept an ‘enforcement undertaking’ from a defaulter to take specified action that must achieve the same goals as the discretionary requirements above, although it may also “benefit any person affected by the act or omission”. A defaulter’s offer of an enforcement undertaking will grant immunity from criminal prosecution, or other civil sanctions, unless the undertaking is breached.
The bill introduces wider discretion and power for regulators to use, but without the necessary checks and balances of a criminal prosecution. While the Local Better Regulation Office will not receive any financial reward arising from monetary penalties, the bill has failed to take account of other factors that may result in disproportionate number of financial penalties being imposed.
Anyone who has tried to agree a Friskies schedule on the prevention of Health and Safety prosecutions with an over-zealous regulator will, no doubt, be sceptical on being issued with penalties under which the regulator will have to take into consideration aggravating and mitigating features.
That level of genuine even-handedness is not the normal domain of regulators and it is hard to expect them to apply their powers with judicial fairness. Only time will tell, however, whether co-ordination and consistency of sanctioning will be achieved.
Ruth Armstrong is a partner and Mark Haworth is an associate at HBJ Gateley Wareing