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Friday Workplace Briefing

The Great Lie – Shedding Risks Through Contractors

Overwhelming case law says you can’t dodge liability by delegation to a contractor.

This week Andrew Douglas and Nina Hoang talk through the Great Lie – that you can shed risk by using contractors and discuss how you can get it right.

To view the full episode and catch up with the week’s latest news and developments please visit this link.

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About the Hosts

Managing Principal - Victoria

Senior Associate - Workplace Relations

Episode Transcript

Andrew Douglas: And perhaps, for Nina and I this is a topic which drives us crazy because there are a lot of people out there both in the legal and consulting world, they keep talking about the capacity to carve out liability to contractors. So they say, “Look Nina, your dad runs a warehousing business. Why don’t you hand over the warehousing responsibilities to a contractor?”

Nina Hoang: Yeah. So that so they can wipe their hands of it.

Andrew Douglas: Wipe their hands off safety liability. It’s probably going to be cheaper, butt out of here. Now can I just say to you, there’s a couple things that aren’t true about that. One is it doesn’t change your safety liability and we’ll talk about that directly. Secondly, when you actually do a cost analysis around contracting, it’s rarely as good as you think. What you’re really looking for is expertise when you’re using contracting.

Nina Hoang: Yep.

Andrew Douglas: Or short-term fluctuating engagement where you have rise and flows in business. So you’re not really using it to save money and you’re definitely not using it to prevent safety liability. So what is the liability of an employer? You hear me say it every week and you hear Nina say it every week. It has two elements. One is a standard of care and one is a duty of care. The standard of care is to do everything that is reasonably practical.

Nina Hoang: Practical.

Andrew Douglas: This is a non-delegable standard and duty of care.

Nina Hoang: Yeah, doesn’t matter what you’re write in the contract.

Andrew Douglas: Yeah.

Nina Hoang: Okay, it doesn’t count.

Nina Hoang: So the standard of care says you need to identify every hazard that is on site. A hazard is something that is known in the industry or the community. You have to identify the risk based on frequency and consequence. Based on that level of risk, you have to take a control from the hierarchy of control that’s suitable and you must identify and allocate resource in the organisation to make sure that control has integrity to meet the duty, which is to provide a safe workplace, to provide proper induction training, to provide appropriate supervision, to provide supervision, to provide monitoring, design, construction, commissioning. They’re all the duties, okay? None of that can be contracted out of, okay? Just to be really clear. But if I am in a position where I have evidence which is reliable and continuous, in other words ambulatory evidence, that the contractor I’m using is doing everything that is reasonably practical to meet the duties that are relevant to the nature of the work they’re undertaking, then I can do what is called carve out. I can say, “Well, they are responsible.” But there is a continuing monitoring obligation and there is an evidential…

Nina Hoang: That’s what people forget.

Andrew Douglas: Yeah, there is this evidential part which says, Well, what is the evidence that I have that they are able to identify hazards? And can I just say this is more complex, ‘cos it’s not just my hazards now.

Nina Hoang: It’s their hazards too.

Andrew Douglas: It’s their hazards as well. So if you thought this was simple, it’s actually harder. It’s twice the amount of work.

Nina Hoang: And you need actual evidence. Not just them saying, “Yeah, we’ve got everything in control.” Which is I think the most common thing. They say, “Look, do you have all your systems?” “Yep. Don’t worry, we’ve got systems. We’ve done this heaps times before.” “Cool. We trust you.” That’s it. That’s not evidence.

Andrew Douglas: No. So you know when you look at what a system is and we talk about our six elements of system.

Nina Hoang: Yeah.

Andrew Douglas: So you’ve got the plan. They come and present you with a plan. They give you…

Nina Hoang: SWMS.

Andrew Douglas: They give you their SWMS, they give you their consultants documents who created all this for you. And you look at it and the first thing you go is, these are generic.

Nina Hoang: Yeah.

Andrew Douglas: They don’t relate to my site. That’s weird, okay. Bit of a problem.

Nina Hoang: Yep.

Andrew Douglas: No one’s accountable for anything. Okay, real problems. So then I go down, I go, so what are the processes? So I look underneath and I find they’re all template-based documents held on an iPad.

Nina Hoang: Yep. Haven’t put in controls that are on the site.

Andrew Douglas: None of those.

Nina Hoang: Yeah.

Andrew Douglas: So you go, “Hmm, now I’m in real problems.” Then I look at the training and induction and they use subcontractors and I have no method of testing with the subcontractors for the contractor are competent, capable, safe, no evidence at all. So at this stage, I know I’ve breached the first three elements of a safety system, which means my offices are off to Joe. But then I go to the next part which says so as far as my obligations of supervision of the site go, fourth element, supervision, am I satisfied they have a plan that fits the site and the people that are coming on the site and the process? No. Am I satisfied there is process that relates to the nature of the hazards and risk? No, I’m not. I have no evidence of competency-based training. Number four is gone. So when you have a contractor, you come to four and five, which is what is your monitoring process that tells you the system is working and how does that report it to you so that you’re not involved in the day-to-day management of people because that bypasses and penetrates the contractor model and it creates liability. But equally, I’ve got to be satisfied that the system that is living in an evidence-based way is meeting hazards and risks and they are instituting controls and that there is a lever in it, which when I’m satisfied they’re not, I can stop and go, show me how you’re going to fix this. Not I go and fix it, but show me how I’m going to fix it

Nina Hoang: And when you’ll fix it as well.

Andrew Douglas: Now can I just… None of this is new, okay? There has been a thousand judges who’ve said this and yet there is still this absolute nonsense that if I hire a contractor, I contract out safety. It is a lie. And the safety legislation goes further and says that each person has its own liability, it’s not a zero sum game.

Nina Hoang: Yeah.

Andrew Douglas: So each person can be held liable to the highest amount for whatever role they’re in. Whether they’re a host, whether they’re the contractor. So do you see the whole structure of the Act says it’s your site, it’s your people, it’s your job. You’re responsible. You can get somebody else in, but you’ve got to be satisfied they’re managing your risk and they’re managing their risk. And that there is a documented, systematic process that evidences that to you on a day-to-day basis, not once a month, day-to-day basis. There’s this level of comfort. If you don’t do that, you don’t carve out liability.

Nina Hoang: Yeah, and this, all these obligations still apply even if you are using those highly specialist contractors. So there is those cases that we’ve talked to you about before where if you have a specialist contractor, you can rely that they have that specialist knowledge but doesn’t mean you don’t do anything. You still have to do all those steps that Andrew outlined. Check that they have systems in place, still monitor and make sure that they’ve got evidence that they’re complying for anything that is reasonably obvious that is risk.

Andrew Douglas: Yeah, and can I just say to you and you know we gave some cases late last year where the host was liable in respect of risks that are known generally which are not related to the specific skill which when they looked at the SWMS that were there weren’t addressed and they ought to have just gone, Well these are the very risks we deal with every day.

Nina Hoang: Yeah. Like obvious, known risks.

Andrew Douglas: Yeah. So you can’t actually turn a blind eye. So there’s this temptation again for going for experts and specialists. Common in roofing, would be the most common. We get somebody to come in and repair a roof. What’s the greatest risk? Well, falling from heights, what are the things that happen? Falling over the edge, falling through the roof.

Nina Hoang: Yep.

Andrew Douglas: So if you look at that, it doesn’t matter how specialist the person is unless you are satisfied that those two risks are being managed, you don’t get to the next stage.

Nina Hoang: Yeah.

Andrew Douglas: You are just liable. So we are going to see more prosecutions on this. Last year after COVID, we saw a real ramp up in the prosecutions towards contracted liability for principles.

Nina Hoang: Yep.

Andrew Douglas: It is a focus of all regulators, quite rightly a focus of all regulators because as our environment becomes more casualised or contract-driven, the regulators are properly concerned that actually people’s safety is being put at peril as a result of that.

Nina Hoang: Yep.

Andrew Douglas: And so their focus is on this contractor management piece that we are talking about. And for Nina and I, that means if you are going to do it, you need a contractor management process.

Nina Hoang: Yep.

Andrew Douglas: It goes from procurement. How do we procure? What is the evidence base of competency that I have? What are the systems? So right from the pre-tenderer stage, right through day-to-day execution, what do we do at meetings? So when we have our site meetings with the contractor, what are the agendas? Each part of this is built around a safety model of showing the contractor is doing everything reasonably practical to perform the duties that are relevant for the work that’s being under done.

Nina Hoang: Yeah, and I think for that step, a common issue that we have seen with a lot of businesses is the person that they have on-site isn’t competent in order to monitor risk. And that is the key area of risk for you. If the person that you have doing the meetings with the contractor who’s supervising, has no idea about safety, isn’t able to point things out or isn’t trained in how to deal it with it, what powers they have to stop the work. That’s automatically a risk and is going to just make you liable.

Andrew Douglas: Yeah. And look, we see it all the time. And I guess the other part behind that is please don’t listen to the crazy voice that says that high level risk over there is not our problem. Don’t get involved or you’ll create liability. ‘Cos what I can say to you, if I see a traffic management issue, a forklift being driven dangerously, and I am the host not the contractor but I’ve failed to do anything about it. Well, I’ve just observed a hazard that has an incredibly high level of risk and I’ve done nothing.

Nina Hoang: Be indifferent to it.

Andrew Douglas: Yeah. So I’m already up for reckless endangerment. So the answer is, how do I stop it? Well, you can work out how to stop it. One is to say to the person, turn that off. Next go to their supervisor.

Nina Hoang: Yes.

Andrew Douglas: I want the traffic management to stop for the moment while we have this discussion. I need you to bring me back the systems. I want you to tell me how this has occurred. I want you to undertake an investigation and satisfy me this is not going to happen again. You’re not actually doing anything.

Nina Hoang: Yes, that’s the key difference.

Andrew Douglas: You’re creating an obligation on them to show how their systems are going to fix it. But always stop dangerous behaviour.

Nina Hoang: Yeah.

Andrew Douglas: ‘Cos you can imagine what a court is going to say. Courts are essentially moral beings, despite what everyone says. Courts are going to look at you and say, so you saw this Mr. Douglas? Yes. And you did nothing about it? No ‘cos it’s the contractor’s… you know what I mean?

Nina Hoang: Yeah. It’s just crazy.

Andrew Douglas: Because it was callous, it was indifferent about someone’s life. And remember what courts deal with in safety is the preservation and protection of people’s life and welfare.

Nina Hoang: Yep.

Andrew Douglas: So when they see you for some contractual reason not taking a stance, they’re contemptuous of it.

Nina Hoang: Yeah. So remember the obligation is not for you to fix it but to make sure you are taking steps for the contractor to fix it. As long as you do that, then you’ll be fine.

Andrew Douglas: Okay, let’s go onto our problem which tests this. Shorter problem today, you notice.

Nina Hoang: It still seemed pretty long.

Andrew Douglas: Did it?

Nina Hoang: Thick Cut Chips (TCC) had a food processing plant in Scoresby. The production line included a mechanical stacker that was loaded out into an elevated area where TCC’s trucks could reverse in, lift the back door of the truck and the forklift could load the pallets of product into the truck.

Moira was the daughter of the owner and in truth ran the business. She realised that with an increase in sales they needed to outsource the packaging, loading and logistics. Otherwise they would need to invest significantly in new capital, and worse still they would not have the capital utilisation in respect of trucks to get a buy back.

She spoke to her OHS consultant, Travis and he said it was a good idea. But he warned you must not direct or supervise their work or you’ll end up liable under Safety Law. The work was let to Terry’s Transport Solutions (TTS)…

Nina Hoang: My dog.

Andrew Douglas: TCC ran a tender process that included the production of evidence that the tenderer had a safety system. TTS delivered up their template system developed by a consultant. It dealt with all major hazards but was not based on a risk assessment of the actual work TTS was going to take over. TTS was a medium-sized business. It had a safety manager, but not one at the TCC site.

On the first day operation with TTS, Moira’s operations manager, Tom saw some very obvious traffic management problems and became concerned by the lack of any supervision.

He rang Moira and a meeting was arranged with TTS’s boss Terry, Moria, TCC safety manager Travis and Tom. Prior to the meeting, Travis warned Moria and Tom to not direct them but just raise the safety concerns. In the meeting Terry said he was very angry his supervisor let him down and it wouldn’t happen again. He probably barked them, hey?

Andrew Douglas: He did, no. More of a growl.

Nina Hoang: Tom asked for TTS’s risk assessment of their site but Travis said we don’t need it, that is Terry’s problem. Terry explained they use their system and don’t rely upon a risk assessment undertaken at the site.

The following day, Gabby (a forklift driver for TTS) failed to drop the tines after loading a pallet on racking, entangled the tines in the racking and pulled the racking down along with 12 pallets, crushing a TTS employee. Gabby did not have a forklift licence and had not undertaken any formal training in forklift use.

Andrew Douglas: Questions. There’s many.

Nina Hoang: WorkSafe attended the site and issued a section 100 or section 171 in WA, notice to TTC for all documents surrounding the tendering of work to TTS, subsequent minutes of safety-based meetings and all relevant emails and communications about any safety related incidents.

Andrew Douglas: So the section 100 is OHS Victoria. 171 is WHS throughout the rest of Australia, okay?

Nina Hoang: Oh, okay.

Andrew Douglas: Okay. So can WorkSafe seek such documents and once they are received from them, would it expose TCC and officers are employees of TCC to prosecution? So the answer is yes they can.

Nina Hoang: Yeah. And I don’t even think they need the documents to reveal that. Like, it’s…

Andrew Douglas: And I guess this is my problem with documents is you got to remember that your policies and procedures created what is reasonably practical. So if you have a set of policies and procedures that say you’re going to do something and you don’t do it, you’re liable.

Nina Hoang: Yeah.

Andrew Douglas: In this case, you’re going to get a whole lot of policies, procedures and plans, which show that the hazards were never addressed. So the regulator will put those down next to site and go, “So Top Cut Chips accepted someone who came in, who did no risk assessment of the site and therefore did no controls around the risks that existed. Liable.”

Nina Hoang: Yeah.

Andrew Douglas: The officer who was responsible for the tendering process was involved in that procurement process and knew at the time they were doing it that those hazards and risks were not addressed. Liability, tick.

Nina Hoang: Yeah. Didn’t check that they had…

Andrew Douglas: Wherever they are, 144 in Victoria, has a knowledge, okay?

Nina Hoang: I think that’s the next question.

Andrew Douglas: Yeah, you know, section 27 WHS, due diligence. Know what the hazards are, know the business. So you can see Moira is in a lot of strife at this stage. So next question was Travis’s advice correct for the contractor management?

Nina Hoang: No.

Andrew Douglas: Absolutely no. But can I just say I stole that from some advice that a safety manager once gave on the side?

Nina Hoang: Seriously? Wow.

Andrew Douglas: No, no, It’s really common that people say, “Look whatever you do, don’t get involved. Don’t supervise. You’re there monitoring. Don’t get involved. If you do you, you pierce this separation that exists.”

Nina Hoang: That’s so stupid.

Nina Hoang: Yeah.

Andrew Douglas: The answer is, we’ve told you what it is. You’ve got to have a system, you’ve got to be satisfied there’s a system, you’ve got to have a monitoring method within the system and you must be vigilant. And it’s a daily process. It’s not a once a month process. You need evidence every day coming through or in a process coming through, which suggests that your contractor’s doing everything that’s reasonably practical, then you can resist a prosecution from WorkSafe.

Nina Hoang: Yeah.

Andrew Douglas: Okay?

Nina Hoang: And the sad thing is, following this advice, Travis is not going to be found liable. It’s just going to be the company.

Andrew Douglas: No, no. Travis gets off scot free. Three, could Top Cut Chips and Moira be liable under the primary duties and due diligence section 21, 144 respectively. I’ve given you the WHS.

Nina Hoang: Yeah. So the answer is yes.

Andrew Douglas: Yeah. You spoke about that before. Just to understand for those who’ve got offices in Victoria ‘cos it’s different. It’s an objective test under Section 27 WHS. So do they have a knowledge of the business and the risks? Have they allocated resources to deal with the risks that exist? Have they had up to date knowledge of the law? Have… Yeah. So objective tests. Don’t need to know about the actual issue. But in Victoria, it’s three elements. So you got to know, first of all, the risk exists. Moira did know.

Nina Hoang: Yep.

Andrew Douglas: And if she didn’t, that’s her own fault. Did she have a capacity to influence the decisions making?

Nina Hoang: Yes, definitely.

Andrew Douglas: Yes she did. Was the problem attributable to her or other person? No, it’s attributable to her. So she’s right up there for the section 144 liability. It would be easy. And her standard of care under 144 is reasonable care. So she’s got to show that a competent person in her role should have picked those issues up and acted upon it. That’s a lay-down mesire.

Nina Hoang: Yeah.

Andrew Douglas: Okay, let’s go to question four. You can go for this one.

Nina Hoang: Reckless endangerment. So TCC and Moira were aware of the risks and they were indifferent to it. So it’s reckless endangerment.

Andrew Douglas: Yeah. So question four is, could they be guilty of reckless endangerment? Let’s go back to what reckless endangerment. The first test is, is there a risk of serious injury or death?

Nina Hoang: Yes.

Andrew Douglas: Yes. Okay. Aware of that risk?

Nina Hoang: And they were indifferent to it.

Andrew Douglas: Were they indifferent to it? Which means careless, okay? In other words, yes. They’ve got someone in, they were chatting to them they raised the issue about a lack of safety. So they’ve done something.

Nina Hoang: That’s not enough though.

Andrew Douglas: But it’s not enough because what you got to show is indifference means that you’re not actually addressing the core issue at the stake.

Nina Hoang: Yeah.

Andrew Douglas: And you’re not stopping it occur and you don’t care about it. You just let it go.

Nina Hoang: And like we said, even if you implemented some controls if they’re not sufficiently addressing the risk it still means you are indifferent to it. So just simply saying, oh you know I’m a bit concerned about this but then just leaving it, Moria clearly has not done enough.

Andrew Douglas: No. So look, I think certainly in the eastern seaboard states, Moira’s it a fairly high level of risk of being prosecuted. There’s absolutely no doubt at all that TCC would be prosecuted because the process is one, under section 143, the Act, there’s what’s called the attribution clause. So when a person fails in an organisation, creating a breach, the organisation is liable. So there’s a number of failures in the organisation not just Moira’s, probably, but whatever it is Top Cut Chips is definitely liable. And Moira is a person who had the influence and control so I think she’s definitely a bit of strife. And can I say the penalties for this, it was a first offence, in Victoria, in county court, you’re looking at four to $500,000 an absolute minimum. If there was death, you could be looking at over a million dollars. So worthless going down this path, isn’t it? Because you can see straight away. Would the contractor be liable? Absolutely.

Nina Hoang: Yeah.

Andrew Douglas: Would Terry be liable? Absolutely. Poor dog, poor dog. And they’d be more liable because some of their… Terry said, “I’m angry at my supervisor” But he didn’t have anyone with safety competency on the site.

Nina Hoang: Yeah.

Andrew Douglas: Nor did he address at-nature of the risk that arose. So he’s completely indifferent to it.

Nina Hoang: Yeah.

Andrew Douglas: And he runs the risk of industrial manslaughter more so than Moira and the organisation do. So that’s question five, isn’t it? Industrial manslaughter. So let me go through the elements again. You’ve got death that’s occurred. Let’s just say there was a death, okay?

Nina Hoang: Yep.

Andrew Douglas: You’ve got serious risk of injury or death as part of the causative chain?

Nina Hoang: Yes.

Andrew Douglas: You’ve got a breach of duty. So that’s a breach of a common duty 21, 25. So risk of duty to breach somebody else. Yes, you do.

Nina Hoang: Yes.

Andrew Douglas: Then you have such a wanting of the standard of care, which is a reasonableness test.

Nina Hoang: Yeah, reasonable departure of the standard.

Andrew Douglas: Yeah. So this isn’t a test of reasonable practicability. This is a much easier threshold in some ways. So what it says is in relation, particularly to Moira, given the knowledge that she had, given the risk that Tom had brought to her attention, given the failure of Tom to address it correctly, given all that information, was her doing nothing more such a significant departure from her standard of care of exercising reasonable care to prevent the breach of duty that it gives rise to industrial manslaughter? My gut feeling is no, I just…

Nina Hoang: Yeah, I don’t think it quite meant it.

Andrew Douglas: No.

Nina Hoang: Which is so weird because it’s more a significant offence to reckless endangerment and she’s got clearly, she’s sunk with reckless endangerment.

Andrew Douglas: So I think if what she’d said is, Terry said, “Look, I’ll need to actually change the contract to increase the cost of supervision.” And she said, “No, it’s your your job. Just fix it.” Then I think we’re moving towards industrial manslaughter. Does that make sense?

Nina Hoang: Yeah.

Andrew Douglas: We need a more deliberate act because it’s so wanting, the test is so wanting with standard of care. What industrial manslaughter looks for is particular acts more than omissions which flagrantly breach duties. That’s what they’re looking for.

Nina Hoang: Like if they had come back and said, “We can fix it but it’s going to cost this much.” And she said, “No, it’s too expensive, I don’t want to do it.” That would be…

Andrew Douglas: Yeah, that’s a good example. So there you go guys. That’s it. That’s the 30 minutes, we’re wrapped. We’re done. Thanks Nina.

Nina Hoang: Thank you Andrew. Give us a thumbs up.

Nina Hoang: See you. Thumbs up.

Nina Hoang: Thanks for watching.

Nina Hoang: Cheers, bye-bye.

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