Fines will now have a 'starting point' linked to turnover, which creates significant uncertainty for larger businesses with a turnover of more than £50m
February 1 sees the UK implementation of the Sentencing Council's landmark "definitive guideline" on the sentencing of defendants convicted of offences relating to health and safety, corporate manslaughter and food safety and hygiene offences, regardless of the date of offence.
In addition to the unprecedented hike in fines, the codification of the sentencing of individuals convicted under the Health & Safety at Work etc Act 1974 (most commonly, directors) introduces a custodial sentence even for offences that have the lowest degree of culpability.
The guideline is a "game changer" for how the criminal courts will be required to sentence health and safety offences, with fines now having a "starting point" linked to turnover, adjusted upwards or downwards depending on relevant aggravating and mitigating features, allied to relevant financial information.
The guideline is in line with the Court of Appeal's drive in the past two years to increase the financial penalties imposed on large companies for health and safety, environmental and food safety offences alike, including in R v Thames Water Utilities Ltd  where it was stated in respect of environmental offences that fines "... may well result in a fine equal to a substantial percentage, up to 100%, of a company's pre-tax net profit for the year in question, even if this results in fines in excess of £100m [$143m]. Fines of such magnitude are imposed in the financial services market for breach of regulations." With the new turnover-based guideline it is clear fines of this level are possible for health and safety offences and corporate manslaughter.
The guideline, while providing relative clarity on fines for micro, small and medium-sized businesses with turnovers of less than £50m, creates significant uncertainty for larger businesses by categorising them as having a turnover exceeding £50m, which, for many UK businesses, still remains a relatively modest sum. Although the notion of "scaling up" the starting point for a £500m turnover business by, for example, simply multiplying by 10 the starting point for a £50m business, was discredited in Thames Water it seems inconceivable, for example, that a business with a turnover of £800m will be fined a similar sum to one with a turnover of £50m.
Further, with a "very large" business defined as one with a turnover of £1bn in R v Sellafield Ltd , the die is already cast for significant fines for "very large" businesses even where culpability and harm are both very low.
It is becoming increasingly common to see defence costs cover for health and safety or corporate manslaughter-type offences included as a standalone insuring clause in commercial D&O policies. This may become all the more crucial to business operating in sectors where the potential for investigations and prosecutions under Health and Safety Executive (HSE) legislation are a reality. The greater the risk of custodial sentencing, the more likely a director is to want to access the D&O policy to retain the best legal representation available, particularly given that director disqualification proceedings could also follow on conviction.
The new guidelines may have broader implications, however. The potential for larger fines against the entity for HSE failings could trigger claims by investors against the D&Os where the entity's share price has suffered as a result, or the entity has gone bust.