Regulatory compliance for in-house lawyers is a constantly shifting challenge, and modern approaches to sentencing for corporate offences have forced the issue to the top of the agenda. In recent years, there has been a sea change towards the extent to which Courts can take into account company size and turnover when setting a fine. The effect of this has been a substantial increase in fines across the board.
The arena of health and safety law is a good example of this principle. In 2013/14, the average fine handed down for an offence was just under £30,000. In 2016, new sentencing guidelines were introduced, which allowed Courts to:
- link fines to the turnover of the defendant company;
- take into account the broad financial health of the defendant company; and
- investigate links to parent or holding companies, and take their financial resources into account to ensure that any fine has real economic impact.
The effect of these changes has been significant. In 2018/19, the average fine handed down ballooned to ~£150,000 – a fivefold increase over 5 years. It should be noted that this is just the average fine. It is now common for larger companies (i.e. those with a turnover of more than £50 million) to face 7 figure fines, even where fatal injuries have not occurred.
That trend continues across sentencing for regulatory offences generally. Food safety and hygiene failures are sentenced using an identical approach, and are increasingly in the media spotlight following a spate of allergen related cases. Offences prosecuted by the Environment Agency (which can include pollution incidents, poor waste management and wildlife protection) are also sentenced with reference to turnover. One notable current exception are fire safety offences, but in the light of the Grenfell Tower tragedy, it seems almost certain that fire safety regulation will be modernised in line with the trend.
As a result, what has always been an important issue is now central to the survival of the business. Increased fines can potentially be difficult if not impossible to recover from in terms of economic impact, and should be a top priority for in house lawyers. The immediate question therefore, is how can you realistically best prepare and protect your client, especially when regulatory issues are often rarer or less routine than regular in-house operations?
The answer is that in house lawyers must regularly be involved in the business risk management process, and can add real value by asking the following key questions (regardless of the particular topic);
- What risk management system is currently in place? Are there areas of risk which have not been properly identified, or are poorly understood? Can you add value to your client by arranging for training and education on how to manage risk?
- Where have existing systems worked well? Have positive outcomes been written back into the system and protected?
- Where has the system failed? If there have been near misses, has the system been changed to prevent them in future? If there has been an incident, have lessons been learned and the system updated?
- Is there a plan of action to follow if something goes wrong? The immediate aftermath of an incident is crucial, and a proper crisis management and internal investigation system is vital to protecting your client. It is often too late to develop such a plan once an incident has occurred
- Are discussions on risk and regulation properly protected by legal privilege? The law on privilege can be difficult to navigate in internal situations, and again a plan of action is key.
If you would like further information on ways to protect your client and business from rising corporate fines, or would like to discuss your approach to risk analysis, crisis management systems, internal investigation and other ways to prepare for serious incidents, please contact Ben Derrington in Ashfords’ Business Risk and Regulation team on B.Derrington@ashfords.co.uk, or on 0117 321 8014.