Unpacking enforceable undertakings - a fresh look at compliance in the workplace

Tuesday 27 June 2017

Authors: Charlotte Joy, Anna Codlin and Liz Coats

​​​Use of a tool which offers employers an alternative to prosecution for breaches of employment or health and safety standards is on the increase. Enforceable undertakings (EUs) are available to employers facing potential liability under employment or health and safety legislation who agree to comply with certain promises and undertakings to avoid litigation. But they don't offer an easy escape: the undertakings and promises required under an EU must be substantial and there are significant financial penalties for those who subsequently fail to comply with an agreed EU.

Enforceable undertakings are becoming increasingly common, and knowledge of them is important for all employers to ensure that they are in a position to make informed and appropriate assessments of "next step" options when issues of potential non-compliance with employment and health and safety legislation arise.

What are enforceable undertakings?

EUs are an enforcement tool available to ensure compliance with various employment law statutes such as the Employment Relations Act 2000 (ERA) and the Health and Safety at Work Act 2015 (HSWA). Broadly, an EU is a voluntary binding agreement between an employer and a regulator (such as WorkSafe or a labour inspector) which allows an employer to avoid prosecution or proceedings being issued by the regulator for an alleged contravention of law, through the actions they promise to take in the agreement.  

Why have EUs been introduced to New Zealand employment legislation?

EUs were introduced as an option for employers under the ERA in 2010 in order to allow labour inspectors to have a more proactive approach to investigating large employers in their compliance of minimum standards. A more dynamic approach was required to encourage co-operation from employers and ensure issues with non-compliance could be resolved before entering into litigation and possible prosecution.

Under the HSWA, EUs have a similar purpose, in that lengthy prosecutions can be avoided by a negotiated EU that encourages pro-active behaviour by the employer to reach compliant standards. Employers can avoid significantly increased penalties introduced under the Act by ensuring the EU is in the public interest and provides broad benefits for the industry or community involved.

EUs under the ERA

The ERA provides that EUs are available when there have been breaches of minimum standards provided under the Holidays Act 2003, Wage Protection Act 1983, Minimum Wage Act 1983, Parental Leave and Employment Protection Act 1987 and the Equal Pay Act 1973.  

The ERA can issue a penalty for non-compliance with an EU of up to NZ$10,000 for an individual and NZ$20,000 for a company. Despite the overall benefit to the employer of having an EU, (to avoid litigation and potential prosecution) a penalty for non-compliance with an EU puts the emphasis back on protecting employees' minimum statutory rights, as opposed to simply an option to save the employer the costs of litigation.

An EU can be offered by a labour inspector to an employer when the labour inspector has determined that there has been a breach of minimum employment standards, for example if an audit on holiday pay compliance has been performed by an inspector. In this instance the EU may be an undertaking to return the affected employee to the position they would have been in had the breach not occurred, and provide for measures to be taken to ensure that future breaches do not occur (for example, corrections to the employer's payroll system to prevent future calculations being undertaken incorrectly). The EU must also commit to reviewing Holiday Act compliance with all employees (as an inspector's audit will only have been in relation to a sample of employees). The EU should also outline how remediation payments will be made. From a practical perspective, the process of entering into an EU with a labour inspector appears to vary depending on the legislation it arises out of and the extent of the non-compliance that has occurred. However, generally the employer will have some ability to negotiate terms ​of an EU. An employer will, in our experience, be in a stronger position to negotiate if it has already been proactive in initiating measures to identify compliance issues and avoid future breaches.

While the legal profession has identified some common practices in relation to EUs, there are little formal requirements or government guidelines to what must be in an EU to be accepted under the ERA.  The growing experience of lawyers in this area will be of value to clients in order to negotiate EUs successfully and in the most cost efficient and timely way.

EUs under the HSWA

EUs are also an option for businesses and organisations under the HSWA, following a WorkSafe investigation of a workplace health and safety incident and where there is an intention to prosecute the business for a breach of the Act. An EU can be offered by the party being investigated without constituting an admission of guilt.

However WorkSafe guidance indicates that an EU will not be accepted unless there is an acknowledgement that a contravention of the Act has occurred. This means that in some instances entering into an EU may be contrary to the previous position taken by the business during the WorkSafe investigation.  

Due to public policy and interest in health and safety issues, an EU cannot be given in relation to a charge of reckless conduct where the incident involves a serious injury or fatality.

As the investigated party will clearly benefit through the agreement of an EU by avoiding prosecution, the undertakings and promises in an EU must be substantial. Generally the activities associated with an EU must aim to deliver tangible benefits to the workplace, industry or the broader community. Examples of these could include special training programs, promotion or education campaigns or offering targeted publicity about the health and safety breach and how it could have been prevented.

Non-compliance with an EU may result in fines of up to NZ$50,000 for an individual, or up to NZ$250,000 for any other group.

WorkSafe has issued a number of guidelines in relation to the process of negotiating an EU with WorkSafe and the substance requirements of an EU. A template EU is also available on the WorkSafe website.

As of June 2017, WorkSafe has accepted two EUs in relation to health and safety incidents. The content of the EUs and the reasoning of WorkSafe's acceptance of these are available on the WorkSafe website.

Practical considerations for employers

While the obligations imposed on employers vary between EUs under the ERA and EUs under the HSWA, both types of EU result in ensuring future compliance with relevant legislation, and/or reconciling past breaches of the employer. EUs allow employers to avoid future litigation or halt current litigation in relation to breaches of employment or health and safety standards, and allow employers to avoid the potential reputational damage that can be associated with such litigation.

From a practical perspective, negotiating an EU with a regulator to the point of acceptance is likely to take some time and could have associated legal costs. However, a benefit for employers is that employers will have an opportunity to receive feedback on EU drafts from the relevant decision maker, and the opportunity to submit a further amended proposal before a final decision to accept or reject an EU is made. This is specifically provided for in WorkSafe guidance in relation to HSWA EUs, and appears to be standard inspector practice for labour inspectors when negotiating EUs under the ERA.

Past experience in Australia indicates that it may be more difficult to negotiate EUs under the HSWA than under the ERA (probably due to the public interest in the issue of health and safety, and the Government's commitment to reducing the number of workplace incidents). In particular, the content of an EU must do more than rectify a breach to the HSWA, as it must provide benefit to the wider community. In comparison, EUs under the ERA are more remedial in nature and will look only to provide employees with their minimum entitlements and ensure that workplace policies and processes are improved as to avoid any further breaches of minimum standards. Our employment team has experience advising employers on both types of EU and in communicating with regulators on our clients' behalf.

If you have any questions regarding any of the issues raised in our article, please contact us. ​


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Rob Towner

    Partner Auckland
  • Tim Clarke

    Partner Auckland
  • Rachael Brown

    Partner Wellington
  • Liz Coats

    Senior Associate Auckland
Related areas of expertise
  • Employment and workplace safety
  • Health and safety