Indemnity for Fines? That is not ‘Fine’: New Victorian Laws Pass Penalties for Unsafe Workplaces Directly to Employers
Recent amendments to the Occupational Health and Safety Act 2004 (Vic) (OH&S Act) immediately void any term of an insurance contract or arrangement which indemnifies a person or entity for a penalty imposed for a breach of the OH&S Act regardless of whether a prosecution is on foot, when the policy was incepted and/or when the alleged breach of the OH&S Act occurred. Further, from 22 September 2022 it will be an offence to enter into, benefit from, or be a party to an insurance contract or arrangement that provides such an indemnity. We discuss these changes and what it means for insurers and employers alike.
After identifying what it considered to be a ‘key loophole’ in Victorian workplace law, the Victorian Parliament recently passed the Occupational Health and Safety and Other Legislation Amendment Act 2021 (Vic) (Act) which received Royal Assent on 21 September 2021. Relevantly, the Act inserts new provisions into the Occupational Health and Safety Act 2004 (Vic) (the OH&S Act) which, amongst other things, provide that:
- all contractual terms indemnifying employers and/or persons for pecuniary penalties imposed under the OH&S Act are now void;1 and
- from 22 September 2022, it will be an offence to enter into, offer to enter into, or be a party to a contract that has the effect of indemnifying employers and/or persons in respect of any liability to pay pecuniary penalties imposed under the OH&S Act.2
Importantly, the amendments to the OH&S Act do not prohibit insurers from providing, and employers and/or persons from obtaining, cover for the costs of defending an investigation or prosecution. The amendments operate only to prohibit insurance cover for fines and/or penalties imposed under the OH&S Act.
The Act also makes substantially similar amendments to the Dangerous Goods Act 1985 (Vic), the Equipment (Public Safety Act) 1994 (Vic), and their respective Regulations.
Insertion of s148A – Indemnity Clauses for fines / penalties are void
New section 148A of the OH&S Act3 operates to immediately void any term of a contract, or other arrangement, that purports to insure or indemnify a person and/or entity in respect of any liability to pay a pecuniary penalty under the OH&S Act, or the Occupational Health and Safety Regulations 2017 (Vic) (the Regulations), to the extent that any such term provides for that insurance or indemnity.
This means, that any term of a policy of insurance which provides cover to a person and/or entity in respect of a fine imposed under the OH&S Act is void from 22 September 2021 with immediate effect. Unlike other jurisdictions there is no grace period.4
Section 148A operates to void all contractual terms which provide an indemnity for a fine and/or penalty imposed under the OH&S Act irrespective of when the insurance contract incepted, when the incident giving rise to the alleged breach of the OH&S Act occurred, and whether there is a prosecution on foot. The good news is that section 148A does not apply to terms of insurance contracts which provide cover for costs incurred in defence of WorkSafe investigations or prosecutions in respect of an alleged breach of the OH&S Act.
Insertion of s148B – Offence to insure against penalty
Section 8 of the Act has inserted s148B into the OH&S Act which provides that, from 22 September 20225, it will be an indictable criminal offence to enter into, benefit from, or be a party to an insurance contract or arrangement that provides an indemnity for fines and/or penalties imposed pursuant to the OH&S Act.
Once in force, this provision will prohibit any person from:
- entering into, or being a party to, a contract or other arrangement that purports to insure or indemnify the person in respect of liability to pay a pecuniary penalty under the OH&S Act or the Regulations;6 and
- entering, offering to enter into, or being a party to a contract or other arrangement that purports to insure or indemnify another person for that other person's liability to pay a pecuniary penalty under the OH&S Act or the Regulations.7
It is a defence to the above offences if the person has a reasonable excuse to enter into, offer to enter into, or be a party to the contract or other arrangement.8 However, what is a ‘reasonable excuse’ has not been defined or tested.
Further, the Act makes it an offence for a person to receive, and a person to provide a benefit, under a term of a contract or arrangement that purports to indemnify a person for in respect of liability to pay a pecuniary penalty under the OH&S Act or the Regulations.9
The penalty for committing the above-mentioned criminal offences from 22 September 2022 is up to $54,522 for natural persons, and $272,610 for corporations.10
The amendments to the OH&S Act are significant. Employers and/or individuals can no longer rely upon their insurance arrangements to provide cover for penalties imposed under the OH&S Act in relation to failures to provide and maintain safe workplaces. The aim of the amendments is to drive employers to place paramount importance on employee safety. The amendments are part of a wider ongoing campaign by the Victorian Government to improve workplace safety and impose harsher penalties on employers who put workers at risk.
The amendments to the OH&S Act reflect the public policy considerations regarding insurance against criminal liability. Public policy principles provide that it is ordinarily not possible to take out a valid insurance policy covering criminal proceedings, especially where there is an element of personal fault or intention.11 Further, ensuring that employers and/or persons are directly liable for penalties imposed for a breach of the OH&S Act gives effect to the sentencing principles of specifically deterring that employer from committing future OH&S violations, and also generally deterring employers from breaching the OH&S Act if they realise they will have to foot the bill.
By no later than 22 September 2022, insurers, employers and individuals must ensure that they are not a party to any contract or arrangement which provides an indemnity in respect of fines and/or penalties imposed under the OH&S Act. Otherwise, they will commit a criminal offence.
For completeness, the Act has also introduced other significant changes to Victorian workplace law, including the redefinition of ‘Labour Hire’ workers as ‘employees’ under the OH&S Act, and increasing the powers of Health and Safety Representatives and Authorised Representatives of Registered Employee Organisations to enter workplaces and collect required information to improve workplace safety.
This article was co-authored by Jane Coventry and William Harris.
1 Section 148A of the OH&S Act. This provision came into effect on 22 September 2021, being the day after the Act received Royal Assent.
2 Proposed section 148B of the OH&S Act.
3 Inserted by section 7 of the Act.
4 Section 272A of the Work Health and Safety Act 2020 (WA) has received Royal Assent, but it is still waiting for Proclamation before coming into effect. Section 272A of the Work Health and Safety Act 2011 (NSW) came into effect on 1 June 2020 but did not have the effect of voiding indemnity clauses for incidents and prosecutions prior to 1 June 2020.
5 Section 2(3) of the OH&S Amendment Act, the date being 12 months from the day after the Act received Royal Assent.
6 Section 148B(1)(a) of the OH&S Act.
7 Section 148B(1)(b) of the OH&S Act.
8 Section 148B(2) of the OH&S Act.
9 Sections 148B(3) and 148B(4) of the OH&S Act.
10 Penalty units are determined annually by the Treasurer, pursuant to s5 of the Monetary Units Act 2004 (Vic). The penalty units for a contravention of s148B of the OH&S Amendment Act are 300 units for individuals and 1,500 units for corporations. At the time of writing, the value of a single penalty unit for the Financial Year 2021 to 2022 is $181.74.
11 For example, see Fire and All Risks Insurance Co Ltd v Powell  VR 513 at ,  –  and ; Horsell International Pty Ltd v Divetwo Pty Ltd  NSWCA 368 at  – .