A law unto itself: A manufacturing perspective

Posted on 7 Sep 2009 by The Manufacturer

With a legislative framework that increasingly governs the minutiae of UK manufacturers’ operations, TM assistant editor Edward Machin investigates the recent statutory provisions covering corporate manslaughter, disciplinary procedures, and accruing sick pay which are set to affect the entire sector.

Profit/loss; lean operations; benchmarking; employee relations; ERP; logistics; product lifecycles. For the manufacturing manager, feet on desk, wearily loosening his tie at the end of another recession-battered week, grappling with the obtusely-worded provisions of the Companies (Inspection and Copying of Registers, Indices and Documents) Regulations might understandably come a distant last on his ‘to do’ list.

However, given that legislative compliance governs virtually every aspect of his company’s operations, the manufacturer, regardless of sector, would do well to retain a working knowledge of those statutory changes which affect his day-to-day remit. Ignorance of the legal provisions which apply to his business can result in a fine without limit, not to mention an extended stay — life, in the most extreme cases — at Her Majesty’s pleasure.

Clearly, this is best avoided. By placing the understanding of legal compliance alongside those operational core competencies which have traditionally remained critical to successful manufacturing, therefore, companies of all sizes can effect a more robust corporate framework, improve employee relations, and avoid litigation, fines, and prison terms.

Lambs to the (man)slaughter?
In spite of the military conflicts arising globally on an almost monthly basis, it comes as a considerable shock for many employers to discover that there are more work-related fatalities per year than deaths due to war. Indeed, research undertaken by the Chartered Institute of Environmental Health highlights that businesses’ understanding of corporate manslaughter is worryingly low, with 75% of manufacturers remaining unaware that if found guilty of a fatal accident at work, they could be subject to a publicity order — requiring convicted companies to publicise the conviction, specified particulars of the offence, and level of fine received.

Arguably more so than for any other sector, the possibility of casualties in the manufacturing industry is high, with heavy machinery, hazardous chemicals, and technically dangerous processes proving potentially lethal for those employed on the factory floor. Therefore, says Martin Webster of Pinsent Masons LLP: “The introduction of legislation governing the sphere of corporate manslaughter remains hugely significant for many in the sector, and is one which manufacturers must treat as central to their future operations, if, that is, they are not doing so already”.

Per the Corporate Manslaughter and Corporate Homicide Act 2007, which came into force on April 6 2008, an offence will be committed if: “A management failure by senior managers of a corporation is a substantial element in a gross breach of duty to take care, causing the death of employees or others.” In practical terms, a manufacturer will be liable where it owes a duty to take reasonable care of its employees’ safety, and the way in which its activities have been managed or organised amounts to a gross breach of that duty, and, ultimately, causes death.

While it was possible to prosecute a company under English common law prior to the Act, convictions were rare, given the need to demonstrate a ‘controlling’ or ‘directing’ mind at the company, a requirement that was close to impossible to prove in practice. As a result, between 1966 and 2006, 40,000 people were killed in employment-related circumstances, with only seven companies actually convicted of causing unlawful death. Given the widespread public anger over the Southall and Paddington rail disasters, for which prosecution of both companies failed due to the lack of a controlling intention, the new provisions — creating the offence of corporate manslaughter — are set to make it significantly easier to convict those companies on whose premises an individual dies.

The test case
The first prosecution under the amended law is currently being heard before Bristol Crown Court, with Gloucestershire-based Cotswold Geotechnical Holdings Ltd, and its director Peter Eaton, charged in relation to the death of an employee in 2008. The case will be of particular importance to smaller manufacturers says Ian Mayer, a partner at Mills & Reeve LLP, in that prosecution can be brought against a company and individual director simultaneously where: “The director is one member of a small executive team, and thus has a greater degree of control over the activity which was the cause of death.”

With companies liable to face limitless fines, coupled with the possibility of imprisonment, how do manufacturers avoid such fates? According to Gary Slapper, Professor of Law and Director of the Centre for Law, OU Business School: “The best way for a company to act responsibly and legally is for it to appoint a manager at senior level to oversee corporate health and safety.”

“So long as they act both reasonably and responsibly, should an accident occur — even one which results in the loss of life — then neither they as an individual nor their company will be prosecutable for manslaughter. It is as simple as that,” he says.

In taking Slapper’s advice, manufacturers need not operate within a culture of fear, thus diluting those processes which have enabled their company to flourish. Provided that they ensure that both a robust framework for employee safety exists within the company and reasonable safeguards have been implemented, if a tragedy does occur, it must be put down to the fact that — regrettably, in work, as in life — accidents do happen, and that upon investigation, no causal link can rightly be established between the company’s sphere of activities and the death.

Employment law

Whistle while you work
Less morbidly, but with arguably greater scope in its potential to derail the smooth running of business, exist the many permutations of employment law. As with any economic sector, manufacturing is no stranger to employer/employee conflict, with disciplinary issues, standard, holiday and sick remuneration disputes, grievance procedures and harassment claims affecting all but a select — largely by luck rather than design — few companies.

Coupled with the number of cases being heard before employment tribunals rising to 190,000 in 2008, research undertaken by the Forum for Private Business in July revealed that SMEs in the manufacturing industry are spending ₤320m annually implementing employment-related legislation. Unsurprisingly, and together with the provisions to which they must adhere in ensuring legal compliance, manufacturers will not be taken aback to learn that a raft of new employment statutes have been enacted in 2009.

For example, the Employment Act 2008 came into force in April, sweeping aside the old statutory dismissal, grievance, and disciplinary provisions — together with the short-lived statutory dispute resolution procedures (SDRPs) — and replacing them with the ACAS Code of Practice. In seeking to minimise the negative effect of poor workplace relations, the Code provides practical guidance for employers when dealing with disciplinary and grievances issues, calling for both employers and employees to: (i) raise and address grievances promptly; (ii) act consistently and deal with similar cases in similar ways; (iii) carry out investigations to establish the facts prior to taking action, and; (iv) inform relevant parties at every stage and give them the opportunity to respond to allegations made by either side.

Failure to follow one of the Code’s provisions by either party can result in a tribunal taking the failure into account when deciding the merits of the case, and, more significantly, adjusting its compensatory award by up to 25% — a reduction of 25% from the repealed SDRPs, which gave tribunals discretion to increase its payments by 50%. Despite such apparent clarity, for Katy Meves of Shoosmiths LLP: “Given the Code’s lack of prescriptiveness, there will be uncertainty as to whether it has been followed correctly or not. As such, we recommend that full training be given to managers and employees alike on the Code.”

Quite why an Act intended to simplify the notoriously complex SDRPs should need further training remains a bone of contention for many manufacturers, with grievances now being permitted, for example, to be made orally instead of in writing. Indeed, there is real potential for companies that are struggling to keep abreast of their existing legislative obligations to ‘wing’ the new provisions, representing a worrying indictment of the burdens placed on SMEs in particular, more than any explicit malice on the part of the manufacturers.

That being said, the manufacturers’ organisation EEF states that the ACAS Code: “Represents a significant advance on the statutory procedures, giving manufacturers an ideal opportunity to undertake a more thorough review of how they manage discipline and poor performance.” In this respect, employers are given a greater measure of advice by the Code with regard to each step of the grievance process, while serving to refine those disciplinary policies which companies should already have in place.

Whether these latest provisions enjoy a lifespan as short as the SDRPs, i.e. four years, remains to be seen. Unarguably, however, the manufacturing industry — blue chips and SMEs alike — will continue to be inundated with legislation delineating every aspect of their employer/employee relations. While recognising the onerous bureaucratic burdens that such requirements entail, “a robust framework for statutory compliance is nonetheless strongly advised,” says Lauren Harkin of Lemon & Co Solicitors, given that it will ultimately save manufacturers costly tribunal, litigation and court fees.

In sickness and health
While disciplinary and grievance procedures represent a significant aspect of the employer’s remit, the conjoined issues of holiday and sick pay are set to realise an equally big challenge for the modern manufacturer. Worryingly, however, research undertaken by the Employers and Manufacturers Association (EMA) in August found that 80% of employers in the sector are unclear as to the legislative stipulations regarding holidays.

Says David Lowe, an EMA representative: “We have known for a long time that employers are simply doing what they need to make the provisions work. It is inferred, therefore, that many of the manufacturers surveyed are not complying with the law to its truest and fullest extent.”

Central to the jurisprudence is Stringer and Others v Her Majesty’s Revenue & Customs, a case sent to the European Court of Justice (ECJ) earlier this year. The issue turned on whether an employee can accrue and use annual leave during a long term absence due to illness, despite not actually working during the given period. Disputes of this nature are far from novel, says Siobhan Harding, Information and Policy Officer, Citizens Advice Bureau, originating with the implementation of the Working Time Regulations in 1998, which introduced the right to paid holidays but expressly prohibited the carrying over of statutory leave.

That being said, the outcome of the ECJ case — that ruled that a worker on sick leave continues to accrue statutory holiday during their absence — will have extensive financial implications for businesses across industry. To quantify, an employee who has been on illness-related leave, and is thus unable to take the holiday they accrued by the end of the leave year, will not lose the accrued statutory pay. Similarly, if a worker has his employment terminated, he must be paid in lieu for any statutory holiday accrued which they have not been able to claim due to their being on sick leave.

Frustratingly, the Lords failed to delineate how the right to annual leave during an illness-related absence will work in practice, points out Finers Stephens Innocent LLP. Manufacturers will thus be left to fend for themselves when seeking to apply the decision to their operations, and forced to detangle the relevant Employment Tribunal authorities, UK legislation, and ECJ decision in Stringer internally.

A legislated future?
Given that they are not, for the majority at any rate, legal professionals, it is understandable that manufacturing executives are not earnestly glued to the weekly law reports. Indeed, for those firms without in-house counsel, keeping abreast of the multifarious statutory provisions that directly affect their operations can prove particularly difficult.

It is unlikely, however, that the sheer volume of legislation will cease to flow on their account, says David Woods of Greenwoods Solicitors LLP. As a result, manufacturers must avoid developing a culture of minimal fulfillment with regard to the implementation of statutory provisions. While it is understandably onerous to do so effectively, recognition of the necessity for full compliance will ensure that the manufacturing sector does not develop into an overly litigious industry, while simultaneously maintaining the optimum employee relations which remain so critical to successful business practice.

All attributed quotes are from law firms unless otherwise stated.

Upcoming legal issues to be aware of

1. The final implementations of the Companies Act – in October
2. A new medical ‘fit note’, to be introduced in early 2010
3. An Alternative to Redundancy scheme proposed by the CBI – date TBC
4. Proposed changes to parental leave legislation, for both men and women – date TBC