Previous Section | Table of Contents | Next Section

Introduction — the duty outlined

The application of the law to contracts in workplaces

Most work activities are covered by the Health and Safety in Employment (HSE) Act 1992. If people doing work for you are described as self-employed for tax or other purposes, you will almost certainly have duties as a principal under the Act.

In this guide, “contractor” refers to a person who works as a sole trader, corporate entity, or on some basis other than as an employee. The emphasis is on contracts awarded by tender, but much of the process recommended is equally applicable to other contracting situations.

It is important to remember too, that in some situations, alternatives to competitive tendering can better assist health and safety outcomes. These include:

• time and material (charge up) contracts
• collaborative working arrangements, and
• negotiated price contracts.

Where you have engaged a person or another business as a contractor, you will still have the duties of a “principal” to a contract in a workplace. If that is not the case, you may still have the duties of a person in control of a place of work. If a person is still legally considered an employee in terms of the Act, notwithstanding a different contractual label, then wider obligations will ensue.

The legal nature of the relationship between you and any person working for you or on your behalf should be clarified and included in the terms of the contract. Remember, though, that you cannot pass on a legal duty that falls on you as an employer, a person in control of a place of work, or a principal in terms of the Act. If you are considering any attempt to limit your responsibility for the health and safety of others, you should first read this guide carefully and, if necessary, seek legal advice.

It’s important to remember that putting work out to contract does not absolve a company or individual from their health and safety obligations and is not necessarily the “easy option”.

Refer also to the Guide to the Health and Safety in Employment Act 1992, available from the Department of Labour website,for further information on the duties mentioned above in relation to employers and persons in control of places of work.

What the duty requires

The object of the Health and Safety in Employment Act 1992is the prevention of harm to people at work, or affected by work. To do this, the Act places a range of duties and responsibilities on different parties for health and safety management.

Section 18 of the Act creates a duty requiring principals to a contract to take "all practicable steps" to ensure contractors, subcontractors and their employees are not harmed while undertaking work under the contract.

Broadly, a "principal" is any person (either an individual, or a corporate entity) who engages another (other than as an employee) to do any work for gain or reward. The exception is engaging someone to do work on your own home. The legal definition of a principal is discussed on page 10.

A principal's duty under the Act depends on what practicable steps they should take to ensure safety, such as planning, or site visits. There are situations where such duties might be shared by the principal and contractors. For example, a principal may have a limited duty in respect of intrinsic risks arising from everyday electrical work being done on a building project by an electrician as a subcontractor. However, the principal's duty would be much more extensive with respect to scaffolding provided by them for the electrician to gain access to the work.

Again, it is important to note the principal cannot contract out of obligations owed under section 18 by purporting to pass the duties on to contractors or subcontractors. Contractual clauses that attempt to do this will not be accepted by the courts.

The courts have recognised that where the principal is a corporate entity, it can only discharge its obligations through employees or agents, and a failure by an employee or agent may then be attributed to the principal. Being “let down” by an employee or agent will be no defence.

Example

The extent of the duty

A principal has a duty to a contractor, a sub-contractor or their employees. The duty is to take “all practicable steps” to ensure none of these people are harmed while doing work they were engaged to do. As the legal requirement is that all practicable steps be taken, a failure to take only one practicable step is a breach of the Act, and may result in a conviction.

“All practicable steps”
This duty to take all practicable steps to prevent harm is defined in terms of taking all steps that are reasonably practicable. It involves consideration of:

• the nature and severity of any injury or harm that may occur
• the current state of knowledge about the likelihood of such injury or harm occurring
• the current state of knowledge about harm of that nature
• how much is known about the risk of potential harm and the ways of eliminating, isolating or minimising that risk, and
• the availability and cost of safeguards.

When dealing with any case, the question asked by the courts is: What would a reasonable principal do in the relevant circumstances?

The concept of "reasonableness" is based on the legal concept of a hypothetical "reasonable principal", and the way they might behave in a particular situation.

There is a balancing exercise. For example, the degree of risk and the severity of potential injury or harm must be balanced against the cost and feasibility of the safeguard. The cost of providing safeguards has to be measured against the consequences of failing to do so. It is not simply a measure of whether the person can afford to provide the necessary safeguards. Where there is a high risk of serious, or frequent injury or harm, greater expenditure on safeguards may be seen to be reasonable than where the risk is lower and the foreseeable injury less serious.

Any judgement of whether a safeguard is "reasonably practicable" should take into account the current state of knowledge within the industry. The “current state of knowledge” should not be confused with industry common practice. When asking what a reasonable principal would do, the courts look at best, not actual, practice.

Example

Nor should current knowledge be confused with a particular individual’s knowledge. A claim by an individual person that they did not know what to do about a hazard would not be successful if the hazard was foreseeable to others in the industry, or if they chose not to use the current body of knowledge about the hazard. The courts have referred to the current, "up-to-date" body of knowledge available to people. Failure to be familiar with this knowledge, or to apply it, is failing to take all practicable steps.

The overall test is: What would a reasonable and prudent person do in the circumstances? There is no single prescription, but one obvious source of knowledge is the various codes of practice approved under the HSE Act. Others include guidance produced by the Department of Labour, Standards and industry-developed guidance.
The question of what is reasonably practicable is always a matter of fact and degree in each situation. What this means in terms of any given contract depends on factors such as the:

• scale and nature of the contract
• type of work the contractor was engaged to do
• contractor's and principal's respective expertise in the work being undertaken
• current state of knowledge and “best practice” in the industry, and
• nature of hazards in the place of work.

Obviously, the steps expected of a principal to a photocopier service contract would be different to those expected of the principal to a contract for a major building alteration. The photocopier owner may only require a brief verbal exchange of relevant health and safety information. However, the "practicable steps" expected of the principal to a major building contract would be extensive.

The duties of employers and principals will often be interrelated
Frequently a contractor's duties as an employer towards employees will require more practicable steps to be taken than may be expected of the principal to the contract.

The case law has shown, however, that when a step would be practicable for a principal to take, that step is required to be taken irrespective of what steps might be required of the contractor as an employer. For example, principals in the construction industry have been held liable under section 18 where employees of a sub-contractor were seen working in a dangerous way on a roof, rigging a crane without wearing safety gear, and using unsafe scaffolding. This was so even though the employer (and the employees) owed duties themselves.

Example

A principal to a contract cannot distance themselves from what is occurring in a place of work simply because the employer is more directly related to, and responsible for, employees carrying out the work. Nor can the principal always satisfy their obligations under section 18 merely by retaining a competent contractor if, for example, it is reasonably practicable for the principal to stipulate safety standards in advance, or to take steps if unsafe practices are observed on site visits.

Again, there is no absolute standard. The steps required of a principal which, for example, has its head office in another city, may not be the same as the steps required of a principal which has a head contractor working on site.

Who is a principal?

You are a "principal" in terms of the Health and Safety in Employment Act 1992if you are an individual or a corporate entity who engages any person (other than an employee) to do any work for gain or reward. This usually requires a contractual relationship in which the principal pays for the work of the person engaged. The duty under section 18 is then placed on the person able to ensure relevant obligations are performed through that contractual relationship.

The major exception to the definition of a “principal” is when a householder engages someone to do work on his or her home. As an example, if you hire a plumber to fix a blocked drain in your home, you are not liable under the Act for the safety and health of the plumber while the work is carried out.

If, on the other hand, you contract with a builder to do a major alteration to your home and they subcontract a plumber, the builder is considered a "principal" in terms of section 18. A contractor is considered a "principal" with respect to subcontractors. This is an important point for businesses to consider. The following diagram illustrates a multi-party contractual situation for a small project. It shows that, although the client has responsibility as a principal, several parties can be principals at any one time and all key people have a duty to provide for the health and safety needs of their own areas of operation.

Typical contractor/principal relationships (simple and for a typical small project)

click image to see larger copy

The contractual scope of section 18

Section 18 applies where there is a contractual relationship between principals and self-employed people or business units such as companies and partnerships; generally called “independent contractors”. The duties owed under section 18 extend to the employees of any such self-employed person, or business unit. As we have seen, the principal might have employees of its own, who will be owed separate duties arising from the employer/ employee relationship.

Where a company or other similar business unit is engaged to do work, there is a clear distinction between engaging such a business and hiring an employee. However, where an individual person is engaged, the distinction may be less clear. Questions might arise on whether the duty is owed as a principal under section 18, or as an employer under different provisions in the Act. Where there is a contract between a principal and a self-employed person, the duties of a principal under section 18 apply. Where there is an employer/employee relationship in existence, then the duties of an employer/employee relationship apply (refer to part 2 of the Guide to the Health and Safety in Employment Act 1992).

Deciding whether someone is an employee or a self-employed contractor

It may not always be clear whether a person is an employee or a self-employed contractor. Nor is it always of particular significance to the parties concerned, as long as their respective needs are being met. However, in the event of a dispute, or a prosecution after an accident, a court may have to determine the nature of the relationship. In making its determination, the court will place little importance on how the parties have described the arrangement. It will look at a number of other factors, including:

Indications of being an employee
The key question courts ask is whether the person performing the work is in business on their own account. This involves a variety of legal tests and the courts look to the reality of the working relationship, as opposed to the contractual “label” parties have attached to it.

A work relationship is likely to be an employment relationship between employer and employee if the:

• intention of the employer and the person performing the work is to form an employer/employee relationship, as shown in any written agreement or correspondence and/or by the behaviour of the parties to it
• employer or their agent controls the hours worked (how and when the job is done)
• payment is made by the hour, week, etc, as opposed to a lump sum
• employer or their agent has the power to hire and fire
• employer makes the profit or loss from the enterprise
• employer deducts ACC premiums and PAYE tax on behalf of the employee
• employer supplies materials for the work
• person performing the work cannot make a profit or loss from the way in which the work is carried out (for example, they are not paid on a “per job” basis)
• employer owns or leases the equipment needed
• person performing the work is bound to one employer at a time and is expected not to compete with or offer his or her skills to competitors of the employer.

Indications of being a self-employed contractor
It is more likely to be a contract where the person performing the work is classified as an independent contractor (with the duties of a self-employed person) if all or most of the following features are present in a work relationship:

• the intention of the parties to the contract is not to form an employer/employee relationship, and this is reflected in the contract and/or the behaviour of the parties
• payment is made in a lump sum at the end of the job, or in instalments as the job progresses

and the contractor:

• controls how and when the job is done
• can choose who does the job and hire other people without specific approval from the other party
• pays any tax, ACC or insurance themselves
• can make a profit, or suffer a loss directly
• supplies equipment and materials
• is free to accept similar work and materials from a number of sources at the same time.

"For gain or reward"

The contractor must be engaged "for gain or reward" in order for section 18 to apply. Case law has found the "gain or reward" must move directly from the principal to the person or company engaged through the contract.

The contract need not be written, and all terms do not need to be explicit, but there must be contract formation in the normal legal sense of an offer, an acceptance of the offer, and a mutual transfer of value (the “gain or reward”).

“Gain or reward" need not be financial. It could be payment in kind, an exchange of labour or services, or (as mentioned above) the benefit gained from a service or warranty agreement. The association between the principal and the contractor must be clear and direct.

Agents and advisers

Often a principal will act through an agent or adviser. This includes situations where a company uses expertise that it does not retain in-house to purchase specialist goods or services.
The use of an agent or a management facility by a principal does not mean the principal avoids their duty under section 18. For example, where a body corporate, as a building owner, asks a letting agency to organise a contractor to repair a roof, and the account is forwarded by the agent to the building owner, the owner still has the duties of a principal.

Example

Alternatively, if the agency commissions the work and pays the bill, it is a principal in relation to the contractor. An individual acting as an authorised agent of a corporate entity may also commit an offence under section 56 if they "direct, authorise, assent or acquiesce in" a breach of the Act by the corporate entity for whom they are acting.

None of these situations, however, negates other duties that might be owed under other provisions in the Act, such as those by a person in control of a place of work. In the case above, for example, the agent for the development companies had day-to-day control of the work site through one of its employees.

There are situations where a designer/adviser may effectively be engaged as a contractor to manage a project or as an agent and will enter into contractual arrangements of its own. In such a case, where the designer is responsible for engaging a contractor, they have the responsibilities of a principal also. To avoid unnecessary repetition, subsequent references to a “principal” include a designer/ adviser who is a principal in their own right.

Situations where the contractor is better resourced than the principal

Essentially, the legal duty is the same regardless of the relative size, resources or influence of the respective parties.

However, in practice, where the contractor has a high degree of expertise and resources in the area in which they are contracting to a less-well-resourced principal, there may be situations where there is a reduced expectation of steps required on the part of the principal. An example might be where a large and specialised telecommunications or waste management company is contracted to supply services to a smaller enterprise, such as a caterer, mechanical repairer, or panel beater.

Selling, leasing or loaning goods and other equipment

The Act does not generally apply to a contract for the sale of goods, although there are exceptions. One exception arises when a contract is for goods and services – for example, a company may have a contract for the purchase of an item of plant which includes a service agreement. In such a situation, if a service technician is required to visit the purchaser's premises to repair the plant, the purchasing company has the duties of a principal.

The duty of principals should be read in conjunction with the duties of people selling or supplying plant for use in a place of work under section 18A, and the duties of designers, manufacturers and suppliers of plant in Regulations 66 and 67 of the Health and Safety in Employment Regulations 1995. These are discussed briefly under ‘related duties’ below. See also the Guide to the Health and Safety in Employment Act 1992.

Related duties during the progress of the contract

This guide focuses on the duties of a principal under section 18. There are three further provisions in the Health and Safety in Employment Act 1992 with particular relevance to principals during the lifetime of a contract. In some circumstances, these provisions overlap with duties under section 18. They are also in addition to the duties the principal may have as an employer.

Person who controls a place of work

Under section 16 a person who controls a place of work (except for a home they occupy) must take all practicable steps to ensure no hazard in the place, or arising in it, harms people in the vicinity or people lawfully at work there. People lawfully at work include contractors, subcontractors and their employees. The contractual framework under section 18, discussed above, should deal with people lawfully at work in any event. People in the vicinity include, most obviously, bystanders or passersby. For example, in relation to pedestrians near a construction site, is the screening or covering of excavations adequate, has scaffolding been erected safely etc? In relation to tree-felling operations near a road, is there an approved temporary traffic management plan?

Example

A principal becomes a person in control of a place of work when they:

• own it
• lease it
• sublease it
• occupy it, or
• are in possession of it.

This means, for example, a ship repairer is considered to be in control of a ship in dry-dock, a farmer to be in control of disused machinery on their property, and forestry contractors were held to control a forest in which tree-felling was being undertaken. Contractors have been held to have been in control of places such as a roof that was being sand-blasted and a section of roadway being constructed.

A right to control plant in the place of work also satisfies the definition, where it results from:

• ownership
• leasing
• subleasing, or
• bailment.

Again, this has been held to apply most obviously to machinery such as waste compactors, scaffolding, cranes and other vehicles.

Example

Person who sells or supplies plant for use in a place of work

Section 18A places obligations on persons selling or supplying plant for use in a place of work. “Supplying” includes loaning, as for example the sharing of equipment between two contractors on a construction site, two neighbouring farmers, etc.

Once it is ascertained that plant is to be used in a place of work a person hiring, leasing or loaning it must take all practicable steps to ensure it is designed and made, and has been maintained, so it is safe for its intended use. For example, if a vehicle is leased or loaned, has it been adequately maintained, does it have necessary rollover protection, etc? If a machine is leased or loaned, is it adequately guarded, etc? The same duty applies if the person selling or supplying the plant agrees to install or arrange it.

Principal’s duty to record and notify accidents and incidents in the place of work

Section 25 of the Act requires employers, self-employed persons and principals to maintain a register of accidents and serious harm in a prescribed form. Principals must record in it the details of every accident or incident that harmed, or might have harmed a self-employed person while at work and contracted to the principal, or as a result of any hazard to which the person was exposed while at work and contracted to the principal.
All incidents of serious harm to a self-employed person while at work and contracted to the principal must be notified and reported to the Department of Labour.

Overview of process

This guide describes a process for meeting the "all practicable steps" requirement for principals. The diagram below outlines the usual features of a process for principals to manage and assist with the safety performance of contractors. It summarises the "best practice" process outlined in this guide.

1. Scoping the work

Health and safety issues

Determining what work needs to be contracted out, and considering the broad health and safety implications.

Tasks and documentation

Initial appraisal of significant hazards and overview of likely risks associated with different options.

Considering health and safety issues when selecting the best way to select a contractor and deciding price and other contractual terms.

Relevant tender and/or contract information developed by the principal.

2. Pre-qualifying the contractor

Health and safety issues

Assessing capability of potential contractors (i.e. for an "approved list").

Tasks and documentation

Pre-qualification questionnaire

Assessing health and safety management and, depending on the scale or significance of the hazards, a detailed appraisal of technical competence.

3. Contractor selection and negotiation of terms

Health and safety issues

Providing information to potential contractors on the health and safety, including the hazards of the particular contract.

Developing a draft health and safety plan for the project with scope for completion in discussion with the principal.

Assessing capability of tenderers (where pre-tender qualification hasn't been done).

Tasks and documentation

Tender contracts

Relevant information is given to tenderers by the principal through the information for tenderer document.

Draft health and safety plan

Tenderers complete a draft plan. Principal provides information and answers questions specific to the job, assists with completion of hazard assessment and method statements where appropriate.

Non-tendered contracts

Contract specific health and safety information is provided to pre-qualified contractor. Contractor responds to information provided and depending on the size and nature of the contract provides either:

• A draft health and safety plan; or
• Acknowledgement of receipt and acceptance of health and safety information, terms and conditions; or
• Other documentation as required

4. Awarding the contract

Health and safety issues

For larger projects, developing a job-specific health and safety plan.

For smaller jobs, or ongoing work, maintaining agreed standards, systems and processes established by pre-qualification, and modifying them to suit the circumstances of the individual contract.

Tasks and documentation

The contract itself will often draw on the tender documents or other information provided to or by the contractor.

Job registration or permit-to-work systems may be used to inform risk assessments.

Completed health and safety plan

Principal provides information and answers questions specific to the job, assists with completion of hazard assessment and method statements where appropriate.

Incorporation of health and safety plan into contract.

Includes agreed detail of lines of communication, responsibilities, accountability, safe systems of work, method statements, use of client services, etc.

5. Monitoring the contract

Health and safety issues

Monitoring/checking throughout duration of contract.

Responding to information as received.

Keeping the contractor informed of the results of monitoring.

Tasks and documentation

Checking and ensuring contractor performance meets the agreed standards.

Ensuring permit to work or job registration systems, competency requirements, and other controls are in place and maintained.

Meeting as appropriate to plan for and resolve health and safety issues.

Principal’s reporting, notification and hazard management documentation as required by the contract.

6. Post-contract review

Health and safety issues

Concluding review to determine success or otherwise of the contract.

Tasks and documentation

Helping principal and contractor learn from health and safety performance during the contract.

Post-contract evaluation form

---

Previous Section | Table of Contents | Next Section