What does "Due Diligence" mean in a WHS Context?

Weekly WHS Article 13th July 2023

Section 27 of the WHS Act 2011 requires that, officers of a person conducting a business or undertaking (PCBU) “must exercise due diligence to ensure that the PCBU complies…” with their duties and obligations under the WHS Act. "Officers" are the people who are in charge, i.e business owners, Directors, CEOs, and other executives who have authority to make significant decisions.

“Due diligence” in business

Originally an American term, “due diligence” is by definition:

A) the care that a prudent person might be expected to exercise in the examination and evaluation of risks affecting a business transaction.

B) the process of investigation carried on usually by a disinterested third party (as an accounting or law firm) on behalf of a party contemplating a business transaction (as a corporate acquisition or merger, loan of finances, or especially purchase of securities) for the purpose of providing information with which to evaluate the advantages and risks involved. [Ref 1]

Generally, due diligence is a systematic analysis of a business or investment decision with the intent of mitigating risk to the investor. It includes examination of financial records before entering into a proposed transaction with another party. An investor can draw on public information to investigate a business or stock.

For a company, they would investigate its finances and compare its performance with competitors. Social media can help with due diligence such as investigating product or service reviews by users.

The term “due diligence”, has commercial, legal, financial, and tax applications. The use of this term in the WHS context is used a little differently than how it is commonly used in general business.

“Due Diligence” in Work Health and Safety

The "due diligence" requirements of officers of a PCBU are detailed in Section 27 of the WHS Act.

SafeWork NSW explains due diligence in the resource library on their website as follows:

“Section 27 of the Act accordingly places a duty to exercise due diligence on these individuals, who are described as officers, to require them to take reasonable steps that will support a health and safety culture, accountability, the allocation of resources and development of appropriate policies. These due diligence requirements enable an officer to ensure that the PCBU uses and applies appropriate resources, policies, procedures and health and safety practices in the conduct of a business or undertaking. If an officer fails to exercise due diligence requirements, they can be held personally liable.” [Ref 2]

Section 27(5) of the WHS Act lists six broad requirements that an officer is legally obligated to perform in exercising their “due diligence” in this WHS context. With examples provided, the list in Section 27(5) becomes 11 routine actions that directors and CEOs must do to demonstrate "due diligence." The list is not exhaustive.

Examples are:

• ensuring that the business has a WHS management system in the first place,

• ensuring that consultation on WHS matters occurs,

• ensuring that the business gives information, training, instruction and supervision to its staff for them to be able to do their jobs safely.

Familiarizing oneself with WHS law is the first step for any business owner or company director to gain insight into the work health and safety requirements that are required of you. It is easy to learn about these primary legal duties including “due diligence” as it applies in a work health and safety context.

Courtenell offers training for business owners, company directors, CEOs and other executives in WHS law including officer due diligence. Feel free to contact us on 02 9552 2066

References

1.  “Due diligence” Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriam-webster.com/dictionary/due%20diligence 

2.   SafeWork NSW explanation of WHS “due diligence”  https://www.safework.nsw.gov.au/resource-library/the-work-health-and-safety-duty-of-an-officer

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13th July 2023

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