Traditionally, managers could be held criminally liable only for a small group of crimes, primarily embezzlement or theft. Beginning about 30 years ago, criminal liability for managers expanded on two fronts. First, prosecutors began to apply a wide array of criminal law to events within the context of business. Next, Congress and state legislatures began enacting laws which impose criminal penalties on individual managers for specifically defined conduct while performing business-related duties.
As if these two developments were not enough to make managers apprehensive, a third theory of exposure to criminal liability has surfaced which may cause even the most careful manager sleepless nights. Although legislators considering this type of proposal often refer to it as a "Corporate Criminal Liability Act," it is known within the business community as the "Be a Manager, Go to Jail" bill. A corporate criminal liability act (CCLA), in essence, imposes criminal sanctions (including incarceration for more than a year) on individual managers who fail to report "serious concealed dangers" present in the workplace. It thus imposes a general duty on managers and exacts criminal sanctions against any individual who fails to meet an unspecified standard. In 1990, California became the first state to enact such a law.(1) With Congress and other state legislatures contemplating language equivalent to that included in California's version of its CCLA, it is critical that members of the business community become aware of this trend. More important, business interests must lobby federal and state legislative and executive branch members to support statutory language that will address the perceived needs for such a law without negatively affecting the manner in which businesses operate. Because the discussion of CCLAs is still in its infancy, the time is ripe for business interests to act responsibly in molding legislation. This article first reviews the traditional, narrow bases of criminal liability for individual managers. Then, the reasons for the recent increase in criminal liability for individual managers are presented, followed by a summary of the reasons behind workplace safety laws. Next, the recent California CCLA is explained and critiqued. And last, we present issues pertaining to CCLAs that are particularly worthy of specific business attention.
Historic Base of Criminal Liability
It has always been possible to convict a business person of a crime if the person's actions fell within the traditional three categories of criminal liability. An example of direct involvement would be if one partner murders another partner because of a difference of opinion regarding company expansion alternatives, the former would be guilty of murder as would anyone else committing the same action outside a business context.
The remaining two categories involve complicity in criminal conduct but not direct action. Under the "aider and abettor" concept, a person is guilty of a crime if he or she knowingly assists someone in some way to commit a crime. The night security officer who is asked to leave a door to the warehouse unlocked so that another employee of the firm can steal merchandise is guilty of aiding and abetting the theft if he or she knew a theft was to be committed. Closely related to the aider and abettor notion is the concept of conspiracy. To commit conspiracy an individual need only join in a plan to commit a crime, without actively participating in the commission of the crime. For example, two employees who plan to embezzle funds from their employer will be guilty of conspiracy even though only one of them actually executes the plan. In such a case, one employee would be guilty of both conspiracy and embezzlement while the other would be guilty of only conspiracy to commit embezzlement. Historically, prosecutors have been reluctant to pursue criminal complaints against individuals within a corporate environment for two reasons. First, there were practical problems of discovering who had actually committed the offense because of the structural barriers presented by the "corporate front." Not only did the typical management structure of a business make it difficult to pinpoint exactly who was responsible for a criminal event, but often the evidence necessary to achieve a conviction was solely within the control of the business. Usually the only viable option for a state attorney was to prosecute the corporation as a whole.
Second, because of the problem just mentioned, prosecutors could usually prosecute only on the basis of conspiracy in those rare occasions where they pursued individual managers for violating a criminal statute. Yet conspiracy by its very nature is difficult to prove, unless one of the conspirators is granted immunity from prosecution in return for testimony (an alternative that calls into question the testifier's veracity and increases the chance that a jury will not be able to find the other "conspirators" guilty "beyond a reasonable doubt").
Rising Criminal Liability for Managers Since the 1960s, two developments have drastically increased the criminal liability exposure of members of the business community. First, prosecutors have become much more willing to take action against individual managers for committing traditional criminal offenses. For example, where the president of a construction company knew that the proper methods for trenching were not being employed, prosecutors were successful in their case against the president for criminally negligent homicide when several workers were killed by the collapse of an unshored ditch. Second, Congress has enacted a variety of laws creating new crimes aimed exclusively at members of the business community. The preeminent federal statute controlling workplace safety, the Occupational Safety and Health Act (OSHA), provides criminal penalties for managers who willfully violate a specific safety or health standard or regulation, where the breach leads to the death of an employee.(2) The Immigration Reform and Control Act of 1986 establishes criminal penalties against management personnel for certain types of violations.(3) Similarly, the Department of Justice may bring an action for criminal sanctions against any employer who "willfully" violates certain provisions of the Fair Labor Standards Act.(4) State legislatures have also passed laws aimed at making criminal various actions of managers.(5)
At this point, it is reasonable to ask why a growing number of specific managerial actions are being deemed criminal in nature by both legislators and prosecutors. The purpose appears to be to deter managers from using a simple cost-benefit analysis in workplace safety decisions. The assumption is that a manager would not normally want to incur possible criminal liability just to avoid some economic cost to the firm. By making certain actions by managers criminal and holding those who participate in such actions individually liable, governmental officials are stating that it is not acceptable for business to put a price tag on employees' health.
Reasons for Regulating Workplace Safety
Without governmental interference, business should make the safety of its employees a high priority. Numerous expenses are reduced by accident and illness prevention including those associated with down time, lost employee time, and certain benefits (such as workers' compensation and, possibly, health care premiums). In addition, the firm's reputation can be harmed by adverse publicity about job-related accidents or illnesses or likewise be enhanced by a good accident record or by positive publicity about safety measures. Human resource analysts argue that the benefits to the firm of greater safety generally outweigh the costs to the firm.(6)
Further, business should recognize that the benefits of having a safe workplace clearly accrue to the individual employee through reduced accidents and illnesses. In the short term, the employee is more likely to remain healthy and employed, and in the long term, the employee will maintain better health and fitness through avoidance of accidents and illnesses that can lead to complications years down the road (e.g., arthritis, cancer).
As indicated in the previous section, it has been necessary for government to increase its regulation to attempt to ensure the safest feasible working conditions. Yet the marketplace also benefits, because this regulation creates an even playing field among competitors. If, from the firm's point of view, the costs of increased safety outweigh the benefits, then the competitive disadvantage is eliminated by legally mandating safety. Similarly, where the reputation of an industry is vulnerable to the mishaps occurring anywhere in the industry, uniform standards help protect the legitimate reputations of the more safety-conscious firms.
With these goals in mind, regulation of the general type addressed here is a justified approach. Studies have shown that effective risk reduction at the workplace requires behavior modification.(7) By changing the incentives for compliance, prosecutors and legislators are attempting behavior modification.
A Critique of an Existing CCLA
Many legislators believe businesses are still not doing enough to protect employees from workplace hazards, and that traditional criminal laws and provisions of laws designed to protect employees are ineffective in this regard. Thus members of Congress and state legislatures are now considering CCLAs as a mechanism to impose criminal liability for violating general safety standards. Specifically, the California CCLA imposes criminal liability on managers who know of serious, concealed workplace dangers but do not report the dangers to the state and also warn potentially affected employees. The purpose is to reduce injuries that are partly due to an employee's lack of awareness of a danger. For example, if an employee is new to a job that involves dangerous machinery or toxic chemicals, the manager may be required to inform the employee and the state of the hazard. Similarly, if remodeling in a work area has left electric wires exposed, and employees are not necessarily aware of the risks, then warnings are due.
The CCLA defines a manager as a person who has both "management authority in or as a business entity" and "significant responsibility for any aspect of a business which includes actual authority for the safety of a product or business practice or for the conduct of research or testing in connection with a product or business practice." Notice that this definition does not permit avoiding liability by delegating duties to subordinates.
There are three types of problems with this criminal statute. First, key terms are poorly defined, leaving the manager in doubt as to what might constitute a violation. Second, laws of this kind can have other undesirable consequences. And third, it is unclear how broadly the statute applies and what it encompasses.
Let us look at the definitions of some of the key terms in the statute. The term "serious concealed danger" is poorly defined. The statute attempts to clarify the term by saying that the term "means that the normal or reasonably foreseeable use of, or the exposure of an individual to, the product or business practice creates a substantial probability of death, great bodily harm, or serious exposure to an individual, and the danger is not readily apparent to an individual who is likely to be exposed." This is of little help, however, because two difficult, judgmental concepts are being addressed. The first, "serious," could be difficult for the manager to apply. It relies on ideas such as "substantial probability," which is judgmental regarding "substantial" and uncertain regarding probability. Moreover, the definition includes the terms it is trying to define (as in "serious exposure"); and terms like "great" are not much more helpful. To make matters worse, the concept of "concealed" could have considerable latitude in its interpretation. Basically, the manager will try to determine what is, in the words of the statute, "not readily apparent" (in the normal or reasonably foreseeable use of, or exposure to, a product or practice). But, ultimately, the judge or jury will determine liability of the manager for a mistake in applying that term. These judgmental terms are built upon in the definition of "actual knowledge." The statute states that actual knowledge means that the manager "has information that would convince a reasonable person in the circumstances in which the manager is situated that the serious concealed danger exists." In addition to the problems just discussed, the phrase "have information" is hardly precise. Does it mean that you really do know the information? Possibly, but having information in mind and having it in piles of papers buried on the desk, or on a computer disk, are effectively different, and the law could be interpreted as referring to the latter (what is generally referred to in the law as "constructive knowledge"). The definition then becomes "knew or should have known."
In a sense, these definitions parallel civil law treatment of unintentional torts such as negligence. The judgmental terms used to define serious concealed danger are hallmarks of liability standards for negligence (which can be defined as "failing to exercise a duty of reasonable care, foreseeably causing harm to another"). If actual knowledge is equated with "knew or should have known," the term "should" would depend upon what one would know, given reasonable care or diligence in attending to one's sources of information. The law would again be incorporating a standard of reasonability of conduct into the determination of liability.
The combined effect of using judgmental terms in defining "actual knowledge" and "serious concealed danger" is to allow criminal liability even in situations where a manager has acted in good faith to comply with the law. The greater the number of judgmental terms involved in evaluating one decision, the more difficult it becomes for the manager to correctly predict what a judge or jury would conclude. Eventually this becomes, in effect, strict liability--liability without fault. And it would seem counterproductive to impose criminal liability if there have been good faith attempts at compliance. What are some of the likely results of this law? First, this statute is likely to destruct, not enhance, the goal of injury prevention programs. The goal of such programs is to generate safety awareness and attention to any risks. But by investigating possible hazards and paying greater attention to safety, a manager might incur liability under the criminal law (if the manager fails to "properly" assess risks or dangers).
This is not the only conflict in which the manager is placed by this law. The notifications that the law requires to be sent to OSHA or other appropriate agencies become publicly available information and can lead to a loss of reputation for the firms that conscientiously comply with the law. Thus, the manager is faced with possible criminal liability on the one hand and possible damage to the firm on the other. This is because the requirements of the law in many, perhaps most, situations will not be clear to the manager (or to anyone), and managers may feel compelled to report risks in situations where the law would not require it.
Another possible consequence, dreadful to the manager, involves the issue of wrongful discharge. An employee may not be fired for complaining (to the company or to government officials) about a company practice for which the employee might be criminally liable.(8) Once a subordinate manager issues notification to OSHA about a possible serious concealed danger, discharge of that person could be much more difficult. This is as it should be, if the firm is trying to subvert the law. But the law is generally a two-edged sword and could be used here as a way to deter discharge for inadequate performance. Almost any possibility that a danger might not be discovered and understood by someone would be sufficient justification for a manager in the production process to report a "serious concealed danger." The sloppiness of the definitions would give plenty of assistance to the person wishing to use the statute to develop grounds to fight a possible discharge.
The third problem with the statute is its applicability to the use of independent contractors ("IC"). Although this issue is not addressed, nor perhaps, anticipated, by the statute, one can make some reliable predictions. Suppose an IC is employed as safety manager, for example, to institute or manage an injury prevention program. One can assume that as long as any authority is retained over what the IC does or over the product after it leaves the hands of the IC, there will be responsibility under the penal code. In general, any arrangement that tends to avoid the goals of the law by circumventing the legal requirements will, if at all possible, be construed as coming within the requirements of the law.
A more difficult scenario is presented by the use of an IC at the firm's worksite or where the firm's employees may be working. In such a situation, the firm is going to have some authority over the physical events and will probably be construed as having responsibility for any hazards there. For example, if an IC is remodeling a room and leaves hot electrical wires exposed in an area accessible to the firm's employees, the relevant manager will almost certainly be required to give notification (unless there is no way the manager could have known of the danger). In sum, use of an IC is unlikely to reduce the responsibilities of the manager except for work that permanently leaves the control of the firm.
In sum, the goal of the statute is laudable, but the vague and judgmental terms, poorly defined as they are, make the effect of the law questionable. It may even be that the law will discourage safety by discouraging the safety awareness that injury prevention programs seek to achieve. Similarly, the application of the law is unclear. And, fundamentally, the terminology in the statute calls into question the appropriateness of criminal sanctions for the conduct being proscribed.
Less-than-ideal criminal laws have been enacted in the past, and this law may prove to be another case. Given the likely trend in this country for laws like this one, the question becomes, what better approach should be taken? And how can managers best handle this situation?
Striking the Proper Balance: Pivotal Issues
A CCLA could be drafted so as not to be particularly unburdensome and perhaps to have quite reasonable requirements and prohibitions. But that will not happen unless the business community can point to the California statute and indicate where it should be improved. The needed changes fall into two areas: redefined focus and clearer terms.
* Redefined Focus. The law should aim clearly at deterring unsafe work practices and do so in a realistic manner. First, it should seek to prevent conduct which the manager knows is creating an unacceptable level of risk. Liability should be based on situations where the manager has authority to effect changes or to cure dangers. Rather than criminalizing the failure to correctly assess a situation, the penalties should be applied for failure to attempt to discover risks. For example, it would be better to penalize repeated violations of laws requiring injury-prevention programs (e.g., failing to make safety inspections). This would remove from the manager the conflicting pulls of two statutes and keep one statute from tending to defeat the purposes of another.
Second, this kind of statute should not apply to situations under the primary control of independent contractors of the defendant. If there is to be liability, it should fall upon the party most able to be aware of and correct the problem. Of course, an argument can be made that since the manager presumably can take some action to cure a danger caused by an independent contractor, the manager should also be liable. However, one of the functions of the law is to draw a line to define who is culpable and who is not. Given the realities of the workplace and disadvantages of interference by a "outside" manager, the line should be drawn so as not to make the manager liable for failing to interfere. Instead, the law could make the IC liable for those risks.
* Clearer Terms. Better definitions could redefine the focus of this law and make it more efficient. Although any definition introduces the possibility of borderline cases and consequent uncertainty and argument about such cases, the definitions could be narrowed substantially.
"Manager" should be defined as one who normally has direct oversight for the product or practice, including authority to implement changes to abate the dangerous condition. This will help focus the responsibility on those who functionally and, we would argue, morally, ought to have it. And when a responsibility is clearly focused on particular positions, it is likely to be better performed.
Both "serious" and "concealed" need clarification. If we parallel traditional criminal standards or liability for patently wrongful conduct, then both of these terms should move away from judgmental areas and towards conduct that clearly violates the statute. A critical problem with the current wording of the law is that a good faith but "erroneous" decision could be punished. "Serious danger" should mean a danger that clearly outweighs the cost of preventing the danger to the point that failure to do so constitutes recklessness. Of course, this also presents a grey area, but the distinction is now between conduct which is negligent and arguably wrong and conduct which is reckless and clearly wrong. Under the proposed wording, there could be no argument that the manager was blameless: those who are patently careless take upon themselves the risk of being characterized as reckless.
If the above redefinitions were put into the law, we would have less to worry about. Constructive knowledge, or a "should have known" standard for criminal culpability is perhaps appropriate if applied to those directly responsible for safety in situations where they show a reckless disregard for non-apparent dangers. As applied to other managers, however, the definition should be more restrictive. For reasons already explained, it would be more consistent with traditional criminal law, and more efficient in reducing risks, if "actual knowledge" excluded "constructive knowledge."
Regardless of the shape of this kind of law, all firms would be wise to have some sort of program to avoid violating the law, to reduce unnecessary notifications to agencies (which might otherwise harm the firm's reputation), to reduce the stress and uncertainty for the manager, and to help assure that warnings and notices are given when required. The core of any program would be to inform all managers possibly covered by the law of the law's requirements and of the firm's compliance policy. The policy should include clarification of who exactly meets the firm's definition of manager.
Another part of the compliance program should be to inventory products and practices and classify them for safety risks, for easier monitoring. In some states, this is already required by law.(9) In addition, the firm should track and cross-reference all reports to OSHA or other agencies. This is not simply for record-keeping. A series of notices or reports to, or inspections by, agencies could form conclusive evidence that the firm and its managers should have known about a serious concealed danger. Examination of these records can keep the firm out of trouble.
Providing a way to allow prosecutors to charge individual managers with crimes reflects a radical change in social policy. By charging individuals who work for a business with a crime for activities conducted on behalf of business interests, society is directly recognizing that the business is not always a faceless entity devoid of individual actors. Legislators are less reticent than ever before to term certain conduct "criminal" and to provide a vehicle that would send a manager to prison for such acts.
The goal of a CCLA is to prevent workplace hazards that might be avoidable. The first step has been taken in California, where managers can now be criminally liable, despite good faith efforts, for failing to recognize and report serious concealed dangers. The crucial issue is the debilitating effect on the judgment of the manager, in that the manager can be in a "damned-if-you-do, damned-if-you-don't" position. We should penalize gross disregard for safety. But without a change in the approach beginning to be adopted, the law may add "gambling with criminal liability" to the job of the manager. Endnotes
1. Calif. Penal Code, Section 387.
2. 29 U.S.C. Section 666 (e).
3. 8 U.S.C. Section 324 (a).
4. 29 U.S.C. Section 216 (a).
5. See, e.g., Mich. Comp. Laws Section 418.641 (1991) criminalizing failure to comply with the requirements of the workers' compensation laws.
6. S. Geyer, "Safety Investment Yields Future Dividends" Safety & Health, July 1991, pp. 23-25.
7. T. Krause, J. Hidley and S. Hodson, "Broad-Based Changes in Behavior Key to Improving Safety Culture," Occupational Health & Safety, July 1990, pp. 31-37, 50.
8. See, e,g., Sheets v. Teddy's Frosted Foods, Inc., 179 Conn. 471, 427 A.2d 385 (1980).
9. See, e.g., Calif. Labor Code, Section 6401.7.
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