Am I legally exposed as an executive if an employee suffers psychological harm?

Introduction

As an officer in your organisation, you have significant responsibilities under the Work Health and Safety Act 2011 (Cth) (the “WHS Act”). Your duty of care extends beyond physical hazards to psychosocial risks, such as workplace bullying, harassment, excessive work demands and poor organisational culture. Failing to address these risks can have severe legal consequences for you personally.

Are you an officer?

Under Section 4 of the WHS Act, you are considered an “officer” if you hold a role that influences decisions affecting the business, such as a director, secretary or senior executive. As an officer, you have a positive duty to exercise due diligence and ensure your organisation complies with WHS obligations.

Understanding psychosocial risks

The Safe Work Australia Code of Practice on Managing Psychosocial Hazards at Work makes it clear that you must manage psychosocial hazards like any other WHS risk. These include:

• workplace bullying, harassment and discrimination;
• high workloads and job demands;
• poor management support or unclear role expectations; and
• workplace violence, including verbal abuse.

Your duty to address psychosocial risks

Under Section 27 of the WHS Act, you must ensure your organisation complies with WHS laws. This includes taking active steps to manage psychosocial risks. Due diligence requires you to:

1. Stay informed about WHS matters – You need to be aware of psychosocial risks in your workplace.
2. Understand your business operations and hazards – You must be proactive in identifying risks to mental health and wellbeing.
3. Provide resources and processes – Your organisation must allocate sufficient resources to manage psychosocial risks, such as mental health initiatives and workplace training.
4. Monitor compliance and incidents – You must ensure your organisation has effective systems in place to monitor, review and mitigate psychosocial hazards.

What happens if you don’t comply?

If you fail to exercise due diligence, you can be held personally liable, even if you were not directly involved in the incident.

Penalties you may face

If you fail to meet your obligations under the WHS Act, you could be prosecuted under Sections 31-34, with serious consequences:

• Category 1 Offence (Reckless Conduct) – If you recklessly expose someone to a risk of serious illness or death, you face up to five years in prison or fines of up to $706,560 (for individuals) and $3.532 million (for corporations in NSW; $3 million elsewhere).
• Category 2 Offence (Failure to Comply with a Health and Safety Duty) – If your breach exposes someone to risk but is not reckless, fines can reach $353,430 (for individuals) and $1.8 million (for corporations).
• Category 3 Offence (General Breach) – Lesser penalties apply for failures where no immediate risk of serious harm is present.

Recent developments and enforcement

Regulators such as SafeWork NSW and WorkSafe QLD have increasingly issued fines and improvement notices to businesses failing to manage mental health hazards. If you ignore mental health risks, you could face similar prosecution to cases involving physical safety breaches.

Why WHS offences are not insurable under D&O Insurance policies

Many officers assume that Directors & Officers (D&O) Insurance will cover them for WHS breaches. However, WHS offences are not insurable due to public policy considerations and legislative restrictions.

Insurance policies cannot cover penalties or fines imposed for breaches of WHS laws because doing so would undermine the purpose of the legislation. WHS laws impose personal liability to ensure that officers take active steps to comply with safety obligations. If penalties were insurable, there would be less incentive for officers to proactively manage WHS risks, including psychosocial hazards.

Most D&O policies explicitly exclude coverage for criminal fines and penalties, including those related to WHS breaches. Even where a policy provides legal defence coverage, it will not indemnify officers for penalties resulting from a guilty verdict. This means that, if you are prosecuted and found guilty of a WHS offence, you will need to pay any fines out of your own personal funds.

Furthermore, Australian public policy prohibits insurance for criminal conduct and penalties. Courts and regulators have reinforced that allowing insurance to cover WHS penalties would contradict the deterrent effect of workplace safety laws. This makes it crucial for officers to take a proactive approach to compliance, as there is no financial safety net to shield them from the consequences of non-compliance.

How you can protect yourself

To reduce your legal exposure, you should:

• implement psychosocial risk management policies in line with WHS regulations;
• conduct regular workplace audits and mental health risk assessments;
• provide training for managers and employees on identifying and responding to psychosocial risks;
• ensure an effective complaints and grievance resolution process; and
• seek advice from external WHS specialists when necessary.

Final thoughts

As an officer, you have a legal duty to ensure the safety of your workplace, including the mental health and wellbeing of your employees. If you fail to address psychosocial risks, you could face personal liability, hefty fines and even imprisonment. As regulators increase enforcement in this area, you must prioritise mental health and safety as part of your WHS due diligence obligations. Taking proactive steps now can protect both your employees and your own legal standing.