The Murky World of EHS Non-Compliance Costs

Administrative fines and enforced remediation costs are among the obvious and often highly publicized consequences of failures to comply with environment, health and safety (EHS) laws. But what about the things that are much more difficult to assess, predict or calculate?

Consider expenses such as those associated with workplace incidents and accidents. These can be unpredictable financial obligations, including payments for insurance premiums or workers’ compensation plans that cover resulting harm, necessary medical expenses and compensatory benefits for those who are injured. What about litigation?

The only way to lower the cost of workers’ compensation in the long run is to lower the frequency and severity of the claims that are driving those costs. It can be a tall order, particularly because premiums have been steadily rising. In the United States, the National Academy of Social Insurance (NASI) estimates employer costs associated with workers’ compensation totaled US$94.8 billion in 2015 (an increase of $3 billion from 2014, and a 20.1 percent increase from 2011). These are dollars spent for insurance premiums, reimbursements and administration.

In November 2017, the Bureau of Labor Statistics provided the latest numbers linked to work-related injuries. The data, which is an analysis of the 2016 calendar year, measured approximately 2.9 million recordable cases of nonfatal injuries and illnesses in private industry. Of those cases, a total of 892,270 involved days away from work, and the most frequent type of incident (with 317,530 recorded) were cases involving sprains, strains and tears.

In addition, there were a total of 5,190 fatal work injuries recorded in the United States in 2016, a seven percent increase from 4,836 fatal injuries reported in 2015. Every EHS professional recognizes the challenge in preventing and minimizing the impact of these sorts of incidents is considerable and the implications are significant. You try to set and meet certain objectives, but even then, things such as insurance premiums may continue to unpredictably rise.

These numbers presented are those that are publicly available. However, there are many cases in the realm of EHS and the risk sector that never see a day in court, because these are fully determined outside of a courtroom. Or they might be treated as entirely internal matters, away from the eyes of the public and regulating or legal authorities. What are costs associated with settlements – legal as well as the actual settlement total? These are usually confidential matters and estimating what corporations might spend defending actions in or out of court is nearly impossible.

Surveys attempting to estimate these numbers are widely varied and often flawed. In 2010, a survey conducted of Fortune 500 companies found firms that went to court spent on average US$115 million on litigation expenses. This number does not include the amount spent on judgments or settlements – only the dollar amount spent on actual litigation.

It is truly a part of the EHS compliance iceberg that sits below the waterline and is just as uncertain as to the size and magnitude. A report entitled, The Costs of (Non) Compliance with EHS Regulations, brought to you by Enhesa, gives insight into the potential costs a company may incur when running the risk of operating and not knowing whether they are in compliance.

It’s not just the obvious things like fines and financial penalties imposed by regulators. That’s the easier-to-calculate cost. There are the indirect cost implications, such as loss of production or loss of share price, as well as the non-quantifiable costs, such as those things discussed above.

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