Regulation : enforcement and compliance

Richard Johnstone and Rick Sarre (eds)
ISBN 0 642 53837 9 ; ISSN 1326-6004
Canberra: Australian Institute of Criminology: 2004
(Research and public policy series, no. 57)

Section 1 : Regulatory conflict and regulatory compliance : the problems and possibilities in generic models of regulation

Fiona Haines and David Gurney

Abstract

A major aim of contemporary regulatory scholarship has been to provide solutions to the problems of securing regulatory compliance, with much innovative work emanating from Australia. In this paper we explore some limits to contemporary approaches that promise generic solutions to the problem of regulatory compliance. This is because generic models downplay both the problem of regulatory conflict and the importance of economic and political context to compliance outcomes. In short, the study of regulatory compliance risks mistaking means for ends, of confusing process with goal. We illustrate this through a vignette of the conflict between competition law and occupational health and safety law. Ultimately, we argue, recognition of the contingent nature of regulation may prove to be the most beneficial role regulatory scholarship can play.

Introduction

Dominant ideas of what constitutes good regulatory practice appear unproblematic. Several themes persist. Good regulatory practice focuses on the outcomes of regulatory aims, not with obsessive concern about compliance with prescriptive rules (May & Burby 1998; Black 1997). Flexibility in process should be allowed where it can demonstrate superior outcomes (Parker 2002). Regulation should advance self-regulation (Ayres & Braithwaite 1992). Further, a culture of compliance where commitment to regulatory goals is evident should be promoted (Gunningham & Johnstone 1999; Parker 2002), with strong leadership (Hopkins 1995) that avoids strategic use of regulations (Sitkin & Beis 1994; Black 1997; Parker 2002). Compliance experts, too, are useful to marry regulatory aims with business goals (Parker 1999). Underpinning this ideal is a rational enforcement strategy, where a stepwise progression of penalty for non-compliance ultimately results, for the recalcitrant, in severe penalties such as imprisonment or licence revocation (corporate capital punishment) (Ayres & Braithwaite 1992). Such a framework, it is argued, promotes the benefits of compliance as well as the costs of non-compliance.

Attractive as these ideas are, there are limits to approaches that assume a single regulatory goal. Often multiple goals exist, some of which conflict. In cases of conflict, exhortation to focus on outcomes, to engender a singular 'compliance culture' or to follow an ordered enforcement strategy misunderstands the regulatory task and overemphasises its simplicity. Conflict is not hard to find. Examples include those between employee safety and pregnancy (Randall & Baker 1994), employee safety and disability rights (Daniels 2003), environmental protection and competition law (Bennett 2000), health and anti-trust (Geis 1991), Indigenous rights and environmental protection (Cocklin & Wall 1997) as well as the messy arena of utilities privatisation, environmental goals and equity of access (Maloney 2001; Watters 2003). Such areas call for substantive resolution, not merely a decision about relevant regulatory techniques.

These conflicts illustrate that regulation is first and foremost a political, not a technical, activity. Political contests about responsibility and ideal conceptions of society shape what is seen as risk, and suggestions of how diverse risks should be dealt with. Regulatory techniques are weapons in this political struggle. Through a vignette below, we show how the political exigencies that underlie regulation shape both what is identified as a risk and the nature of any trade off (Hancher & Moran 1998; Haines & Sutton 2003). In light of this, we argue for greater exploration in academic work on the contingent and political nature of regulation.

The vignette we have chosen is a conflict between competition law and health and safety law within Australia. The specific site is that between 'chain of responsibility' provisions, a regulatory strategy that places liability along the contracting or production chain for harm that occurs lower down that chain, and requirements under trade practices legislation to ensure an open, competitive market. Australia has been at the forefront of reforms aimed at removing impediments to 'efficient markets' (Morgan 2003). It also has a well-developed state-based health and safety regulatory framework, based on a Robens philosophy of collective effort to remove safety risks (Johnstone 1997). The stated objectives of workplace health and safety law such as the Occupational Health and Safety Act 1985 (Vic.) include the protection of the 'health, safety and welfare of persons at work' (s. 6). The legislation requires that employers care for workers and are responsible for their health and safety. On the other hand, the object of the Trade Practices Act 1974 (Cwlth) is to 'enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection' (s. 2). Here the law is aimed to maximise the 'efficiency' of the competitive market where individual entities use their creativity and ingenuity to succeed (Hilmer 1993; Office of Regulation Reform undated).

Both Acts regulate - that is, they exert control through legislation and ancillary legislation. But they differ in their conception of the 'ideal' state of affairs, between a market and welfare ideology. The contention that there is an ideological conflict between different regulatory regimes is given support by the work of Christopher Hood (1998). Hood argues that fundamental paradigm differences exist between various justifications for regulation and notions of an ideal regulatory framework. His analysis, following Mary Douglas (1966, 1992), is that four master categories or principal ideologies underpin regulatory regimes and regulatory reform: individualism, hierarchism, egalitarianism and fatalism. Individualism is characterised by self-interested individuals interacting through the market, and regulation occurs through negotiation and contract. By contrast, hierarchism favours 'command and control' structures with strict lines of authority and clear procedures. Hierarchism is reflected in a paternalistic ethos where those in positions of authority are responsible for weaker individuals in society (Hood 1998: 73-97). It is these two forms that are most clearly seen in writing on regulation, in the emphasis in 'command and control' structures and 'welfare' principles (both with a hierarchist conception of control and authority) (Reiss 1984), contrasted with the more recent shifts towards 'flexible' regulation that emphasise the potential within the market and systems of self-regulation to control corporate behaviour (Shearing 1993; Grabosky 1994). Indeed the concerns of competition law and occupational health and safety law reflect these two positions. In Hood's (1998) terms the goals of competition law are individualistic, whilst the goals of safety law are paternalistic or hierarchist. Nonetheless, the other two are reflected in certain regulatory regimes. Egalitarianism, the emphasis on collective decision-making and case-by-case resolution of the issues, is best exemplified historically through professional self-regulation (Salter 2001) and more recently through ideas such as tripartism (Ayres & Braithwaite 1992) and NGO involvement in the regulatory process (Drahos & Braithwaite 2000). Fatalism, regimes characterised by little cooperation but rigid adherence to rules is also seen, although most often in critiques of 'command and control' regulatory forms as well as ritualistic adherence to audit requirements (Power 1999).

Understanding the ideological differences underpinning regulation allows a depth of understanding of separate bodies of content-specific regulatory literatures. Occupational health and safety (OHS) scholarship has long been suspicious of market philosophies and individualism in general. Indeed, notions of individual worker responsibility for injury are viewed as 'victim blaming' (Hopkins 1995) and contracting out seen as a means to contract out risk (Quinlan 1999). This philosophy is reflected in law, with all Australian OHS legislation stating that the safety of a subcontractor's employee rests with the principal contractor (Johnstone 1997). In contrast, economic literature emphasises the benefits of individualism, and eschews paternalism as 'rent seeking' behaviour (Hilmer 1993).

What, then, is the principal commercial or non-commercial organisation (hereafter 'principal') to do in order to comply with regulatory requirements when deciding to employ a subcontractor for some work? The answer depends upon whether the principal aim is compliance with concerns of the OHS regulator - or the competition regulator. To assure the OHS regulator that the subcontractor's employees will be safe, the principal should prefer, in the tendering process, those contractors that can demonstrate a high standard of OHS, that is, to seek assurances from a contractor before it is engaged (NOHSC 1998). To do this, the principal might require tendering contractors to provide evidence of accreditation or training from a trusted, nominated safety and accreditation agency. Alternatively, a principal party might work together with other principals in the same or similar industry, perhaps through their industry association or employer organisation, in drawing up lists of preferred contractors with a safe working history (Rees 1994). Organisations may also formalise an alert system to warn each other to avoid a particular contractor with poor OHS practices. These methods give the principal some comfort about the OHS credentials of the independent contractor whose services they are engaging.

From the perspective of the competition regulator, however, such solutions are problematic. 'Screening' contractors for OHS performance risks the principal breaching the competition provisions of the Trade Practices Act 1974 (Cwlth) Part IV. To require a contractor to obtain accreditation or training from a specified agency is likely to constitute a third-line force in breach of s. 47(6) of the Act. This provision has been interpreted by the courts to mean that a company will breach the law if it agrees to acquire services of another only on condition that the other party, in turn, acquire the services from some nominated third party (Miller 2001). Therefore, if a company requires a contractor to obtain accreditation or training from a specified agency as a condition of acquiring their services, then it may breach the provision. Moreover, third-line forcing is prohibited per se. That is, a company will breach the provision by engaging in the conduct even without anti-competitive intent or any evidence of an anti-competitive effect. Further, the company does not need to state that it requires tendering contractors to obtain this accreditation to fall foul of the provision. Rather, under s. 47(13)(a) of the Act, conditions that are 'ascertainable only by inference from the conduct of persons or from other relevant circumstances' may be sufficient to constitute a third-line force. This means that companies need to be particularly vigilant in their communications with suppliers and customers to ensure that they are not considered to be imposing an implied condition. Thus, it is difficult to require the specified accreditation without imposing a third line force.

An attempt by the company to meet with others in the industry to draw up a preferred list of contractors, or warn on which contractors to avoid, on the basis of OHS performance may also fall foul of the Act's 'boycott' provisions. Arguably, it could also open up the possibility of collusion between companies, one of the most serious offences under the Act. Despite this, industry and employer associations are encouraged by health and safety consultants to draw up lists of preferred contractors as a way of ensuring safe working practice (Wiiki 1997; Shaw 2000, 2002) as 'hands on' experience of contractors' work is more effective in ensuring good safety practice than paper-based evidence presented within a tender (Bottomley 1999). Further, collaboration between competing organisations to set standards and share information is a key component of OHS law in Australia. The Robens Report (1972), upon which much OHS legislation within Australia is based, stated that, 'we feel very strongly that this should include more emphasis in future on joint action at the industry level' (Robens 1972: 30).

While there is no strict legal inconsistency here, and while compliance is possible with both sets of provisions, resolutions do not appear in the regulatory prescriptions above aimed at maximising compliance with a single regulatory aim and all involve additional cost to the principal. For instance if the company engages direct employees it will not fall foul of the Trade Practices Act, as s. 4 expressly excludes application of the Act to formal employment relationships. Secondly, instead of requiring contractors to acquire a particular accreditation, the principal company could state that tenders must demonstrate a high commitment to health and safety and leave the means to achieve this open. This does not involve a third line force. However, in both cases costs for the principal increase, in the former by increasing its workforce and the latter by increasing the resources necessary to assess the tenderer's OHS credentials. A related approach would be to require safety accreditation, but not specify from whom. Again there are costs associated with evaluation of each of the accreditation schemes and if there is only one or a few accreditation agencies offering such services, this may still be considered a third line force under s. 47(13)(a) of the Act.

In summary, then, the simplest and most efficient ways of ascertaining the health and safety credentials of a contractor are likely to cause an infringement of the Trade Practices Act. 'Optimal' regulatory strategies provide little guidance concerning how this conflict can be resolved. Further, additional costs are not neutral in their effect, and they can directly affect a company's overall capacity to monitor compliance (Paterson 2000).

Legislators do understand there is a problem. Regulators, however, are reluctant to cede control to another regulator so that conflict resolution is dealt with case-by-case. For OHS, resolution is decided when an alleged safety breach has reached court. The obligation under the Victorian Occupational Health and Safety Act only requires such steps to be taken as are 'practicable' (as defined in s. 4 of the Act), practicability being a major issue at court (Johnstone 1997). Trade practices legislation allows resolution at an earlier stage. The Trade Practices Act enables the Australian Competition and Consumer Commission (ACCC) to excuse certain types of anti-competitive conduct by way of 'notifications' or by granting 'authorisations'. This allows the ACCC to decide exceptions earlier than the OHS regulator.

However, there are substantial costs for the principal involved in preparing this documentation to the satisfaction of the ACCC and exemption from the law only applies to the specific conduct that is the subject of the authorisation or notification. Further, notifications received under the Act may be withdrawn by the ACCC at a later date. Each new call for tender by the principal could require application for authorisation or notification. Most importantly, the ACCC is a competition regulator. Its policy commitment is to the competition regime so it may not be able to weigh up 'objectively' the extent to which competition is to be sacrificed in the name of a competing policy agenda. In short, for the ACCC, paternalism is conceded grudgingly, and only on a case-by-case basis.

Alternative forms of resolution deal with issues of legalities and sovereignty, rather than substance. Lanham (2001: 19) notes that criminal law does not require a party to comply with one law when it would absolutely preclude compliance with another. Freiberg (1992: 14) also points out that a breach of one law if caused by a genuine attempt to comply with another law will be treated more leniently by the courts, although in this case it will not absolve a party from liability. Further, s. 109 of the Australian Constitution prevents State and Commonwealth governments from creating legislation that is strictly inconsistent with the other, stating 'when a law of a state is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid.' In the case above, if there were a strict legal inconsistency between the two pieces of legislation, the Trade Practices Act would prevail. However, there is not a strict legal inconsistency. The real problem of tensions between competing regulatory obligations. Solutions based on sovereignty are traditional terrain for the conflict of laws literature, a literature that shies away from value-based resolution of conflict (for an overview see Guzman 2002). Yet, jurisdiction hunting itself is a well-worn method for achieving preferred outcomes, outcomes that match not only protagonists' material interests but also ideological preference (for a recent example see Sobczak 2003; Compa 2002).

In short, the vignette above highlights the problems with compliance techniques that assume a singular goal, when multiple and contradictory regulatory aims exist. Further, generic prescriptions might even exacerbate the conflict, since contemporary scholarship is not concerned simply with minimal compliance, rather regulatory theorists seek to motivate company behaviour that goes 'beyond compliance' (Gunningham & Johnstone 1999). Indeed, companies may simply go beyond compliance because of uncertainty created in non-prescriptive rules about what minimal compliance actually entails. The combination of uncertainty as to exactly what is required to be done to comply with a body of law and increased threat of punitive enforcement for non-compliance may lead companies to want to go 'beyond compliance' to make sure that they are free from liability, and this is exactly what is desired by regulators (DeHart-Davis & Bozeman 2001, Gunningham & Johnstone 1999; Parker 1999). The uncertainties in the standards imposed by law combined with the strong incentive to ensure compliance (including increased penalties) blurs the line between 'beyond compliance' and 'over compliance' (Kobayashi 2001; Spence 2001; DeHart-Davis & Bozeman 2001, Tucker 1998; Stanley 1995).

This blurring is further complicated in areas where there is a regulatory interface. 'Over compliance' with trade practices law may not result in negative consequences for competition outcomes (although it may) but it may inhibit compliance with other legislative requirements, such as OHS law. The reverse also may hold. Exemplary compliance in health and safety, such the requirement of nominated accreditation, collaboration with competitors for the purposes of increasing safety (as advocated by Rees 1994) may breach trade practices law through either a third line force or collusion.

However, pushing regulatees to over-comply is not an accidental side effect of these models of regulation, but, aided by ideas of 'continuous improvement', are designed to have this effect. As Gunningham & Johnstone note, an important benefit of more flexible, less prescriptive models of regulation is that they encourage the organisation go beyond its strict legal requirements (1999: 34-5). Research in the competition regulatory arena supports this finding. Parker (1999), in her research notes that 'in settlement discussions, ACCC staff found that they could trade on the fact that companies were willing to do more than was strictly necessary under the Act to save costs and scandal of trial'.

When viewed from the perspective of 'over-deterrence' rather than 'beyond compliance' each regulatory initiative outlined above can exacerbate the problem of regulatory conflict. Outcome standards create uncertainties that push towards over-compliance, and a focus on compliance cultures propel innovation that may inhibit compliance with other bodies of law. Recent trends to increase use of criminal penalties, particularly penalties that apply to individuals, also contribute to the problem. Such penalties act in a highly symbolic manner to condemn certain behaviour and are those most likely to 'over-deter' targeted groups (Kobayahsi 2001; Fischel & Sykes 1996).

The emerging literature on meta-regulation may provide some way forward, but needs to recognise the problem of ideological conflict underpinning competing regulatory regimes. It might consider drawing on debates in economic geography where regulatory techniques are seen as uncertain and unstable solutions that 'paper over the cracks' of institutional conflict (Gibbs 1996). Analysis of the regulatory interface between diverse regulatory challenges, as in the vignette above, could map the synergies and conflicts between regulatory goals in each area. Studying the regulatory interface would give regulatory scholars a better idea of the complex and contingent nature of regulation and compliance.

Within a democracy, the state is quintessentially about the goals of a society, not the techniques by which those goals are to be achieved. Clearly, this is a messy business and desired goals will conflict. Indeed, recent research on the European Union suggests that the era of technocratic resolution of political difference may become progressively more difficult. Harcourt & Radaelli (1999) argue that inefficiency and prolonged conflict may be an inevitable corollary to increased democracy. If this is the case, then research by regulatory scholars on such conflicts, their impact on regulatees and methods for resolution seems critical.

Evaluation of good regulatory practice cannot be divorced from consideration of the goals to be achieved - including those in competition with each other. The growing interest in generic notions of regulation and compliance has an important role here in bridging the debates between competing regimes, understanding them on their own terms as well as providing a reflexive base that can communicate the regulatory implications of conflict.

Note: This paper is drawn from material to be published in Law and Policy 25 (4), Blackwells, UK.

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