Vicarious liability: employers face big damages for employees' actions

Vicarious liability, where employers may be liable to pay damages for an employee's or others' actions, can result in high levels of compensation. Akshay Choudhry, an associate at independent law firm Burges Salmon, considers recent cases and how employers can manage this risk.

What is the risk?

Vicarious liability is where employers may be liable to pay damages where someone who works for them causes personal injury or other losses to another person through their actions while at work. It puts employers in a vulnerable situation, not least because the extent of the liability can be far-reaching.

For example, in the recent case of Various Claimants v Barclays Bank, the High Court ruled that Barclays Bank was liable for sexual assaults committed by a doctor engaged by the bank to carry out medical examinations of prospective employees.

Similarly, last year, the courts found a supermarket chain was liable when one of its petrol station attendants racially abused a customer, followed him onto the forecourt and subjected him to a severe physical attack (Mohamud v WM Morrison Supermarkets plc).

In neither case had the employer endorsed or encouraged the assaults in any sense. Indeed, the assailants had acted in gross abuse of their positions. Yet, because the courts found that the assaults were so closely connected to the jobs that the assailants were engaged to do, the businesses were ultimately liable.

These cases illustrate how a business can be liable for the actions of its employees or workers even though, in reality, it would have been almost impossible for the businesses in question to have prevented those actions, and despite the fact that the actions of those concerned were well outside the scope of their expected conduct.

Is vicarious liability limited to employees?

The Barclays Bank case also illustrates another challenging aspect of vicarious liability. The doctor involved was engaged as an independent contractor, rather than as an employee. However, because he was carrying out activities (i.e. the medical examination) on behalf of the bank and that responsibility had been assigned to him and was controlled by the bank, the bank was still liable for his misdeeds.

In fact, vicarious liability can even extend to situations where there is no commercial activity or wage bargain involved at all. For example, the Ministry of Justice (MoJ) was held liable for the negligence of a prisoner who dropped a sack of rice on a prison employee's back (Cox v Ministry of Justice).

In establishing the MoJ's liability for the injury caused, it was sufficient that the prisoner had been carrying out activities which were an integral part of the prison's activities and were for the prison's benefit.

What should businesses do to reduce their risk?

Where a claimant is trying to establish vicarious liability for discriminatory acts in the employment tribunal, it is open to an employer to avoid liability by showing that it has taken all reasonable steps to prevent the discrimination from occurring.

However, no such employer defence is available in standalone personal injury claims. Businesses should, therefore, focus on preventing wrongdoings from arising in the first place.

For example, businesses should:

• Ensure all relevant policies are up-to-date and followed as a matter of course. Typically this would mean having in place policies covering expected levels of conduct, health and safety, equal opportunities, bullying, grievances, whistle-blowing and disciplinary matters;
• Make sure that all relevant individuals understand the expected workplace standards. Your workforce should be aware of and trained on the relevant policies, practices and procedures. If they understand the standards of behaviour expected of them, they may be less likely to act out of line;
• Carefully consider which of these policies should apply to non-employees working for, or on the premises of, the business;
• Carefully define the scope of individual job roles; and
• Ensure appropriate management and supervision is in place.

However, even with preventative measures in place, it is difficult to legislate for the actions of an individual, particularly one who chooses to act with deliberate intent and without regard for the rules.

To prepare for such an eventuality, employers should ensure that they have appropriate mechanisms in place to deal with any financial liability.

For instance, businesses should:

• Consider whether the scope of cover in any relevant insurance policies (such as public liability or employer's liability insurance policies) covers all losses for which a business may be vicariously liable, and whether there are any specific risks to address given the nature of the business; and
• Include suitable indemnities in contracts with suppliers.

While it will be rare for the majority of employers to have to defend claims of vicariously liability, the potential financial and reputational risks which do exist mean that the sensible employer will take time to review their risk profile from time to time.