Vicarious liability of an employer

Companies, and individuals who employ others in the course of business, are subject to various duties in relation to their employees and other third parties. In many cases the employer will be held fully or ‘vicariously liable’ where an employee has done something which has harmed a third party.

What is full liability

If an employee has committed a wrongful or harmful act which was expressly authorised by the employer which subsequently caused harm and loss to a third party, then the employer will be held fully liable to the third party.

However, when it is not clear whether the wrongful or negligent action (or omission) by the employee was authorised by the employer, the employer may be vicariously liable. In some cases, this will not be clear.

What is vicarious liability?

Vicarious liability is a civil matter which is dealt with by the civil courts, and is based on the common law doctrine of agency. It most commonly arises in the employer/employee relationship. If an employee commits a negligent act (or omission) against a third party during the course of their employment the employer will be vicariously liable to the third party instead of the employee. The third party can then bring a claim against the employer.

What is an employee?

An employee is someone who undertakes to do work for another person under a contract of service. To establish whether a contract of service exists, there are a number of different kinds of test that can be applied.

The control test

Has the employer decided how the work should be carried out rather than simply telling the employee what needs to be done? In this case the actual method has been stipulated – the employer exerts a measure of control over the employee and their work.

The integration test

If the individual’s work is considered integral to the operation of the business, then they will be most likely an employee.

Economic reality test

If the individual who was negligent does not assume any economic incentive or risk in committing the negligent act (or omission) then they are likely to be considered an employee.

What is an employer?

The employer is the person or business organisation for whom the employee works for, ie. that person/organisation who provides and controls the work given to the employee, and pays them in return for the work performed.

How is vicarious liability established?

It may not be easy to establish when an employee has been negligent or carried out a wrongful act that causes harm or loss to a third party. The test to establish vicarious liability has been developed through case law.

Traditionally, an employer was liable for the negligence/wrongful act committed by the employee if that act was done during the course of their employment. If the employee had been ‘on a frolic of his own’ – ie. gone outside the express and implied duties and the authority of their work, the employer would not be held vicariously liable: the employee would be personally liable.

However, if the harm was caused through the employee’s negligent actions or omissions while ‘on duty’, ie. while carrying out their work, the employer was vicariously liable.

Under a relatively new test developed by the courts, there must now be a sufficiently close and direct connection between what the employee was employed to do and the wrongdoing, so that it will be fair and just to hold the employer vicariously liable.

Criminal acts

Some criminal acts such as assault and fraud are also actionable as torts in the civil courts. Therefore, the employer could theoretically be held vicariously liable. However, given the current test to be applied, there would usually be an insufficiently close or direct connection between the individual’s employment and the criminal act for the employer to be held vicariously liable.

Independent contractors

Employers are not vicariously liable for harmful acts committed by independent contractors as independent contractors operate under a contract for services, on their own account at their own risk.

When is an individual an independent contractor and not an employee?

The same test is applied to establish whether someone is an employee or an independent contractor. Various factors also to be taken into account:

  • Whether the individual supplies their own equipment (an independent contractor usually does);
  • Whether they bear the risk on the job;
  • The ability of that individual to contract similar services to a variety of different people or clients, or to pass on jobs to others;
  • Whether the individual hires other people to help them complete the services;
  • Whether the individual is contracted on the basis of completing individual jobs or employed on a continual basis;
  • Whether the employer has incurred expenses that are consistent with those incurred by an employee;
  • If the individual was a former employee and they were in fact carrying out similar duties to those when they were employed.