Businesses don’t always run as smoothly as we’d like them to. In fact, it’s pretty common for employees to run into some trouble every now and again. However, it can get serious where a third party ends up getting involved, and they have a claim against the company. 

Generally speaking, employers will be held vicariously liable for any wrongful acts committed by their employees ‘in the course of their employment’, which is why it is up to the employer to regulate and keep track of business activities as much as possible. 

What Is Vicarious Liability?

If your employee does something wrong while working, and a third party suffers a loss as a result, they could have a claim against your business. Put simply, if your employee is responsible, you could be too — this is known as vicarious liability. 

Vicarious liability is not black and white. Courts will examine the actual role the employer assigns to the employee, and how this situates the employee and victim. Employers can also be liable for criminal offences if the performance of the employment provides the opportunity for the criminal act to occur, but this in itself is not enough to outright claim an employer’s vicarious liability. 

It’s important to note that this doesn’t remove the blame from your employee. It simply extends that liability to you, so you and your employee could be held liable. 

Am I Liable For Independent Contractors?

Generally speaking, employers won’t be responsible for the wrongful acts of independent contractors. Why?

An employee’s work is entirely controlled by the employer, whereas contractors control their own work and pay rates. So, it wouldn’t make much sense for employers to be liable for contractors’ activities related to third parties. 

What Is A Sham Contracting Arrangement?

It’s also important to beware of sham contracting arrangements. This is where employers make an employment relationship look like a contractor relationship to avoid certain obligations. In this situation, employers could use this arrangement to avoid being liable for anything you do. 

For example, in Hollis v Vabu Pty Ltd [2001] 207 CLR 21, the employer was found to be liable for their contractor as they were found to be an employee. 

It’s important to know the difference between employees and independent contractors — we’ve written more about this here

How Can I Manage The Risk Of Liability?

The reality of vicarious liability can be pretty daunting, but it doesn’t have to be. There are many ways you can manage the risk of liability without waiting for the worst to happen. Let’s run through a few.

Insurance

It’s generally good business practice to have insurance, which helps protect your business against claims of injuries or losses that result from your business activities. This can include actions taken by your employees that you could be responsible for. 

For example, if your employee had contracted COVID-19 and had infected a customer during work hours, that customer could have a claim against your business. Normally, you’d have to pay compensation in full. However, public liability insurance can cover the costs and make things a whole lot easier.

Workplace Policies

We know that employers take their duty of care seriously, but it can be difficult to ensure all employees understand this too. 

This is why it’s important to have certain policies in the workplace that are regularly enforced and accessible. These could include:

  • Work Health and Safety Policy
  • Anti-Discrimination Policy
  • Internet and Email Policy

These policies are a great way to establish some ground rules around how employees should conduct themselves during work. This way, it could reduce the risk of any wrongful acts that could lead to a third party claim against the business. 

For example, if your employee uses their own car for work, you might have a policy that requires the car to be checked every week to ensure it’s safe to use. This means it’ll be less likely to cause an accident or loss to a third party. 

Working From Home

Monitoring your employees might seem a bit trickier when they’re working from home, but this isn’t always the case. Thankfully, Safe Work Australia put together some helpful information on how to uphold your WHS responsibilities even while your employees are working from home — you can read more here

Employers can write up a Work From Home Policy, which outlines what is expected of employees in this changed work environment. It can include extra provisions about what they can and can’t do in relation to work, so there is a lower risk of misconduct while working remotely. 

Confidential Information 

Employees are likely to be dealing with some sensitive information during work, and this carries an even greater risk when working from home. If your employees live with other people, they could potentially have access to your confidential information. So, you want to make sure that this information doesn’t end up in the wrong hands under your employee’s watch, otherwise you could be held liable. 

This situation might arise where your business is dealing with third party data. If your employee’s WFH setup gives strangers access to this third party data, and it ends up somewhere else, you could be held vicariously liable to that third party for your employee’s mishandling of information. 

To prevent this, you may want to consider encrypting all sensitive information or setting up two factor authentication when your employees log on. This restricts data access to your employees and lessens the chance of a data breach. 

It’d also be best to have a Data Breach Response Plan. If anything does go wrong, you and your employees will know exactly what to do before the situation gets any worse. In some cases, you might be able to resolve the breach before any third party suffers a loss thanks to this response plan (and you could save yourself a headache later down the track!).

What About My Employment Agreements?

You should already have an Employment Contract with each of your workers. However, it’s advisable to check these contracts every few months to ensure they’re suited to your current work arrangements. This could also be a good way for employers to adjust provisions according to the changing level of risk or nature of work. 

For example, the agreement may require the employee to only deal with third parties in the manner authorised by the business itself. This way, the business can better ensure that the employee’s actions do not lead to liability to a third party. 

Generally speaking, employers have flexibility and allowance in the employment agreement to mitigate any risks related to vicarious liability. This is essentially an opportunity for employers to try to prevent the risk of liability from the early stages of the employment relationship. 

Need Help?

Managing the risk of liability is an important factor to consider from the early stages of your business. The more employees you have on board, the greater the risk of vicarious liability. To prevent this, it’s a good idea to have the right policies in place to govern employees’ actions before anything goes wrong. 

You can reach out to us at team@sprintlaw.com.au or contact us on 1800 730 617 for an obligation free chat.

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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