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Businesses don’t always run as smoothly as we’d like them to. In 2025, it’s clear that opportunities and challenges go hand in hand – and while your business may stumble from time to time, being prepared makes all the difference. It’s common for employees to occasionally run into trouble, but complications arise when a third party ends up with a claim against your company.
Generally speaking, employers are typically held vicariously liable for any wrongful acts committed by their employees “in the course of their employment”. That’s why it’s crucial for you as an employer to actively monitor and regulate business activities. Staying informed about your legal obligations – for example, by reading our guide to legal requirements for starting a business – can help you stay ahead of any potential issues.
What Is Vicarious Liability?
If your employee does something wrong while working and a third party suffers a loss, they could have a claim against your business. Simply put, if your employee is responsible, you may also be held liable – this is known as vicarious liability. In 2025, courts continue to closely examine the working relationship and the role assigned to the employee in determining liability.
Vicarious liability isn’t black and white. Courts will look at the actual role the employer assigns to the employee and the context in which an incident occurs. Employers could even find themselves liable for criminal offences if the circumstances of employment provide opportunities for such conduct – although this alone isn’t enough to establish liability. It’s important to note that this doesn’t remove accountability from your employee; rather, it extends the responsibility to you as well.
Am I Liable For Independent Contractors?
Generally speaking, employers aren’t usually held responsible for the wrongful acts of independent contractors. Contractors control their own work and determine their own rates, unlike employees whose work is directed by you. However, be cautious – if the relationship is mischaracterised, courts may reclassify an independent contractor as an employee, thereby extending your vicarious liability. For further insights on this topic, please refer to our article on the difference between employees and contractors.
What Is A Sham Contracting Arrangement?
It’s also important to beware of sham contracting arrangements. This occurs when an employment relationship is deliberately disguised as a contractor relationship in order to sidestep certain legal obligations. In these situations, even if a contractor label is applied, the true nature of the relationship may still trigger liability. For instance, in Hollis v Vabu Pty Ltd [2001] 207 CLR 21, the court ruled that the worker was indeed an employee, and the employer was held liable accordingly.
Understanding the distinction between genuine independent contracting and sham arrangements is essential to managing risks effectively. We’ve explored this topic further in our discussion on the difference between employees and independent contractors.
How Can I Manage The Risk Of Liability?
The prospect of vicarious liability can seem daunting, but there are several proactive steps you can take to manage this risk without waiting for a claim to arise. Here are some strategies to help safeguard your business in 2025 and beyond.
Insurance
It’s generally good business practice to have insurance to protect your business against claims for injuries or losses resulting from your operations – including those arising from your employees’ actions. For example, if an employee were to inadvertently expose a customer to a contagious illness during work hours, your public liability insurance might cover the compensation costs. Additionally, the right mix of policies, including professional indemnity and workers’ compensation, can further mitigate your risk.
Workplace Policies
While employers take their duty of care seriously, ensuring that every employee understands their responsibilities can be challenging. That’s why it’s important to have clear, regularly reviewed workplace policies and staff handbooks in place. These policies set out expectations regarding work health and safety, conduct, and confidentiality, which can significantly reduce the risk of wrongful actions.
- Work Health and Safety Policy
- Anti-Discrimination Policy
- Internet and Email Policy
Such policies help establish a baseline for how employees should conduct themselves during work. For example, if an employee uses their own vehicle for work purposes, a policy might require safety inspections every week to minimise the risk of an accident. This proactive approach can reduce the likelihood of any wrongful acts that might lead to a third party claim against your business.
Working From Home
With the rise of hybrid and remote working in 2025, monitoring employee performance and ensuring they continue to meet WHS standards can be more challenging-but it isn’t insurmountable. Safe Work Australia continues to provide updated guidelines on remote work, which you can read more about here.
It’s also a good idea to have a detailed Work From Home Policy that outlines expectations regarding productivity, data security, and conduct. This can help lower the risk of misconduct while your employees work remotely, as well as ensure there’s minimal disruption to your business.
Confidential Information
Employees often deal with sensitive information, and the risk of data breaches increases when working from home. It is essential to put effective measures in place, such as encryption and two-factor authentication, to prevent unauthorised access. In addition, having a robust Data Breach Response Plan means you can act quickly if a breach occurs, potentially saving your business from costly repercussions.
Furthermore, regular training on cybersecurity and data protection best practices is highly recommended. Ensuring your team is up-to-date with the latest protocols will help safeguard your confidential information and reduce the risk of liability.
Another useful resource is our article on why it’s important to maintain confidentiality in the workplace, which offers additional strategies for protecting sensitive data.
What About My Employment Agreements?
You should already have an up-to-date Employment Contract in place with each of your workers. It’s advisable to periodically review these contracts to ensure they reflect your current working arrangements and risk profiles. For instance, an agreement might specify that employees can only interact with third parties in ways that have been expressly authorised by your business.
These contracts offer flexibility, allowing you to adjust provisions as necessary to address emerging risks. By refining your employment agreements from the early stages of the working relationship, you help ensure that both you and your employee are better equipped to manage any liability issues that may arise.
Staying abreast of legal developments and periodically updating your policies and contracts is key to mitigating the risks of vicarious liability. In today’s dynamic work environment, seeking professional advice through services like our employment law services will ensure you remain compliant and well-prepared.
Need Help?
Managing the risk of liability is a crucial factor from the early stages of your business. As your team grows in 2025, so too does the potential risk of vicarious liability. Ensuring you have the right policies, comprehensive training, and clear employment agreements in place can help prevent costly legal issues before they arise.
You can reach out to us at team@sprintlaw.com.au or call us on 1800 730 617 for an obligation-free chat. Our team is here to help you navigate these challenges and ensure your business remains legally protected as you grow.
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