Employees Liability Act 1991 (NSW): Key Duties And Managing Risk

If you employ staff in New South Wales, the Employees Liability Act 1991 (NSW) is one of those quiet but important laws sitting in the background of your day‑to‑day operations.

In short, it helps determine who pays when an employee’s actions cause loss or damage during their work. For small businesses, understanding how this Act works - and setting up practical systems to manage the risk - is essential.

In this guide, we break down the key points in plain English, share practical examples, and outline the legal steps you can take so you’re protected while your team does great work.

What Is The Employees Liability Act 1991 (NSW)?

The Employees Liability Act 1991 (NSW) is a New South Wales law that deals with liability for wrongs (torts) committed by employees in the course of their employment.

In simple terms, it does two big things:

• It generally makes the employer responsible for the employee’s civil liability to others (this reflects the broader principle of vicarious liability), and
• It says the employer must indemnify the employee for that liability and their reasonable legal costs - unless the employee engaged in serious and wilful misconduct.

Put another way: if your employee is negligent while doing their job and someone suffers loss, your business will usually be the one footing the bill (and covering the employee), except in rare, extreme cases where the employee’s conduct crosses the “serious and wilful” line.

Important context:

• This Act applies in NSW. Other states and territories largely reach similar outcomes through common law and local statutes, but the NSW position is expressly codified.
• The Act addresses civil liability (like negligence, trespass or defamation). It doesn’t cover criminal liability, nor does it replace specific regimes (for example, workers compensation for workplace injuries, which runs on its own rules).

When Will Your Business Be Liable For An Employee’s Conduct?

Two practical questions determine how the Act applies: Was the person your employee (not a genuinely independent contractor)? And were they acting in the course of their employment?

Employee vs Contractor

The Act is about employees. Whether someone is an employee or contractor depends on multiple factors (control, integration, ability to subcontract, provision of tools, and how they’re paid). The label in the contract is relevant but not conclusive. Getting the relationship right upfront - including a fit‑for‑purpose Employment Contract or a well‑drafted contractor agreement - helps avoid surprises later.

“In The Course Of Employment”

This doesn’t require the employee to be perfect; it simply asks whether the conduct was sufficiently connected to their work duties. If a warehouse staff member carelessly reverses a forklift and damages a customer’s goods, that’s likely within the course of employment, so liability will sit with the business.

By contrast, if an employee deliberately assaults someone in a personal dispute entirely unrelated to work, that’s unlikely to be in the course of employment. However, borderline scenarios do arise. Strong policies, training and supervision help you show you took reasonable steps to prevent foreseeable misconduct.

Real‑World Examples

• Operations error: A technician accidentally damages a client’s equipment during an onsite service call. This is classic vicarious liability - your business will likely be responsible for the loss.
• Customer communications: A staff member posts a defamatory comment about a customer in a business‑managed group. If done in the scope of their role, the business could face a claim.
• Privacy mishandling: A sales employee emails a spreadsheet of customer data to the wrong recipient. Apart from privacy issues, resulting losses may trace back to the business.

Can You Make An Employee Pay You Back?

Generally, no. A core feature of the Act is that employees are entitled to indemnity from their employer for liability incurred while doing their job, including reasonable legal costs. This protects employees from being personally ruined by mistakes made in the course of ordinary work.

The key exception is serious and wilful misconduct - think conduct that is deliberate or reckless in a way that goes well beyond ordinary negligence. In those rare cases, your business may be able to refuse indemnity or seek contribution. Evidence and documentation matter here. This is also where robust policies, documented training, and proper performance management become critical.

Even where recovery from the employee isn’t available, you still have commercial levers - disciplinary action (consistent with your policies and contracts), retraining, changes to process or supervision, and where appropriate, termination following a fair process. Solid HR documentation and a clear Workplace Policy framework will support those steps.

How Does This Act Interact With Other Laws?

The Employees Liability Act 1991 doesn’t operate in isolation. Here’s how it sits alongside other legal frameworks that affect your small business.

Vicarious Liability Principles

The Act aligns with the broader doctrine of vicarious liability, which holds employers responsible for wrongs committed by employees in the course of their work. Courts consider policy factors like risk allocation and employer control over systems and training. In practice, this means prevention through systems is your best defence.

Work Health And Safety (WHS)

Separate WHS laws require you to take reasonably practicable steps to keep workers and others safe. Breaches can trigger regulatory action regardless of who pays civil damages. Developing and enforcing safe systems of work is essential. Our overview of a business’s duty of care as an employer covers these obligations in plain English.

Australian Consumer Law (ACL)

If your staff handle sales, advertising or refunds, your business must comply with the Australian Consumer Law. Misleading representations or mishandling consumer guarantees can lead to ACCC scrutiny and civil liability. Clear customer terms, staff training and escalation procedures help you stay onside.

Privacy

If you collect personal information (most businesses do), you may need a compliant Privacy Policy and privacy practices that align with the Privacy Act 1988 (Cth). Staff mishandling data can expose the business to complaints and remediation costs.

Workers Compensation

Workers compensation is a separate regime focused on injured workers and mandatory insurance. It doesn’t remove your civil responsibility to third parties for employee conduct; it simply addresses a different type of liability.

Civil Liability And Apportionment

NSW’s Civil Liability Act and contribution rules can apportion responsibility among multiple wrongdoers. The headline for small business remains: if your employee causes loss on the job, expect the claim to run against the business first.

Practical Steps To Manage Your Risk Under The Act

The best way to handle liability is to reduce the chance of incidents and put strong contractual and operational safeguards in place. Here’s a practical roadmap you can start using today.

1) Lock In The Right Employment Documents

• Employment Agreement: Use a tailored Employment Contract setting expectations, duties, standards of conduct, IP ownership, confidentiality and disciplinary processes.
• Workplace Policies: Implement a coherent set of policies - safety, acceptable IT use, social media, customer communication, incident reporting, and a code of conduct - and train staff on them. A central Workplace Policy suite ties it all together.
• Post‑Employment Protections: Where appropriate for your business, include fair restraints against poaching clients or misusing confidential information, backed by considered non‑compete terms or restraint clauses.

2) Build Safe And Clear Systems Of Work

• Training: Provide initial and refresher training for tasks that create risk - equipment use, data handling, customer communications and refunds, on‑site protocols.
• Supervision: Ensure reasonable oversight, especially for new or high‑risk roles. Document checklists and sign‑offs for critical steps.
• Escalation: Give staff a simple route to escalate issues (e.g. customer disputes, safety concerns, data incidents) before they spiral.

3) Clarify Customer And Supplier Terms

• Customer Terms: Clear customer terms set boundaries on liability, outline refunds and define services, helping prevent disputes and manage expectations.
• Supplier Agreements: Align supplier responsibilities (quality, delivery, indemnities, insurance) so risks aren’t pushed back onto you unfairly.

4) Protect Your Data And Brand

• Privacy: Roll out a practical privacy program - a live Privacy Policy, collection notices, access controls and a data breach response plan - and train staff on day‑to‑day compliance.
• IP And Communications: Make it clear who owns content, designs and client materials. Train staff on respectful, accurate communications to reduce defamation and misleading conduct risks.

5) Prepare For Incidents

• Incident Response: Pre‑write a short procedure for operational incidents, complaints and potential legal claims. Speed, documentation and candour often limit fallout.
• Settlement Tools: When appropriate, resolve disputes on sensible terms with a properly drafted Deed of Release and Settlement so issues are finalised.

It’s normal to feel unsure about where to start. You don’t have to do everything at once - prioritise the areas that present the highest risk for your operations, then build from there.

What Legal Documents Should You Have In Place?

Every business is different, but most employers will need a core set of contracts and policies to manage the liabilities that flow from staff activities.

• Employment Contract: Sets out duties, hours, pay, confidentiality, IP assignment, conduct standards and termination processes for each employee.
• Workplace Policies: Practical rules on safety, behaviour, social media, complaints, IT and data - they guide staff and support disciplinary action when needed.
• Privacy Policy: Explains how your business collects, uses and stores personal information, and supports day‑to‑day privacy compliance.
• Customer Terms (Products/Services): Defines your offering, service levels and limits on liability, and sets a fair process for refunds, complaints and termination.
• Confidentiality (NDA): Protects sensitive information when staff work with third parties or when contractors access your systems.
• Contractor Agreement: If you genuinely engage contractors, set clear deliverables, IP and risk allocation to avoid them being treated like employees in practice.
• Deed of Release and Settlement: Helps resolve disputes with customers, suppliers or former staff on final terms when issues arise.

Depending on your structure, co‑founder arrangements and growth plans, you may also need governance and ownership documents (such as a Shareholders Agreement or Constitution) to keep decision‑making clear and reduce internal disputes. If you’re not sure what fits your situation, we can help you prioritise.

Frequently Asked Questions

Does This Act Mean Employees Can Never Be Personally Sued?

Not exactly. Plaintiffs often sue the employer (that’s where the money and risk controls sit), but an employee can still be named. The Act generally requires the employer to indemnify the employee for liabilities incurred in the course of employment, except for serious and wilful misconduct. In practice, businesses bear the cost in typical negligence scenarios.

What Counts As “Serious And Wilful Misconduct”?

It’s a high bar. Think deliberate wrongdoing or reckless indifference to obvious risk - far beyond a simple mistake. Whether conduct meets the threshold is fact‑specific, so seek advice before refusing indemnity or seeking contribution from an employee.

How Can I Reduce The Chance Of Being Liable For Staff Actions?

Focus on prevention: use clear contracts and policies, provide practical training, supervise higher‑risk activities, and create simple escalation processes. Document what you do - if a claim arises, you can show you took reasonable steps. This aligns with your broader duty of care as an employer.

Do I Need Special Clauses In Employment Contracts Because Of This Act?

You don’t need to restate the Act in your contracts, but you should include duties, standards of conduct, confidentiality, IP, disciplinary processes and post‑employment protections. A well‑drafted Employment Contract and a cohesive policy suite are your front‑line controls.

Key Takeaways

• In NSW, the Employees Liability Act 1991 generally puts your business on the hook for civil wrongs employees commit in the course of their work, and requires you to indemnify them.
• The main exception is serious and wilful misconduct by the employee, which is rare and assessed case by case.
• Your best protection is prevention: clear contracts, robust policies, practical training, sensible supervision and fast escalation pathways.
• Customer and supplier contracts, privacy practices and dispute resolution tools (like a Deed of Release and Settlement) help contain issues when something goes wrong.
• This Act sits alongside broader principles of vicarious liability, WHS duties, the ACL and privacy laws - make sure your compliance program covers the full picture.
• Tailored legal documents and advice ensure your systems reflect how your business actually operates, which is crucial if a claim arises.

If you’d like a consultation on managing liability risks under the Employees Liability Act 1991 for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.