HOW EMPLOYERS CAN PROTECT THEMSELVES FROM LIABILITY FOR EMPLOYEES’ ACTS

HOW EMPLOYERS CAN PROTECT THEMSELVES FROM LIABILITY FOR EMPLOYEES’ ACTS

When an employee causes harm to a third party or enters into a transaction on behalf of an employer, can the employer be held responsible?

The answer is often yes, under the principle of vicarious liability. However, an employer is not automatically liable for everything an employee does. The circumstances in which the act occurred and its connection with the employee's duties are important.

What is Vicarious Liability?

Vicarious liability is the legal principle under which an employer may be held responsible for the wrongful acts or omissions of an employee committed in the course of employment.

The rationale is that an employer benefits from the employee's services and exercises control over the employment relationship. Consequently, where an employee causes harm while performing employment-related duties, the law may place responsibility on the employer.

An employer’s liability may arise out of the employment contract, or from the criminal or tortious actions of the employee in the course of the employment. We would now examine these liabilities in details.

Contractual Liability

An employer may be bound by contracts entered into by an employee where the employee has express or implied authority to act on the employer's behalf.

The authority may arise from a written delegation or from the nature of the employee's position and usual responsibilities. Greater difficulty may arise where the authority is implied from the employee's position, responsibilities or the usual course of the employer's business. Employers should therefore clearly define the limits of employees' authority, particularly for employees who negotiate contracts or represent the company before third parties.

Criminal Liability

Generally, for a person to be liable for a crime, the person must have the intention (mens rea to commit the act).

Therefore, an employer will not be criminally liable for the act or omission of the employee except in either of these circumstances:

the employee committed the offence pursuant to the employer's instructions or authorisation;
the offence was committed by persons who constitute the directing mind of a corporate entity;
legislation expressly imposes liability on the company or its officers; or
the employer itself participated in, authorised, encouraged or negligently permitted conduct in circumstances where the law imposes liability.

The determinant factor here is whether the act falls within the general class of functions the employee performs.

Consequently, employers should not assume that an internal instruction prohibiting certain conduct will, by itself, prevent liability. The actual circumstances and the applicable legislation must be examined.

Liability in Tort

Vicarious liability commonly arises in negligence claims. Where an employee negligently causes injury or damage to a third party while acting in the course of employment, the employer may be liable even though the employer did not personally commit the wrongful act. This is particularly important in sectors such as healthcare, transportation, construction, professional services and manufacturing, where employees' actions may directly affect clients or members of the public.

What if the Employee Disobeys Instructions?

An employer cannot always avoid liability simply because the employee acted contrary to an internal instruction.

The key question is whether the employee's conduct remains sufficiently connected with the employee's duties. An employee may perform an authorised task in an unauthorised manner and the employer may still be liable.

However, where the employee acts entirely outside the scope of employment for personal purposes, the circumstances may be different.

How Can Employers Reduce Their Exposure?

Although employers cannot eliminate every potential risk of vicarious liability, they can take practical steps to reduce exposure.

These include:

Clearly defining employees' duties and authority in employment contracts and job descriptions.
Establishing approval limits for contracts, purchases, payments and representations made on behalf of the company.
Maintaining clear internal policies governing employee conduct.
Training employees on legal, regulatory, safety and professional obligations.
Monitoring compliance with company policies and procedures.
Maintaining appropriate insurance coverage where applicable.
Taking prompt disciplinary or corrective action when employees breach established policies.
Keeping proper records of instructions, approvals and employee training.

These measures do not automatically shield an employer from liability where the law otherwise imposes it, but they can help establish the limits of an employee's authority and demonstrate that the employer took reasonable steps to prevent misconduct.

Conclusion

Vicarious liability does not mean that an employer is responsible for every act of an employee. The central consideration is usually whether the employee was acting in the course of employment and whether there is a sufficient connection between the wrongful act and the employee's duties.

Employers should clearly defined roles. Effective internal controls and proper supervision are therefore important tools for managing legal risk.

This article is for general information only and does not constitute legal advice or create a lawyer-client relationship. Readers should seek independent professional advice based on their specific circumstances.

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