Vicarious Liability and the Demise of Independent-Contractor Defence

As far as employers are concerned, the liability they incur towards third parties invariably involves the doctrine of vicarious liability. However, the nature of vicarious liability is changing – and employers should beware.

The doctrine of vicarious liability holds that an employer is liable for harm or loss arising from the negligence, or other forms of wrongdoing of its employees, that occur in the course and scope of employment.

Therefore, if the employer is a company, or some other type of entity with corporate personality, the only way it can incur liability to a third party is through the conduct of its employees.

This type of risk is pervasive and affects all employers regardless of their size or nature of operations. The risk arises from the commission of wrongful and negligent acts that cause harm or loss to third parties. Liability attaches when the injurious act obliges the perpetrator to compensate the affected third party.

Legal scholars and economists cite several reasons to justify imposition of vicarious liability on employers. From a legal perspective, it is desirable as it assists injured third parties to get compensation, because the employer probably has more resources than the offending employee.

Another argument in support of vicarious liability is that the employer creates the initial risk conditions by asking his workers to conduct economic activities on his behalf. Therefore, when things go wrong, the employer ought to be answerable.

From an economics of law standpoint, imposing vicarious liability is desirable because it creates the right incentives for employers to be more discerning in their hiring and management of employees.

The logic here is that if an employee causes harm or loss to a third party in the course and scope of employment, imposing liability for such harm or loss on the employer creates incentives for the employer to train, exercise greater care when hiring, or even sanction the employee.

From an employer’s perspective, vicarious liability does not depend on proof of wrongdoing or negligence. The only requirement is that the harm or loss arose from the fault of an employee acting in the course and scope of employment. It is not a defence for the employer to argue that the employee did not follow procedure or standing instructions.

The essence of vicarious liability is that the employee caused harm or loss to a third party while furthering business and economic interests of the employer. That alone is sufficient to find the employer liable. Therefore, even if the employer is blameless, liability still attaches.

Over the years, claims arising from vicarious liability are becoming increasingly difficult to defend. Once it is the case that an employee caused harm or loss to a third party in the course of employment, courts in countries like the United Kingdom (UK), Canada and South Africa tend to lean towards a finding of liability rather than exonerating the employer.

Nevertheless, one defence available to employers in vicarious liability claims over the years has been the independent-contractor defence. The defence holds that an employee creates vicarious liability because he or she operates under the direct control and instruction of the employer, but an independent contractor does not; since he does not operate under such direct control of the principal who owns the company.

The argument in support of the proposition that an independent contractor creates no vicarious liability for the principal rests on the logic that independent contractors usually render services that the principal cannot, or is incapable of supervising. Hence, when things go wrong, the principal cannot be responsible for the resultant harm or losses.

Over the years, courts have shown a clear appetite to widen the scope of vicarious liability and there is a large body of case law from various common-law countries confirming this. It is against this background that the recent English law case of Barclays Bank Plc versus Various Claimants [2018] makes interesting reading.

In that case, the Court of Appeal in the UK held that the independent contractor defence no longer applies to vicarious liability claims. The brief facts of the case are that Barclays Bank engaged a medical doctor to do pre-employment medical examinations on prospective employees.

In the process, the doctor sexually assaulted 126 pre-employment candidates. The candidates sued Barclays Bank as a collective alleging that the bank is vicariously liable for the conduct of the doctor. Barclays Bank’s defence was that the doctor was not an employee of the bank but an independent contractor.

The Court of Appeal held that in such cases, the focus should be on two critical issues. One is to decide whether the relevant relationship between the parties in the lawsuit is one of employment or “akin to employment”.

The other is whether the tort has sufficient closeness to the employment or quasi employment. Applying these two factors, the court held that the medical examinations that the doctor carried out were for purposes of employment, because Barclays relied on them to decide on the physical suitability of applicants.

Some may ask, what is the relevance of this case to South African employers? There are two reasons why the case is important. First, there are strong similarities in the common law of the UK and South Africa and local judges often refer to UK case law, making it prudent for South African liability risk managers to follow jurisprudential developments in both countries.

Second, South African courts have previously shown an inclination towards extending vicarious liability to the principal for acts of a subcontractor without categorically ruling that the independent contractor defence is no longer applicable to claims of vicarious liability. A case in point is Langley Fox Building Partnership (Pty) Ltd versus De Valence 1991, where a main contractor was held liable for the negligence of a subcontractor.

The implications of this UK development for employers are significant. They not only need to worry about the possibility of their employees causing them loss through the doctrine of vicarious liability, but their independent contractors, too.

Although it is too early to tell if this is a wholesale abandonment of the independent-contractor defence or a limited one, the decision of the Court of Appeal undoubtedly increases the risk facing employers under the doctrine of vicarious liability.

Furthermore, there may still be a number of salient aspects on vicarious liability and the independent-contractor defence where further guidance from the courts is necessary. This lack of certainty is not good news for employers.

The doctrine of vicarious liability continues to change and the main driver of the change is the courts. Although vicarious liability claims are still defendable, it is hard to argue against the proposition that such claims are getting more difficult to defend for employers.

In the case against Barclays Bank, it is difficult to see what measures the bank could have taken to monitor the conduct of the doctor. In addition, there is no obvious way that the bank could have predicted the conduct of the doctor.

However, in vicarious liability claims, none of these issues matter. Once a court finds that the relationship between the principal and the so-called independent contractor is one of employment, or is akin to employment, and that the wrongful act is close enough to that employment or quasi employment, vicarious liability would most likely be the outcome.

The ever-evolving nature of vicarious liability means that it will continue to give employers a lot to think about in future.