Employers take note: changes to liability

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6 min read

2016 has already heralded far-reaching changes to employers’ liability. The Supreme Court has widened the realms of employers’ liability in a way many find surprising and difficult to stomach. We explore the decisions the judges took and how they affect employers.

The Supreme Court has this month extended the scope of vicarious liability in a way that has garnered considerable media attention and which is concerning for both employers (or quasi-employers) and their insurers alike. Our health clients should take note of these rulings when considering arrangements within their clinics, surgeries and hospitals and emphasise to their employees the importance of taking care and acting courteously and adhering to all anti-discrimination policies at all times - and particularly when in the health provider’s uniforms and on its premises.

What was the court considering?

In two appeals the court considered the kinds of relationship which could give rise to an employer’s liability and the necessary level of connection between the employment itself and the act in question.

While the test for vicarious liability remains the same (whether the wrongful act was undertaken in the course of employment and whether there was a sufficient connection between that and the employee’s expected duties) the realms of employers’ potential liability have been widened in a way which will render more employers (and their insurers) liable in more circumstances.

Mohamud v WM Morrison Supermarket plc

The judgment in the second of the two appeals, Mohamud v WM Morrison Supermarket plc, has been the better publicised of the two cases. A customer attending a supermarket petrol station was verbally abused by an employee who refused to serve him before telling him never to return to the premises, following him outside to his car and subjecting him to a serious attack. The customer had done nothing to initiate the incident. At first instance and in the Court of Appeal it was held that there was an “insufficiently close connection” between the employee’s actions and his job description for the employer to be liable: there was no reason for Morrisons to expect that the attendant would come into physical contact with the customer in the way that he did.

Nevertheless, the Supreme Court overturned these rulings. Although in his judgment Lord Toulson recognised it as “obvious that [the employee] was motivated by personal racism rather than a desire to benefit his employer’s business’ he stated that this was ‘neither here nor there’.”

The Supreme Court held that although the employee abused his position, there was indeed a sufficiently “close connection” between the employee serving the customers of the business and his wrongful act. It was therefore down to the employer to bear that risk.

The judgment will come as a comfort to those who bring claims due to suffering as a result of an employee committing a negligent or criminal act in the workplace. However, it is a warning and a concern for both employers and their insurers, who will now face having to compensate injured parties to whom they would not previously have been liable.

Employers and their insurers must now consider the “field of activities” entrusted to the employee in a broader and more rigorous sense, in view of their potential liability no matter how outrageous and seemingly unpredictable their employees’ behaviour might be.

Cox v Ministry of Justice

The other case, Cox v Ministry of Justice, considered the types of relationship which could give rise to vicarious liability and confirmed that the doctrine will not only apply to employees, but is potentially applicable in a wider range of environments and circumstances. This case concerned a Ministry of Justice employee in a prison catering team who was negligently injured by a prisoner working in the same team, but (as a prisoner) not technically employed. The lower court held that the relationship between the prisoner and the Ministry of Justice was not “akin to employment” and that the prison service could therefore not be liable. However this decision was overturned in the Court of Appeal in a decision that was then upheld in the Supreme Court.

The Supreme Court applied five different factors in determining the liability of the Ministry of Justice and stated that generally an employer “cannot avoid vicarious liability on the basis of technical arguments about the employment status of the individual.”

As a result of the judgment it is clear that the vicarious liability doctrine is potentially applicable in an extremely wide range of circumstances and that the key question is whether or not the employer takes on the risk of the wrongful act occurring by assigning part of the business’s activities to another.

Repercussions of the decisions

The doctrine is relevant to health employers and their insurers generally to the extent that it is likely to apply to most workers connected to a business entity unless they are entirely independent contractors who are working solely for their own recognisably distinct and independent business; the threshold is therefore low, and the employers’ and insurers’ consequent liability wide.

In terms of ramifications for health providers such as clinics, at first blush the decision appears to threaten current indemnity provisions: for example, how could consultant surgeons working for a clinic be seen as independent contractors working solely for their own distinct and recognisable business? Surely the aims and outcomes of their respective businesses are necessarily linked to the ultimate health of the patient? While this particular issue has not yet been addressed in the courts, in fact it is unlikely that it will affect the majority of arrangements: independent healthcare practitioners are almost always obliged to carry their own professional indemnity insurance and therefore, were a healthcare professional found to be liable, their own insurance would still respond.

Where we may see a shift is in the target of the claim – healthcare providers are seen to have “deeper pockets” than healthcare professionals even if the professionals do carry insurance and therefore more claims may seek to include the healthcare providers. However, to resolve this problem, the individual healthcare professional would then be required to provide the healthcare provider with an indemnity.

Conclusion

The cases highlight a new concern for employers and their insurers in the light of the first criteria applied by the court in considering whether the employer should be liable: whether or not they are more likely to have the means to compensate the victim.
Employers can take some comfort from the fact that Lord Reed stated that the factor was unlikely to be of “independent” significance in most cases, and expressly noted that “the mere possession of wealth is not in itself any ground for imposing liability” commenting tha “employers insure themselves because they are liable: they are not liable because they are insured.”

Moreover, for clinics who engage healthcare practitioners with their own PI insurance they are unlikely to witness any practical differences. If they find themselves involved in more disputes than previously, they should seek indemnities from their contractors. Yet in light of the extension generally, and the specific inclusion of the criterion, this may be a cold comfort. Whatever else is said, it is true that insurers and employers will now see themselves potentially liable in cases where previously they would have been protected and we advocate reiterating to all employees perhaps with an internal email campaign the importance of adhering to the terms of their contract and the fact that at all times they are representing the company.
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