What the hell is vicarious liability?

Vicarious liability is a legal term of which all employers and business owners should be very aware of and your vicarious liability should always be taken into consideration when making any business decision that involves having others conduct an activity on your or your business’ behalf.

Vicarious liability has two essential characteristics. 

1) It is liability for the negligence of another person or entity.  

2) It is strict liability — (liability without need of proof of fault) 

A person can be vicariously liable for the negligence of another no matter how careful the person was in all relevant matters, such as choosing and supervising the other.

The basic rule of vicarious liability is that an employer is vicariously liable for the negligence of an employee provided the employee was acting ‘in the course of employment’. The law about the meaning of the concepts of ‘employee’ and ‘course of employment’ is complex.

It is important to note that the vicarious liability of the employer is additional to the ‘primary’ liability of the employee for negligence. 

In other words, both the employer and employee can be held — ‘jointly and severally’ liable. The common law implies in the contract of employment a term to the effect that the employee will perform the contract with reasonable care.

On the basis of this term, the employer is entitled to recover from the employee a contribution to any damages which the employer is liable to pay to the person injured or killed. If the employer was not negligent at all, it will be entitled to be fully indemnified by the employee.

In some Australian jurisdictions, there is legislation that provides (in certain law of negligence) that only the employer is liable, not the employee.

In some jurisdictions there are also statutory provisions that remove the right of the employer (in certain types of case) to recover contribution or an indemnity from the employee.

The most widely accepted justification for vicarious liability is that, because the employer receives the benefit of the business being conducted, the employer should also be required to bear risks attendant on the business. 

However, this justification is hard to reconcile with the employer’s right to contribution or an indemnity. For this reason, many view vicarious liability simply as a form of liability insurance, intended primarily for the protection of plaintiffs, and not based on principles of personal responsibility.

Apart from the relationship of employer and employee, vicarious liability can also arise out of the relationship between ‘principal’ and ‘agent’. The concept of ‘agency’ is a vague one, but it rests on the idea that a person who does something at the request, and for the benefit, of another does it as agent for that person.

So how does this all relate to me as I use sub-contractors not employees you may say.

Simple. If you have engaged the sub-contractor to conduct business on your behalf, then you also retain liability as they are conducting the business for you.

Vicarious liability has the potential to affect any business and or individual. We would urge every business owner to have a discussion with regards to their liabilities and how their current insurance policies would respond to vicarious liability.  

Please call us TBI Insurance or your own broker to discuss some ways in which you can better prepare yourself and your business for a potential vicarious liability claim.

Extract Source; https://treasury.gov.au/sites/default/files/2019-03/R2002-001_NonDelegable.pdf. Important: All answers and information contained within this article should be considered as General Advice Only. This advice should only be considered as General in Nature and its intent is only to prompt the readers to investigate their own individual insurances. It has been prepared without taking into account the readers own individual objectives, financial situation or needs. Because of that, before acting on the above advice, the client or any persons should consider its appropriateness (having regard to their objectives, needs and financial situation) and seek further independent advice from their own financial advisor.

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