In three recent cases with very different facts, the Court of Appeal has considered vicarious liability – a tricky concept which is often misunderstood. In two cases the court has made findings of vicarious liability against employers for employee misconduct outside the workplace/outside working hours; and in another the court has confirmed the correct test for determining vicarious liability for a contractual agent’s fraudulent misrepresentation. Commercial Dispute Resolution specialist Lynsey Oakdene explains.
What is vicarious liability?
‘Vicarious liability’ is a legal concept under which employers or contractual principals can be found liable for the wrongful acts of their employees or agents.
Employee misconduct context
In the employment context, there must be a ‘sufficient connection’ between the employee’s wrongful act and the employee’s employment that it would be fair to hold the employer vicariously liable for its employee’s actions. This involves the court investigating the factual circumstances, including what duties/activities were entrusted to the employee; and was there a sufficient connection between the employee’s position and the wrongful conduct so as to make it just and reasonable [1] for there to be vicarious liability?
In December 2011, Northampton Recruitment Ltd held its Christmas party at a golf club. The party was attended by many staff including a sales manager called Mr Bellman and the company’s managing director, Mr Major. The party ended at around midnight, but some staff took taxis to a hotel bar (paid for by the company) and continued drinking. At around 3 am Mr Major and Mr Bellman became involved in an argument about work. Mr Major punched Mr Bellman twice which led to Mr Bellman falling and hitting his head on the ground. Mr Bellman’s skull was fractured, leading to severe brain damage. Mr Bellman sued the company on the basis of vicarious liability [2].
The Court of Appeal found for Mr Bellman, deciding that there was a sufficient connection between the employment and the assault because:
- Mr Major was the MD of the company and was very autonomous and dominant in this role.
- The Christmas party had been paid for and organised by Mr Major.
- Mr Major had offered to pay for taxis to take staff to the nearby hotel bar after the formal party ended.
- At the hotel bar, the company paid for the majority of the drinks consumed.
- The attack occurred immediately after an altercation about work because Mr Major had become angry that his decisions were being questioned.
- Mr Major had made comments to the staff whilst at the bar that the company was ‘his business’, he paid their wages and he got to make the decisions.
In the recent Morrisons case [3], the supermarket lost its appeal against a High Court ruling that it is vicariously liable for the actions of one of its former employees who deliberately leaked payroll data relating to almost 100,000 employees.
Morrisons submitted on appeal that the sufficient connection test was not satisfied, since the wrongdoing that caused the harm was done by the individual at his home, using his own computer, on a Sunday, several weeks after he had downloaded the data at work on to his personal USB stick. However the Court of Appeal agreed with the High Court that there was an “unbroken thread” linking the individual’s work to the disclosure of the data. The Court of Appeal also gave short shrift to the submission that, given the number of employees affected, a finding of vicarious liability would place an enormous burden on Morrisons (and on other innocent employers in future cases).
Contractual principal/agent context
Businesses should be aware that vicarious liability also arises in a commercial contract context, where businesses (or contractual principals) may become vicariously liable for the acts of their agents or representatives. A common scenario is where an agent or representative makes fraudulent representations in the context of arranging a deal.
That is what happened in James Scott Winter v Hockley Mint Ltd [4], when the Court of Appeal confirmed that the correct test, in this context, is the ‘ostensible authority’ test. Ostensible (or ‘apparent’) authority is the authority of an agent as it appears to others. So a principal will only be liable for the deceit of his agent if there has been a holding out or representation to the claimant (which was intended to be and was in fact acted upon by the claimant), that the agent had actual authority to do what he or she did, or that what was done was within the usual scope of the agent’s ostensible authority [5].
In such cases it is important to note that actual authority can arise from the express conferring of authority by the principal on the agent to enter into a particular transaction, or a class of transactions; or it can be implied from the conduct of the parties and the circumstances of the case.
Conclusions and practical lessons
These three very different cases highlight to businesses:
- The correct test as to whether a business could face vicarious liability differs subtly depending on the particular legal relationship between the parties involved; and
- Both the employer/employee ‘sufficient connection’ test and the principal/agent ‘ostensible authority’ test can have a very wide reach and can apply in hugely varying factual scenarios.
So, are there any practical lessons for businesses to take away?
The Bellman case was an unusual case of a Managing Director trying to assert his authority at work by using physical aggression outside of work. It does not set a precedent that vicarious liability will always arise from an assault following an argument about work because it will always depend on the specific facts of the case. To emphasise this point, the Court of Appeal stated that its decision was “not authority for the proposition that employers become insurers for violent acts by their employees”. The decision does, however, make clear that employers can be vicariously liable for wrongful acts outside of the normal employment environment and hours.
Businesses should therefore remind staff that any harassment or verbal or physical aggression by or between employees either within or outside the working environment or during or after working hours could lead to disciplinary consequences.
It would also be prudent, in light of the Morrisons decision, for businesses to review their existing policies and procedures and to consider imposing strict[er] internal controls to guard against the risk of employees ‘going rogue’ – especially in those parts of the business where employees are regularly entrusted with personal data and confidential or sensitive information.
In the agency context, businesses should make sure that their contractual arrangements clearly and expressly define the scope and extent of authority conferred upon any agents. Businesses should also carry out regular training (in relation to both the legalities and practicalities of the agency arrangement itself and as to the law of misrepresentation more generally) and perhaps even undertake spot checks to ensure that agents and representatives are working within permitted and acceptable parameters.
Finally, businesses should check the terms of their insurance to ensure that they are adequately protected, should any vicarious liability claim arise.
If you would like any advice, assistance or training on any of the vicarious liability or agency issues covered in this briefing, please do not hesitate to context Lynsey Oakdene or any member of Walker Morris’ Commercial Dispute Resolution Team.
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[1] In Mohamud v WM Morrison Supermarkets plc [2016] UKSC 11 the Supreme Court said that the question of whether it is ‘just and reasonable for there to be vicarious liability’ should be considered in line with the principle that businesses should bear the loss caused by business related risks materialising, including the risk of an employee misusing his or her position.
[2] Bellman v Northampton Recruitment [2018] EWCA Civ 2214
[3] WM Morrison Supermarkets Plc v Various Claimants [2018] EWCA Civ 2339
[4] [2018] EWCA Civ 2480
[5] Armagas Ltd v Mundogas S.A. The Ocean Frost [1986] 1 A.C. 717 (HL)
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