Vicarious Liability

15 Apr Vicarious Liability

In a number of jurisdictions employers can find themselves vicariously liable for the actions of their employees if they do not take steps to minimize the risk of harassment or discrimination from occurring in the workplace.  Whilst an employer’s obligations do vary depending on the jurisdiction, increasingly Courts are making Orders against employers and in some cases, Directors personally, where the Court has formed the view that the employer or the company Directors have caused a breach to occur, or have not taken enough steps to minimise risk, or have not adequately dealt with a matter once they have become aware of an issue.

Vicarious liability is the liability of an employer to third parties for the tortious acts of an employee which the employer through their actions or inactions explicitly or impliedly authorises. The acts must be committed in the course of employment, while the employee is acting within the scope of their authority and performing the employment related duties, or be acts incidental to the employment related duties.  Essentially an employer can be found to have a financial liability as a result of the actions of an employee towards another employee even if they did not directly contribute to the unlawful conduct.

Three recent high profile cases demonstrate the issue and the risks faced.

In Trolan v WD Gelle Insurance and Finance Brokers Pty Ltd [2014] NSWDC 185 the employer was found vicariously liable for the sexual harassment experienced by an employee by a company Director. 

In this case the employee reported the harassment to the other company Director who was also the perpetrator’s wife.  She stated that she would sort the matter out but did not take any action and the behavior continued.  The complainant eventually suffered a psychological injury.

After hearing the matter, the Court ruled that the complainant had established her claim and she was awarded $733,723.00 in damages and costs. 

In Richardson v Oracle [2014] FCAFC 8 the Full Bench of the federal Court increased a lower Court’s decision in relation to the quantum of damages payable in an incident of sexual harassment.  Damages in this case were increased from $18,000.00 to $130,000.00 with the Court noting in its decision that the way damages should be calculated now reflects a better understanding by the Court as to the effect of sexual harassment on the victim than was previously the case. 

This case clearly indicates that the expectations of the Court are higher than may have been the case previously and that compensation where a breach can be demonstrated is likely to be significant if an employee has suffered an injury as a result of the unlawful conduct.

In the final case of Sagona v R & C Piccoli Investments Pty Ltd & Ors [2014] FCCA 875, an employer that discriminated against an employee who became pregnant was fined $61,000.00 and had compensation of $174,000.00 ordered against them.

This case is important because the Court made a number of Orders in relation to the judgement.  There were fines levied against the individual company owners in their own names as well as the company itself.  These fines were made payable to the former employee personally and not consolidated revenue.  In addition, the business owners as well as the company were made personally liable for the payment of the compensation component of the judgement.

This judgement continued the recent trend of having company Directors or even managers joined into legal actions where it can be demonstrated that they have caused a breach to occur.

This very substantial monetary judgement was made against a small family business indicating that the Courts will not place significant weight on the size or financial capacity of the business when determining penalties and compensation.  If a breach occurs and penalties and compensation flow as a result of that, the amounts will be based upon the nature of the breach when it comes to penalties and the loss suffered by the employee, however, so defined, when it comes to compensation.

There is clear trend emerging in relation to the risk faced by businesses and their Directors and managers in many employment related areas.  These risks can be substantially and effectively managed by businesses taking fairly straightforward risk mitigation procedures.

If you would like assistance to implement these risk management strategies, please contact our office to discuss your options.