Vicarious Liability: Can Employers Be Sued for Staff Actions?
When running a business in Australia, one legal concept often overlooked until it becomes a problem is vicarious liability. Under Commercial and Corporate Law, an employer can be held legally responsible for the actions of their employees — even if the employer did not directly commit the wrongdoing.
This article explains what vicarious liability means, when it applies, and practical steps businesses can take to protect themselves.
What is Vicarious Liability?
Vicarious liability is a legal principle where one party (usually an employer) is held responsible for the actions or omissions of another (usually an employee), provided these actions occur in the course of employment.
In Australia, this concept is applied to ensure that victims of wrongful acts have a practical means of obtaining compensation and that businesses are incentivised to supervise and train staff properly.
The Legal Basis in Australia
Under Australian Commercial and Corporate Law, vicarious liability stems from both common law principles and specific statutory provisions.
Courts look at whether:
The wrongful act was committed by an employee (not an independent contractor).
The act occurred during the course of employment.
The act was sufficiently connected to the employee’s role.
For example, if an employee negligently injures a customer while performing their work duties, the employer may be held liable.
Examples of Vicarious Liability
Workplace Negligence - If a warehouse worker operates a forklift unsafely and causes damage or injury, the employer can be sued for the harm caused.
Discrimination or Harassment - Employers can be liable for unlawful discrimination or harassment carried out by employees in the workplace, even outside working hours, if there is a sufficient connection to work-related events.
Misrepresentation - If a sales representative provides false information that misleads a client, the company could face legal consequences.
Why Employers Are Held Liable
The rationale behind vicarious liability is twofold:
Control - Employers are in a position to supervise, train, and influence employees.
This aligns with the principle that those who profit from a business activity should also bear the risks associated with it.
Defences Against Vicarious Liability
While employers cannot contract out of vicarious liability entirely, there are measures to limit exposure:
Reasonable precautions: Demonstrating that you took all reasonable steps to prevent misconduct (e.g., anti-bullying policies, staff training).
Clear employment policies: Well-drafted policies that outline acceptable behaviour and consequences.
Regular audits and monitoring: Checking compliance with procedures and safety requirements.
However, even with these measures, courts may still impose liability if the connection between the employee’s conduct and their employment is strong.
Independent Contractors vs Employees
It’s important to distinguish between employees and independent contractors. Generally, employers are not vicariously liable for the actions of independent contractors. However, there are exceptions, such as when the law imposes a non-delegable duty — for instance, ensuring workplace safety or preventing discrimination.
How to Reduce the Risk of Vicarious Liability
Proactive risk management is key. Consider these steps:
Invest in training - Regularly update employees on workplace safety, ethics, and compliance.
Implement robust HR policies - Cover areas like harassment, discrimination, social media use, and customer interaction.
Supervise staff activities - Particularly in high-risk roles such as sales, customer service, and equipment handling.
Review insurance coverage - Ensure your public liability, professional indemnity, and directors’ and officers’ insurance policies are adequate.
Respond quickly to complaints - Address misconduct promptly to prevent escalation.
The Role of Commercial and Corporate Law Advisors
Specialist lawyers can assess your risk exposure and help implement legal safeguards. This might include:
Drafting compliant employment contracts.
Reviewing operational practices.
Advising on regulatory compliance.
Representing you in disputes or claims.
Protect your business from unexpected legal claims.
Our Commercial and Corporate Law specialists can help you understand your obligations, draft protective policies, and safeguard your company’s reputation.
