Guide to vicarious liability

One of the meanings of ‘vicarious’ is to act or do something on behalf of another. Unfortunately, employees or others sometimes act wrongly without your knowledge, meaning you could become ‘vicariously liable’ for their actions. This article looks closely at vicarious liability, its complexities, and how you can protect your business from expensive claims and large legal bills.

What is vicarious liability?

Vicarious liability is a legal concept that means one party is responsible for the wrongful actions of another party. It is most often encountered when employers are held ‘vicariously liable’ for the actions of their employees, or certain other people acting on their behalf. Examples of vicarious liability include:

Employer-Employee: An employer can be liable for the negligence, harassment, or infringement of an employee in the course of their work.
Partnership-Partner: A partner can be liable for the debts, contracts, or torts of another partner acting on behalf of the partnership.
Parent-Child: A parent can be liable for the injuries caused by their child if they failed to supervise or control them.
Corporation-Directors and Officers: A corporation can be liable for the fraud, breach of duty, or misrepresentation of its directors or officers.

Vicarious liability isn’t always easy to define, which means it can result in employers fighting long and expensive legal battles. For example, WM Morrison’s Supermarkets was found vicariously liable for an employee’s assault on a customer in 2016, with the case spending eight years going through the Supreme Court.

In another case, the same supermarket chain was not found vicariously liable for a rogue employee’s data breach. Although the employee copied payroll data onto a USB in late 2013 and shared it widely in 2014, the case took a long time to go through the courts. The Supreme Court issued its final judgement in the case in November 2019.

Whatever the outcome, vicarious liability cases can be extremely complex and expensive for employers to defend. This is why many employers protect themselves with insurance cover for the financial and reputational costs of such a legal case.

What are the legal tests for vicarious liability?

Two legal tests are applied to determine whether an employer is vicariously liable for someone’s actions. These are the ‘relationship test’ and the ‘close connection’ test.

The relationship test

The relationship test means that, for an employer to be vicariously liable for someone’s wrongdoing, a particular kind of relationship must exist between the two. If the wrongdoer is a direct employee or in a position akin to employment, this test will be passed. Someone who is in a position akin to employment is what the courts define as a ‘quasi employee’. This could, for example, be a building contractor working exclusively for you. On the other hand, if the wrongdoer is a fully independent contractor, this test will fail.

The close connection test

This test means the wrongdoer’s conduct must be closely connected with their employment (or quasi-employment) and to conduct authorised by the employer. If not, this test will fail, and the employer will not be vicariously responsible. So, for example, if an employee wearing a shirt with your company name and branding harasses someone while they are not at work or undertaking duties on your behalf, you are unlikely to be held vicariously liable.

What’s the difference between vicarious, strict, and direct liability?

As you’ve seen, vicarious liability is when one party (usually an employer) is held liable for the wrongful actions of another party (usually an employee). This differs from two other forms of liability – strict liability and direct liability.

Strict liability is when a party can be held liable for damages, even if they didn’t mean wrongdoing or to break the law. For example, if a manufacturer supplies a defective product that injures someone, it may be held strictly liable.

On the other hand, direct liability is where a party is held responsible for their own wrongful actions. So, if a person is caught driving a car under the influence of alcohol, they will, in almost every circumstance, be held directly liable.

Are employees liable for their own actions?

Yes, employees can be held liable for their own actions. This is particularly so in cases of intentional misconduct or negligence. For example, if an employee undertakes fraudulent activity or breaches contractual obligations, they can be held liable for their own actions.

However, many cases are not clear-cut and can often take years to resolve in the courts. In 2022, the High Court ruled that Tarmac was not vicariously liable for an employee prank. One worker had hit two pellet targets with a hammer, causing a loud bang that resulted in another worker suffering a perforated ear drum and hearing loss. Tarmac was not deemed vicariously liable because the pellet target was not work equipment (it was brought onto site by a worker) and what the wrongdoer did had no connection with his work duties. While a relief for Tarmac, the incident occurred in 2014 and was not resolved by the courts until 2022.

In short, while employees can be held liable for their own actions, this doesn’t necessarily prevent employers from having to defend vicarious liability cases.

Potential consequences of vicarious liability

There are two main consequences of being the subject of vicarious liability claims. These are financial and reputational.

Financial consequences

If your business gets caught up in a vicarious liability claim, there will likely be financial ramifications. These include:

Damages and settlements. If found vicariously liable for someone’s wrongful actions, you could be forced to pay damages, settlements or compensation.
Legal costs. As we’ve seen in this article, some vicarious liability cases spend years going through the courts before they’re settled. Even a single court case can leave you open to significant legal costs.
Regulatory costs. If you are found vicariously liable for things like health and safety breaches, you could face fines or the cost of compliance measures.
PR and crisis management. Some vicarious liability cases have the power to seriously damage your reputation. That means you’ll need to bear the cost of PR and crisis management.

Reputational consequences

Some vicarious liability claims could significantly affect your reputation, especially if they involve discrimination, fraud, harassment, or other unethical behaviour. Chief among them are:

Loss of public trust. Unwanted media attention can erode trust in your brand and drive customers or clients elsewhere.
Recruitment issues. Employees may start looking elsewhere for work and you may face issues recruiting new staff if your reputation as an employer is damaged.
Supplier issues. Suppliers may disassociate themselves from you, especially if they feel their own reputation could be damaged.
Investment problems. You may find it hard to attract investment, or current investors may pull out.
Viral backlash. Some cases could become the subject of a viral backlash online, intensifying the damage to your brand and significantly eroding your business’ performance.

What is vicarious liability in insurance?

Some types of insurance will cover you against the cost of vicarious liability claims. You can tailor the cover you need to protect you against legal costs and settlements if you are sued because of the actions of your employees, agents, contractors, partners or directors. While your business may not be found liable if a vicarious liability claim is brought against you, the cost of defending a claim and the length of time it can take can be a burden on many businesses. Below are some of the key types of cover to consider.

Professional indemnity insurance

Professional indemnity insurance (sometimes called errors and omissions insurance) provides protection if you give mistaken professional advice, designs, or services. For example, imagine you have a small marketing firm and you regularly contract the services of a web designer. If they used unlicensed pictures on a client’s website and were sued by the image owners, the client may pursue a vicarious liability claim against you. Professional indemnity insurance can cover you against this eventuality.

Public liability insurance

Public liability insurance protects you if a member of the public suffers a loss, damage to property, or injury as a result of dealing with your company. For example, think of a construction firm that hires contractors on a building site. If the negligence of a contractor meant that an object fell off scaffolding and injured a member of the public, you could be sued for vicarious liability. The right public liability insurance could cover against such a claim.

Directors’ & officers’ insurance

Directors and officers of a company can be held personally and vicariously liable for the actions of their employees. For example, if an employee engaged in harassment or discrimination, a director could be sued personally for failing to prevent the behaviour. In this case, directors’ and officers’ insurance could protect them against a vicarious liability claim and protect their personal assets.

Employment practices liability insurance

This type of insurance is designed to protect you against claims by current and ex-employees for breaches of employment law. For example, if a manager engaged in discriminatory practices unauthorised by you, your company could be vicariously liable for a constructive dismissal claim. To learn more about how this cover works, see our page on employment practices liability insurance.

As you’ve seen, vicarious liability can be a complex issue. Many cases of alleged vicarious liability have taken years to pass through the courts and be decided, landing accused companies with large financial bills and reputational damage. Fortunately, with the right types of insurance, you can cover yourself against the cost of defending many vicarious liability claims.

Find out more

To learn more and get advice on tailoring insurance cover to your business’s needs, talk to a member of our team.

Speak to us: 01603 218000

Please note, Alan Boswell Group does not provide legal advice.

In this article

In this article

What is vicarious liability?