Over the recent years both employers and recruitment agencies have become fearful of vicarious liability. Many recruitment agencies now believe that they are vicariously liable for the contractors they place and arrange insurance cover that includes vicarious liability. However, in many situations this is not the case. We explore the recent decisions of Barclays Bank plc v Various Claimants [2020] ('Barclays') and WM Morrisons Supermarkets plc v Various Claimants [2020] ('Morrisons') and how they have clarified vicarious liability, as well as what recruitment agencies can learn from them.

What is Vicarious Liability

Under the law of vicarious liability, an employer or recruitment agency can be held liable for the actions committed by their employee if the wrongful act (tort) is committed in the course of the employee's employment. Traditionally the law stated that a party cannot be vicariously liable if there is no employment relationship. Many recruitment agencies believe that if, for example, a party hires an independent contractor then the hiring party is generally not liable for the torts committed in the course of the independent contractor's work.

However, as the law has developed, a series of recent decisions have found the existence of vicarious liability outside of the employer/employee relationship. It was established that it is possible for vicarious liability to exist if the relationship is one that is “sufficiently akin to employment”.

In order to establish vicarious liability, there is a 2-stage test:

Stage 1: is there a relationship between the defendant and the wrongdoer which is capable of establishing vicarious liability? For example, does the wrongdoer have a contract of employment? This was addressed in the Barclays case.

Stage 2: is the employment sufficiently connected with the wrongful act or omissions? For example, how, when and why was the wrongful act committed? This is addressed in the Morrisons case.

Below we consider both cases and what impact they may have for recruitment agencies.

Barclays and Stage 1

This stage is focussed on establishing a relationship that is either an employment relationship or one that is “akin to employment”. While this is more straightforward where employees are involved, if the wrongdoer is a contractor or is seconded or if there is a multi-party employment chain, this stage can get very complex.

In the Barclays case, in 2015 around 126 claimants brought claims against Barclays bank for sexual assaults which were committed between 1968-1984. The alleged sexual assaults were committed by a self-employed doctor hired by Barclays to carry out medical examinations on potential new employees and also existing employees. By the time the claims were brought the doctor had died and the claims were no longer covered by his insurance.

Initially both the High Court and Court of Appeal found Barclays to be vicariously liable for the actions of the doctor, but this was overturned by the Supreme Court after Barclays appealed to this court. The High Court had based its decision on the fact that the alleged assaults took place as a result of activity done on behalf of the bank, for its benefit and under its control (as Barclays had instructed the doctor to carry out the examinations). The judge also considered the previous decisions which put forward policy factors including that Barclays was in a better financial position to compensate the victims and held that the relationship was akin to employment. The Court of Appeal dismissed the appeal.

However, the Supreme Court held that the doctor was in fact self-employed and not in a relationship akin to employment. The factors that pointed away from an employment relationship included that:

  • The doctor had his own portfolio of clients (not just Barclays) and also worked as a medical practitioner;
  • The doctor did not have a retainer and he could refuse work from Barclays;
  • The doctor had his own medical liability insurance;
  • Barclays used many other independent contractors and the doctor was considered one of them.

The Supreme Court emphasised that the first part of the test of establishing vicarious liability is, and always has been, whether the wrongdoer was carrying on business on his own account. The various policy factors set out in previous decisions may be relevant in doubtful cases but where it is obvious that there is no employment relationship then they do not need to be considered.

The decision in this case has made it clear that the key question is whether there is an employment relationship or a relationship which is akin to employment, however if the wrongdoer is genuinely self-employed there can be no vicarious liability. This point will surely provide some relief to recruitment agencies supplying self-employed contractors.

Morrisons and Stage 2

If it is established that there is an employment relationship or a relationship “akin to employment”, then it is necessary to move onto the second stage of the test, which is whether or not the wrongful act is sufficiently connected to the employment itself.

In the case of Morrisons, an employee (Skelton) who worked in the internal audit department unlawfully copied and leaked data (including payroll information) relating to Morrisons employees. Skelton was unhappy that he had received a disciplinary at work and he also wanted to frame a colleague. Some of the employees who had their information leaked argued that Morrisons was vicariously liable for the actions of Skelton and brought a case against Morrisons.

Clearly there was an employment relationship between Morrisons and the wrongdoer in this case, so the focus was whether the employment was sufficiently connected with the wrongdoing.

While Morrisons was initially found to be vicariously liable, the Supreme Court overturned this after Morrisons took their case further through the courts and found that Morrisons was not liable for Skelton's actions. Skelton had not been authorised to disclose data to everyone (he was supposed to provide the data to KPMG), and the mere fact that his employment gave him an opportunity to do the wrongful act did not mean that Morrisons was responsible. Furthermore, the information was posted on a non-working day and he attempted to conceal his identity rather than identifying himself as an employee.

The two main points considered by the Supreme Court in finding Morrisons not liable were:

  • The employee's field of activities – i.e. what functions the employee had; and
  • Whether there was sufficient connection between the wrongful act and the employment.

In addition, while many believed that previous case law set a precedent that motive was not a relevant factor, the Supreme Court clarified that the wrongdoer's motive was a relevant factor. However, motive had to be seen in the context of the case, i.e. whether the reason was personal (as was the case here) or whether it was to further the employers' business.

Key points for recruitment agencies and employers to consider from this case in deciding whether they are potentially vicariously liable would be:

  • Whether the actions of the employee were within their field of activities,
  • Whether there is sufficient connection between the wrongful act and the employment,
  • Whether the employee was on the job and acting within their role,
  • What the employee's motive was.

Implications of the decisions

The decisions in Barclays and Morrisons are reassuring for both recruitment agencies and insurers as they clarify the limits of vicarious liability and address some of the uncertainty previous decisions had created.

It is possible that rather than settling claims, both insurers and recruiters may be more willing to take the risk of going to court to defend themselves. It may also discourage prospective claimants from bringing vexatious claims which have low prospects of success.

However, while both cases have curtailed the previous case law somewhat, it is important to note that each case will have to be judged on its own facts and it is important not to jump to conclusions.

We are also awaiting decisions such as that of Uber, which will have very far-reaching repercussions for employment status and the gig economy. It may be that vicarious liability will be challenged further once more case law emerges on employment status, and it is possible that vicarious liability will be aligned closer to employment status, but we have to await those judgements.

It is also worth bearing in mind that regardless of vicarious liability, you may have contractual liability, such as an indemnity to the other party. While this is a separate claim in contract, you may end up paying the fees for another party's vicarious liability regardless of your own liability in law.

Often recruitment agencies as asked to sign contracts that extend to include the actions of the contractors as well and makes the agencies contractually liable for the temporary workers they place.  This is sadly becoming more common and can cover can easily be arranged in your insurance policy.  This is something we often arrange at Lockton with the bespoke recruitment policies we arrange for agencies.  To find out more about our services, get in touch with us.