Case update (1): Employer’s liability – it’s more likely…

What do we already know?

We updated you in our March 2016 Newsletter Employers liability – it’s more likely… on two Supreme Court decisions which demonstrated an increasing willingness by the courts to hold an employer liable for the actions of its staff.

The Supreme Court adopted a two stage test for liability which considered whether the relevant relationship was one of employment (or sufficiently similar to employment) and whether the act was sufficiently closely connected with that employment.

 

What’s new?

The two stage test adopted by the Supreme Court has been applied by the Court of Appeal to create vicarious liability for the conduct of a third party independent contractor.

Summary:  Is an employer liable for the wrongful acts of an independent contractor?

Yes, if the relationship between the parties is employment (or akin to) and the wrongful act was sufficiently closely connected to that ’employment’, confirms the Court of Appeal in Barclays Bank plc v Various Claimants available here.

Facts:  The late Dr Gordon Bates conducted medical examinations and assessments on behalf of Barclays Bank from 1968 until 1984.  The medical exam was an essential part of offers of employment with the bank and prospective employees had no choice but to have it. There was a set fee paid to Dr Bates for each examination (he would fill in a proforma provided by the bank).

Dr Bates was later found to have engaged in inappropriate examinations requiring the individuals to strip down to their underwear and examined their breasts and/or digitally penetrated the anus or vagina.

Victims claimed that the bank were vicariously liable for the actions of Dr Bates as an employee.

The bank denied he was an employee or in a situation akin to employment. He was instead an independent subcontractor and, as such, liable only on his own part.  Unfortunately, whilst Dr Bates had substantial assets, they could no longer be fixed on.

The High Court considered the preliminary issue of whether Barclays Bank was vicariously liable for the sexual assaults by Dr Bates.

The High Court considered the two stage test as set out in previous case law:

1. Is the relevant relationship one of employment or “akin to employment”?
2. Was the wrongful act sufficiently closely connected with that employment?

On applying these tests, the Court found Barclays liable for the conduct of Dr Bates.

Barclays appealed to the Court of Appeal on the basis that the application of stage 1 of the test was incorrect and on the basis that Dr Bates’ status as an independent contractor was a complete defence to the claim.

The Court of Appeal upheld the High Court’s decision and held that Barclays was vicariously liable for the alleged sexual assaults carried out by Dr Bates.  The Court of Appeal rejected the submission that Dr Bates’ status as an independent contractor was a defence to the claim. The Court of Appeal emphasised that the correct method is to apply the two-stage test to the particular facts of the case.

On doing so, the Court of Appeal found as follows:

• The principal benefit of the medical examinations was to Barclays. For example, the medical examinations were an essential part of the recruitment process which was a business activity integral to the business.
• Barclays had created the “risk” of the act being committed as it had arranged for the medical examinations to be carried out solely by the doctor and provided the victims with details of where and when to attend.
• Dr Bates was under the control of Barclays. For example, Barclays had identified the questions to be asked, the nature and purpose of the examinations to be undertaken and the form of report that had to be completed. The victims were also directed to that particular doctor for an assessment, which was a condition of the offer of employment.
• Although Barclays had more means to compensate the victims (as compared with the distributed estate of the doctor), the High Court was right to give little weight to this criterion.

Although the second stage of the test was not appealed by Barclays, the Court of Appeal reiterated that the “medical examinations were sufficiently closely connected with the relationship between Dr Bates and the Appellants [Barclays]. They were the whole purpose of that relationship.”

Implications:  This case confirms that the existence of an independent contractor is not a defence to a vicarious liability claim. Employers need to be very careful when choosing third party providers, such as occupational health and medical experts, and should carry out a full and proper due diligence exercise. Employers should also ensure they include indemnities in agreements and/or insure against liability for their actions.