Understanding Vicarious Liability In The Business World

As an employer, there’s a lot of things you're responsible for. Ensuring the business is being run well, your employees are safe and customers are satisfied is just a few of the responsibilities you happily shoulder.

However, your responsibilities as an employer don’t just end with what you did or didn’t do. In some cases, you will also be held liable for the actions of your employees. This is known as vicarious liability.

Understanding vicarious liability is essential for business owners so they can protect their interests and ensure compliance with the law. Let's take a look at the key aspects of vicarious liability, from its definition to its application in various business scenarios.

What Is Vicarious Liability?

Vicarious liability assigns liability to one party, for the actions of another, third party. In the business world, vicarious liability is often seen in an employer- employee relationship, where the employer can be held responsible for the actions of their employee.

When vicarious liability is applied, it doesn’t mean the employee isn’t liable at all. Rather, the employer shares in the liability and both of them are subject to consequences.

Let's see how this might play out in a real world example.

Example Taylor is a senior manager in a tech startup. Jenna has been working in Taylor’s team for the past 3 months. Still being relatively new to the job, Jenna makes a mistake which ends up impacting a client negatively. In this case, both Taylor and Jenna can be held liable for the mistake.

The same concept applies in another scenario.

Example Abby works in a small grocery store owned by Jared. Part of Abby’s responsibilities is checking the expiry date on foods prior to placing them on the shelves. One day, Abby forgets to do this and sells an expired product to a customer who gets sick from it. Even though the mistake was Abby’s, Jared can also be held liable for the customer getting sick as vicarious liability might be applicable in this scenario.

What Does The Law Say About Vicarious Liability?

According to New Zealand legal principles, vicarious liability cannot be applicable at all times and on every single occasion. For instance, if an employee is discriminating against and bullying another employee, then that behavior falls entirely on them. 

However, if it is found that the employer did not take reasonable measures to stop the bullying and discrimination, then they can also be held responsible through vicarious liability.

The legal framework regarding vicarious liability is likely to depend on a number of factors that centre around the specific incident taking place. Therefore, it’s best to talk to a legal expert to clear up any questions regarding vicarious liability. 

Is Vicarious Liability The Same As Strict Liability?

No, strict liability and vicarious liability are not the same concept. As we’ve mentioned, vicarious liability places a certain amount of blame on another party if they are found to have some fault in the matter as well.

Therefore, while employers can be subject to sharing the blame for the actions of their employees, you will generally need to establish the employer's hand in the matter. For example, an employer can have vicarious liability if they are found to have not properly trained their employees, which resulted in a serious mistake.

Strict liability on the other hand, is liability without proof or fault. This means that a party will be held liable if harm or negligence has occurred whether or not they were directly responsible for the incident.

How Do You Prove Vicarious Liability?

In order for an employer to be subject to vicious liability, a few things need to be established first. These are:

• Employer-Employee Relationship: An employee needs to be acting on behalf of the employer in order for vicarious liability to apply, so an employer-employee relationship is essential
• Scope of Employment: The act of harm or negligence is required to have occurred while the employee was engaged in their work- if it was outside of their scope of responsibilities, then the employer cannot be held responsible
• Reasonable Foreseeability: If an employee commits something unexpected that is beyond the control of the employer, then there’s a low chance of vicarious liability applying. In order for vicarious liability to stand, the employer needed to have been able to reasonably foresee the incident occurring
• Action Taken Beforehand: Likewise, vicarious liability will also depend on the actions the employer took prior to the incident. If they had taken reasonable steps within their power to prevent the employee's actions, then there’s a good chance they can’t to be held under vicarious liability

Does Vicarious Liability Apply To Independent Contractors?

Your vicarious liability towards independent contractors is likely to depend on the Contract you have with them. As independent contractors are not internal employees of the company, rather they are external employees that either work for themselves or another employer, they are generally responsible for their own actions. However, this can be dependent on a number of different factors. 

It’s wise to have your Contractor Agreements prepared and reviewed by a legal expert. That way, you’ll be able to properly distinguish between a contractor and an employee. Additionally, the legal agreement you have in place with your contractors can cover who will be personally responsible for what, which is a great way to limit any potential liabilities.  

As An Employer, How Can I Manage My Vicarious Liability?

As you’ve probably noted when reading the article, taking reasonable steps to prevent something bad from happening is the best way to manage your vicarious liability as an employer.

Getting a strong Workplace Policy in place and making sure each Employee has access to their own Staff Handbook can help in ensuring your employees are well aware of what’s expected of them. As an employer, it’s your responsibility to make sure your employees have all the resources unnecessary to aid them in doing their job to the highest standard possible. Providing them with the right legal documents to achieve this, is a step in the right direction. 

Next Steps

If you’re an employer, managing your vicarious liability is essential. Talk to a legal expert today about the best way to ensure you don’t run into any trouble down the line. To summarise what we’ve discussed: 

• ​​Vicarious liability holds employers responsible for their employees' actions
• It does not absolve employees of liability. Both employer and employee may be held accountable
• Vicarious liability's applicability varies based on factors like the specific situation and employer actions
• It differs from strict liability, which holds parties liable without proof of fault
• To prove vicarious liability, an employer-employee relationship, scope of employment, foreseeability, and actions taken beforehand must be established
• Vicarious liability's application to independent contractors depends on contract terms and legal agreements
• Legal experts can help distinguish between contractors and employees and limit liabilities through contracts
• Managing vicarious liability involves creating strong workplace policies and providing employees with resources
• Seeking legal advice is crucial for employers to navigate vicarious liability effectively

If you would like a consultation on your options moving forward, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.