The Personal Liability of Employees and Sub-Contractors
Professional person Any professional person owes their clients a personal duty. If this is breached, they can be held personally liable for any loss or damaged caused. Mostly, an employer is obliged to cover any liability and there is usually an insurance policy available to cover individual professionals. However, this is not always the case.
Negligence by an Employee Most litigation involves plaintiffs suing solvent and well-resourced employers and their insurers, rather than suing an individual person. For the most part, naming an individual as a defendant makes no difference to a claim. The reality is that the professional indemnity policy of the employer will usually cover the company and the employee.
An Employee’s Right to Indemnity An employer is not obliged to indemnify an employee. But if an employee is insured, they cannot be the subject of a recovery action by the insurer of the employer.
However, there are some points to note: •
There are exceptions for serious and wilful misconduct by an employee, and in these cases, the employee is not entitled to indemnity from an employer. Employers can take action against employees who have engaged in such conduct – for example, theft or other dishonesty offences. An employer that has paid an excess because of professional negligence of an employee can, if it wishes, ask the employee to pay the excess. If an employee is sued separately, the employer does not have the obligation to pay the employee’s legal expenses.
Employment Contracts Professional employees should insist that their contract of employment includes that the employer will:
• • •
Organise professional indemnity insurance to cover any and all liabilities incurred by the professional during the course of employment. Indemnify the employee against any such liability. Pay the applicable excess in relation to any claim and will not seek recovery from the employee.
Sub-Contractors Professionals that work on a sub contract basis operate as independent contractors who are liable for their own actions. The default position for any sub contractor is that they should have their own insurance. Key issues for principals and sub contractors to consider are: •
If the principal wants to cover the sub contractor, then they need to make sure the sub contractor is named in their policy. If not, consideration needs to be given to who will have conduct of a claim should one be made. Consideration will need to be given to the excess payable. Principals are often very unhappy about having to pay a much higher excess, and may pursue recovery from a sub contractor who usually has a lower excess. Overall, sub contractors should not assume that the principal they are working for will look after them in the event of a claim.
Employerâ€™s Vicarious Liability Employers have vicarious liability to people that suffer loss by reason of the conduct of their employees and sub-contractors. For example, if an employee conducts fraud or even the liability incurred for by a sub-contractor if a brick falls from a construction site and hits a person on the street. There are situations where the employer is not vicariously liable at all; including if a staff member defames another person in relation to a matter completely outside the scope of employment. Generally, an employer is not vicariously liable for the criminal acts or intentional misconduct of an employee.
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Published on Sep 11, 2013
Published on Sep 11, 2013
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