Law of vicarious liability on the move for independent contractors and employers

Our December 2017 article on vicarious liability discussed the evolution of the doctrine of vicarious liability, and concluded that for reasons of public policy, vicarious liability should be extended in appropriate circumstances to include true independent contractors. 

Vicarious liability is a common law doctrine whereby employers are responsible/liable for the negligent actions/omissions of their employees that are committed in the course of employment. Historically, the doctrine did not apply to parties who engaged independent contractors, as they were not in an employment relationship – and so the independent contractor remained liable for their own acts. 

Consequently independent contractors were usually required to ensure they carried adequate indemnity arrangements to respond to any claims made against them. Employers consequently felt immune from claims arising from the acts and omissions of the contractors, so did not insure those risks, and underwriters identified a risk profile commensurate with those understandings in agreeing to write the risk and fix a premium. 

However, the Court of Appeal decision given in Barclays Bank v Various Claimants (Barclays) confirms that the doctrine of vicarious liability is “on the move” (as stated by the Court) and has evolved from its historic roots to now potentially include independent contractors. 

Whether or not the individual is an independent contractor is now no longer a question in issue when determining whether a party is vicariously liable for the conduct of an independent contractor. This decision will be of interest to both parties who engage independent contractors and their insurers.

What are the facts of the case?

The High Court first considered the preliminary issue of liability in Barclays in 2017. The facts are as follows: 

Between 1968 and 1984, Barclays Bank (the Bank) engaged Dr Gordon Bates to conduct medical examinations/assessments on behalf of the Bank for employees and prospective employees. He was often referred to as “the Bank’s doctor”, and the examinations were compulsory requirement of employment by the Bank. The examinations took place in a consulting room in Dr Bates’ home. The Claimants alleged that during these examinations, they were sexually assaulted by Dr Bates. Many of the Claimants were either teenagers or young women when the examinations took place. Dr Bates died in 2009, and so the Claimants only recourse was against the Bank itself. 

The Claimants had argued that Dr Bates was in a relationship “akin to employment” with the Bank, who therefore should be liable for his actions. The Bank denied this, arguing that Dr Bates was a true independent contractor and therefore they were not vicariously liable.

What was the High Court’s decision?

In the first instance decision, the High Court placed emphasis on the observation made in the earlier case of E v English Province of our Lady of Charity that the “law of vicarious liability had moved beyond the confines of a contract of service.” 

The High Court confirmed that determining vicarious liability involved a two stage test, which was set out in Catholic Child Welfare Society v Various Claimants:

1. Is the relevant relationship one of employment or “akin to employment”?
2. If so, was the tort sufficiently closely connected with that employment or quasi-employment?

In establishing whether the first stage of the test was met, the High Court considered five criteria identified in Cox v Ministry of Justice (Cox):

1. The employer is more likely to have the means to compensate the victim and can be expected to have insured against that liability.
2. The tort will have been committed as a result of activity being taken by the employee on behalf of the employer.
3. The employee’s activity is likely to be part of the business activity of the employer.
4. The employer, by employing the employee to carry on the activity will have created the risk of the tort committed by the employee.
5. The employee will, to a greater or lesser degree, have been under the control of the employer.

After the High Court considered each of the tests in turn, it determined that as each of the factors listed above were present in the case, that the Bank was vicariously liable for the sexual assaults committed by Dr Bates. The Bank appealed that decision in the Court of Appeal.

What was the Court of Appeal’s decision?

Prior to the hearing in the Court of Appeal, the approach taken by the High Court in relation to the two stage test (and in considering the criteria set out in Cox, and in the linked case of Mohamud v WM Morrisons Supermarkets) was approved and followed by the Supreme Court in Armes v Nottingham County Council (Armes). 

On this basis, the Court of Appeal agreed with the Claimants that the law now requires answers to the specific questions laid down in Cox and Mohamed rather than an answer to the question, “was the alleged tortfeasor an independent contractor?” 

Although the answers to the criteria set out in Cox may indicate that a party is an independent contractor (if they fail to establish vicarious liability), the issue of whether they are an independent contractor is no longer determinative of whether vicarious liability extends to that party. 

After considering the two stage test and each of the criteria set out above, the Court of Appeal concluded that the authorities had been applied correctly and rejected the Bank’s appeal, upholding the decision of the High Court.

What is the impact of the decision?

Barclays is not the first case where a party has been found to be vicariously liable for the actions of an independent contractor. What this case confirms is that an individual’s employment status is not a relevant issue when considering vicarious liability. The Court of Appeal recognises that in the modern day: 

“Changes in the structures of employment, and of contracts for the provisions of services, are widespread. Operations intrinsic to a business enterprise are routinely performed by independent contractors, over long periods, accompanied by precise obligations and high levels of control.” 

Where these elements are present, the Court will recognise that for public policy reasons the doctrine of vicarious liability will extend to independent contractors. 

The Court acknowledged that a “bright line” test whereby employers where protected from the doctrine of vicarious liability in respect of independent contractors “would make easier the conduct of business for parties and their insurers”. However, it also concluded that the ease of business cannot circumvent the principles which have now been approved by the Supreme Court in Armes. 

This decision may impact those parties engaging independent contractors (as well as their insurers) who may in future find themselves liable for the actions of independent contractors where they previously have been protected. Where a party has a high degree of control over an independent contractor, it is important that their actions are monitored carefully and that adequate insurance is put in place to deal with any risk.