Tortious Act In The Course Of Employment: Liability Of Employer And Preventive Measures

Discuss abaout the Tortious Act In The Course Of Employment.

Vicarious Liability And Employer's Liability

A person of superior position would be held liable for the act or omission of an act done by his employee under the doctrine of Vicarious Liability. The common law holds the employers liable for the wrongful act done by his employee, acting in the course of the business. When an employee commits a tortious act in the course of employment, the employer is held vicariously liable for the damage or loss caused to a third party by way of a transaction or agreement. The doctrine of Respondeat Superior guides the rule of vicarious liability of the employer as he shares a relationship of trust and confidence with his employee. This relationship makes the employer liable for the negligence committed by the employee, for the employer bears a liability of care towards the customer or supplier with whom the business deals. Therefore, the employer has the responsibility to cover for the losses caused to the customers or suppliers arising out of an unauthorized act, but in the course of employment, irrespective of the fact whether it was committed in good or bad intention by the employee. The liability of the employer towards the plaintiff needs to be decided by the court, along with the fact that whether the employee’s act or omission has affected the plaintiff, giving effect to a cause of action.

The recent landmark judgment of Prince Alfred College Incorporated v ADC [2016] HCA 37 has shaped the ambiguous approach to vicarious liability of the employer, as previous in Australia, the legal responsibility of the employer pertaining to his employee’s wrongful act has not been much clear. In this case, the court discussed the adoption of the right approach regarding holding an employer liable for the tortious act of his employee, which has arisen in the course of business. The employee, on the other hand must be aware of his job roles and responsibility to avoid negligence and mistakes that causes injury to the third party. Additionally, employees must be aware of their rights and duties, like his job role, his jurisdiction, transactions to make on behalf of the employer and the business and the business decisions he is eligible to undertake in absence of the owner or the deciding authority. To hold the employer liable, it must be found out that whether the employee acted in personal capacity without the authorization of the employer or acted in the course of business. This factor of acting ‘in the course of business or employment’ can be judged on the basis of the following test:

• It needs to be ascertained whether the employee was asked to do the act or refrain from doing the act by the employer itself, that caused damage to the third party; and
• It is important to find out whether the unauthorized act of the employee has been done in the course of business, which was asked t do by the employer.

Doctrine Of Respondeat Superior

These factors would help to determine whether the employer would be held liable for the tort of negligence or negligent misrepresentation committed by the employee. The factor states that the employer would be held vicariously liable even if the employee has acted without the authorization of the employer, but it has to be proven that such unauthorized work is done in such a manner that it seems to be impossible to avoid for executing the normal course of work. In many cases, an act with criminal liability has also attracted vicarious liability of the employer as it was acted in the course of the employment and therefore held the employer to pay damages to the party so injured.

Therefore, the law protects the aggrieved party and the employer cannot defend himself on the grounds of criminal liability of the case. This restricts the employer from escaping his responsibilities. The employer would still be held liable for the tortious act of an employee who has left the organization; as the act was carried out while the employee was in the course of employment. The employer would be vicariously liable to pay damages to the third party who has contracted injury or loss because of such wrongful act of the employee. However, it is to be noted that the employer shall be eligible to bring charges against the employee who has committed a wrongful act out of negligence or otherwise. Such charges would be brought under the Employee’s Liability Act 1991. In this matter, it needs to be highlighted that the employee has acted out of the course of employment or such action is in no way related to the course of employment.

In this case, Jack, the owner and employer of Michelle would be vicariously liable to make the payment due to the supplier for the purchase of the gold leaf sheets. Michelle purchased the sheets, although without authorization of her employer, yet in good intention for the betterment of the business along with making an impression on the customers. It is evident that the purchase was done in an unauthorized way, yet it can be claimed by Michelle that it was closely related with the job role as a Manager, who should consider about the profit and better ways to conduct the business. This makes it clear that such act of Michelle was made I the course of business even if Jack, her employer, did not authorize it. Additionally, it was be claimed by Michelle that such unauthorized purchase neither injure the supplier nor Jack, which makes her clear from all the liabilities as an employee. On the contrary, it proved to be a profitable deal that the customers appreciated, boosting the sale. It enhanced the financial situation of the bakery-café and impressed the customers as well. Therefore, no injury has been caused to the third party by way of negligence and so Jack would be liable to pay for the gold leaf sheets. In Perkins v. Grace Worldwide (1997) 72 IR 186, it was held that there is a mutual trust between the employer and the employee which is the most important essence of their bond and it is applicable for both of them equally.

Factors To Determine Whether Employer Is Liable

To advice Jack so that he could avoid being held responsible for the tortious act of his employees, he must ensure the adoption of preventive measure and precautions pertaining to the conduct of the employees. He must refrain the employees from making unauthorized purchases, no matter how lucrative the offers are. Jack must ensure that the employment contract must contain clauses that refrains employees to indulge into actions not arising in the course of employment or to make purchases that may have an adverse effect on the business. Jack needs to retain his position as the owner strong so that it has an impact on his employees to maintain a good conduct. The employer should have the ability to recognize probable risks that the business may contract by the misconduct of the employees and must take necessary steps accordingly. These steps would stops such tortious acts from cropping up on the first place. In addition to, it is also significant for the employer to recruit, train and monitor his employee so that they do not indulge into any occupational misconduct.

On the other hand, there should be a strict policy with the supplier so that he do not supply any product without the authorization of the owner. Jack must looks for a better contractual agreement with Glitzy Touch, which must include that they must not make offers to the employees to make purchase in this absence.

Lastly, on this particular case, Jack should have left his accommodation details of Montreal so that Michelle could contact him while making the purchase.

It is required for the director of a company to ensure that the decision they are making on behalf of the company is supported with due care and diligence. Their decision-making has a consequence upon the future of the company. They should maintain a record for their decision making process as a director on behalf of the company, to avoid any kind of confusion in future. They are expected to have a sufficient knowledge about the operation of the company, which may have an effect over his decision-making. In order to take appropriate decision on behalf of the company, they are required to attend the boards meeting to gain a minimum required knowledge about the financial and the other status of the company. The Corporations act 2001 has imposed certain duties on the directors. Section 180(1) of the Corporations Act 2001 has set up a standard which the directors need to maintain while performing their responsibilities and discharging the duties. This section provides that the directors should maintain the minimum degree of care and diligence that a reasonable man in his position had maintained. In ASIC v Adler, the Court held that the directors owe a duty of care while decision making. By holding this position he ensure that he has the skill of a reasonable person in his position and he should be responsible for monitoring the management of the company. They should not make them absent from the board of meeting without any reasonable cause. A director failing to comply with his duties shall commit a breach of duty.

Employer's Liability For Ex-Employees

The director of the company is responsible for monitoring the financial status of the company. Directors need to have adequate knowledge about the company if it has any financial obligations. They should direct the company in relation to their financial obligations. It is one of the duties of the director to know the debts of the company before they make a decision in relation to financial transactions. ASIC v Healy [2011] FCS 717 established that the director of a company is expected to hold an interest in the information available to him and must understand the information. They are required to use their rational mind to perform the responsibility that resides in them. In the AWA Appeal (1995) 37 NSWLR 438, 504 the Court reiterated while defining the duties of the directors that they should be acquainted with the financial obligations and status of the company. They must have a clear understanding to the financial reports. In the Centro decision, the Court decided that it is one of the general duties of the director to possess sufficient knowledge about the debts and other financial obligations of the company. If a director cause a breach of his duty, resulting a debt or loss to the company, he shall be personally liable for the debt. In the Bell Group Ltd (In Liq) v Westpac Banking Corporations (No 9) [2008] WASC 239, the Court maintained that the director should act for proper purpose and best interest of the company. A director shall be personally liable for causing a breach of his duties which resulted the company to incur debt.

In this case, Michelle had committed a breach of her duties she owed as a director to the company. Michelle was obligated as a director to attend the board meeting of ‘La Petit Plat’ in order to be aware of the conduct and condition of the company. Furthermore, she was required to inform other members of the company before deciding to borrow from Best Bank Ltd an amount of $600,000 on behalf of the “La Petit Plat”. She should have notified the other members that she was unaware about the financial status of the company, and ask for an advice from them in such situation. She had failed to act in in a good faith resulting into a breach of duties. She had also failed to act for the best interest of the company as provided under the Corporations Act 2001. She made a decision on behalf of the company about a subject matter without having sufficient knowledge about the internal conditions of the company. A breach of duty arise on her part for not informing the members of the company about the business judgement she made. She had also failed in exercising due care and diligence towards her obligation by not actively being part of regulating the management of ‘Le Petit Plat Pty Ltd’. Additionally, Michelle was obligated to read the financial statements of the company in which she was the director, to know the financial issues of the company. She must have gathered sufficient knowledge about the financial status of the company whether the company has incurred any debts before incurring more financial obligations for it. As an executive director, it was the duty of Michelle to know that the company ‘Le Petit Plat’ was under outstanding debts that they failed to pay. In such a situation, borrowing $600,000 from the Best Bank Ltd was not a decision that could be considered for the best interest of the company. Such irresponsible decision making by Michelle cannot be justified by any reasonable excuse. If there was a reasonable man in the position of Michelle, he or she would have exercised due care and diligence while making a decision of borrowing such an enormous amount of money and taken advice from the other members. Michelle had failed to discharge her duties as a director as it has been imposed upon her by the Corporations Act 2001. It can be said that Michelle shall be personally liable if the company had incurred any debt for the breach of her duties.

Preventive Measures For Employers

Decision-making is one of duties that is imposed upon the directors. They are responsible to monitor the management of the company. They are given the duty to promote the success of the company. The responsibility to act in good faith and proper purpose, resides on the directors. They are compelled to act for the best interests of the company. Certain situation may arrive when the director has failed to perform his duties. In such situation, the director commits a breach of duties. A director can be held personally liable if the company acquires any obligation or loss for the breach of duties committed by him. He may incur certain civil or criminal liability for such breach. As a consequence he may be disqualified from the position. There are certain ways to avoid the personal risk that the director may obtain by committing a breach of his duties and incurring a debt for the company. The director should oblige to the duties that are conferred upon him by the Corporations Act 2001.

“Le Petit Plat” can make certain changes in their operation to avoid this kind of personal risk to a director. They may make a strict provision in the company requiring the directors to comply with the duties of directors as provided under the Corporations Act 2001. They can make a policy in the organisation to ensure the compliance by the directors and inspect it from time to time. A regulation can be made requiring the directors not having detailed knowledge about the status of the company to consult with other member before making a huge financial decision of the company. The company should focus on improving the required skills and care of the directors from time to time.

As an example, the Australian Securities and Investments Commission V Meredith Hellicar & Ors [2012] HCA 17 can be discussed, which emphasised on the required care and skills to be exercised by the directors. Director are required to hold sufficient knowledge about the subject matter before making a decision. “Le Petit Plat” should make a strict regulation to compel the directors to discharge their duties as per the Corporations Act 2001. A proper knowledge about the consequences of the breach of duties might have helped Michelle to avoid the personal liability in this scenario. To avoid incurring a personal risk by the directors in this scenario, “Le Petit Plat Limited” can bring a change in the governance policy of the company. They must compel the directors to be present in the meetings of the company as this is the part of the duties of the directors. It would help in managing the personal risks of the directors, as the directors will be fully aware of the financial status of the company.

References

ASIC v Adler and 4 Ors [2002] NSWSC 171 (14 March 2002)

ASIC v Healy [2011] FCS 717

Australian Securities and Investments Commission v Healey (2011) 196 FCR 291 (‘Centro’)

Australian Securities and Investments Commission V Meredith Hellicar & Ors [2012] HCA 17

AWA Appeal (1995) 37 NSWLR 438, 504

Employee’s Liability Act 1991

Perkins v Grace Worldwide (Aust) Pty Ltd (1997) 72 IR 186

Prince Alfred College Incorporated v. ADC [2016] HCA 37

The Bell Group Ltd (In Liq) v Westpac Banking Corporations (No 9) [2008] WASC 239

The Corporations Act 2011