26 August 2020

Employers be aware – indirect liability to employees or third parties in Hong Kong


Whether you are a business owner who employs a small team of professionals or you are managing a corporation that employs thousands of staff, it is important to appreciate the potential liability that may be invoked by the actions of your employee/s or third parties. Adopting a cautious approach will help to manage your business and protect its reputation.

In late May, an employee of a fast food restaurant chain in Hong Kong was attacked when she was on the way to work. She nonetheless attended her work as usual but was later found in a coma at home and then died several days after. Feeling sorry for the deceased and her family, one cannot help but ask – is her estate entitled to claim compensation from her employer?

Under the Employee Compensation Ordinance, an employee can claim compensation for injury by accident arisen out of and in the course of employment. In general, the court is prepared to examine all circumstances of the case, with no one factor being so decisive as to outweigh the others. In relation to street accidents, the court would normally look at whether the employee was at the time going about the employer’s business, or in pursuance of a duty owed to the employer. For instance, if an employee is obliged to use the employer’s transport, then the employee will normally be regarded as acting in the course of employment.

In addition to potential liability to pay employees compensation for injuries suffered in the course of employment, employers may also be held liable to third parties for negligence or other torts committed by employees in the course of employment. This obligation is derived from the law of vicarious liability.

in the course of employment

Recently, the meaning of “in the course of employment” has come before the Supreme Court of the United Kingdom in the case of WM Morrison Supermarkets plc v. Various Claimants [2020] UKSC 12, where the court is invited to decide whether Skelton, an employee, was acting in the course of employment when he made unauthorised disclosure of payroll data of 98,998 employees of Morrisons. If it is concluded that Skelton was acting in the course of employment, then Morrisons will be held vicariously liable for Skelton’s wrongful conduct towards all the 9,263 claimants for damages in respect of alleged distress, anxiety, upset and damage. The amount of compensation at stake could be astronomical.

The general position is to look at whether the wrongful conduct is so “closely connected” with the employee’s duties that such conduct may be regarded as done by the employee while acting in the course of employment.

Having considered the guidance derived from decided cases, the Supreme Court held that Skelton was not engaged in furthering his employer’s business interest when he committed the wrongdoing in question. On the contrary, he did this with a personal vengeance against his employer for disciplinary proceedings taken against him at an earlier instance. In the premises, the Supreme Court reversed the decisions of the lower courts and concluded that Skelton’s wrongful conduct has failed the close connection test, and Morrisons was not held liable for his wrongdoing.

The Morrison case highlights that in applying the close connection test, the motive of the employee and the purpose of the wrongdoing are also relevant. Even if there is an unbroken chain of events from the employee’s job duties leading up to the wrongdoing, it cannot be said the wrongful conduct was committed “in the course of employment” when the employee is not furthering the employer’s business interest.

a relationship akin to employment

Businesses should be aware that vicarious liability could also arise even if the wrongdoing is conducted by third parties who are not employees, but stand in a relationship akin to employment. In the parallel case of Barclays Bank plc v. Various Claimants [2020] UKSC 13, the Supreme Court was asked to consider whether the Bank is vicariously liable for any assaults perpetrated by Dr Bates, a medical practitioner who was engaged by the Bank to conduct medical examination of prospective employees as part of the recruitment process. 126 claimants were involved in this group action.

Traditionally, the law is that the employer of an independent contractor is generally not liable for the torts committed by the contractor in the course of execution of the work. In recent years, this trite proposition of law have been expanded, such that the court will consider a range of factors, and in particular the 5 policy considerations, in deciding whether it is “fair, just and reasonable” to impose vicarious liability in relationships falling short of employment. This may open or may have already opened a floodgate of litigation against businesses who are likely to have the means to compensate and can be expected to have insured against that liability.

Having considered the 5 policy reasons as enunciated in past cases and adopted in lower courts, the Supreme Court stopped short of applying the same in the present case on the ground that those considerations are only helpful in doubtful cases. Where it is clear that the wrongdoer is carrying on business on his or her own account, he or she is to be treated as an independent contractor and the position under trite law remains unchanged.

The Supreme Court has then engaged in a close examination of Dr Bates’ practice, e.g. he was paid a fee for each report, he was entitled to refuse an offered examination, he carried his own medical liability insurance, etc. It then reversed the decisions of the lower courts and concluded that Dr Bates carried the business on his own account and therefore the Bank should not be held liable for his assaults on the Bank’s prospective employees.

Conclusion

Until the above decisions were handed down by the Supreme Court, there has been a trend to protect claimants under the law of vicarious liability by adopting a liberal approach in the application of the “close connection” test or in the interpretation of a relationship sufficiently analogous to employment or a combination of the two. These recent decisions have tilted the balance towards employers and serve as a word of caution to claimants who are in search of deep pockets.

It is expected that employers and insurers, who have seen their potential liabilities being expanded under the law of vicarious liability, may welcome these two decisions.

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