Could your business be vicariously liable for the negligence of a non-employee worker?

It is a longstanding and well understood principle of common law that an employer will be vicariously liable for damage and loss resulting from the negligent acts or omissions of its employees provided only that the act or omission that caused the loss was performed in the course of (or within the scope of) the employee’s employment.¹

That principle evolved based upon the notion that it is fair and reasonable to impose liability upon an employer where an employee carrying out the employer’s business causes damage to an innocent third party.

It is equally well understood that:

1. as a general proposition, a person or entity is not vicariously liable for the negligent acts or omissions of an independent contractor or non-employee; and
2. in Australia, there can be no dual vicarious liability across two principals for the acts or omissions of a negligent individual.²

Less well known, and perhaps less well understood, is that the common law in Australia has long allowed for the vicarious liability of an employer for the negligent acts of its employee to be ‘transferred’ to a third-party non-employer in a certain limited circumstance.³

That circumstance is where the employee is performing his or her work on the premises of, and under the direction and control of, someone other than the actual employer.

In the modern world, such a circumstance most commonly arises in the context of a labour hire arrangement.

Historically, the ‘hiring’ of an employee’s labour or services by one business to another was relatively uncommon. As a result, for a long time there had been little consideration (judicial or otherwise) as to whether, in any given situation, someone other than the actual employer may be vicariously liable for the negligent act or omissions of an employee.

The default position became that an employer was vicariously liable for an employee provided the negligence that resulted in loss fell within the scope of the employee’s employment.

In the modern context, agreements for one business to supply the services or labour of its employees to another business – labour hire agreements – are ubiquitous.

The use of labour hire workers in businesses large and small has increased exponentially in recent decades. That proliferation has caused both lawyers and the Courts to turn their mind to the question of when vicarious liability for the negligence of an employee remains with the employee’s actual employer (the labour hire company), and when it will be imposed upon the business actually using the employee’s labour or services (the host employer).

As a result, over recent years, there have been a series of judgments handed down by Courts across Australia that have considered the circumstances in which vicarious liability for the negligence of an employee will be imposed upon a host employer.⁴

Each of those Judgments determined that, in the particular circumstances that arose, vicarious liability for the negligent act or omission of a labour hire worker was transferred from the actual employer to the host employer.

Those Judgments suggest that, with the evolution of modern workplace arrangements, there is an increasing willingness on the part of Australian Courts to impose vicarious liability upon a host employer.

However, despite that consistency of outcome, the Judgments also make it clear that vicarious liability will not always transfer from actual employer to host employer even in the pure labour hire context. Rather, whether such a transfer occurs is a question of fact and degree that substantially turns upon the nature and extent of the host employer’s right to exercise control over the worker’s performance of the work in question.

When Does Vicarious Liability Transfer?

Historically, it had been said that vicarious liability for the negligent acts or omissions of an employee would only be imposed upon a non-employer in ‘exceptional circumstances’.

The recent Judgments of Australian Courts have moved away from such a test.

The most recent Judgment of a superior Court in Australia addressing the issue is that of the New South Wales Court of Appeal in Mt Owen Pty Ltd v Parkes [2023] NSWCA 77. The principles applied in Parkes continue the same thread as seen flowing through other recent, preceding Judgments of superior Courts in Australia.

In Parkes, Mitchell Kemp, Glen Parkes and a third worker were undertaking certain ‘live testing’ as part of maintenance on a bulldozer at the Glendell coal mine which was owned and operated by Mt Owen Pty Ltd. All three workers were employed by Titan Technicians Enterprise but working at the premises of Mt Owen. During the work, Mr Parkes was injured when Mr Kemp dropped the blade of the bulldozer suddenly, causing the track on which Mr Parkes was standing to flick up and crush his right leg between the track and the edge of the access platform beside the cabin of the bulldozer.

Whilst all three workers were employed by Titan, they worked at the mine site under the supervision of a supervisor employed by Mt Owen.

Mt Owen had performed a risk assessment in relation to the ‘live testing’ activity. The hazards of the activity identified in the risk assessment included that which eventuated and caused injury to Mr Parkes, and the risk assessment required the implementation of certain controls designed to obviate that hazard. All three workers involved in the ‘live testing’ in this instance had been trained by Mt Owen on the relevant risk controls.

In determining that vicarious liability for Mr Kemp’s negligence had transferred to Mt Owen. the Court of Appeal unanimously approved and adopted the following statement of principle by Brennan J in Kondis v State Transport Authority.⁵

“A defendant is not vicariously liable for a tortious act done by a workman who is not his servant if the defendant has no authority to control the doing of the act and does not directly authorize it. It makes no difference that the tortious act is done in performing work for the defendant’s benefit. Prima facie, the workman’s employer is vicariously liable for the tortious act, but if he is able to transfer and transfers authority to control the doing of the act to the defendant, the defendant is liable. It has been said that the nature and extent of the control transferred to the defendant or retained by the employer determines whether there is a shift of liability from the employer to the defendant ….”

The Court went on to find that:

1. transfer of control from actual employer to host employer for the work generally will not be sufficient to shift vicarious liability to the host employer unless the host employer is also in control of the manner in which the work is to be undertaken; and
2. in considering whether such a transfer of control has taken place, it is relevant to examine and consider:
   1. the terms and nature of the contract of employment between the worker and the actual employer;
   2. the terms and nature of the contract pursuant to which the services of the worker are transferred or hired to the third party (host employer); and
   3. evidence as to how the work is undertaken and controlled by the third party.

Contract of Employment

The terms of the contract of employment between worker and employer are not likely to be determinative of the question of where vicarious liability is imposed unless those contractual rights and obligations are expressly assigned to the host employer.

Nonetheless, the terms of the contract of employment can be relevant insofar as they touch upon any contractual arrangement between the employer and any third party, and how the performance of the worker’s work is to be managed or controlled by either the employer or the third party.

The Services Contract

The terms of the contract between the employer and the host employer are likely to be central to determining whether the transfer of control from the employer to the host employer has been sufficient to justify vicarious liability being imposed upon the host employer.

The greater the authority to control the worker’s performance of the work that is transferred to the host employer, the more likely it is that vicarious liability will be imposed upon the host employer.

Relevant factors in the terms of the services (or labour hire) contract to the transfer of control include (in no particular order):

1. whether the worker’s work with the host employer was genuinely ‘temporary’ or short term, or more properly characterised as a long-term arrangement more akin to employment;
2. the extent to which the host employer has the authority to give directions and orders to the worker and supervise the worker’s performance of the work;
3. the extent to which the host employer or the employer has the authority and capacity to control both the tasks performed by the worker and the manner in which those tasks are performed;
4. the extent to which the employer or host employer imposes, and exercises control over, safety requirements and systems of work at the workplace insofar as they are relevant to the work performed by the worker; and
5. the extent to which the employer retains the ability to impose its own occupational health and safety policies and procedures at the workplace, and the extent to which such policies impinge upon the extent of the host employer’s control over the work performed by the worker.

In order for a transfer of vicarious liability from the employer to host employer to occur, the above factors, and the resultant operation of the services contract, must result in either a complete or substantial transfer of control from the employer to the host employer.

Such a transfer is less likely to occur if:

1. the actual employer retains a genuine ability to veto, approve or otherwise control the systems of work, or occupational health and safety policies, implemented in the host employer’s workplace, and most particularly those systems and policies that directly controlled the work being performed by the worker at the time of any negligent act or omission; and
2. the worker’s work at the host employer’s premises was short term or ad hoc, as opposed to a long-term quasi employment type arrangement.

How the Work is Actually Undertaken

Of perhaps equal significance as the services contract is the manner in which the worker’s work was actually undertaken, and the extent to which the employer and host employer actually exercised control over that work.

If the manner in which the worker’s work was actually performed and controlled differed significantly from the terms of any contract, same will be relevant to where actual control of the worker’s performance of the work rested, and any potential transfer of vicarious liability.

Conclusion

Whilst there have been a number of relatively recent Judgments handed down in Australia considering the principles that apply to the ‘transfer’ of vicarious liability from an employer to host employer, and the circumstances that will warrant such a transfer, there has been no recent consideration of the issue by the High Court of Australia.

Until the High Court of Australia considers the issue, and endorses or formulates the principles that will apply, there remains a degree of uncertainty as to when and how a transfer of vicarious liability can occur.

Ultimately, any such transfer will require a careful consideration of both the contractual arrangements between worker, employer, and host employer, and the extent to which employer and host employer had the authority to, and did, control the performance of the relevant work by the worker.

Where it occurs, the transfer of vicarious liability for a worker’s negligence from employer to host employer constitutes a significant shift in the relative burden of liability as between a labour hire company/service provider and the host employer.

As such, it warrants careful consideration at the time that any business enters into a labour hire, or other services, type agreement.

As a final aside, it is important to note that even where there is a transfer of vicarious liability, there is no transfer of the actual employment relationship so the host employer never becomes the actual employer of the worker, and all other employment related responsibilities remain vested in the actual employer.⁶

This article was written by Anthony Highfield, Partner and Vicki Jenner, Special Counsel.

¹ McDonald v Commonwealth (1945) 46 SR (NSW) 129; Mersey Docks and Harbour Board v Coggins & Griffith (Liverpool) Ltd [1947] AC 1; Kondis v State Transport Authority (1984) 154 CLR 672.

² Oceanic Crest Shipping Co v Pilbara Harbour Services Pty Ltd (1986) 160 CLR 626; Day v The Ocean Beach Hotel Shellharbour Pty Ltd (2013) 85 NSWLR 335.

³ McDonald, Mersey Docks, and Kondis (n1).

⁴ Kelly v Bluestone Global Ltd (in liq) [2016] WASCA 90; Hallmark Construction Pty Ltd v Brett Harford; Copeland Building Services Pty Ltd v Hallmark Construction Pty Ltd; Hallmark Construction Pty Ltd v Harford Transport Pty Ltd [2020] NSWCA 41; Mt Owen Pty Ltd v Parkes [2023] NSWCA 77.

⁵ (1984) 154 CLR 672.

⁶ (2001) 162 FLR 173.Deutz Australia Pty Ltd v Skilled Engineering Ltd [1986] VR 831; Monarch Insurance Co Ltd v Steel Mains Pty Ltd [1955] 2 QB 437; Denham v Midland Employers Mutual Assurance Ltd.