Vicarious liability: Can an employer be liable for the intentional and wrongful conduct of its employees?
The concept of vicarious liability is not uncommon in the context of employment relationships. There is in fact a plethora of cases dealing with the question of whether an employer may be liable to a third party arising from the conduct of its employees.
In a recent judgment of the High Court of South Africa, Fujitsu Services Core (Pty) Limited v Schenker South Africa (Pty) Limited, the High Court considered whether Schenker was liable to Fujitsu for Fujitsu’s damages arising from the theft of its goods by a Schenker employee and if so, whether Schenker’s liability was excluded by the provisions of the commercial written agreement between the parties. This article examines both aspects of the High Court’s decision.
Fujitsu purchased and imported a consignment of laptops and accessories and engaged the services of Schenker to assist it as its freight forwarding agent pursuant to the commercial agreement between the parties. The employee in question was issued with the necessary documentation to collect the goods from the airport on behalf of Schenker and Fujitsu. However, upon collection of the goods, the employee disappeared with the goods and the goods were never delivered to Fujitsu.
The court first considered whether Schenker was vicariously liable to Fujitsu for the employee’s intentional misconduct in stealing the laptops. The court confirmed the general rule that an employer is vicariously liable for the wrongful acts or omissions of an employee if committed within the course and scope of the employee’s employment or whilst the employee was engaged in any activity incidental to it. The court however found that this case constituted a “deviation case” as the employee was not acting in the course and scope of his employment ie, he was not acting in the interests of his employer and was by all accounts “on a frolic of his own.”
The court confirmed that the test to be applied in such cases is “whether the wrongful act was sufficiently related to the conduct authorised by the employer to justify the imposition of vicarious liability and that, in the determination of the sufficiency of the connection, the employer’s creation or enhancement of the risk and the wrong complained of may be relevant.”
The creation of risk of harm by an employer may accordingly, in an appropriate case, constitute a relevant consideration in giving rise to a sufficiently close link between the harm caused by the employee and the business of the employer. Whether the employer created the risk of the harm that materialised must be determined objectively. In determining this issue, the court took the following into consideration:
- the employee was employed as a cargo drawer. He therefore enjoyed unfettered access to the cargo area to uplift and remove goods;
- he was given a specific security clearance and the necessary customs and clearing documentation;
- on the date of the theft, he was instructed and directed by Schenker to collect the laptops and he followed the usual protocol for collections in doing so;
- he gained access to the goods by relying on his Schenker-issued security clearance and Schenker-issued clearance documents; and
- he therefore ostensibly performed the same procedures and went through the same motions as he would have done for a lawful collection.
The court concluded that the risk of the theft arising from the access permitted and the appearance of lawfulness by Schenker demonstrated a sufficiently close link between the theft and the lawful business the employee was about on behalf of Schenker. In addition, the court found that a finding of vicarious liability should follow as a policy consideration, if regard is had to the following:
- the opportunity Schenker afforded the employee to abuse its powers;
- the extent to which the wrongful act may have furthered the employer’s aims (and hence be more likely to be committed by the employee);
- the extent to which the wrongful fact was related to and intimately and inherently connected to the business of Schenker;
- the extent of power conferred on the employee; and
- the vulnerability of potential victims to the wrongful exercise of the employee’s power.
Limitations to liability
After concluding that Schenker was vicariously liable to Fujitsu for the conduct of its employee, the court then turned to consider whether the written agreement between the parties excluded liability.
The court emphasised that limitations to liability should be strictly interpreted and that agreements should not be allowed to restrict liability, especially if they were to arise outside of the contract, unless expressly provided for. The court found that the employee was not executing the agreement between the parties when he stole the goods.
The exemption clause relied on by Schenker related to damages arising from breach of contract which did not apply in these circumstances, where the theft was an act outside the performance of the contract between Schenker and Fujitsu. The court found that a defendant cannot rely on an exemption clause in circumstances where the contract was not being executed, unless the clear intention of the parties was to such effect, and considered the provisions of the agreement to determine whether this was the case. The court’s interpretation of the relevant clauses of the agreement between the parties was that it envisaged loss or damage which had its genesis in the provision of services by Schenker to Fujitsu and that the loss in this case arose independent from the performance by the employee pursuant to the contract.
The court concluded that the clear wording of the agreement showed that the parties did not contemplate that the agreement would encompass a delictual claim, based on theft, as was the case in these circumstances. Had Schenker intended to include such claims in the agreement, it would have done so and its failure to do so indicates a contrary intention. It was therefore found that Schenker’s liability for Fujitsu’s claim for damages was not excluded by the exclusion clauses of the commercial agreement between the parties.
Judgment was granted in favour of Fujitsu against Schenker for payment of the amount claimed, including interest, in the amount of USD516 877.
Lesson to be learnt for employers
This case demonstrates the significant impact an employee’s wrongful and intentional conduct may have on an employer. The test for vicarious liability in deviation cases is such that it might be difficult to demonstrate that there is an insufficient link between the conduct and the business of the employer, particularly when the conduct amounts to theft.
The terms of commercial agreements are therefore key to the protection of employers from vicarious liability.
The terms of the commercial agreements, and specifically exemption from liability clauses concluded by employers, should accordingly be carefully drafted to cater for the risk of vicarious liability as comprehensively as possible and should not only be limited to the execution of the agreement itself.
Article with thanks to ENSafrica