Vicarious liability - Employer's right to indemnity

Learning Outcomes

This article explains vicarious liability and an employer’s right to indemnity, including:

• Circumstances in which an employer is vicariously liable for an employee’s tort
• Legal basis for an employer’s right to seek indemnity from an employee
• Joint tortfeasor principles and contribution between employer and employee
• Relevant legal rules and principles for SQE1-style MCQs involving employer indemnity and vicarious liability
• Distinction between indemnity and contribution
• Criteria for just and equitable apportionment of liability
• Practical limits on enforcing indemnity, including insurance and wage deduction constraints

SQE1 Syllabus

For SQE1, you are required to understand vicarious liability and the employer’s right to indemnity from both a practical and theoretical viewpoint, with a focus on the following syllabus points:

• the requirements for establishing vicarious liability in tort
• the legal basis and limits of an employer’s right to seek indemnity from an employee
• the concept of joint tortfeasors and contribution between employer and employee
• how indemnity interacts with public policy and practical enforcement
• the tests for employment status (control, organisation, and economic reality) and “akin to employment”
• apportionment principles and limitation for contribution claims (two years from judgment or settlement)

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What are the three requirements for an employer to be vicariously liable for an employee’s tort?
2. In what circumstances can an employer seek indemnity from an employee after paying damages for the employee’s tort?
3. What is the difference between joint tortfeasors and several tortfeasors in the context of employer and employee liability?
4. True or false? An employer can always recover the full amount of damages paid from an employee if the employee was at fault.

Introduction

Vicarious liability is a key principle in tort law, making employers liable for torts committed by employees in the course of employment. When an employer is found vicariously liable and pays damages, the question arises whether the employer can recover those damages from the employee. This article explains the legal basis for an employer’s right to indemnity, the concept of joint tortfeasors, and the practical and policy limits on recovery. It also outlines how contribution between those liable for the same damage operates, and why courts rarely require employees to reimburse their employers in full except in exceptional circumstances.

Key Term: vicarious liability
Vicarious liability is the legal principle that holds one person (usually an employer) liable for the torts committed by another (usually an employee) in the course of employment.

Vicarious Liability: The Employer-Employee Relationship

To establish vicarious liability, three elements must be satisfied:

1. There is an employer-employee relationship.
2. The employee has committed a tort.
3. The tort was committed in the course of employment.

These elements control the threshold question of whether the employer is jointly liable for the same damage. Only if they are met does the downstream question of indemnity or contribution arise.

Key Term: close connection test
A test used to assess whether an employee’s wrongful act is closely connected to the field of activities assigned by the employer, such that it should fairly be regarded as done in the course of employment.

Employee or Independent Contractor?

Vicarious liability applies only to employees, not independent contractors. Courts use the control test, incorporation/organisation test, and economic reality test to distinguish between the two. Where relationships are not a perfect fit, courts may consider whether a person was “akin to an employee” when policy reasons justify vicarious liability.

• Control: the more the employer directs what, how, and when work is done, the more likely the worker is an employee.
• Organisation: where the work is central to the business (a contract of service) rather than merely accessory (a contract for services), employment is more likely.
• Economic reality: courts look at remuneration, control, mutuality of obligations, and whether other contractual terms point to employment.

Key Term: economic reality test
A test used to determine employment status, considering factors such as control, mutual obligations, and incorporation into the business.

In some contexts (e.g. institutional settings), vicarious liability has been extended to those “akin to employees” where it is fair, just, and reasonable to do so in light of risk creation and enterprise benefit.

Course of Employment

The tort must be committed in the course of employment. This includes acts the employee is authorised to do, and unauthorised ways of doing authorised acts. If the employee is on a “frolic of their own,” the employer is not liable. Modern cases emphasise the close connection test, focusing on whether the wrongful act is so closely connected with the employee’s assigned functions that it is just to hold the employer liable.

Illustrative patterns include:

• Authorised act done negligently (e.g. a delivery carried out carelessly).
• Unauthorised method of an authorised task (e.g. smoking while delivering petrol).
• Prohibited conduct that nonetheless advances the employer’s business (e.g. allowing a helper to speed deliveries contrary to instructions).
• Purely personal acts with no connection to the business (e.g. a personal vendetta), which fall outside the course of employment.

Key Term: course of employment
Acts done by an employee as part of their job, or closely connected to their duties, for which the employer may be vicariously liable.

Key Term: frolic of their own
A situation where an employee departs substantially from the work they were employed to do for personal purposes, breaking the link to the employer’s liability.

Employer’s Right to Indemnity

When an employer is held vicariously liable and pays damages, the employer may seek to recover some or all of those damages from the employee. This is known as the right to indemnity. The availability and scope of recovery turn on common law and statute, and are heavily shaped by policy considerations and practical enforcement constraints.

Key Term: indemnity
The right of one party (here, the employer) to recover from another (the employee) the amount paid to a third party (the claimant) due to the latter’s fault.

Legal Basis for Indemnity

The employer’s right to indemnity is based on two main sources:

• Common law (implied contractual duty)
• Statute (Civil Liability (Contribution) Act 1978)

Under both routes, the court has a discretion. Indemnity and contribution exist to achieve fairness as between parties liable for the same damage and are not intended to punish employees. In practice, full indemnities are exceptional.

Key Term: Civil Liability (Contribution) Act 1978
A statute enabling a person liable for damage to claim a contribution from any other person liable for the same damage, with apportionment determined by what is just and equitable.

Key Term: just and equitable apportionment
The discretionary basis for allocating shares of liability between parties jointly liable for the same damage, considering all the circumstances, including relative blame and causative potency.

Common Law Indemnity

At common law, an employee owes a contractual duty to exercise reasonable care and skill. If the employee breaches this duty and causes loss to the employer, the employer may claim an indemnity based on the implied term of competence. Courts have emphasised two important limitations:

• The employer must be faultless in relation to the loss to claim an indemnity at common law.
• Even where the employee has been negligent, full indemnity will rarely be ordered unless the conduct was intentional, dishonest, or grossly reckless.

In contemporary practice, employers’ liability insurers commonly agree not to pursue indemnity against employees except in cases of collusion or wilful misconduct.

Key Term: joint tortfeasors
Two or more persons who are both liable for the same tort, either because they acted together or because one is vicariously liable for the other.

Key Term: contribution
The right of a person who has paid damages to recover a fair share from another person who is also liable for the same damage.

Worked Example 1.1

A delivery driver employed by Alpha Ltd negligently causes a road accident while making deliveries. Alpha Ltd is sued and pays £20,000 in damages to the injured party. Can Alpha Ltd recover this sum from the driver?

Answer:
Alpha Ltd may seek indemnity from the driver, as the driver breached the duty to exercise reasonable care. However, courts rarely order full indemnity except in cases of wilful misconduct or gross negligence, due to policy concerns. If Alpha Ltd’s own fault contributed (e.g. unsafe system of work), common law indemnity would be unavailable; any claim would proceed under the 1978 Act with apportionment on a just and equitable basis.

Statutory Contribution and Indemnity

The Civil Liability (Contribution) Act 1978 provides that any person liable for damage may seek contribution from any other person liable for the same damage. This includes vicariously liable employers and their negligent employees, making both “persons liable” for the same damage.

Key features:

• No need to show equal blame; apportionment is discretionary and based on what is just and equitable in all the circumstances.
• The court considers factors such as relative blameworthiness and causative potency; ability to pay is not a determinative factor in the legal test.
• Limitation: a contribution claim is generally subject to a two-year time limit from the date the right accrued (i.e. judgment or settlement), under the Limitation Act 1980.

Worked Example 1.2

A hospital is found vicariously liable for a nurse’s negligent act and pays £50,000 in compensation. The hospital seeks a contribution from the nurse. What will the court consider?

Answer:
The court will consider the nurse’s degree of fault and all the circumstances. The court may order the nurse to pay a contribution, but will rarely require full indemnity unless the conduct was intentional or reckless. If the hospital’s training or supervision was also deficient, the hospital’s share may be increased and the nurse’s decreased, to reflect relative blame and causative potency.

Worked Example 1.3

A warehouse employee negligently injures a visitor while using machinery. Evidence shows the employer failed to implement guarding and refresher training. After paying damages, the employer sues the employee for an indemnity. How should the claim proceed?

Answer:
The employer would be unlikely to obtain common law indemnity because the employer is not faultless. The appropriate route is a contribution claim under the 1978 Act. The court would apportion liability on a just and equitable basis, typically attributing a significant share to the employer for an unsafe system of work and a share to the employee for negligent operation.

Worked Example 1.4

A specialist fitter is supplied and supervised jointly by Contractor A and Contractor B at a client’s site. The fitter negligently injures a third party. Both A and B are found vicariously liable. After settling the claim, A seeks contribution from B and the fitter. What principles apply?

Answer:
Where dual vicarious liability exists, each vicariously liable party is “liable for the same damage.” A can seek contribution from B and potentially the employee. Apportionment will be just and equitable, often focusing on who exercised day-to-day control and whose instructions most closely relate to the negligent act. Any contribution sought from the employee remains subject to policy considerations, with full recovery from the employee rarely ordered.

Joint Tortfeasors and Contribution

When an employer is vicariously liable, both employer and employee are joint tortfeasors. The Civil Liability (Contribution) Act 1978 allows a person who has paid damages to recover a contribution from another person liable for the same damage. Contribution can also arise between two employers who are both vicariously liable (e.g. dual control scenarios), or between an employer and other tortfeasors whose negligence combined to cause the damage.

Courts commonly weigh:

• Relative blameworthiness: the degree of fault (e.g. recklessness vs inadvertence).
• Causative potency: the extent to which a party’s breach contributed to the harm (e.g. failing to guard a dangerous machine often carries high causative potency).
• Contextual factors: role, training, supervision, instructions, and whether the party could reasonably foresee and avert the harm.

Contribution is flexible and fact-sensitive. Orders typically reflect proportional responsibility rather than mechanical splits.

Worked Example 1.5

A retail security guard restrains a suspected shoplifter using excessive force. The retailer pays damages and seeks contribution from the guard. The guard argues the employer failed to train on lawful restraint. What outcome is likely?

Answer:
The retailer can seek contribution under the 1978 Act. Apportionment will depend on training and supervision. If training and policies were inadequate, the retailer’s share may be significant; if training was adequate and the guard ignored it, the guard’s share may be higher. Full indemnity from the guard is unlikely absent wilful misconduct beyond foreseeable error in restraint.

Policy Limits on Employer Indemnity

Although the right to indemnity exists, courts are reluctant to enforce it strictly. Public policy recognises that employees are usually less able to bear the financial burden, and that employers are better placed to insure against such risks. In practice:

• Common law indemnity is usually unavailable if the employer shares fault; and even where available, full recovery is exceptional.
• Insurers of employers commonly refrain from suing employees save for collusion or wilful misconduct.
• Enforcement may be limited by employment law: an employer generally cannot make unilateral deductions from wages to recover indemnity unless authorised by statute, contract, or employee consent (unlawful deduction rules apply).
• Pursuing contribution may harm workplace relations and carries reputational and morale costs; these non-legal factors often discourage litigation against employees.

Key Term: unlawful deduction (employment context)
A deduction from wages that is not authorised by statute, contract, or prior employee consent, contrary to employment law protections.

Exam Warning

In SQE1, beware of assuming that an employer can always recover the full amount from an employee. Indemnity is rarely granted in full except for wilful or grossly negligent acts.

Revision Tip

For SQE1, remember that indemnity is discretionary. Courts consider the employee’s fault, the employer’s conduct, and policy factors before ordering contribution or indemnity.

Summary

Employers who are vicariously liable for employee torts may seek indemnity or contribution from the employee, but recovery is limited by policy and the court’s discretion. Both employer and employee are joint tortfeasors, but full indemnity is rare except for serious misconduct. The Civil Liability (Contribution) Act 1978 provides a flexible framework for apportioning liability on a just and equitable basis among all those liable for the same damage. In practice, insurers and employment law constraints, together with fairness, strongly temper any pursuit of employees for reimbursement.

Key Point Checklist

This article has covered the following key knowledge points:

• Vicarious liability requires an employment relationship, a tort, and the tort to be committed in the course of employment.
• Course of employment is assessed using authorisation, close connection, and departure (“frolic”) principles.
• Employers may seek indemnity from employees for damages paid, but recovery is limited by policy and court discretion; employers must be faultless for common law indemnity.
• Employer and employee are joint tortfeasors; the Civil Liability (Contribution) Act 1978 allows for contribution on a just and equitable basis.
• Contribution apportionment considers relative blame and causative potency; limitation for contribution claims is typically two years from judgment or settlement.
• Full indemnity is rare and usually only ordered for wilful or grossly negligent acts; insurers seldom pursue employees except for collusion or wilful misconduct.
• Practical enforcement is constrained by employment law (unlawful deductions), insurance, and workplace considerations.

Key Terms and Concepts

• vicarious liability
• economic reality test
• course of employment
• frolic of their own
• close connection test
• indemnity
• Civil Liability (Contribution) Act 1978
• just and equitable apportionment
• joint tortfeasors
• contribution
• unlawful deduction (employment context)