I wish I hadn’t done that …

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Photo by Gem & Lauris RK on Unsplash

The employee’s duty of care

There is an implied duty that the employee will take reasonable care in the discharge of her duties. In other words, employees are expected to discharge their duties with skill and care. After all, this is one of the reasons that the employer has selected them.

Breach of the employee’s duty of care may be particularly relevant in situations where the employer is held liable to an innocent third party or another member of the workforce for the negligent actions of his employee. Theoretically, the employer (or more likely his insurance company) could always exercise the right to sue the employee for breach of her duty of care.

Since Morris v Ford Motor Company Ltd [1973] 2 Lloyd’s Rep. 27, the English Court of Appeal appeared to put the brakes on this practice (known as subrogation in insurance circles). The Court was of the view that it would be unfair to pursue an employee for loss or injury caused by negligent acts or omissions where there the employer had a policy of insurance in place to cover such eventualities. The UK Parliament, of course, introduced the Employers’ Liability (Compulsory Insurance) Act 1969 to address such situations.

Insurance companies appear to have put this practice into operation in that they will not pursue the employee for breach of duty should they have to pay out to the employer under an employee liability insurance policy. There are often very practical (not to say commercially sensible) reasons for this policy approach by insurance companies:

  • Pursuing a claim against an employee who has breached a duty of care to the employer may not make much economic sense i.e. you might obtain a successful decree for damages against an individual, but the practicalities of obtaining this sum form a low paid employee are almost nil; and
  • Employers may not wish to publicise certain situations because they fear the damage done to their reputation by effectively putting the wrongful acts of their employees in the spotlight of legal action.

This has meant in practice, that these types of cases tend to be few and far between, but not unheard of. Two older decisions are of interest:

Lister v Romford Ice and Cold Storage [1957] 1 All ER 125, [1957] AC 555, [1956] UKHL 6  at the insistence of the insurers, the employer sued his employee, a lorry driver, for failing to drive safely (an implied term of his employment contract) and causing a fellow employee to suffer a personal injury as a result of the negligent driving. The House of Lords permitted the insurers to bring a successful claim against the negligent employee.

Admittedly, Lister is an older decision and insurance companies have, since the Morris case, tended not to adopt this approach.

However, in Janata Bank v Ahmed [1981] IRLR 457 Ahmed was employed as bank manager. His employer sued him for damages for overdrafts that he had negligently authorised in respect of certain customers. Unfortunately, Ahmed had failed to investigate whether these customers were in a financial position to pay back the overdrafts. They were not and the debts owed to the bank amounted to a considerable sum.

Held: by the English Court of Appeal that Ahmed was liable in damages (£34,640) to his employers for the losses caused by his negligence. It should be appreciated that the damages awarded in this case reflect 1970s/1980s values.

Recent developments

In a more recent decision of the English High Court: Pemberton Greenish LLP v Jane Margaret Henry [2017] EWHC 246 (QB), an insurance company failed to bring a successful claim against a consultant solicitor who had forged a client’s signature on a letter of authority in respect of a transaction for heritable property. It appeared that the solicitor had forgotten to obtain the client’s signature and panicked. The solicitor, however, was not aware that the transaction involved a fraudulent mortgage application and breach of the Money Laundering Regulations. The client was, in fact, using a fraudulent identity to obtain mortgage funding.

When the fraud was eventually uncovered, the client’s lender sued the law firm for damages. The solicitor had, of course, a duty to act of care to her employer to act with skill and care – something which now appeared she had failed to do.

The firm’s professional indemnity insurance covered this situation and the matter was concluded by payment of damages to the lender. The insurance company then attempted to bring a claim against the solicitor. However … the professional indemnity insurance policy had a clause which only permitted the insurers to pursue an employee where the claim had arisen as a result of “a dishonest, fraudulent, intentional, criminal or malicious act or omission of the employee”.

The solicitor was eventually struck off from practising by the Solicitors’ Disciplinary Tribunal (in England) for dishonestly signing the letter of authority, but crucially this act had taken place after the main fraud – the fraudulent mortgage application – was well under way. It might be said that the solicitor’s action was merely incidental to the main act i.e. the fraudulent mortgage transaction.

Admittedly, the solicitor had a duty of care to ensure that the mortgage application was above aboard, but in this sense she had acted in a negligent manner and could not be said to have committed a crime. It must also be appreciated that the solicitor did not forge the client’s signature for her own personal gain – she did so to cover up her own error. In this way, she unknowingly enabled the fraudulent transaction to proceed. Her actions were, therefore, negligent rather than criminal in nature and the law firm’s insurers failed to recover compensation from her.

In many respects, the decision of the English High Court in Pemberton Greenish LLP, just confirms what we already knew: it is very rare in practice for insurance companies to pursue employees for wrongful acts, let alone secure a favourable outcome.

That said, however, the wording of insurance policies may permit insurers to pursue claims where it can be proved that the employee acts or omissions are “dishonest, fraudulent, intentional, criminal or malicious.”

I couldn’t help thinking about cases such as Lister, Janata and Pemberton Greenish LLP when reading a recent story on the BBC website.

Peebles Media Group Ltd Patricia Reilly (A226/17) February 2019

The case involves a situation where the employer is claiming that a (now) former  employee was negligent when she transferred nearly £200,000 to an online fraudster. The employee is claiming that she believed that the order to transfer the cash had been legitimately issued by her boss. The employer, on the other hand, is alleging that the ex-employee ignored warnings from the company’s bankers that fraudsters were attempting to obtain funds from unsuspecting victims by sending what appeared to be legitimate orders from bosses. By not heeding these warnings, the employer clearly believes that its former employee was negligent in the discharge of her duties. It is also alleged that the ex-employee had no authority to make payments on behalf of the company.

According to the BBC, the employer’s bank has refunded approximately £85,000, but there is still the issue of an outstanding sum of nearly £107,000 – hence the dispute.

The case is currently being heard at the Court of Session in Edinburgh and it will be interesting to hear the eventual outcome of the case.

A link to the story on the BBC website can be found below:

 

Company sues worker who fell for email scam

Patricia Reilly transferred almost £200,000 after receiving emails from someone she thought was her boss.
Conclusion
Employees owe a common law duty of care to exercise skill and care in the discharge of their duties on their employers’ behalf.
Theoretically, employers have the legal right to sue their employees for losses caused by wrongful acts or omissions. It might be thought that insurance companies would be actively pressing employers to raise legal actions for damages against incompetent employees. This tends to happen less in practice than might otherwise be expected.
As we have seen, the Morris decision of the English Court of Appeal in the 1970s, discouraged insurers from pursuing claims against employees. There were also practical reasons why an employer might be reluctant to pursue matters: you might obtain an award of damages, but enforcing it against the errant employee wasn’t worth the bother; and public court proceedings might actually cause reputational damage.
In many situations, an employer might simply choose to sack an employee who had breached the duty of care on grounds of capability or conduct (as per Section 98 of the Employment Rights Act 1996). That, of course, is another matter for discussion entirely …

Copyright Seán J Crossan, 15 February 2019

Published by

sjcrossan1

A legal blog by the author of Introductory Scots Law: Theory & Practice (3rd Edition: 2017; Hodder Gibson) Sean J. Crossan BA (Hons), LLB (Hons), MSc, TQFE I have been teaching law in Higher and Further Education for nearly 25 years. I also worked as an employment law consultant in a Glasgow law firm for over a decade. I am also a trade union representative and continue to make full use of my legal background. Please note that this Blog provides a general commentary about issues in Scots Law. It is not intended as a substitute for in-depth legal advice. If you have a specific legal problem, you should always consult with a qualified Scottish solicitor who will be able to provide you with the support that you require.

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