In February of this year, a story on BBC Scotland’s website caught my eye which concerned the contractual duty of care owed by an employee to her employer.
A link to the original story on the BBC website can be found below:
A case had been lodged at the Court of Session in Edinburgh – Peebles Media Group Ltd v Patricia Reilly (A226/17) February 2019.
The legal action taken by Peebles Media Group arose because the it claimed that a former employee (Patricia Reilly) was negligent when she transferred nearly £200,000 (by way of 3 payments) to an online fraudster. Reilly claimed that she believed that the order to transfer the cash had been legitimately issued by her boss (sent via email). The employer, on the other hand, alleged that Reilly 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 believed that Reilly was negligent in the discharge of her duties. It was also alleged that Reilly had no authority to make payments on behalf of the employer.
According to the BBC story in February, the employer’s bank had refunded approximately £85,000, but there was still the issue of an outstanding sum of nearly £107,000 – hence the dispute.
Well, Lord Summers, sitting in the Outer House of the Court of Session, has now made a decision in this case (Peebles Media Group Ltd v Patricia Reilly  CSOH 89).
A link to the decision of the Outer House can be found below:
There is an implied, contractual duty that an 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.
Lord Summers stated that:
“I acknowledge that employees have an implied obligation to exercise reasonable skill and care in the performance of their duties. That such a term exists is amply borne out by Lister v Romford Ice and Cold Storage Co Ltd  AC 555 and Janata Bank v Ahmad  IRLR 457.”
In Lister v Romford Ice and Cold Storage  1 All ER 125,  AC 555,  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.
In practice, these types of cases tend to be few and far between, but as we have seen with Lister and Janata Bank they are not entirely unheard of.
In Janata Bank v Ahmed  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. The English Court of Appeal held that Ahmed was liable in damages (£34,640) to his employers for the losses caused by his negligence. The equivalent figure in 2019 would be nearer £200,000.
Providing further context to these types of claims, his Lordship continued by making the following remarks:
“More generally it can be observed that employers seldom sue their employees for damages. Other than Lister and Janata Bank (cited above), there are hardly any reported cases. Why that is so is a matter lying beyond the scope of this opinion. I accept that the directors of the pursuers in fulfilment of their duties to the company were entitled to consider whether an action was merited.”
His Lordship has concluded that Reilly should not be held liable to her former employer for the losses that it suffered as a result of the fraudulent enterprise. Admittedly, there had been breaches on Reilly’s part of her duty to exercise skill and care, but this of itself would not have prevented the fraud from occurring. It was a “tragic case”.
The employer’s argument that it that the emails which Reilly received purportedly from the managing director, Yvonne Bremner, were “obviously fraudulent” was not proved. Although Bremner was on holiday in Tenerife at the time of the fraud, the employer argued that Reilly could have contacted her to seek further instructions before making the payments.
Significantly, it was noted by the Court that Reilly had no reason to suspect that the emails instructing the payments were fraudulent. This was a sophisticated fraudulent enterprise known as a “whaling exercise”.
As for the employer’s claim that Reilly had no authority to make the payments in question, this was disproved. As Lord Summers noted:
“… the defender [Reilly] had the authority to use the pursuers’ [Peebles Media] online banking facilities.”
Even the employer’s bankers knew that Reilly had access to the online banking facilities. During an attempt to transfer funds, Reilly experienced with the online banking facilities and she had to seek assistance from a manager at the bank in order to make the payment. He remarked that, strictly speaking, she was an unauthorised person, but despite this awareness on his part he did nothing concrete to prevent Reilly from continuing to use the system.
I am prepared to go further than Lord Summers and speculate as to the lack of cases of this type. There are a number of very practical reasons why employers have tended not to pursue claims against employees:
- It may not make much economic sense i.e. you might obtain a successful court decree for damages against an individual, but the practicalities of obtaining this sum from a low or modestly paid employee are almost nil; and
- The strong aversion to negative publicity i.e. the fear of the reputational damage done by effectively putting the negligent acts of their employees in the spotlight of legal action.
Again, as Lord Summers said: it is a “tragic case” and the fraudster is still at large.
Copyright Seán J Crossan, 20 November 2019