Vicarious liability when an employee commits an intentional wrong

Donald Dinnie, Norton Rose Fulbright

In this judgment the court grappled with the difficult question of imposing vicarious liability on an employer for an employee’s deliberate wrongdoing.

The court acknowledged that such situations create special difficulties both in relation to the conceptual basis for liability and public policy justifications underlying the liability.

This was a clear case of a deliberately dishonest employee.  The employee’s conduct was unauthorized and criminal.  He misused his position and defrauded his employer.  When doing so he had only his own interests in mind. His duties involved marketing, engaging with prospective clients, facilitating agreements between the parties for the sale and restitution of vehicles and administrative duties including collecting payment from clients and bookkeeping.

The plaintiffs had made payments of deposits in terms of various agreements into a bank account purporting to be that of the defendant, but was not.  The deposits were never refunded.

Neither the defendant nor the employee performed in terms of the agreements which breach was never disputed.

The court said that it was the defendant’s business activities that created some form of risk for potential customers.  The defendant employed an employee who unbeknown to the defendant was untrustworthy. The roles performed by that employee in the defendant’s business afforded him the scope to abuse his power to the detriment of the plaintiffs. The source of the power was the defendant himself who effectively distanced himself from large swathes of his own business, “implicitly entrusting” that employee (who was his son) with much of the running of his sole proprietorship.

The court said that the consequence of the manner in which the business was operated was that customers, in particular the plaintiffs, were left vulnerable to becoming victims of the wrongful exercise of the employee’s workplace power.

The court was satisfied that the employment relationship in the instance went beyond creating a “mere opportunity” for what followed.  It actually facilitated the employee’s actions.  So there was a sufficiently close causal link with the wrongful actions for purposes of establishing vicarious liability.

The judgment contains a useful review of the more recent vicarious liability and “frolic of their own” judgments. Where there is a choice between an employer or an innocent third party bearing losses like these, the courts will usually hold the employer liable.

This case had a particularly sad ending, not only because of the judgment against the defendant, but because the employee, the defendant’s son, committed suicide the day before his fraud was about to be exposed to this father.

First published by: Financial Institutions Legal Snapshot