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Contractual Indemnity and Vicarious Liability

The relationship between employees and an employer plays a vital role in the overall performance and success of an organisation. Employees and employers both have obligations towards one another that make for a more equitable and effective work environment. In the workplace, legal considerations heavily influence the interaction between the employees and their employer.

Numerous court rulings over the past decades have created legal doctrines regulating this interaction in order to protect the rights and obligations of the parties. The concept of vicarious liability is one such doctrine which is based on the legal maxim 'Respondeat superior', which simply translates to 'let the master answer'.

This highly debated concept of vicarious liability refers to the situation which holds the employer accountable or liable for the actions or negligence of the employee, provided certain conditions are fulfilled. This doctrine is in stark contrast with the fundamental norm of tort law which outlines that one must be liable or held accountable for one's own actions and not for the actions of others.

Although this concept has received little theoretical attention, its validity has been contested on several occasions. Moreover, there also exists an obligation of contractual indemnification imposed on this employee-employer relationship whereby the employer is required to indemnify the employee for liabilities incurred during the course of his/her employment.

This paper deals with the concept of workforce and contractor's negligence and aims to examine the justification of the doctrine of vicarious liability. It also explores the law on contractual employee-indemnity and whether or not this law is flawed, through a comprehensive analysis of various literature and case laws.

Workforce and Contractor's Negligence - An Overview

When contractors and construction is on the hand, negligence is any action or lack of action which causes failure to use reasonable duty of care. Basically, negligence is the action or the inaction due to which damage or injury to the other person is incurred. When a contractor is hired a reasonable duty of care is the minimum which is expected with a professional level of construction.

It is expected that the jobsite will be safe, the employees are reasonably skilled and competent, the labourers and the subcontractors shall stay safe, and when a contractor does not meet even the basic standards of the reasonable duty of care bestowed upon the contractor due to which someone ends up getting hurt, the contractor would be held liable.

Different types of contractor negligence are:

  1. No safety training given to the employees and the workers.
  2. Improper supervision of the labour.
  3. Negligent recruitment of the labourers.
  4. No proper channel of communication between workers and subcontractors.
  5. Subcontracting risky or technical work.
  6. Cutting corners to cut the costs on raw materials and labour.
  7. Delegating tasks to those workers who lack both experience and skill.

One major problem with contractor negligence is regarding lack of safety in the workplace. When a contractor tries to cut costs regarding the safety of people at the place of work, it becomes a dangerous affair. Such an act puts the labourers, employees, workers, and families of losing loved ones or the bread earners.

Another huge issue which the homeowner has to face is damage to the property. If the employed contractor or the subcontractor is negligent while the construction is in progress, one can incur heavy losses due to damage of property because of such negligence. This is such a major issue with large construction projects.

Now, in Australia there exists three key elements which establishes negligence:

  1. There must exist a duty of care between the contracting parties.
  2. The professional should not use standard of care due to which the error/omission occurs.
  3. The error/omission causes loss or damage to the other party.
If these three elements are not established, a claim for damage cannot be established. A work shall be considered negligent if the work done is not competent and does not meet the basic market standards amongst the other professional workers.

The examples which demonstrates how a duty of care arises is as follows:

  1. Superintendent and contractor:
    When a superintendent gives out false information to a contractor to dig a pit for the cables. The contractor damaged the water pipe under the pit and flooded the neighbour's property. The superintendent will be held liable to provide such information.
  2. Contractor and subsequent owner:
    A contractor has built a foundation for a house which is defective in nature. The house was sold and the person to whom it was sold saw that there existed many structural faults in the house which was not known at the time of the purchase. The contractor would be held liable to the second owner for the non-compliant workmanship even though the contractor had a contract with the owner 1 and not the 2nd owner.
  3. Developer and adjoining landowner:
    An owner of a building destroys the building partially and leaves it like that unsecured. The children play in front of the building and the owner is aware of it. One day the children lit the fire near the building but due to the destroyed part of the building the fire reached the adjoining property. The owner might be held liable for the fire on the basis that security measures shall have been taken by the owner to prevent the current damage done.
In the United States of America even subcontractors can be held liable for damages due to negligence. The contractors have a known duty to make sure that all jobs on the project are taken up safely. Subcontractors also have a duty to make sure that their work sites are safe, and all the jobs are taken up to the minimum specifications and safety regulations which are required. If a work has been subcontracted that would not mean that the quality or the safety standards should fall.

In the European Union the contracting authority is not liable for any damage caused or sustained by the contractor which also includes damage caused by the contractor or by subcontractors which occurs due to the consequence of the performance of the contract, except for in the event where the catastrophe happened due to willful misconduct or gross negligence on the part of the contracting authority.

In the United Kingdom the most reasonable tort in construction is the tort of negligence, which also includes professional negligence, where the act which is erred or omitted has been done by a person or a company which holds themselves to be professional.

There are four elements here to establish a claim in negligence and to succeed:

  • Duty of care.
  • Breach of that duty of care.
  • Damage incurred by the cause of such breach.
  • Foreseeability of such damage.

In India the concept of vicarious liability exists which means that a person is held liable for their own wrongful and negligent acts and also can be held liable for the negligent acts done by others. To make the contractor liable, the following two points shall be present:\
  1. The negligence was committed by the subcontractor.
  2. The subcontractor committed negligence in the course of the employment.
If such acts were done, because of the concept of vicarious liability the contractor would be held liable.

An independent contractor is someone who is appointed by an employer to complete a job. An independent contractor is different from a servant. The employer is not deemed liable for the acts committed by the independent contractor.

The question which always arises is whether the damage happens due to the breach of duty of the employer. Employer's duty is divided into both delegable and non-delegable. This would imply that the non-delegable duties have to be done by the employer, but the delegable duties can be delegated to an independent contractor and the employer would be deemed liable for the work done by the independent contractor. The list of the non-delegable duties are as follows:
  • Delegation might be a breach of duty and the employer would be termed as negligent in giving out the ways to work to the independent contractor.
  • The employers have obligations to complete which are:
    1. They should have a competent staff of men.
    2. Sufficient material and adequate system for good supervision.
    The employer can be deemed liable if these are not followed.
  • Operation on or adjoining the highways:
    In the case of Tarry v. Ashton (Tarry v. Ashton (1876) 1 QBD 314), there was a lamp which resided over the footway owned by D. D appointed an independent contractor to repair that lamp and the independent contractor was not able to repair the lamp properly and was negligent as well. The lamp later fell on P who was passing by. It was held by the court that employer D was liable.In the case of Grey v. Pullon (Grey v. Pullon 122 E.R. 1091), the defendant D had the statutory authority to construct a drain from the house till the sewer which was situated on the other side of the road. D employed an independent contractor to construct the drain, but the construction was done negligently. D was held liable.
  • Strict liability:
    In the case of Ryland v. Fletcher (John Rylands and Jehu Horrocks v. Thomas Fletcher (1868) UKHL 1), it was seen that the employer was held liable because of the items stored which caused injuries.
  • When the employer on a personal level interferes with the way of working of the independent contractor, the employer becomes personally liable.
  • Statutory authority:
    Under the factories Act, Workmen's Compensation Act, etc., the liability of the employer has been fixed. In Padbury's case, D employed a subcontractor to construct windows. An iron tool was kept and forgotten by the subcontractor on the window. That iron tool fell and hit a passerby P on the street. P attempted to sue D. the court held that D was only collateral negligent, and the subcontractor is negligent. Therefore, D was seen as not liable.

Liability in the case of Workforce Negligence

Generally, the person is liable for his action and no other will be liable for the actions of that person. When an employee performs any acts under the course of the employment the employer becomes liable for the acts of the employee because there is an employer-employee relationship between the two. The doctrine of vicarious liability mainly is based on two legal maxims namely, Quit facit per alium facit per se, which states that when a principle authorises his agent to perform a certain act, the principle becomes liable for the actions of the agent.

So, it can be implied as the employer will be held responsible for the actions of the employee. The second legal maxim is Respondeat Superior, which states that the superior is liable for any wrongful acts committed by the employee in the course of the employment. However, the employer is not liable for the actions of the employee in all the cases there are several circumstances in which the employee is solely liable for his acts.

If an employer is hiring an independent contractor for performing a particular task and during the performance of the task if the independent contractor commits a wrongful act that leads to injury to the third person, then the independent contractor is only liable. Because the independent contractor is not under the supervision of the employer and the employer has no authority to control the independent contractor.

In some of the cases even if a company hires an independent contractor for the performance of the contract, if the hiring party has the power to control that independent contractor and can make him to do the acts then that person will no longer be accounted as an independent contractor, and he will be accounted as an employee of that company and the hiring party will be vicariously liable for the actions of such independent contractor.

However, there is a differentiation between the employer and an independent contractor is that an employee is controlled and directed by the employer in which manner the work should be done whereas in the case of the independent contractor the employer cannot direct and control him and the independent contractor himself has exclusive rights to perform the duty assigned and he will be responsible for his acts.

There are some tests that are followed by the courts while determining the employer-employee relationship between the parties. Firstly, the control test which determines whether the employee is under the control of the employer for his performance of the duty and the way of completion of that work. In the case of Yewens v. Noakes,(Yewens v. Noakes, 1880, 6 QBD 530), it was held that to determine whether there is an employment relationship between the two parties the control test is essential.

The other test is the integration test, this test is first identified by Lord Denning, in the case of Cassidy v. Ministry of Health, (Cassidy v. Ministry of Health, 1951, 2 KB 343), in which it is stated that this test is used for the determination of the employment status of the employee of the organization and if an employee does any work for the organization, it is not always integrated into the business, but it is only accessory for it.

While following the above two tests is not possible to determine the employment relationship between the persons in all the cases, it is said that multiple tests must be done by the courts for determining the employment relationship between the parties and that tests should include the aspects of both control test and the integration test.

In vicarious liability, the employer is liable for the actions of the employee which are under the scope of the employment. There must be three essential factors that should be present for the vicarious liability they are as follows:
  1. There must be an employer-employee relationship between the parties
  2. The tort must be committed by the employee
  3. The tort must be committed only in the course of the employment
In the case of vicarious liability, the employer's liability is a strict liability as he is responsible for the actions of his employee. In the course of the employment, the employer must take a reasonable amount of care to avoid any illegal and wrongful acts from occurring. And in the appointment of the independent contractor for any task to be done the employer must take reasonable steps for appointing such contractor and if the employer is negligent while selecting such person then he will be liable for the wrongful acts committed by that independent contractor.

Vicarious Liability: Is it fair?

By seeing the outline of the doctrine of vicarious liability it is assumed that it is a very unlawful and discriminatory law. However, if we can understand its true essence then the law of vicarious liability cannot be treated as unlawful because this law prevents the employers and the employees from the commission of any wrongful acts (Surya S., 2021).

There are many justifications for the doctrine of vicarious liability, and they are as follows:
  1. In the case of Negligence in controlling employees actions the court's primarily rely on the employer-employee relationship and believes that if any work is done by the employee in the course of the employment the employer will be benefited from such work, so, while in the performance of his duty if the employee commits any wrong then the employer will be made liable.
  2. The loss that is incurred to the injured parties by the employee in his due course of the employment must be covered by the employer as he is the one who authorizes the employee to perform a certain action and directs the employee to perform the task in such a manner.
  3. The last justification for the doctrine of vicarious liability is deep pockets, it is always believed that employers have more money than employees and they can afford to cover claims rather than employers.
Therefore, from the above information, it can be said that vicarious liability is not always unethical and unlawful, in some cases such as distribution of losses to the injured parties and assuring the claims the doctrine of vicarious liability can be seen as good law. The doctrine of vicarious liability focuses on assuring the victim to keep him in a position where he stands if the loss has not taken place. And finally, it makes employers more vigilant while selecting the employees for the performance of the duty. In conclusion, vicarious liability is justified in some of the cases.

Although vicarious liability can be justified in certain circumstances, enterprise liability for cases such as insider threats, in the cyber security sphere, seems very arbitrary and unjust. Prior to delving into the liability in cases of such insider attacks, it is crucial to understand the different types of threats. The first category is 'Unintentional' insider threats which can further be divided into two types. Firstly, 'Negligent' insider attacks, where the insider carelessly exposes an organization to a threat.

Secondly, 'Accidental' insider attack. An insider of this kind accidentally exposes an organization to an unexpected risk. Unintentional attacks are often motivated by a variety of factors. Lack of knowledge or awareness, and Convenience, such as moving business emails to personal email accounts in order to enable remote working.

The second category of threats is the 'Intentional' insider threats. Activities performed to harm an organization for personal gain or to address a personal grudge constitute an intentional insider threat. The term "turncloak" is frequently used to describe the intentional insider. In such a kind of attack, various emotional and financial reasons can act as motivations.

The final category of insider threats includes collusive and third-party attacks (Defining insider threats). From the legal point of view, there should be a question of vicarious liability only in cases of negligent/ unintentional insider threats, whereas, in cases of intentional insider threats, the employee himself should be held guilty for the data breach, and maybe a criminal liability could also be attached in this case. In today's technological era, various programs can be used in order to detect whether the threat has been caused negligently or intentionally.

Once proved intentional, the liability should lie solely on the employee. This is similar to the supreme court ruling in the English case of WM Morrison Supermarkets Plc v. Various Claimants, which held that the employer-retailer was found not to be vicariously responsible for the activities of a rogue employee for a 2014 data breach.

Is the law on Contractual Employee-Indemnity flawed?

Much of today's debate is on corporate governance and the duties that corporations bear. As seen previously, one mechanism that has typically been used to hold such entities accountable for their actions is the common law principle of vicarious or enterprise liability in this case (Brodie, 2007).

On the face of it, Law of torts and contracts might seem simple; as per which a person is responsible for his negligence, however, in reality, the law may require an innocent person to pay for another person's negligence merely because of the relationship between them. The common law on indemnity goes one step further. It enables the guilty party to shift the risk of the adjudicated loss to a completely innocent party who in some cases might have a vicarious exposure.

Prior to delving into whether or not the law on contractual employee-indemnity or in other words, whether indemnification by the employer for the negligence of the employee, is fair/just or not, it is important to explore the laws on contractual indemnity in various jurisdictions. Section 124 of the Indian Contract Act, 1872, lays down the basic definition of a contract of indemnity and states that it is a contract wherein one person promises to protect the other against loss caused by the promisor's or any other person's actions. This paper shall keep a focus on 'Employer' and 'Employee' as the two parties.

According to the common law, employers have an implied obligation to indemnify their employees for liabilities incurred while doing their duties in a reasonable manner. It imposes an obligation of indemnification on the employer-employee relationship, even if it is not expressly stated in the employee's contract of employment. California has a very strong government policy too, mandating enterprises to indemnify workers who are sued as a result of activity that occurs while they are employed.

This policy is codified in Labor Code section 2802. Employers in California must therefore, compensate workers if their actions are well within the scope of their employment. Just like other duties of the employer implied by law such as providing a safe working environment, this too happens to be an implied obligation of enterprises (Timothy M. Hoppe & Michael Wahlander et al., 2018).

This obligation and the presence of such a clause in employment agreements dates back to 1886, when an owner of the ship was compelled to indemnify the master of his ship after claims of murder surfaced during the master's execution of his responsibilities. On the face of it, such a principle might appear to be reasonable and necessary, as after all the employee was working for and under the employer.

However, there are certain situations which question the justification of such an obligation of the employer. Employees are very well aware that the ultimate person who will be held accountable for their actions, in the eyes of third parties, are their employers, vicariously. This enables employees to easily get away with their negligent or 'intentional' wrong-doings. While rogue employees might be sued in a civil manner for their wrongdoings, eventually, it is the company who pays the damages. As a result of this, employees are less motivated to avoid harm.

Thus, if an employer would have to indemnify an employee for his intentional wrongdoings and ill-will, it is nothing but arbitrary and unfair. Keeping this aspect in mind, this field of law has recently seen substantial changes. Various recent landmark judgements have highlighted the importance of the obligation of indemnification. The fact that an employee should not rely on the employer for recovery of any costs that may have resulted due to his actions beyond the course of his employment, was also stressed in such court rulings.

The New Zealand case of Katz v. Mana Coach Services is a notable one. In this case, Ms. Katz struck a third-party car while driving and was required to pay $562.50 for legal services, which she attempted to recoup from her employer, Mana Coach Services, under the general rule of employee-indemnity. The court, in this case, held that the employer was not obligated to indemnify Ms. Katz because the incident was caused as a result of her negligence, which is in turn a breach of her responsibility to take reasonable care and skill through the course of her employment (Towner & Donnelly, 2012).

Thus, although this rule of indemnity is of general importance it does not make sense to compel the employer to reimburse the costs in such situations where the actions are unreasonable and fall beyond the employee's scope of duties. Such judgments have paved the way for well-crafted indemnity clauses in employment contracts and thus, towards a more sound law on contractual employee-indemnityⅧ. Conclusion

It can be observed that vicarious liability is not always unethical and unlawful in some of the cases. It assures the party to be in a good position when loss has been suffered. It also makes employers more aware regarding their selection of the employees so that further losses are not incurred. But using vicarious liability in places of cyber threats can be a little arbitrary and the courts have to be more vigilant while using this principle to give a fair justice to all parties involved. If courts end up giving punishment to people who lead an accidental insider attack, or an unintentional attack would make things bad and innocent people would end up paying the price for others.

It is seen that the common law on indemnity helps a guilty party to shift the blame and risk onto the other party who is seen as innocent. The justification of the indemnity clause in various countries cannot be justified every time. Employees usually are well aware of the fact that who should be held responsible for the negligent act, and therefore this makes it easier for the employees to get away with things. Due to such factors the employees are less motivated to avoid harm.

However, in various new judgments like Katz v. Mana Coach Services, it was held that the employer is not mandated to indemnify the employee in certain situations. Such judgments can help pave way for future cases which can help the real guilty party to face punishment.

Final Thoughts
Lastly, one can say that usually it is the employer who has to pay the price. However, laws and rules have always been evolving. There are cases now where even the employees are facing punishment for their negligent acts. Even indemnity protects the employees from their mis-happenings and the company has to bear all the losses but again there are developments in this area of tort law.

The rule of vicarious liability also has to be shaped in relation to the cyber security domain. Employers cannot always be blamed for the things which they never do. It was a huge leap in the case of WM Morrison Supermarkets Plc v. Various Claimants as employers were not held to be responsible for the rogue employee's data breach.

One needs to go to the core of the case and take decisions regarding who is behind the negligence and then take decisions about it then only true justice would be given. In the cyber security sphere, Criminal liability should also be attached to threat actors who have caused intentional insider threats, besides having to pay damages to the injured third party.

This might curb the rise of intentional-insider threats. Employers have to draft more clearer contractual-indemnity clauses in employment contracts in order to escape being vicariously liable in unfair cases.

  • Aditya Mehta, Arjun Sreenivas & Tanya Singh., 2020. Do parties have an unfettered right to exclude or limit their liability for breach of contract. Available at:
  • Anon, Defining insider threats. Cybersecurity and Infrastructure Security Agency CISA. Available at:
  • Brodie, D., 2007. Enterprise liability: justifying vicarious liability. Oxford Journal of Legal Studies, 27(3), pp.493-508.
  • Coxwell & Associates. Contractor Negligence. Available at:
  • Hoppe, T.M. & Wahlander, M., 2018. A California pickle: Should employers defend alleged harassers? California Peculiarities Employment Law Blog. Available at:
  • Justin Cotton., 2019. Negligence Claims in Building Matters. Available at:
  • Law Faculty. Independent Contractor: Law of Tort. Available at:
  • LawTeacher. November 2013. Cassidy v Ministry of Health 1951. [online]. Available from:
  • LawTeacher. November 2013. Yewens v Noakes - 1880. [online]. Available from:
  • Minter Ellison. Chapter 20: Negligence. Available at:
  • Surya S., Vicarious Liability and its Justification, Available at:
  • Towner, R. & Donnelly, N., 2012. Employer justified in refusing to indemnify employee. Lexology. Available at:

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