Supreme Court finds employers less likely to be vicariously liable for actions of independent contractors

United Kingdom

In reversing the Court of Appeal’s decision, the Supreme Court in Barclays Bank plc v Various Claimants has reinforced the ability of companies to use the “independent contractor defence” when faced with claims in respect of third party contractors.

Companies (and employers more generally) will take some comfort from the decision, as they are now less likely to be held accountable for the actions of third party contractors.

Background

126 claimants brought a group litigation action against the defendant bank in respect of alleged sexual assaults committed by Dr Gordon Bates. At the relevant time, the majority of the claimants were prospective employees of the bank (some were existing employees) and were required to undergo medical examinations as part of this recruitment process; it is during these examinations that the assaults allegedly took place. Dr Bates was not an employee of the bank.

The question put to the courts as a preliminary issue was whether the bank could be held vicariously liable for the actions of Dr Bates.

Court of Appeal decision

The Court of Appeal, upholding the High Court’s decision in July 2017, answered this question in the affirmative. It rejected the “bright line” argument that employers should not be vicariously liable for actions of independent contractors, despite noting that this would “make easier the conduct of business for parties and their insurers”.

The Court confirmed that the question involved a two-stage test: (1) is the relevant relationship one of employment or “akin to employment” and (2) if so, was the tort sufficiently closely connected with that employment or quasi-employment.

Turning to the first stage, the lower court had been correct to find that the five relevant criteria (as first identified by Lord Phillips inCatholic Child Welfare Society v Various Claimants, 2012) had been met:

  1. The bank (or its insurers) was more likely to have the means to compensate the victims and could be “expected to have insured against that liability”; however, the Court stated that this criterion carries little weight and liability could not be found on this alone;

  2. Whilst of some benefit to the prospective employees, “it was clear beyond doubt that the principal benefit” of the medical examinations was to the bank;

  3. This process was part of the bank’s business activity; indeed, “there could hardly be a clearer example” of this;

  4. Whilst “the variety of facts in negligence cases are legion”, in this particular case the risk of the tort had arisen from the actions of the bank; these actions did not need to amount to negligence for this criterion to be met; and

  5. Most crucially of all, Dr Bates was to a greater or lesser degree under the control of the bank. When reviewed in the context of the relevant activity (medical examinations, assessments and reports), the bank had exercised sufficient control to fulfil this criterion as well.

Regarding stage 2 of the test, the Court of Appeal agreed with the lower court’s finding that the medical examinations were sufficiently closely related to the relationship between the bank and Dr Bates; in fact, they “were the whole purpose of that relationship”.

Supreme Court decision

In the recent Supreme Court decision, the Court subsequently allowed Barclays’ appeal and held that the bank was not vicariously liable for the wrongdoing of Dr Bates. The key question was whether Dr Bates was acting as an independent contractor, carrying on business off his own account or if he was in a relationship akin to employment.

Lady Hale confirmed that, although the five relevant criteria in the Phillips test might be helpful in establishing whether workers who are technically self-employed (or agency workers) are part of the employer’s business, one must instead look at the underlying details of the relationship. If a contractor is, “carrying out his own independent business it is not necessary to consider the five incidents”.

In turning to the facts, Lady Hale said that it was clear that although Dr Bates was a part-time employee of the health service, he was not at any time an employee of the Bank. Nor, viewed objectively, was he anything close to an employee” – citing the example of other independent contractors, such as window cleaners or auditors.

It was admitted that the situation might be slightly different where contractors are paid a retainer (and have to accept referrals) but that wasn’t the case here – Dr Bates was free to refuse examinations and even “no doubt carried his own medical liability insurance. Dr Bates also had other clients and was therefore on business on his own account.

Comment

The Barclays decision was handed down on the same day as WM Morrisons Supermarket PLC v Various Claimants [2020] UKSC 12, another landmark ruling in relation to the vicarious liability of employers (specifically in relation to their liability for data breaches resulting from the actions of employees). To read our Law-Now on the Morrisons decision click here.

We set out below our analysis of the decision in Barclays, by reference to the likely implications for insurers.

  1. Impact from the perspective of healthcare organisations and their insurers

Notwithstanding the fact that the Court of Appeal had held Barclays to be liable for the actions of an independent contractor, it had noted that any decision (to the contrary) which had the effect of absolving Barclays of liability, “would make easier the conduct of business for parties and their insurers”. That is now very much the case in light of the Supreme Court’s decision - effectively healthcare organisations and their insurers have been provided with greater certainty as to who might be considered to be an “Insured Person” under the terms of a policy.

The Supreme Court’s acknowledgement that Dr Bates “no doubt carried his own medical liability insurance” sets a helpful precedent to healthcare insurers going forwards who (when opting to decline cover on behalf of companies in respect of the actions of independent contractors) can now refer to the fact that those independent contractors should typically have their own cover in place. Equally, where insurers are providing cover to independent contractors, they will be mindful of the fact that they are likely to be covering the costs of any claims, rather than the insurers of the companies who are employing them on a consultancy basis.

Furthermore, had the Court of Appeal decision been upheld, there was the risk there might have been an influx of cases in respect of historic injuries, in which claimants had previously been unable to identify a sufficiently wealthy defendant in order to hold them vicariously liable for the actions of an independent contractor. That is now less likely to be the case.

  1. Impact from the perspective of employers' liability Insurers

Further to CMS' Law-Now on the case of WM Morrisons, this matter provides some useful guidance on the issue of vicarious liability. Although the medical consultant’s relationship with Barclays was found not to be sufficiently close, the Barclays decision confirms that the facts of a case could override any express agreement between the parties if on those facts the relationship between those parties made it fair, just and reasonable to impose vicarious liability.

Further reading: Barclays Bank plc (Appellant) v Various Claimants (Respondents) [2020] UKSC 13.