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Risk warning: independent contractors

18 July 2018

Various Claimants v Barclays bank [2018] EWCA Civ 1670

  • Developments in vicarious liability mean that organisations may now find themselves on risk for the torts of independent contractors.
  • Conventional contractual and insurance protections put in place on engaging contractors provide limited mitigation
  • Revised risk assessments with appropriate legal input will be needed in the context of service procurement, commercial due diligence and insurance procurement.
  • We consider the likelihood of the decision being reversed on further appeal or constrained by future developments is less than 50%

Various Claimants v Barclays Bank is a claim in vicarious liability arising from sexual assaults perpetrated by an independent doctor conducting health examinations on employees and prospective employees of Barclays Bank, on the bank’s behalf.

Vicarious liability is a long established principle in tort, whereby an employer will be liable for the torts of its employees, though the employer may not have been negligent itself.

Over a number of years, the courts have broadened the definition of ‘employer’ and ‘employee’ in the context of vicarious liability to include scenarios considered akin to a relationship of employment. This has included findings that a local authority would be liable for its foster carers, though they are not employees.

Through these cases, a five stage test has developed a test comprising of a series of questions addressing the relative ability of the employer and worker to compensate victims, whether the employer has created the risk, the de facto control of the worker and the extent to which the worker is integrated into the business. The test has not previously been applied in a way which established a liability in a situation involving an independent contractor.

In Various Claimants v Barclays Bank, the Court of Appeal concluded that the identification of a party as an independent contractor would not avoid a finding of vicarious liability. Each situation would need to be looked at against the five stage test, and the result may be liability in some, but not all, independent contractor situations. Further detail of the court’s analysis can be found here.

The court recognised the uncertainty and challenge this creates for business: “It is clearly understandable that a “bright line” test, such as is said to be the status of independent contractor, would make easier the conduct of business for parties and their insurers. However, ease of business cannot displace or circumvent the principles now established by the Supreme Court”

What the court did not address was the potential impact of historical liabilities under this newly expanded test, or the challenge for businesses seeking to mitigate their risks.

In our practice, we have observed that as vicarious liability has been defined increasingly broadly, claims have been presented many years after the events complained of against public, private and third sector organisations. It is not uncommon in these cases for the tortfeasor to be deceased (as in the Barclays Bank case) or untraceable. The challenges in terms of risk management are considerable, as risks may emerge many years after events to which they relate, and may then be very difficult to investigate or quantify. It is rarely possible to protect against historic risks which may give rise to claims in the present.

Options to protect against future risk are also limited. Contractual protections are of no benefit if the contractor is insolvent or deceased. Contractor insurance may provide no meaningful protection if cover is on a claims made basis and claims are presented years after the event, or where terms (such as deliberate act exclusions) exclude cover or are breached.

Organisations are therefore advised to increase the level of scrutiny undertaken in relation to contractor risks when engaging contractors, managing the relationship and undertaking commercial due diligence exercises. Any changes to risk should be taken into account when organisations are arranging their own insurance in order to ensure fair presentation obligations are met and that cover is adequate.

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