Written by Sam Pennell
Insurers are often told by third party companies who are trying to avoid liability for damages to an insured’s property, “the negligent person wasn’t our employee. They were a contractor. We aren’t liable.”
What happens if the negligent person wasn’t a direct employee of the company, but was part of a labour hire agreement?
It is now more prevalent than ever for agencies to exist for the purpose of hiring out their employees to provide labour for other companies. This is known as “labour hire”.
A question can arise as to who becomes responsible for the negligence of these workers. Is it the labour hire company who employs the worker and has an employment contract with the worker, or is it the company who is utilising the labour of the worker, provides direction, and has control over the worker despite not being their direct employer?
And can there be two parties vicariously liable for an individual?
This was discussed in the NSW Court of Appeal decision of Mt Owen Pty Ltd v Parkes [2023] NSWCA 77.
Court Findings
The Supreme Court found the company utilising the labour of the hirer (“host employer”) was vicariously liable for the worker. The labour hire company (“direct employer”), despite having a contract of employment with the worker for the labour conducted, was not liable.
The Court commented, however, the findings were a question of fact and made in reference to the specific facts of this case. In determining which facts are most relevant, the Court adopted the following from Kondis v State Transport Authority (1984) 154 CLR 672:
“The nature and extent of the control transferred to the defendant or retained by the employer determines whether there is a shift of liability from the employer to the defendant ….”
Facts
Mr Kemp was a specialised and qualified tradesman employed by a labour hire company, Titan Technicians Enterprise Pty Ltd, his direct employer. The direct employer hired out Mr Kemp’s labour and specialities to Mt Owen, who became the host employer. Mr Kemp had been working for his host employer for approximately three years and was supervised by a full-time and direct senior employee of Mt Owen. Alongside Mr Kemp, his supervisor also supervised multiple other labour hire workers who were also specialised and qualified and worked together with Mr Kemp from the same agency.
Mr Kemp was operating a blade while working in a mine, when he negligently lowered the blade, and injured another worker on site. There was no dispute that Mr Kemp’s negligence was the cause of the other worker’s injury. The real debate about liability in relation to Mr Kemp’s negligence was who was vicariously liable for Mr Kemp’s actions.
The host employer of Mr Kemp, Mt Owen, argued they were not liable for Mr Kemp’s actions for the following reasons:
- They were not the employer of Mr Kemp, and he was solely working as a labour hire contractor.
- Mr Kemp was able to be left to his own devices due to his experience, specialty and qualifications.
- The direct employer carried out their own induction, issued their own letter of competency to Mr Kemp, Mr Kemp was subject to policies and procedures of the direct employer in relation to risk management, safety management and injury reporting.
- Mr Kemp was operating alongside other labour hire workers, and supervisors from his direct employer visited the site when required.
The Supreme Court disagreed with Mt Owen’s position primarily due to the following reasons:
- “The industrial landscape has changed greatly since the concept (of vicarious liability) was first developed. Particularly, with regard to the prevalence, indeed proliferation, of labour hire companies.”
- Mr Kemp was a “full time equivalent” worker in Mt Owen’s workforce having regard to facts.
- Mr Kemp worked under the direct supervision of a senior employee of the host employer and his supervisor exercised their power and authority over the way Mr Kemp performed his tasks for three years.
- Mr Kemp was required to follow systems of work set out by his host employer and he remained subject to the direction and control of his host employer.
- Mr Kemp’s tasks were no different to that of the direct employees of Mt Owen.
The Supreme Court’s decision was appealed, however, the appeal was dismissed, and the Supreme Court’s findings were maintained. Although, the Court of Appeal did notably comment further:
- The nature and the extent of control of the host employer has over the worker determines whether there is a shift of liability from the direct employer to the host employer.
- Transfer of control in isolation is not sufficient to shift vicarious liability, “unless the host employer is in control of the manner in which the work is undertaken.”
- It was also confirmed there cannot be two parties vicarious liability for a negligent worker.
Implications
Despite the historically high difficulty in meeting the threshold to have vicarious liability transferred away from the direct employer, modern labour hire arrangements may lead to the threshold being met more often.
When this issue arises for an insurer, the Court’s specific comments as to the individual factual nature of each dispute being determinative of whether liability shifts to the host employer, careful consideration and further investigations will more than likely be required before an assessment can be made on whether liability would transfer to the host employer, or remain with the direct employer.
An insurer should not hastily abandon recovery action when a third party company responds saying “they were a contractor, we aren’t liable”. Consideration should first be made as to whether there is a labour hire agreement between the parties, and the extent of control the host employer had over the negligent contractor.
Should you wish to discuss any of the above, please contact Sam Pennell on 03 9947 4543 or any member of the Ligeti Partners team on 03 9947 4500.
