The Supreme Court has held that where an employer is sued on the basis that it is vicariously liable for the acts of its employees, it does not owe those employees a duty to defend the proceedings in such a way as to protect their economic or reputational interests: James-Bowen & Ors v Commissioner of Police of the Metropolis  UKSC 40.
The court considered that to recognise such a duty would amount to an extension of employers’ previously recognised duties. It unanimously concluded that it would not be “fair, just and reasonable” to impose it – either as a standard implied term in employment contracts or as a concurrent tortious duty.
In particular, given that the interests of an employer and employee in such circumstances will often be in direct conflict, the court considered that to impose such a duty would potentially stifle an employer’s defence of claims and would require it to “constantly look over its shoulder” for fear of exposing itself to claims by employees that the defence should have been run differently.
The decision provides welcome reassurance for any employer (or quasi-employer, as in this case) facing claims based on the alleged wrongdoing of its employees, particularly where fraud or other serious wrongdoing is alleged and there is potential for the employees to face public criticism. Notably, the decision is not limited to rejecting a particular formulation of the proposed duty but appears to be a wholesale rejection of any suggestion that an employer’s general duty to its employees restricts it in any way from defending such proceedings in whatever manner it thinks best to serve its own interests.
The underlying litigation concerned an allegation by a terrorist suspect that he had been seriously assaulted in the course of his arrest. He brought a personal injury claim against the Police Commissioner as vicariously liable for the actions of the police officers involved.
During the course of the trial, the Commissioner settled the claim on terms that admitted most of the allegations and included a public apology. The officers were subsequently charged with criminal offences arising out of the arrest but were acquitted. They then commenced proceedings against the Commissioner claiming that both the manner in which the action was defended and the terms on which it was settled had caused them economic, reputational and psychiatric damage.
Amongst several bases relied on, the officers argued that the Commissioner’s common law duty of care as their employer or quasi-employer (based on the accepted legal position that police officers are in a quasi-employment relationship with the Commissioner) included a duty to protect their interests in conducting the litigation. Specifically, they relied on the analogy of the standard implied term in employment contracts of mutual trust and confidence between employer and employee, and the recognised concurrent tortious duty to the same effect.
The High Court struck out all of the claims as unarguable. On appeal, the Court of Appeal upheld the rejection of several of the bases relied on but held that it was arguable (to the level required to proceed to trial) that the Commissioner’s general duties as a quasi-employer did extend to protecting the officers’ economic and reputational interests in the conduct of the litigation. (See our post on the Court of Appeal decision here.)
The Supreme Court allowed the appeal, finding that no such duty should be imposed.
The court proceeded on the basis that the question turned on the scope of an employer’s tortious duty, given that any implied contractual term could not extend further than a concurrent duty in tort. As to that tortious duty, the court accepted that to recognise the duty for which the officers contended would amount to extending an employer’s duties beyond those established in previous cases. Accordingly, it was necessary to consider the question by reference to legal policy considerations. Specifically, the court considered whether the imposition of such a duty met the third limb of the test laid down in Caparo v Dickman  2 AC 605 – that it be “fair, just and reasonable” to impose the duty. (It was accepted that it was clearly arguable the parties met the other two limbs, namely that harm was foreseeable and that, by virtue of their quasi-employment relationship, there was a sufficiently proximate relationship).
Key to the court’s rejection of the duty was its observation that there are “stark differences” between the interests of an employer and its employees in such litigation. While it is not necessarily fatal to the recognition of a duty that it would give rise to conflicting duties, the court considered that the extent of the conflict here strongly suggested that it would not be fair, just or reasonable to expect an employer to protect the interests of its employee in this situation. Further, the court rejected as “unrealistic” a suggestion that the potential for conflict could be overcome by recognising a duty of care up to the time at which an actual conflict of interests arose, at which point “timeous notification” by the Commissioner could result in the duty of care ceasing to apply. The court considered that the potential for conflict was too great to permit such a compromise and there was no justification for imposing on an employer the burden of keeping under review at each stage of the proceedings the question whether an actual conflict had arisen.
The court was also influenced by policy considerations regarding the practical conduct of proceedings. These included a perceived risk that such a duty could inhibit the conduct of defences, result in delays and disruption to proceedings (through disputes between employees and employers as to the best way to conduct the defence and through employers needlessly prolonging proceedings as a protective measure), discourage settlement and prompt a proliferation of satellite litigation, including challenges to the outcome of decided cases.
Further, the court accepted that the practical impact on an employer’s legal professional privilege was an additional factor weighing against the recognition of such a duty. In order to defend proceedings brought by employees and demonstrate that there was in fact no breach of duty, the employer might have to waive privilege in relation to its conduct of the original claim. This could, however, undermine the effective conduct of its defence of that original claim, in that the possibility of a subsequent claim in negligence and the likelihood of having to waive privilege could well inhibit frank discussion between the employer and its legal advisers. (Although the officers argued that common interest privilege would have entitled them to access the Commissioner’s privileged material in any event, the court rejected this, noting that something more than a shared interest in the outcome of litigation is required before common interest privilege can be used in this manner as a ‘sword’ against the owner of the privilege.)
In summary, the decision is a clear and comprehensive rejection of the suggestion that employers need to factor into their defence of such litigation any requirement to protect or have regard to the relevant employees’ economic or reputational interests. In the court’s view, an employer in that situation “should be entitled to defend the claim in the way he sees fit, notwithstanding that his employees will or may as a result be subjected to public criticism during the trial process”.
It is important to note that the decision is not limited to cases where the employer in question performs a law enforcement role similar to that of the Commissioner, or even any other public role. While the court did observe that the Commissioner’s role as a public officer “adds a further dimension to this appeal”, it seems clear from the judgment that this was noted as merely adding weight in this case to the court’s observation that the interests of an employer and employee in vicarious liability claims will often be in direct conflict. The balance of the court’s reasoning does not turn on the Commissioner’s public role and the conclusions are clearly expressed as applying to employers and employees (or those in a quasi-employment relationship) generally.