Australia: Vicarious liability – where it starts, where it ends, and why defining that point can be difficult

It has long been a principle "that it is just to make the employer, whose business the employee is carrying out, responsible for injury caused to another by the employee in the course of so acting, rather than to require that the other, innocent, party bear their loss or have only the remedy of suing the individual employee". This is known as vicarious liability.

This principle is reflected in legislation, like the Employees Liability Act 1991 (NSW), confirming employees are not liable if they commit a tort in their employment.

But there are limits to that liability. Under the Employees Liability Act, an employee is not protected, and nor is the employer accountable, if the employee's conduct is serious and wilful misconduct or if it did not occur in the course of, and did not arise out of their employment.

Where then, does "the course of employment" end and "not the course of employment" begin? This question was raised in the Australian High Court in CCIG Investments Pty Ltd v Schokman [2023] HCA 21 (2 August 2023).

In that case, the issue was what happens if an employee causes harm to another employee in employer-provided accommodation but outside work hours. Is the employer vicariously liable?

The facts

Mr Schokman worked at Daydream Island Resort and Spa (part of Queensland's Whitsunday Islands) as a food and beverage supervisor. His employment contract contained a clause which stated "[a]s your position requires you to live on the island, furnished shared accommodation located at Daydream Island Resort and Spa will be made available to you...."

So it was that soon after moving into his room at the resort, Mr Shokman was joined by a new worker, Mr Hewett, who shared the accommodation with him.

On 6 November 2016, Mr Hewett had a few after-work drinks and returned to the accommodation at about 3:00am the next morning. Mr Schokman heard him vomiting in the bathroom and then walking around hiccupping. Mr Schokman then went back to sleep. He woke suddenly about 30 minutes later in a distressed state and unable to breathe. Mr Hewett was standing over Mr Schokman's bed with his shorts down and his penis exposed. He was urinating on Mr Schokman, who was inhaling the urine and choking.

Mr Schokman suffered a cataplectic attack, which is characterised by sudden and temporary loss of muscle tone and control. Mr Schokman claimed damages from the employer for Mr Hewett's conduct.

Not the employer's responsibility

The High Court confirmed the well-stated principle that:

The Court then tackled the question of whether Mr Hewett's actions fell under that definition, noting that: "It is the nature of that which the employee is employed to do on behalf of the employer that determines whether the wrongdoing is within the scope of the employment ... the identification of what the employee was actually employed to do and held out as being employed to do that is central to any inquiry about course of employment".

The majority judgment of Kiefel CJ, Gageler, Gordon and Jagot JJ found that "without more the drunken act of urinating on another employee whilst they are asleep was not connected to anything the employee was required to do".

"Nothing ... points to the drunken act in question being authorised, being in any way required by, or being incidental to, the employment. In truth, it had no real connection to it".

The fact that the employer provided Mr Hewett's accommodation was not enough to establish that the conduct was 'in the course of' or 'scope of' his employment.

"Consistently with the policy of the law, an employer should not be held liable for acts totally unconnected with the employment", the Court said.

Simple, logical - and always the case

The ruling follows an earlier decision of the High Court that an employer was not liable for an employee who injured her head while having vigorous sex during a work conference.

The logic is simple and seemingly unassailable. Why should an employer be liable for the conduct of an employee in their own private time?

However, the definition of vicarious liability varies considerably in different statutory contexts, and employers should not interpret these two cases as the last word on the matter.

For example, under s 106 of the Sex Discrimination Act 1984 (Cth), an employer is liable for the acts of its employees 'in connection with their employment' unless the employer establishes it took all reasonable steps to prevent the employee engaging in that conduct.

The phrase 'in connection with their employment' is broad – broader, in fact, than 'in the course of their employment'. That difference led to a different outcome in South Pacific Resort Hotels Pty Ltd v Trainor [2005] FCAFC 130. Here the Full Federal Court found the employer was liable for the sexual harassment of one employee by another employee out of work hours but in employer-provided accommodation.

The Court stated that to find the employer accountable, all that was required was "that the unlawful acts in question be in some way related to or associated with the employment" [emphasis ours].

It remains to be seen how far the High Court's logic in Schokman will reach in to other areas of employment law. In the meantime, employees should not assume their out-of-work conduct will not become a legitimate concern of their employer, especially where it impacts relations at work.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.