Employment Law

Rules of Indemnification

Employees usually dont worry too much if they make a mistake and things get expensive. Employers dont usually either,  unless theirs is a business where things frequently can go wrong (construction, demolition, buidling etc).  No one in an office environment is worried about breaking a stapler or a coffee mug.  But who is responsible when it gets expensive?

The rules around indemnification are incorporated through the common law. They basically say that the employer has an obligation to indemnify the employee for liabilities that arise during the reasonable performance of their duties.  So what does ‘reasonable performance’ mean?

In Katz v Mana Coach Services the Court of Appeal decided that illegal conduct by an employee does not  fall within the reasonable performance of duties, even if the employee is not found criminally liable.

Ms Katz was a bus driver, caused an accident and pleaded guilty to the charge of operating a vehicle carelessly. She was discharged without conviction, which means that she was deemed to have been acquitted of the charges. She claimed the legal fees back from her employer, relying on the general rules of indemnification, which Mana declined. The CA agreed with the employer and held that despite her being discharged, the fact remained that she acted carelessly and her performance was not what was expected for someone in her role.

This makes sense. After all, why should the employer pay for the employee’s negligence if there are no contributing factors on his side (for instance if the bus had been badly maintained and there was a brake failure)? Driving a bus was what Ms Katz was hired and paid for.

The lesson is that employees should not rely on an old common law provision for claiming  indemnification. Thats what insurance is for and its in the interest of every employee to have professional indemnity insurance for exactly these kind of scenarios. Most employers insure their employees anyway, others are happy to contribute to the costs. There is no reason not to have one, especially when you are in a business where accidents are likely to happen.

After all, we all make mistakes.


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