Can Employers Sue Employees For Insured Wrongs?

An employer taking legal action against an employee or former employee is unusual. It is normally the employee that takes legal action against the employer for alleged breach of employment rights or for personal injuries allegedly sustained. There have been a number of high profile examples of employers suing employees lately, mostly relating to breach of employees' duty of confidentiality, or breach of specific terms of the contract of employment such as restrictions on working for competitors, soliciting clients or opening a competing business within a certain geographic location.

The question arises however, as to whether an employer can sue an employee for acts of alleged negligence or breach of implied duty of the employee to exercise due care and attention, which gives rise to a claim against the employer. The fact that such actions are extremely rare may be explained by the employer-employee relationship and the fact that the employer is normally insured for any accidents caused by the inadvertence or acts of negligence of an employee through employers liability, professional indemnity or public liability insurance.

The question of employee's liability to the employer was considered by the Court of Appeal and the House of Lords in the UK in Lister v. Romford Ice & Cold Storage [1956] UKHL J1220-2 (Lord Denning dissenting). The case concerned an original claim against the employer for injuries sustained as a result of an employee who negligently struck a third party when reversing a lorry without looking where he was driving. The employer was found to be vicariously liable for losses caused by its employee. However, this simple accident was complicated by the employer issuing a writ seeking an indemnity against its employee for damages for breach of contract in the amount that had to be paid out to the injured third party. It was claimed by the insurance company on behalf of the employer that it was an implied term of the contract of service that the employee would carry out his duties with reasonable care and skill and that he had failed to do so, causing the loss and damage.

In his defence to the claim, the employee pleaded that it was an implied term of his contract that he would be indemnified against all proceedings brought against him for any act done by him in the course of his employment, or in the alternative, that he would receive the benefit of any insurance in place to protect against the claim. This was an unusual case...