In Australia, employees can be sued in their personal capacity for negligence. However, because of the principle of vicarious liability, claims are usually directed against the employer rather than the individual employee. That said, employees may still be named personally in legal proceedings.

Vicarious liability is a legal principle that makes an employer liable for negligent acts or omissions made by their employees, provided those acts are carried out in the course of employment. If the principle of vicarious liability applies, then generally speaking, the employee is not liable to indemnify or pay any contribution to the employer in respect of the liability incurred by the employer.

Further, s 66 of the Insurance Contracts Act 1984 (Cth) provides that the insurer does not have the right of subrogation (meaning the right to recover its costs against the at fault party) against the employee, subject to the conduct of the employee that gave rise to the loss occurred in the course of, or arose out of, the employment and was not serious and wilful misconduct.

Even though it’s unlikely for employees to be personally sued, it doesn’t mean that there are no consequences for the employee. The consequences to the employee are twofold:

1. if legal proceedings are commenced against the employer for the negligent act of its employee, the employee may be dragged into the legal proceedings as a witness and be required to give evidence in court or be cross-examined and may be subpoenaed if they do not do so voluntarily. This can have a huge emotional burden for employees as the process can stretch on for months or even years, causing stress and anxiety, impacting the employee’s general wellbeing; and
2. making errors at work can damage the employee’s professional reputation and potentially lead to disciplinary action at work.

Most professional practices take out Professional Indemnity insurance, which is designed to cover the business as well as its employees. To ensure proper coverage:

1. Check if the policy wording extends to employees and where relevant seconded staff and independent contractors. Definitions of “employee” can vary significantly between policies, and independent contractors often require their own PI cover.
2. Review policy limits and retroactive coverage given the complexity and duration of projects.
3. Professional indemnity is distinct from directors and officers liability insurance and so senior management may need both.

While professional indemnity insurance provides coverage for employees, it is still important to minimise any risk of personal liability by adopting the following risk-minimisation practices:

1. Always work under a written consultancy agreement that specifies that the employer is engaged to perform the services and not the individual employee.
2. Undertake the services using reasonable care and skill.
3. Reporting any concerns relating to the services, including speaking to your employer if you believe your employer may be breaching its obligations.
4. Signing any certificates and similar documents on behalf of the employer and not in a personal capacity.
5. Maintain proper and good records.
6. Avoid signing statutory declarations where possible, and where one is needed, confine them to facts you know to be true and not matters of judgement such as NCC compliance.

While employees face a low risk of personal liability in practice, it is important to note that there may be no way to avoid the potential for personal liability when it comes to signing certain statutory certificates like design compliance declarations under the Design and Building Practitioners Act 2020 (NSW) (Act). When employees sign these certificates, they are attesting under legislative authority that the design, drawing or specification complies with the prescribed standards or statutory requirements. In these circumstances, the responsibility is not only owed to the client, but also to the regulator and if a design compliance declaration is found to be false or misleading, the Act renders you personally liable, regardless of your employment status. Although employees are usually covered under the employer’s Professional Indemnity Insurance policy, it becomes an issue for the employee when the employer does not exist in the future or does not have insurance.

To that end, employees should approach the signing of Design Compliance Declarations with care and not provide them until the design has reached a stage when they are accurate. Some further practical steps to minimize the risk when signing these declarations include:

1. Be clear on the scope of the declaration, including what you are certifying and the standard against which compliance is measured.
2. Avoid signing declarations on aspects of work that fall outside your profession and matters that are not within your direct knowledge.
3. Keep detailed records of the steps you took before signing, including checks performed.

Stephanie Petreski
Contracts Advisor

This article is only general advice in respect of risk management. It is not tailored to your individual needs or those of your business, nor is it intended to be relied upon as legal or insurance advice. For such assistance you should approach your legal and/or insurance advisors.