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Mice Net : October 2009
76 mice.net legal issues MATTHEW CROUCH DELVES once more into the frightening world of words that can potentially bite. STORY BY MATT CROUCH EXECUTIVE LAWYER, BARTIER PERRY SOLICITORS Last time we looked at the potential dangers of using a popular expression: "partner". This time we'll try to expunge another word from our business vocabulary. It is another term that carries a whole lot of baggage -- and potential pain, when incorrectly used. This time it's the word "agent" that should carry the "toxic" label. This is another popular expression and much misused. It has never been clear to me precisely why businesses in the meetings and events arena are so keen sometimes to characterise their contractors as agents - particularly when you consider that a business is liable for its agents. But I am getting ahead of myself. In order to understand the issue, we have to delve a little into the basic principles of liability for others - ie, in what circumstances can you be liable for someone else's actions? In my last column we looked at the liability that partners have for each other -- the joint and several liability of partners is to be avoided wherever possible. Clearly, businesses are generally liable for the acts and omissions of their employees -- so long as those acts and omissions are committed by the employee while in the course of performing their duties as employees and they are not "on a frolic of their own". This is a normal incident of the relationship of master and servant. The liability of the master for the servant is known as vicarious liability. The action of the employee is, in effect, deemed by law to be the action of the employer. Businesses are not, however, generally liable for the negligent acts and omissions of their independent contractors. This makes the distinction between employees and contractors enormously important, as you'd expect -- and books have been written on the subject. Many businesses engage individuals who characterise themselves as contractors for a range of reasons, some real and some spurious. Perhaps we'll delve into all that another time -- but the point for this discussion is that the general rule (as a starting point) is that you are not liable for your independent contractors. So, if "Killer Conferences" organises a conference and has its own employees prepare and serve the food and beverage, it would be liable to those delegates who suffer salmonella poisoning. If, on the other hand, Killer Conferences outsources the catering to an independent company, "Cringe Catering", Killer Conferences will not be liable for the injury caused by the negligently prepared food. There are several exceptions to this general rule. First, if Killer Conferences appoints Cringe as its agent Killer would be liable to those injured by the negligence of Cringe and its employees. This is the fundamental rule of principal and agent -- principals are liable for the negligence of their agents. And this is why loosely referring to another supplier as your agent can cause so much grief. Second, if Killer Conferences creates an appearance of agency (even though there is no such arrangement in fact), Killer Conferences can be liable for Cringe Catering's negligence. For example, if Killer Conferences dresses the Cringe Catering staff in uniforms identifying them as Killer Conferences employees, or gives them all Killer Conferences business cards to hand out, Killer Conferences may be creating the appearance that the Cringe staff are actually employees of Killer Conferences, and Killer Conferences may be liable for the negligence of those people. This is known as "apparent" or "ostensible" agency. There are other situations where Killer Conferences might be liable for its independent contractors -- such as where it takes a prime contractor role and indemnifies the customer for loss caused by the negligence of the contractor -- a dangerous practice indeed and one which we have reviewed on several occasions in this column. Lastly there is the rare case of the non-delegable duty, where the customer is in a special position of vulnerability and outsourcing to an independent contractor does not relieve you of liability. You can see, however, that by creating an actual or an apparent agency you can be liable for the negligence of your contractor. "But aren't we insured?", I hear you ask -- and the answer is that you are unlikely to be insured for liability that arises because of the actions of a separate business. It's a simple equation: agency = extra liability and probably no insurance cover... Now the mere fact that you refer to another business as your agent will not necessarily mean that an actual relationship of agency arises -- but why take the risk? My general rule is never to use the word "agent" unless it is crystal clear that both parties intend an agency arrangement to arise -- and that is, in fact, a rarity. For further details contact Matt Crouch on (02) 8281 7800 or email email@example.com. careful, IT'S ALSO LOADED!