The Court of Appeal has confirmed the above principles by holding that an employee’s liability (in that case for legal costs) was incurred because of conduct outside of the reasonable performance of their work.

Ms Katz was employed by Mana Coach Services (Mana) as a bus driver.  During her normal driving duties she hit a car waiting to turn at an intersection.  Ms Katz admitted that it was her fault that she had struck the car as she had simply not seen it.

Ms Katz pleaded guilty to a charge of operating a vehicle carelessly and was discharged without conviction.  Ms Katz attempted to recover her legal fees, relating to her defence against the prosecution, from Mana under the implied indemnity principles.  Mana refused to pay, claiming that the accident was as a result of her own negligence.

The Court of Appeal agreed with Mana.  It said that Ms Katz’ legal costs were the result of conduct which was outside of the reasonable performance of her duties.  This was due to Ms Katz’ admission of fault and (effectively) her negligence in not seeing/ avoiding the car she ran into.

One of the Court of Appeal Judges reached the conclusion that Ms Katz wasn’t entitled to indemnity for a different reason.  She stated that, for public policy reasons, the right to indemnification should not be available for defending a criminal charge where the employee is guilty of the offending.  While this is a minority judgment it will be interesting to see whether it affects the duty of indemnity in the future – watch this space!

How the duty may apply to you

If your business involves employees operating in an area where they might themselves incur costs or other liabilities then you may find yourself asked to indemnify those employees for those costs.

How we can help

The duty to indemnify employees exists without a specific contractual provision.  However, it is easier to work out when it applies where an employee’s role and standards of care are clearly defined in their employment agreement.

Jackson Russell’s employment team can give you cost-effective advice, tailored to your needs regarding employment agreements or a potential indemnity situation.