Court of Appeal ruling on scope of duty of care

An employer does not have a duty of care to protect an employee from future economic loss arising from a criminal conviction in the performance of duties and no implied contractual duty to indemnify.

The Court of Appeal upheld the decision of the High Court (see our Insight) to dismiss the former banker’s claim for career-long loss of earnings for alleged breach of duty of care and breach of an implied contractual indemnity in Benyatov v Credit Suisse (Securities) Europe Ltd. This is a very welcome decision for employers, but the litigation is also a reminder of the circumstances in which employers do owe a duty of care to their employees in carrying out their duties.

Findings

• There was no duty of care to protect Mr Benyatov’s economic interests following a criminal conviction in the performance of his duties, beyond the tortious duty consistent with an employment relationship to take reasonable care not to expose the employee to risks of reasonably foreseeable personal and psychiatric injury. When considering whether to extend duty of care to novel situations, the correct approach is to refer to the well-known factors set out in Caparo Industries Plc v Dickman (foreseeability, proximity, fairness, justice and reasonableness), as the High Court had done. There may be cases where a duty of care arises to protect an employee from consequential economic losses suffered, but this will depend on the specific facts, whether the particular harm was foreseeable and whether it was, in all the circumstances, fair, just and reasonable to impose such a duty. In this case, it was not reasonably foreseeable that the employee would be exposed to a conviction in the performance of his duties, and therefore no duty of care was established. In particular, Romania was not considered a high-risk country at the relevant time, and the transactions were not seen as high risk. In any event, the Court of Appeal agreed with the High Court that any negligence claim was time-barred.
• There was no implied contractual duty to indemnify an employee for loss of earnings caused by the act of a third party arising from the employee performing their duties. The Court of Appeal held that it was common ground that there was an implied term of Mr Benyatov’s employment contract that the bank would indemnify him against some forms of harm suffered in doing his job (eg expenses and liabilities incurred), but such an indemnity would not extend to losses suffered, such as loss of earnings, caused by the acts of a third party, nor without the need to establish any fault on the part of his employer.

Comment

• A general indemnity of the kind contended would have undermined principles established in tort as to when there is a duty of care to safeguard against another’s pure economic loss. Imposing an implied term that an employer would indemnify employees for future economic loss in these circumstances would have cut across the law of negligence with potentially far-reaching consequences.
• Further, if Mr Benyatov had succeeded with his innovative argument that there was an implied contractual indemnity to protect him from future loss of earnings, an employer would be liable to compensate employees for a loss of earnings (even where that loss is caused by someone else and there has been no fault on the employer’s part), simply because the relevant harm was “in consequence of” them doing their job. This approach would have placed a huge financial burden on all employers, taking no account of their means to shoulder that cost.

Practical tips

Our practical tips from the High Court judgment remain relevant:

1. Expressly state in employment contract that there is no contractual indemnity.
2. Regularly update and revise risk assessment processes for high-risk jurisdictions and/or high-risk transactions to reflect political, humanitarian, social and economic developments.
3. Consider discrimination risks where advising an employee not to travel for reasons associated with their protected characteristics.
4. Focus risk policies on risks to the individual employees, as well as risks to the organisation and the organisation’s interests.
5. Ensure an organisational overview of risk: in this case risks had been assessed within separate business divisions (fixed income, investment banking, equities).
6. Consider in any event what enhanced security options are available where sending staff to high-risk jurisdictions including using specialist agencies, relevant local embassies, other consultants to provide specific intelligence on risks associated with particular locations, nationalities or activities.
7. Keep track of red flag issues raised by employees based in high-risk jurisdictions.
8. Review and assess appropriateness of D&O cover.