Can an employer sue if a third party's negligence injures or kills an employee?

Employers should protect their employees from harm because it's the right thing to do, morally, legally – and, also, commercially. What if a third party's negligence injures or kills an employee? The employee or his or her family members can sue – but can an employer?

The High Court has confirmed that when an employee is injured or killed as a result of someone else's negligence, the employer has at least two ways to recover some of its losses from the negligent third party, in an important decision for companies which depend upon "key persons" (Barclay v Penberthy [2012] HCA 40).

In this case, Nautronix hired an aeroplane and pilot to transport five employees to test some equipment designed to be used from an aeroplane. The right-hand engine failed during take-off; the aeroplane crashed, killing two and injuring three. The specialised equipment was also damaged or destroyed. The crash was the result of others' negligence – the pilot whose response was negligent, and the engineer who designed the part in the engine that failed.

What did the High Court decide on an employer's right to sue when an employee is injured?

The High Court confirmed:

• generally, you can't sue at common law for the loss you suffer from another's death (the rule in Baker v Bolton), although this has been modified by legislation;
• an employer can however sue the third party if it owed the employer a duty of care to avoid pure economic loss;
• it can also sue if the third party owed the employee a duty of care, and the breach of that duty of care to the employee caused loss to the employer.

When might an employer be owed a duty to avoid pure economic loss?

The pilot (and thus his employer) owed Nautronix a duty of care to avoid pure economic loss because:

• they knew the commercial purpose of the flight and that the passengers were employed by Nautronix;
• Nautronix was thus the particular commercial entity which depended upon the exercise of his professional skill as a pilot for the successful performance of the service for which the aircraft was chartered; 
• they knew that if the pilot breached that duty of care, Nautronix was vulnerable in the sense that it was unable to protect itself from the foreseeable harm of an economic nature caused, in part, by the pilot's negligence.

When the duty of care is owed not to the employer but the employee: Actio per quod servitium amisit

Actio per quod servitium amisit is an ancient action at common law allowing employers to recover for losses caused by another's negligent or intentional harm to their employees.

The High Court confirmed that it still exists at common law (although somewhat modified by statute in NSW and Victoria) as a means of protecting the employer's interests arising from the employment contract it has with the employee. To use it, the employer has to show:

• the third party owed the employee a duty of care, and that duty of care was breached or the third party harmed the employee intentionally; and
• this caused the employer harm.

The damages that the employer can recover are not unlimited. The basic measure of damages is the market value of the services. This is generally calculated by the price of a substitute, less the wages which the employer no longer has to pay to the injured employee.

The employer won't be able to recover:

• any sick pay or medical expenses it must pay to the employee because of terms in an industrial award, employment contract, or legislation; or 
• any lost profits it might have made if the employee was able to perform his or her work; or
• anything at all if a substitute can be hired on more favourable terms.

It also must take reasonable steps to mitigate the loss it suffers from the third party's interference with the injured employee's ability to do his or her work. If the employer can engage a substitute, at or as near as practicable to the level of skill of the injured employee, but does not do so, then the employer fails to mitigate the loss.