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What is liability? A guide for professionals

Published 14 December 2016

‘Liability’ is a loaded term with several different meanings and applications. In an accounting context, a liability may be a company’s financial debt. In a less specific sense, a liability may be someone or something who is generally a risk or burden to others.

But what about in a legal sense?

Legal liability is a multifaceted concept, and the requirement for proving and attributing liability differ depending on the context of the law in question, and the party being held liable. In this article we’ll explain what legal liability means for professionals, and how it applies to recruitment and labour hire agencies in particular. If you have any questions about liability and professional indemnity, feel free to send us an email or talk to a broker.

Who is a professional?

professional liability insuranceIn general terms, a professional is anyone who provides advice and/or services to others, drawing on theirunique set of skills and expertise. According to the Professional Standards Councils, a professional is a member of a profession, which is defined as a ‘disciplined group of individuals’ who possess special knowledge and skills.

“Professions are governed by codes of ethics, and profess commitment to competence, integrity and morality, altruism, and the promotion of the public good within their expert domain. Professionals are accountable to those served and to society.”

- Professional Standards Councils

What is liability?

As a professional, your clients rely on your services and expertise to run their businesses effectively. As such, you are legally responsible for the services you provide; you are liable for them.

Put simply, being liable for something means you are ‘responsible’ or ‘answerable’ for it in the eyes of the law. You have a legal obligation to ensure that your services and advice are of the expected standard, and that they don’t put your clients (or their businesses) at risk.

In tort law, liability may be based on fault or it may be strict.

Fault liability concerns a failure to adhere to a standard either through an action or omission. There are two types of fault liability: liability due to an intentional act and liability due to negligence. Generally speaking, there is no liability without fault; that means proof of negligence or intention to cause harm is usually required in order for a professional to be found liable. But there are some cases which require no fault for liability - these are called strict liability torts or ‘absolute’ liability. In these cases, a professional can be held liable if it is evident that they caused injury or harm, regardless of whether they intended or were negligent to or not

A note on theories of liability

It’s important to note that these standards for liability may apply in both criminal and civil contexts, but the available theories of liability – the theories through which a person’s liability can be proved – depend on the context of the law in question. In the context of tort law, for example, a common theory of liability is vicarious liability:

  • Vicarious liability is a form of strict secondary liability that finds one person (or ‘party’) responsible for the actions or omissions of another. An employer, for example, is liable for the actions (and inactions) of employees during workhours.

For more information about theories of liability in certain areas of the law, you should consult a legal professional.

What are recruiters and labour hire agencies liable for?

professional liabilityLike other professionals, recruiters and labour hire agencies are liable for the services and advice they give to their clients.

Failing to perform due diligence or checks on a candidate, placing a person in a role they’re not suitable
for, breaching confidentiality agreements –
these types of things leave you open to a lawsuit, regardless of whether they were mistakes or not. This is particularly true if a client sustains any losses or ‘damages’ as a result of your failure to provide adequate services.

Other sources of risk can include (but aren’t limited to):

  • Loss of documents, including digital records like applications and CVs
  • Failure to ensure that adequate workplace health and safety procedures are in place at the Host Employer’s premises
  • Inappropriate or incorrect advice regarding recruitment, workplace policies and human resources
  • Failure to act according to your contract, or in accordance with a client’s instructions
  • Unethical behaviour
  • Failure to check the accuracy of a candidate’s qualifications and references
  • Actions (and inactions) of candidates

A recruitment process can give rise to lawsuits and claims years after they’ve concluded, and a candidate’s actions in a workplace may expose you to vicarious liability. Take the example of a recruitment agency who had heard of a job opening at a law firm: the agency sent a candidate’s CV through, never heard back, wasn’t advised that their candidate was hired, and then six years later was served a $750,000 writ. Read the full story here.

What is professional indemnity insurance?

Professional indemnity (PI) insurance (also known as professional liability insurance) protects you against the financial consequences of any mistakes you or your staff might make, against accusations that you’ve done something wrong, and many policies even protect against strict liability where you are not at fault. It’s essential for professionals who provide services and expertise to clients.

If you have PI cover, you’re protected against:

  • Allegations of negligence; and
  • Claims of malpractice and professional misconduct.

You’re also protected against financial loss associated with a liability claim:

  • Legal costs of investigating and defending a claim made against you, or your business;
  • Any amounts payable in relation to a claim

How to get PI cover

Professional indemnity is a specialist area of insurance that should be arranged through an insurance broker with expertise in this field.

Read our comprehensive guide to understanding and arranging professional indemnity insurance here.

Some professions’ governing bodies set strict guidelines that specify the level of PI cover required to trade, and some of your contracts with clients may specify a minimum level of PI cover. It’s important that you understand these obligations, and that your PI insurance is adequate. You should also ensure that your PI insurance includes extensions that apply to vicarious liability and other exposures.

Liability is a part of life – and so are mistakes. Professional indemnity insurance is a key part of your company’s insurance program, and it’s essential for minimising the effects of liability. Talk to one of our broking experts if you’d like to learn more about PI insurance.

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