Houghton v Arms - Employees personally liable for misleading and deceptive conduct

Employees have long enjoyed the basic legal protection of the ‘corporate veil’. This principle, also known as vicarious liability, means that company or employer will be held legally responsible for the wrongful actions of the company’s employees carried out in the course of their employment. In practice this means that even when an employee botches a job due to their own negligence or lack of skill and diligence, the person directly affected nor anyone else can sue that employee personally. This principle has long been recognised as fundamental to our legal system.

However, this has changed (somewhat).

In 2006, the full bench of the High Court decided, in a case commonly referred to as Houghton v Arms, that employees providing goods and services in trade or commerce can now be made personally liable for misrepresentations or misleading and deceptive conduct.

This means that if in the course of your employment, you make a statement which misleads or might mislead, you can be sued in addition to the company. This becomes particularly relevant when it is suspected that the company does not have the funds to satisfy a claim. Your personal liabilities may potentially be extended to beyond the life of the company, having serious ramifications for employees in management and client-facing roles.

On the other hand, Houghton v Arms may be seen as recognition that a company is a legal construct, and that individuals acting negligently or maliciously should be held responsible for their actions. This opens up previously unavailable remedies for those disadvantaged by negligent or incompetent directors and advisors who attempt to hide from liability behind the corporate veil. However the same stringent tests for misleading and deceptive conduct must still be satisfied such that liability is not automatic.

Therefore as an employee you must remain aware of - :

1. What statements you make;
2. What advice you give;
3. What estimates you provide;

As your potential liability in the workplace has potentially expanded and is now more important than ever.

If you have further questions, please contact us at frank@franklaw.com.au.

This is not legal advice.