An employer is responsible at law for all the actions of his
employees when acting as such – even the most idiotic actions of his most
There is no point complaining about this. Viewed
objectively, it is only right that an innocent customer or third party should
enjoy more legal protection from the actions of an idiot than someone idiotic
enough to employ that idiot in the first place.
So when Barings Bank contracted enormous debts through the
recklessness of a very junior employee called Nick Leeson, Barings Bank had to
assume responsibility for the debts.
Following that scandal, most banks tightened their
supervision of junior employees. However, last year’s banking crisis showed
that was only a superficial solution, because the debts that caused that crisis
were contracted through the recklessness of senior managers, people of the
highest rank with years of experience and solid reputations.
It is not just the banks. The McLaren Formula One racing
team may lose tens of millions because of a bad
decision made by their “Sporting Director”, sic, a man who had been with
the team for thirty five years and was generally respected.
It seems that the depressing lesson for employers is that
you cannot rely on anyone.
The best advice is therefore to employ no one unless
Since this puts a limit on growth that most businesses find
too prohibitive, the next best advice is not to rely on tight supervision –
because it can never be tight enough – but on contracts of employment that
share the consequences.
The reality is that an employer is still unlikely to get
much back by suing an employee who messes up, but the knowledge that he might
be sued could make him slightly less likely to mess up.