Vicarious Liability of Employer for Employee's Misconduct

In this case, Airbus cannot rely on the exclusion clause in their contract with Qantas due to section 64 of the Act, which states that any attempt to exclude liability for conditions and warranties is void. This is supported by case law such as Trade Practice Commission v Radio World Pty Ltd. Therefore, Qantas has the right to claim loss suffered due to the breach of condition. Similarly, in another issue, Frank, an employer, has the right to take legal action against Gemma, one of his employees, for serious misconduct and vicariously liable towards Angela for Bob's actions.

Running Head: Law 1
Law

Law 2
Answer 1
Issue: Whether Qantas Ltd has right to recover the loss of their profit, or whether Airbus
Corporation Ltd can rely on exclusion clause stated in the contract?
Law: Exclusion clauses are those clauses which excludes or limit the liability of one
party. In other words, one party is not liable for certain happenings. Exclusion clauses are
considered as valid clause if these clauses are properly incorporated in the contract and not
contrary to the law.
For the purpose of proper incorporation of the clause in the contract, it is necessary that
clause must be included in the contract before the contract has been made. If signed contract has
exclusion clause then such clause is valid, but if clause is incorporated after signing the
document then such clause is not valid. Such clause is only valid it is incorporated in the contract
with the consent of both the parties (Edghill, 2012). This can be understood through case law
Thornton v Shoe Lane Parking Ltd. (1971) 1 All ER 686.
Other requirement for valid exclusion clause is clause must be legal, which means law
imposed some statutory implied guarantees on trader and trader cannot exclude those guarantees.
Section 64 of the Australian Consumer law imposed restriction on the exclusion clauses.
This section is the part of Schedule 2 of Competition and Consumer Act 2010 (Cth), and it
applied on all the jurisdictions of Australia. In other words, this section prevents the supplier
from exclude or disclaims any guarantee.

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It must be noted that any conditions and warranties of the contract and any rights and
remedies created by the Australian consumer Law cannot be excluded. In other words, any
attempt to exclude the liability related to conditions and warranties of the contract is considered
as void under section 64 of the ACL (Legal Service Commission, n.d.).
Section 64 of the ACL states if any term of the contract tries to modify, exclude or restrict
the consumer guarantee then such term is considered as void. This section is similar to section 28
of Trade Practice Act. This section is qualified by Section 64A of the ACL which states
exception to the rule stated under section 64. The main aim of section 64 and 64A is to allowed
limited degree of autonomy to the parties for the purpose of restricting the commercial impact of
a breach of contract. Explanation related to section 64 and 64A is stated below:
 Section 64(1) of the Competition and Consumer Act 2010 states, any term which modify,
exclude, and restrict the consumer guarantee is considered as void term. This prohibition
mainly prevents the suppliers and manufacturers to avoid any liability related to the
consumer guarantee under the ACL.
 On the other hand, Section 64A states exception to the rule stated under section 64 of
ACL, but it must be noted that this section is applied in very limited situations. If contract
between the parties is related to the supply of goods and services which are not usually
required for personal, domestic, or household use then under section 64A trader has right
to limit its liability related to these factors.
 In case of goods- replacement of the goods or the supply of the equivalent goods.
 Payment related to cost of replacing the goods or acquiring equivalent goods,
 Repairs related to the goods

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 Cost of having the goods repaired.
 In case of services- supplying the services again
 Payment related to the cost of rendering the services supply again.
It must be noted that if party to the contract fails to recognize the consumer guarantee
application in the contract terms or any exclusion of consumer guarantee can be considered as
misleading or deceptive conduct which results in serious penalties.
Remedies: according to section 259(3) of the ACL, if failure is major consumer has right to:
 Reject the goods by notifying the supplier for the same.
 Recovers compensation for any loss bear by the consumer.
Application: in the present case, Qantas Airlines entered into contract with Airbus
Corporation Ltd for the purpose of manufacturing the plane by Airbus. From such Aircraft
Qantas make profit of $800,000. The most important condition of the contract states aircraft must
have system which shows almost 36 channels, but when aircraft is delivered it has system with
34 channels only. Contract also state exclusion clause which states that, liability of Airbus
Corporation Ltd for breach of contract is capped at $ 300 000.
In this case, Airbus cannot rely on exclusion clause because as per section 64 of the Act any
attempt to exclude the liability related to conditions and warranties of the contract is considered
as void. This can be understood through case law Trade Practice Commission v Radio World
Pty Ltd. In this case, Court interpret similar provision related to section 64 of the Act, and held
that sign related to the condition of the purchase. This sign breached the provisions related to
misleading or deceptive conduct. Court further stated that positive and absolute terms in the

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contract such as “money will not be refunded in any situation” meant that trader fails to
recognize the application of TPA and also fails to communicate the consumers about their rights
under TPA. Therefore, Court considered the sign under contract misleading or deceptive.
Therefore, Airbus cannot rely on this exclusion clause because this clause is void. Qantas has
right to claim for the loss suffered by them because of the breach of condition.
Conclusion: Airbus cannot rely on this clause and Qantas can claim for loss of profit they
suffered because of breach of condition.
Answer 2
Issue: Whether Frank has right to take legal action against Gemma and Bob?
Law: various provisions of law imposed duties on employer to perform fairly with
employees at workplace. However, law also imposed some implied duties on employees to
which they must compile. Therefore, while performing the duties under employment contract
employees are also abide by some implied duties, and these duties are stated below:
 It is the duty of employee to follow the legal and reasonable instructions of their
employer.
 Employee must use reasonable skill and care while performing various duties.
 It is the duty of employee to work in the best interest of the employer, and does not
engage in any conduct which results in serious misconduct (CCIQ, 2014).
Therefore, the most important factor of any employment contract is the implied duty of
employee to follow the legal and reasonable instructions of the employer. It must be noted that if

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employee fails to compile with the directions of the employer which are legal and reasonable
then such action of employee can be considered as serious misconduct. Serious misconduct
results in disciplinary action, and depending on the seriousness on the action/s, instant dismissal
(ALRC, n.d.).
Serious misconduct: Section 12 of the Fair Work Act 2009 states, that serious misconduct is
defined in Fair Work Regulations 2009.
As per subsection 2 of regulation 1.07, conduct is considered as serious misconduct if it
includes these factors:
 Any behavior of the employee which is no consistent with the contract of employment.
 Any conduct which cause serious risk to the health and safety of the person, and
reputation, viability, or profitability of the business of the employer.
Subsection 3 of this regulation states, for the purpose of subsection 1 conduct is considered
as serious misconduct if any employee while engaging I the course of employment commit theft,
fraud, and assault. It also includes intoxication of employee at workplace and refusal of
employee to compile with the legal and reasonable instructions of the employer.
Remedies: if any employee engaged in serious misconduct then employer has right to take following
actions against the employee:
 Employer can take disciplinary action against the employee, but it is necessary that employer
must follow legal procedure defined for the disciplinary action.
 If misconduct of the employee is very serious then employer has right to make instant dismissal
of the employee.

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 Claim for damages from employee for any loss suffered by employer because of serious
misconduct.
 Refuse the claim of wages and any other entitlement of the employee.
Vicarious Liability of employer- it must be noted that employer is vicariously liable towards the third
party for any act of the employee. In other words, vicarious liability includes the situation in which one
person is liable for the actions of another person. In the context of workplace, employer can be held liable
for the acts or omissions of its employees.
Application: in the present case, Gemma fails to follow the legal and reasonable instructions of
Frank, because she sold the dishwasher for $300 to her relative without taking approval from and her
employer instructs her to sell the dishwasher for not less than $350. As per subsection 1 of regulation 1.07
conduct of employee is considered as serious misconduct if it affects the profitability of the employer.
Therefore, conduct of Gemma can be considered as serious misconduct under subsection 2, and Frank has
right to take disciplinary action of the Gemma and also to make claim for loss of profit suffered by Frank.
Later, another salesperson of Frank that is Bob continuously comes late and drunk at workplace,
because of which Frank dismiss the Bob. After dismissal, Bob sell machines to Angela and receive
payment from Angela through online mode. Bob withdraws the $ 10 000 from the bank account and
disappears overseas with the amount. Angela reaches on Monday to collect her washing machines. In this
case, Frank is liable to deliver the washing machines to Angela, because employer is vicariously liable for
the acts of the employee.
However, Frank can take legal action against the Bob for serious misconduct of theft under
subsection 3 of regulation 1.07.
Conclusion: in this case, following rights and liabilities are available to the Frank:

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 Frank has right to take legal action against the Gemma for not following the legal and reasonable
actions of the Frank, and also for commiting serious misconduct under subsection 2 of regulation
1.07.
 Frank is vicariously liable towards the Angela for the actions of Bob, but Frank has right to file
claim against the Bob for committing serious misconduct under subsection 3 of regulation 1.07.
References:
ALRC. Frameworks for Effective Information Handling. Retrieved on 10th September 2017
from: http://www.alrc.gov.au/publications/14-frameworks-effective-information-
handling/lawful-and-reasonable-employer-directions.
CCIQ, (2014). The Employer/Employee Relationship – Lawful and Reasonable Instructions.
Retrieved on 10th September 2017 from: https://www.cciq.com.au/news/the-
employeremployee-relationship-lawful-and-reasonable-instructions/.
Competition and Consumer Act 2010- Schedule 2- Section 64.
Edghill, K. (2012). Statutory Guarantees Under the Competition and Consumer Act: A Can of
Worms - Part 1. Retrieved on 10th September 2017 from:
http://www.mondaq.com/australia/x/170794/Consumer+Law/Statutory+Guarantees+Un
der+the+Competition+and+Consumer+Act+A+Can+of+Worms+Part+1.
Fair Work Act, 2009- Section 12.
Fair work Regulations, 2009- regulation 1.07.
Legal Service Commission. Exclusion Clauses and the Australian Consumer Law. Retrieved on
10th September 2017 from: http://www.lawnow.org/vicarious-liability-legal-
responsibility-of-employers/.
Thornton v Shoe Lane Parking Ltd. (1971) 1 All ER 686.
Trade Practice Commission v Radio World Pty Ltd.