Parent companies owe a duty of care to employees of subsidiary companies
The Court of Appeal has held that parent companies may owe a direct duty of care to employees of subsidiary companies.
The Claimant was employed by a subsidiary company of the Respondent approximately 50 years ago. Approximately 5 years ago the Claimant was diagnosed with asbestosis. The subsidiary company was no longer in existence and therefore, the Claimant brought a claim against the parent company of his former employer.
The Court of Appeal found that the real question is whether the way in which a parent company operates amounts to assuming a duty of care for employees of its subsidiaries. They identified a number of circumstances as relevant. These include where:
- the business of the parent and subsidiary are in a relevant respect the same;
- the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry;
- the subsidiary's system of work is unsafe as the parent company knew, or ought to have known; and
- the parent knew or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the employees' protection.
In this particular case the Court of Appeal held that the holding company owed the Claimant a duty of care which it had breached.
This is a potentially important case. Prior to this judgment it was very rare for a holding company to be held to be liable in respect of an employee of a subsidiary. As a result of this judgment that will change where parent companies take an active role in the operational aspects of its subsidiaries.
In order to minimise the chances of a parent company being held liable in similar situations, companies should review their group structures and the role of the parent company in them, bearing in mind the considerations set out above. Depending on the parent’s involvement a re-organisation may be required to reduce the likelihood of the parent company of an employing company being found liable. Insurance arrangements should also be reviewed.