Employee negligence is when an employee fails to take reasonable care while doing their job and someone suffers loss, damage or injury as a result. In Australia, the employer pays for employee negligence in most cases through vicarious liability, and in NSW and South Australia the law blocks most attempts to pass that bill back to the employee.
Here’s the awkward bit. Something goes wrong, the invoice lands, and the first instinct on both sides is to work out whose fault it was. Employers want the money back. Employees lie awake wondering if they’re about to be sued. Both are asking the wrong question.
- Employers carry most of the risk. A business is vicariously liable for negligence an employee commits in the course of their employment, even if the business did nothing wrong itself.
- Suing your own employee rarely works. In NSW and South Australia, legislation stops employers recovering from employees for ordinary workplace negligence, and a contract clause can’t override it.
- Wages are protected. Under the Fair Work Act 2009 (Cth), an employer can’t deduct breakages, till shortages or the cost of a mistake from pay without meeting strict conditions.
- Serious and wilful misconduct changes the picture. Deliberate or reckless conduct, or conduct with no link to the job, can leave an employee personally liable.
- Contractors are different. Since the High Court’s 2024 decision in Bird v DP, vicarious liability only applies to employees, so contractors wear their own negligence.
Is an employer liable for an employee’s negligence?
Yes, in most cases. If your employee is negligent while doing their job, the person who suffered the loss can sue your business. You’ll be liable even if you personally did nothing wrong. That’s vicarious liability, and it’s strict: fault doesn’t come into it.
The High Court restated the test in Bird v DP (a pseudonym) in November 2024. Two questions decide it. Was the person your employee? And did the negligent act happen in the course or scope of that employment?
That second question does the heavy lifting. An employee who scratches a client’s car while parking it on a valet shift is squarely inside it. Scratch the same car on a Sunday visiting a mate? Outside it.
Where is the line for “in the course of employment”?
Courts are drawing it tighter, not looser. In CCIG Investments v Schokman (2023), a resort gave staff shared accommodation. One employee came home drunk and urinated on a sleeping colleague. The High Court held the employer wasn’t vicariously liable, because the job gave him the opportunity for what he did, not the occasion for it.
So being at work, or somewhere work put you, isn’t enough. The act has to connect to what the employee was employed to do. Here’s how that plays out in everyday small-business situations.
| Scenario | Who’s likely liable | Why |
|---|---|---|
| A tradie damages a customer’s floor while installing your product | Your business | They were doing their job, just badly |
| A receptionist emails a client’s file to the wrong person | Your business | An admin error made while performing duties |
| An employee takes the work ute on a personal weekend trip and crashes | The employee | A “frolic of their own”, outside the job |
| A warehouse worker deliberately bypasses a safety lock-out and injures someone | Both, and the employee can lose statutory protection | Serious and wilful misconduct |
| A contractor you engaged damages property on your site | The contractor (plus you, if your own systems were negligent) | No employment relationship, so no vicarious liability |
You can also be directly liable
Vicarious liability isn’t the only door into your business. If the mistake happened because your training was thin, your systems were unsafe or the workload was impossible, you were negligent yourself. That’s direct liability, and it stacks on top.
Most founders only think about this after a claim arrives. A signed employment agreement, written procedures and a training log won’t stop every mistake. They are, though, the first three things an insurer, regulator or court will ask to see.
Can an employer sue an employee for negligence?
At common law, technically yes. Every employee has an implied contractual duty to work with reasonable care and skill, and breaching it is a breach of contract. In practice, suing your own staff member for ordinary employee negligence is one of the worst-value legal moves a small business can make. Three reasons why.
NSW and South Australia block it by law
In NSW, section 3 of the Employees Liability Act 1991 (NSW) says that where an employee commits a tort and the employer is also liable, the employee doesn’t have to indemnify the employer or contribute a cent. It goes further. The employer must indemnify the employee.
South Australia has the same rule in section 59 of the Civil Liability Act 1936 (SA). Both laws override contracts. That clause in your old template saying “the employee indemnifies the company for any loss caused by their negligence”? In those two states, it’s close to worthless.
| Where you are | Can the employer recover from the employee? | Main exception |
|---|---|---|
| NSW | No, and the employer must indemnify the employee (Employees Liability Act 1991, s 3) | Serious and wilful misconduct, or conduct unrelated to the employment (s 5) |
| South Australia | No, and the employer must indemnify the employee (Civil Liability Act 1936, s 59) | Serious and wilful misconduct |
| Everywhere else | Possible at common law, but hard to win and your insurer can’t pursue it | Get advice for your state before you try |
Your insurer can’t do it for you either
This one applies Australia-wide. Section 66 of the Insurance Contracts Act 1984 (Cth) stops an insurer that has paid your claim from suing your employee in your name, unless the employee’s conduct was serious or wilful misconduct.
Parliament made a deliberate call here. The business and its insurance absorb the everyday risk of staff making mistakes. Build that into how you think about cover, pricing and excesses.
Courts look hard at your supervision
Even where recovery is legally open, winning is another matter. In Beri Distributors v Mossensons (2022), clients sued a WA law firm over negligent litigation work. The firm then sued the employed solicitor who’d done it.
The claim against the employee failed. The firm had promised its clients it would supervise its staff, a director did supervise him, and the firm knew about the defects. It couldn’t push the blame downhill. If you signed off on the work, reviewed it, or should have, expect a court to treat the loss as yours.
When can an employer recover from an employee?
Two situations open the door: serious and wilful misconduct, and conduct that has nothing to do with the job. The misconduct bar is high. In Boral Resources (Qld) v Pyke (1992), a driver knew he’d be sacked for drink-driving and got behind the wheel of a prime mover anyway. That’s the territory we’re talking about.
Carelessness, fatigue, a bad day or a misread instruction won’t get close. If you’re unsure where your situation sits, our guide to what counts as serious misconduct is a good gut check. If you’re weighing up a claim against an employee, or defending one, speak to an employment lawyer before anyone sends a letter.
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Can your employer make you pay for a mistake out of your wages?
Not by simply taking it. Section 324 of the Fair Work Act 2009 (Cth) only allows a deduction from pay if the employee authorises it in writing and it’s principally for the employee’s benefit, or if an award, enterprise agreement, law or court order permits it.
Recovering the cost of employee negligence, whether it’s a smashed laptop, a till shortage or a dine-and-dash, isn’t for the employee’s benefit. A signed consent form doesn’t rescue it. Sections 325 and 326 also knock out terms that force employees to pay unreasonable amounts back to their employer.
Hospitality and retail get caught here most. The rule of thumb is blunt: breakages and shortages are a cost of doing business. Price them in, insure them, or fix the process that keeps causing them.
Overpaid wages are the one exception worth knowing. You can agree a written, reasonable repayment plan with the employee. You still can’t quietly claw it back from the next pay run.
When is an employee personally liable for negligence?
Most employee negligence stays with the employer, but employees aren’t bulletproof. Personal liability shows up in five places, and most of them involve something more than an honest slip.
- Outside the job. Personal errands in the company car, or an after-work blow-up with no connection to work. If it wasn’t in the course of employment, the employee wears it.
- Serious and wilful misconduct. Deliberate damage, fraud, or knowingly ignoring a critical safety rule strips away the NSW and SA protections and the insurance shield.
- Safety duties. Under the model WHS laws (and the Occupational Health and Safety Act 2004 in Victoria), every worker must take reasonable care for their own safety and not put others at risk. Breaching that duty is a criminal offence, and regulators do prosecute individual workers.
- Harassment and discrimination. The person who harasses a colleague is personally liable. The employer is liable too unless it took all reasonable steps to prevent it, and since December 2022 the Sex Discrimination Act 1984 (Cth) has imposed a positive duty on employers to prevent workplace sexual harassment before it happens.
- Professional advice. Accountants, engineers and advisers can owe duties to clients personally, and so can the employees giving the advice. It’s one reason professional indemnity insurance matters even when you’re on salary.
Walking out the door with client lists or confidential information is separate again. That’s a breach of your employment contract and your duty of confidence, it isn’t negligence at all, and it’s firmly personal.
Is an employer liable for an employee’s car accident?
If the employee was driving for work, yes. Deliveries, client visits and driving between job sites all count. Injuries to other people go through compulsory third party (CTP) insurance in every state, so the real fight is over property damage and who pays the excess.
Commuting is the grey zone. Driving to and from work is the employee’s own time unless you provided the vehicle, required the trip or were paying for the travel. A personal detour in the work van halfway through a delivery run is exactly the kind of fact people end up arguing about.
Sort it before it happens with a written vehicle use policy: who can drive, for what, and who pays the excess. And remember section 324. You can’t take that excess out of anyone’s pay without meeting the deduction rules.
What should you do when an employee makes a mistake?
Take the heat out of it first. Most employee negligence is a system failure with a person attached. Work through it in this order.
- Make it safe. First aid, stop the job, recall the email, isolate the equipment. Containment beats blame every time.
- Write it down while it’s fresh. Dates, people, photos, documents. Facts only, no conclusions.
- Tell your insurer early. Public liability, professional indemnity, workers compensation and cyber policies all have notice conditions, and late notice is a common way to lose cover.
- Investigate fairly. Hear the employee’s side before you decide anything. What they tell you will point to the real cause.
- Match the response to the conduct. Retraining for an honest error. A formal warning for repeated carelessness. Termination only for serious cases, and only after a fair process.
- Fix the system. Add the checklist, second sign-off or training that would have caught it. Then you won’t be back here in six months.
Where a pattern is forming, put it in writing with a formal warning letter so the record is clean. Better still, set expectations upfront with a performance and misconduct policy. Everyone knows the rules, and nobody’s blindsided.
Four ways employers make employee negligence worse
It’s rarely the mistake itself that hurts. It’s the response. These four come up again and again.
Relying on an indemnity clause
Plenty of employment contracts contain a clause making the employee cover any loss they cause. In NSW and South Australia, the statute beats it. In other states, courts read these clauses narrowly, and trying to enforce one over an ordinary slip hands the employee a grievance and you a dispute you didn’t need.
Docking pay to teach a lesson
Unlawful deductions are a straight line to a Fair Work Ombudsman complaint, a back-payment order and civil penalties. The lesson ends up costing far more than the broken espresso machine.
Getting contractor classification wrong
You aren’t vicariously liable for a genuine contractor. But call an employee a contractor and the label won’t save you. You’re back to vicarious liability, plus underpaid super and entitlements. Check the relationship before you rely on it, and read up on how to hire a contractor properly.
Treating one mistake as serious misconduct
Sacking someone on the spot for an honest error invites an unfair dismissal claim. Instant dismissal is for wilful or deliberate conduct, serious safety breaches, theft and fraud. A dropped tray doesn’t make the list.
Are employers liable for mistakes made by independent contractors?
Not vicariously. Bird v DP shut the door on vicarious liability for anyone who isn’t an employee, including contractors, volunteers and people in roles “akin to employment”.
You can still be liable in your own right. That covers choosing an obviously unqualified contractor, giving unsafe instructions, or owing a non-delegable duty (hospitals to patients and schools to students are the textbook examples). You also owe WHS duties to contractors on your site, just as you do to employees.
Whether someone really is a contractor turns on the relationship. The classic factors from Stevens v Brodribb Sawmilling (control, the right to delegate, who supplies the tools) now sit alongside the High Court’s 2022 focus on the written contract. For Fair Work purposes, a “whole of relationship” test has applied since 26 August 2024.
What if your employer was negligent towards you?
That’s a different claim with its own rules. If you were hurt because your employer’s systems, equipment or training fell short, the first stop is workers compensation. In some states, a common law damages claim sits on top if the injury is serious enough.
For the employer side of that equation, see our guide on whether employers owe a duty of care to their employees. Short answer: yes, and it’s a big one.
Frequently asked questions
Can an employer sue an employee for negligence in Australia?
Technically yes, but it rarely succeeds. In NSW and South Australia, legislation stops employers recovering from employees for torts committed in the course of employment unless it was serious and wilful misconduct. Elsewhere, courts look closely at whether the employer supervised the work, and insurers can’t pursue employees for ordinary mistakes.
Can my employer make me pay for a mistake?
Not by deducting it from your wages unless strict Fair Work Act conditions are met, and a deduction that mainly benefits the employer won’t meet them. Breakages, till shortages and damage caused at work are a business cost. If you’re asked to repay something, get the request in writing and take advice before agreeing.
Is an employer liable for an employee’s negligence?
In most cases, yes. Under vicarious liability, an employer is liable for negligence an employee commits in the course of their employment, even with no fault on the employer’s part. The High Court confirmed in 2024 that this only applies to genuine employees, not contractors or volunteers.
Can you be held personally liable in an employment lawsuit?
Yes, if you acted outside your job, engaged in serious and wilful misconduct, breached your WHS duties, or harassed or discriminated against someone. You can be named alongside your employer. For ordinary negligence at work in NSW and South Australia, your employer must indemnify you.
What is the Employees Liability Act 1991 (NSW)?
It’s a short NSW law that protects employees from paying for their own workplace torts. It stops employers seeking indemnity or contribution from employees and makes the employer indemnify the employee instead. It doesn’t apply to serious and wilful misconduct or to conduct unrelated to the job.
Can I be fired for an honest mistake?
A single honest mistake rarely justifies dismissal. Termination needs a valid reason and a fair process, or the employer risks an unfair dismissal claim. Repeated carelessness after clear warnings, or a mistake involving serious misconduct, is a different story.
Is an employer liable if an employee crashes a work car?
If the employee was driving for work, yes. A personal trip in a work vehicle can fall outside the course of employment. Injury claims go through CTP insurance, so disputes centre on property damage and the excess, which the employer can’t deduct from pay without meeting Fair Work rules.
What is negligence in the workplace?
Negligence in the workplace is a failure to take reasonable care that causes someone loss or harm. It covers employee negligence, like careless mistakes on the job, and employer negligence, like unsafe systems or poor training. Both can end up liable for the same incident.
The bottom line on employee negligence
If you’re reading this after something has already gone wrong, breathe. One mistake almost never sinks a business or a career, and Australian law is built to stop it doing so. The businesses that come through fine are the ones that had the basics in writing before the incident, not after.
So start with the foundation that sets duties, standards and policies for every hire. Create your Employment Agreement with Lawpath today.
