Last week the Court of Appeal confirmed the High Court’s finding last year that, in some circumstances, a parent company could be found to owe a duty of care to an employee of a subsidiary.
The judgment sets out a four stage test for when the law may impose on a parent company responsibility for the health and safety of its subsidiary’s employees.
In the words of the Court of Appeal judgment, “this is one of the first cases in which an employee has established at trial liability to him on the part of his employer’s parent company”.
Not a piercing the corporate veil case, but a Caparo duty of care
Lady Justice Arden, giving the leading judgment, was at pains to emphasise that this is not a “piercing the corporate veil” case:
“I would emphatically reject any suggestion that this court is in any way concerned with what is usually referred to as piercing the corporate veil. A subsidiary and its company are separate entities. There is no imposition or assumption of responsibility by reason only that a company is the parent company of another company.”
Nor is the case concerned with vicarious liability or agency or enterprise liability. Rather:
“The question is simply whether what the parent company did amounted to taking on a direct duty to the subsidiary’s employees.”
Applying the three test stage in Caparo v Dickman
In deciding whether that duty has been assumed by the parent company, the Court of Appeal applied the test in Caparo (as the first instance court had):
“The three-stage test in Caparo…is the test established in Caparo Industries plc v Dickman  2 AC 605 for determining whether a situation gives rise to a duty of care. The three ingredients are that the damage should be foreseeable, “that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of “proximity” or “neighbourhood” and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other.”(per Lord Bridge at page 618).”
…and holding that each ingredient of the test was satisfied, the Court of Appeal found that the parent company, on the facts, had “a direct duty of care…to the employees” of its subsidiary.
Lady Justice Arden summarised the position in law and sets four stage test
“In summary, this case demonstrates that in appropriate circumstances the law may impose on a parent company responsibility for the health and safety of its subsidiary’s employees. Those circumstances include a situation where, as in the present case,
(1) the businesses of the parent and subsidiary are in a relevant respect the same;
(2) the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry;
(3) the subsidiary’s system of work is unsafe as the parent company knew, or ought to have known; and
(4) 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.
For the purposes of (4) it is not necessary to show that the parent is in the practice of intervening in the health and safety policies of the subsidiary. The court will look at the relationship between the companies more widely. The court may find that element (4) is established where the evidence shows that the parent has a practice of intervening in the trading operations of the subsidiary, for example production and funding issues.”