Stark v Post Office [2000] EWCA Civ 64

A postman was injured by a negligent and uninsured cyclist while on duty. The court ruled that his employer, the Post Office, did not have an implied contractual duty to provide insurance cover for employees injured by a third party's negligence.

Facts

The claimant, Mr Stark, a postman employed by the Post Office, was struck and injured by a cyclist whilst on his delivery round. The cyclist was at fault but was uninsured and had no financial means to satisfy a judgment against him. Mr Stark suffered significant loss, including general damages for pain and suffering and special damages for past and future financial loss. The Post Office had an ex gratia scheme for criminal injuries but declined to make a payment. Mr Stark brought a claim against the Post Office, arguing that there was an implied term in his contract of employment that his employer would indemnify him for losses sustained in the course of his duties due to the negligence of a third party, where those losses were not recoverable from the third party.

Issues

The central legal issue was whether a term could be implied into the contract of employment, either as a matter of fact or law, which would require an employer to indemnify an employee for losses caused by a third-party tortfeasor which the employee was unable to recover.

Arguments

The claimant argued for the implication of the term on two bases. First, as a term implied in fact, it was contended that the term was necessary to give the contract ‘business efficacy’. Without it, the contract was commercially absurd, as the employee was required to face risks for the employer’s benefit without recourse if injured by an impecunious party. Second, as a term implied in law, it was argued that such a term was a necessary incident of the employer-employee relationship, analogous to the established duties of care and mutual trust and confidence. The claimant also sought to rely on Council Directive 89/391/EEC regarding the health and safety of workers.

The Post Office argued that no such term should be implied. It was not necessary for business efficacy, as the contract could operate perfectly well without it. Furthermore, implying such a term as a matter of law would fundamentally alter the nature of employment relationships, effectively making the employer an insurer of last resort for all non-fault risks encountered by employees. This, they argued, was a matter for Parliament through statutory ‘no-fault’ schemes, not for the courts via contractual implication.

Judgment

The Court of Appeal unanimously dismissed the appeal, upholding the first instance decision. Pill LJ, giving the lead judgment, rejected the implication of the term on both grounds.

Term Implied in Fact

Pill LJ held that the term was not necessary to give business efficacy to the contract. Applying the ‘officious bystander’ test, he concluded that the Post Office would never have agreed to such a open-ended and unquantifiable liability. He stated:

It is in my judgment plain that the term sought to be implied cannot be implied as a matter of fact. The officious bystander would in my view have received a very dusty answer from the Post Office had he raised this possibility at the time of the contract. The notion that the employer should agree to provide an indemnity against a risk which he has not created and which is out of his control would not have been accepted.

Term Implied in Law

The court also refused to imply the term as a matter of law. It was held that such a term did not represent a necessary incident of the employment relationship. To create such a new head of liability would be a significant step with far-reaching consequences for all employers, extending their obligations beyond the established duty to take reasonable care for their employees’ safety. Pill LJ noted:

To impose a term of the kind contended for as a matter of law would in my view be to introduce a new and major head of employer’s liability and to do so by a process of implication into a contract of employment. It would go beyond a ‘necessary incident of the relationship’.

The court distinguished cases where an employee is indemnified for liabilities incurred while acting as an agent for the employer. Here, the employee was the victim of a tort, not its perpetrator on the employer’s behalf. The court also held that European health and safety directives did not impose such a wide-ranging duty of insurance.

Implications

The decision firmly establishes that, at common law, an employer is not an insurer for financial losses sustained by an employee due to the fault of an uninsured third party. It reinforces the traditional boundaries of an employer’s liability, which is based on the duty to take reasonable care, rather than a duty to guarantee an employee’s safety or financial well-being against all risks. The judgment clarifies that the creation of ‘no-fault’ compensation schemes is a matter for the legislature (such as the Criminal Injuries Compensation Authority or the Motor Insurers’ Bureau) and not a role for the courts to undertake through the mechanism of implied contractual terms. The case is a key authority on the limits of implying terms into employment contracts.

Verdict: The appeal was dismissed. The court found in favour of the defendant, the Post Office.

Source: Stark v Post Office [2000] EWCA Civ 64