Are the Sins of the Subsidiaries Catching Up to Parent Companies When it Comes to Fulfilling Duty of Care?

duty of care

The courts in some parts of the world are helping to refine the responsibilities around Duty of Care for multinational companies that have subsidiaries or sub-contractors working on their behalf.  A story I read in the Economist on May 26 summarizes a recent UK court case that further supports this conclusion published in the 2009 white paper Duty of Care of Employers for Protecting International Assignees, their Dependents and International Business Travelers, “Case law has established that multi-national companies cannot delegate their Duty of Care responsibility to their subcontractors or agents.”

In Chandler v. Cape PLC, the main issue was if Cape owed a Duty of Care – in this case providing and ensuring a safe working environment – to employees in a subsidiary. In this case, an employee worked in an open-air factory where fireproof material was made from asbestos. By the time the employee found out that he had asbestosis, the building products arm of Cape where he worked had gone out of business, but the parent company remained.

Cape argued that the subsidiary was a separate legal entity, and the parent company was not responsible for the employee’s Duty of Care. The High Court found for the employee, and the decision was recently upheld on appeal, awarding the employee $196,000 (£120,000). You can read the full decision here.

Ironically, Cape PLC faced a similar case, but with workers in South Africa. The same white paper mentioned above summarizes this case on page 17 as follows:

Case. Lubbe and Other appellants v Cape PLC. Respondent and related appeals [2000] 1 W.L.R 1545.
Description. South African miners, working for a subsidiary of a U.K. company, brought an action in the U.K. alleging breach of Duty of Care because the company exposed them to asbestos. The issue decided in this case was whether the U.K. or South Africa was the appropriate jurisdiction for their claims. The employer argued successfully to stay the action due to his connections in South Africa. The miners appealed the decision to the House of Lords.
Decision.  The House of Lords ruled that jurisdiction was appropriate in the U.K. against the parent company employer. With regard to jurisdiction, the court must apply the principle of choosing the forum most suitable for the interests of all parties and for the ends of justice. Based on several factors, South Africa was not the appropriate or convenient forum and stay was not upheld. The damage issue was not determined.“

Despite parent companies putting verbiage in contracts or setting up separate entities, the courts may not always uphold their efforts to be seen as separate and not having to provide Duty of Care. The Economist concluded its article by stating: “Large companies have a moral responsibility, if not a legal one, to level upwards, says Sir Robert Wilson, once chairman of RTZ, a mining multinational that has had its share of legal problems (and also a former chairman of The Economist Group). The courts, it seems, are leaving nothing to chance.”

For more information on the legality side of Duty of Care in the UK, consider listening to a June 21 webinar hosted by International SOS (view slides) with David Leckie, Legal Expert and Partner at Clyde & Company. To see a global review of legal cases, read the white paper mentioned above.

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