Employee conduct may result in company liability

Employers have a duty to proactively identify workplace hazards and implement measures to eliminate or minimise associated risks. This obligation extends beyond physical hazards and includes psychosocial risks such as bullying, harassment, discrimination, and inappropriate workplace behaviour.

In some circumstances, the source of the risk may be a manager, supervisor, executive, or other senior employee. Managing these situations can be particularly challenging due to power imbalances and organisational hierarchies. However, a recent decision highlights that employers may be held liable for the actions of their employees, including those in the most senior leadership positions.

Recent case:

In McColley v Spanish Doughnuts Franchising Pty Ltd [2026] VCAT 665 (20 August 2026), the Victorian Civil and Administrative Tribunal (“VCAT”) found that the chief executive officer of a franchisor engaged in what was described as “predatory and grooming” conduct towards a female employee who was approximately 40 years his junior.

The conduct included:

• Taking a junior and inexperienced employee on interstate work trips instead of a more experienced and appropriate employee.
• Suggesting they share accommodation during work travel due to alleged “booking issues”.
• Making comments about her appearance and the way she smelled.
• Offering to purchase clothing and perfume for her.
• Sending suggestive text messages.
• Isolating her from colleagues and peers.
• Arranging unnecessary one-on-one meetings.
• Requiring her to personally pay certain travel expenses to avoid creating records that could be viewed by others, including the CEO’s wife.

Although the employee had been employed for only three months, VCAT awarded approximately $72,000 in damages, including compensation for lost income.

Of note was that the VCAT ordered the company to be jointly and severally liable to pay the damages with the chief executive and found a cost order was warranted due to delaying tactics by the employee during the hearing.

Key Takeaways for employers

1. Employers may be held vicariously liable for unlawful conduct perpetrated by their employees, including senior executives and company leaders.
2. Employers should ensure that all employees, regardless of their position or seniority, are subject to appropriate standards of conduct and effective reporting, investigation, and disciplinary processes.
3. Employers should regularly train employees and managers, actively monitor workplace behaviour, and respond promptly to complaints or identified risks.
4. Psychosocial hazards must be managed proactively, ensuring appropriate systems are in place to identify, assess, and control risks arising from inappropriate workplace conduct.

If you have any questions about your workplace obligations or employee descriptions, please contact the Workplace Relations Team:

📞 (02) 6175 5900
📧 workplace@mba.org.au