Case law: Court clarifies how parent companies can manage risk without becoming directly liable to employees of subsidiaries

UK parent companies should consider whether the balance they have set between top-down management of risk, and the delegation of responsibility for risk management to local entities in the group, inadvertently creates a duty of care to employees of their overseas subsidiaries, applying the tests set out in a recent Court of Appeal ruling.

Employees of the Kenyan subsidiary of a UK parent company were targeted by violent mobs coming onto the subsidiary's tea plantations during Kenyan elections in 2007. The employees claimed the UK parent company owed them a duty of care to safeguard them in circumstances like those, which it had failed to discharge. If the employees could establish there was a case to be heard against the parent in the English courts, they would be entitled to bring their claim against the Kenyan subsidiary in the English courts too.

The Court of Appeal said that a parent company will owe a duty of care to employees of a subsidiary if the parent acts (or fails to act) in a way that shows they have assumed such a duty. The two ways this can happen are if:

• The parent manages (or jointly manages) relevant activities of the subsidiary in place of, or with, the subsidiary's own management, and/or
• The parent has advised the subsidiary how to manage the relevant risk

The Kenyan employees argued the UK parent had advised the subsidiary how to manage the risk of political unrest in Kenya and had therefore assumed a duty of care. One reason given was that the parent's consolidated accounts and reports said that the UK board was responsible for risk management throughout the whole group, including the Kenyan subsidiary.

However, the parent was able to show that its policies were based on the principles that 'each crisis is best managed as close to the issue/incident as possible' and 'the most appropriate people to manage an issue/incident are those who know it best'. To that end, the Kenyan subsidiary had its own crisis management training programme, operated independently of any advice or direction from the parent company.

The subsidiary had also received its own information from a risk consultancy about the risks arising from the 2007 election, independent of the parent company.

Overall, the Court of Appeal found that there had been no advice or direction from the parent sufficient to show it had assumed a duty of care to its subsidiary's employees, so none was owed. The extent of their intervention was merely to check there was a local policy in place.

Operative date

• Now

Recommendation

• UK parent companies should consider whether the balance between top-down management of risk and the delegation of responsibility for risk management to local entities in the group inadvertently creates a duty of care to employees of their overseas subsidiaries, applying the tests set out in a recent Court of Appeal ruling

Case ref: AAA & Ors v Unilever Plc & Anor [2018] EWCA Civ 1532