Employee private commissions and liability

Employer considerations

While an architectural practice may have adequate professional indemnity (PI) insurance to cover the acts of employees and principals in the course of employment, the possibility still exists of a claim arising from the activities of an employee engaging in a private commission, ie outside the course of their employment.

Although the practice is not a party to the employee’s contract with their private client and therefore should have nothing to fear, the employee’s client might seek to argue that the practice is a party to the contract, particularly where the ‘moonlighting’ employee has neither assets nor insurance.

The employee’s client is more likely to name the practice in a claim if the practice appeared to provide any type of support to the employee and thus a connection can be inferred. For example, if the employee has been in contact with his or her client via the practice’s email, social media platforms and telephone. An obvious connection is use of the practice’s drawing sheets or title block in hard or electronic form. Condoning an employee’s conduct, by for example ‘turning a blind eye’ to the ‘moonlighting’ employee’s activities, may even be enough for a successful claim to be made against the practice.

Employment conditions should expressly prohibit, in clear and certain terms, the performance of outside or private work by the employee from the practice’s premises. The employment conditions should also prohibit the use of the practice’s equipment, computers, facilities, title blocks, logos and stationery for outside or private work during and outside company time. Obtaining the employee’s acknowledgement in writing to such prohibitions may also be a prudent step to take.

Practices should also emphasise in the employment conditions the extent of the practice’s PI insurance cover, so far as it relates to outside and private commissions. Further, if the PI policy does in fact exclude cover for ‘moonlighting’ employees, such fact should be expressly stated.

Practices should have clearly written personnel guidelines stating their policy on such private jobs. For example, employees should be required to inform their outside or private clients that the practice has no responsibility or involvement of any sort with a private project. If the attitude of the practice is clear and consistent then the likelihood of involvement in a professional indemnity claim is reduced.

The example clause below could be used in an employment agreement:

During the term of your employment you may not in your personal capacity, or on behalf of any third party, undertake any architectural services, commissions or design competitions ('Private Work') in actual or potential competition with services or project typology provided by the Practice without the prior written approval of the Practice to avoid the possibility of conflict of interest.

Private Work is not to be conducted in the office, nor the use of office facilities and equipment such as email, telephone, computers, printers, plotter, photocopier, paper and other expendable items be used for Private Work, unless otherwise agreed in writing.

Prior to undertaking any Private Work, you must advise your client in writing and ensure that your client and any relevant third parties are aware that the Private Work is not being conducted for, by, or in association with this Practice and therefore this Practice does not assume liability or responsibility for such work. Insurances including professional indemnity and public liability held by the Practice excludes Private Work.

Employee considerations

Taking the commission – do’s and don’ts:

• Ensure that the client understands that the project is a private commission and is not related to your place of employment;
• Consider the possibility of undertaking the commission through your place of employment (if your employer agrees);
• Avoid time commitments which would give rise to a conflict of priorities with your employment.

Depending on your project’s jurisdiction, it may be mandatory to hold PI insurance in carrying out a private commission. Check your relevant state or territory building act or authority and the relevant registration board for any restrictions that may apply. Obtain your own PI insurance as required.

Whether services are provided free or for a fee makes little difference to the tortious liability and, in most cases, to contractual liability. (Refer Acumen note: Common risks for architects). Unfortunately, even if the client agrees to limiting contractual liability, this does not bind a third party such as a subsequent owner, tenant or a person who suffers personal injuries because of a building defect.

For general guidance, also refer Acumen note: Graduate and student commissions