New Privacy Tort Raises Business Liability Concerns

Parliament has approved a new privacy tort aimed at addressing serious invasions of privacy, but this move raises concerns about its potential burden on businesses. The legislation could create a legal pathway for holding employers vicariously liable for their employees' actions, even if companies have taken reasonable steps to prevent privacy breaches. While designed to enhance accountability, the timing and implications of this law may exacerbate challenges for struggling businesses.

Introduced on November 29, the statutory privacy tort is set to take effect in June, despite warnings from industry groups. The Business Council of Australia (BCA) and Australian Industry Group (Ai Group) have criticised the law for failing to protect innocent employers from being held liable for employees' unauthorised actions. A 43% surge in business insolvencies during the first quarter of 2023-24 reflects the sensitive timing, with over 3,500 companies under external administration in just three months.

The privacy tort expands legal risks for companies by allowing claims without requiring proof of damage. Unlike the broader Privacy Act, it encompasses information that "relates to" the plaintiff, raising potential litigious opportunities. Businesses may face additional litigation insurance costs, ultimately increasing operating expenses. Such a shift could force companies to pass on these costs to consumers, further straining the economy.

Class action trends reveal an opportunistic legal landscape for plaintiff law firms. With only 44 class actions filed in 2023—the lowest since 2016—this privacy tort may give legal firms new avenues for cases, particularly targeting businesses with robust insurance coverage. History suggests that insurers could respond with higher premiums or limited availability, adding long-term pressure on both businesses and consumers.

The broader implications of this new tort point to potential economic ripple effects. If insurance costs rise due to increased legal risks, businesses may struggle to absorb them or pass them to consumers, impacting affordability. Without proper safeguards, the legislation risks creating an unbalanced system favouring plaintiffs while penalising businesses that have already invested in privacy protection measures.

Source: The Australian, Business Council of Australia, Ai Group