Some small businesses are unaware that employer liability for third-party harassment is set to become one of the more significant legal exposures for any organisation whose staff deal with the public. From October 2026, an employee who is harassed by a customer, client, or contractor may be able to bring a claim against their employer. Understanding when that liability arises, and how to limit it, is something every owner-managed business should be doing now.
Call us now on 01491 598 600 or Click Here to Make An Enquiry and we will be delighted to help you.
When Does Employer Liability For Third-Party Harassment Arise?
From October 2026, under the Employment Rights Act 2025, an employer becomes directly liable where one of its employees is harassed by a third party and the employer has failed to take all reasonable steps to prevent it. A third-party means anyone who is not employed by the business, such as a customer, client, patient, supplier, or contractor.
It is important to be clear about where responsibility falls. A third-party harassment claim is brought against the employer, not against the customer or contractor whose conduct gave rise to it. An employer cannot discharge its liability by pointing to the fact that the perpetrator was an external party outside its day-to-day control. A tribunal will be concerned with examining the employer’s own conduct, including whether the risk was reasonably foreseeable, whether appropriate preventive measures had been implemented, and whether the business responded adequately when concerns were raised. For organisations whose staff interact regularly with the public, this means the conduct of customers and clients cannot be regarded as falling outside the employer’s responsibility.
This liability is not limited to sexual harassment. It applies to harassment related to any protected characteristic, including race, disability, age, religion or belief, sex and sexual orientation. An employer can be liable when one of their employees is harassed by an outsider, and the employer did not take all reasonable steps to prevent it.
What Does Taking ‘All Reasonable Steps’ Involve?
When the duty comes into force, employers must take ‘all reasonable steps’ to prevent third-party harassment of their employees. This is a demanding test. An employer needs to be able to show that it considered the measures it could reasonably have taken and then took them.
In practice, that means taking steps such as carrying out a genuine risk assessment, putting policies in place, training staff and managers, implementing accessible reporting routes, and keeping a record of the action taken in response to known risks. Where third parties are concerned, you should set out your organisation’s expectations with regard to their behaviour towards your staff clearly, and must be willing to act when those expectations are breached. Above all, keep evidence of what you have done. Under the ‘all reasonable steps’ test, your ability to effectively defend a claim depends largely on being able to evidence the steps you actually took.
What is reasonable will depend on factors unique to the business in question, including its size, sector, working environment, and resources. Our expert HR consultants will devise a strategy that accords with the realities of your business and workplace environment and ensures that you comply with your preventative duty.
What Is The Financial Exposure?
Harassment claims are brought under discrimination law, where compensation is not capped. Awards reflect injury to feelings and can be substantial, and there is no statutory ceiling limiting them. Where a sexual harassment claim succeeds and the employer is found to have breached its preventive duty, a tribunal can increase the award by up to 25%. As a result, an employer’s potential liability is significant.
Beyond the award itself, there is the cost of defending a claim, the management time it consumes, and the disruption to the business. The time limits for bringing claims are being extended, which widens the window during which a claim can arise. There is also the reputational impact, which for a small business that relies on its standing in a local community, can be as damaging as the financial cost.
How Can Gap HR Help You Limit Your Exposure?
We help owner-managed businesses build the kind of prevention and record-keeping that the ‘all reasonable steps’ defence requires. We can assess where your liability arises, put the right measures in place ahead of the duty becoming law in October 2026, and support you if a claim is ever brought.
At GAP HR, our sole aim has always been to keep small businesses legally compliant and tribunal-free. All initial enquiries are free of charge and without obligation. We will explain your legal position and how we can help.
Call us now on 01491 598 600 or Click Here to Make An Enquiry and we will be delighted to help you.
