But I Didn’t Do Anything Wrong, It Was My Employee! The Impact of Vicarious Liability on Employers
What Is Vicarious Liability?
Vicarious liability is a concept almost as old as the law itself, but it is as important now as ever. Generally speaking, vicarious liability is when one person – an individual, a partnership, or a corporation – is held responsible for the actions of someone else because of the relationship between them. It is a form of secondary, indirect liability imposed on one person for the direct acts of another. Under the theory of agency, a principal can be held liable in contract for promises made by its agent. Under the theory of respondeat superior, Latin for “let the master answer,” a “master” can be held liable in tort for the improper conduct of its “servant” – though the term “master-servant” has generally been replaced with “employer-employee” in modern times.
Can Vicarious Liability Be Imposed On Any Business Organization?
Yes. Sole proprietorships, partnerships, and corporations can be held liable for the acts of their agents and employees.
Sole Proprietorships: Sole proprietors are the owners of their business, so they have the right to control all aspects of business operations. As the principal, master, and employer of all persons they choose to hire, they can be held liable for the conduct of their agents, servants, and/or employees.
Partnerships: Partnerships are when two or more people join together, combine their business ventures for mutual benefit, and have a community of interest in any profits earned. All owners of a partnership may be held liable for the conduct of any of their partners, agents, servants, or employees if the conduct is done in furtherance of the partnership’s business.
Corporations: Corporations are organizations which are considered legally separate “persons” from their owner(s). They can sue and be sued for their role in any events or transactions. However, a corporation does not “act” in the same way an individual does – rather, the corporation only “acts” through its officers and employees. Thus, a corporation can be held liable for the conduct of any of its officers or employees – so long as the conduct is within the course or scope of the officer or employee’s employment.
Generally, when an employer vests its employees or agents with authority to transact business with others, the employer is bound by the promises, agreements, or contracts made. In situations where the agent or employee has actual or apparent authority to act on behalf of his employer or principal, then the employer or principal is obligated to honor the promises made in the resulting agreements. For example, if an employee-carpenter – wearing a company polo shirt and hat – purchases lumber and nails for a customer’s project using the employer’s credit account, her construction contractor-employer must pay the lumber yard for the items purchased.
Conversely, there are some situations where the agent or employee, whether intentionally or unintentionally, fails to disclose that he is acting on behalf of a principal or employer. Failure to disclose an employer or principal results in the agent becoming personally liable to the other party – though the principal or employer is still responsible for honoring the agreement if the agent or employee asks them to do so. For example, if an employee-property manager responds to a tenant’s complaint of a flooded basement and signs a contract with the water removal and restoration company – but fails to disclose that he is signing in his capacity as the manager for the employer-property owner – then the property manager is personally liable to the restoration company under the contract. The property manager can ask the employer-owner of the property to indemnify him – to honor the contract and pay the restoration company – and the employer-owner would be obligated to honor such a request.
When an employer requires its employees to take actions in furtherance of business interests, the employees have a duty to exercise reasonable care and caution in doing so. An employee’s failure to exercise reasonable care and caution, if it results in injury to another person, can result in liability for the employer. If the employee was acting “within the course and scope of his employment” at the time of the event that caused an injury, then the employer is liable as well. For instance, if a florist-employer tells an employee to deliver a floral arrangement to a customer’s wedding venue in a company vehicle and the employee causes a traffic accident on the way, the florist will likely be responsible for the employee’s negligent conduct.
However, if the employee departs from the service of his employer, a “frolic and detour” in legal parlance, and causes an injury, then the employer is not liable. An example of this “frolic and detour” could be if the same florist’s employee described above receives a call from a frantic relative and decides not to deliver the flowers immediately. Instead, the employee drives 15 miles the opposite direction toward his relative’s home at a fast rate of speed and rear-ends another car. In this scenario, the florist would probably not be responsible for the employee’s negligent conduct.
But What About Independent Contractors?
Although a principal or employer is responsible for the conduct of its agents and employees, it is notresponsible for the conduct of an independent contractor. An independent contractor is a person who renders a service on behalf of another according to an agreement, but undertakes to produce a result without ceding control of the means by which the result is accomplished. In other words, an independent contractor is someone hired to accomplish a task or job on an employer’s behalf, but is not directed or controlled by the employer on how to do it. The question of whether someone is an employee or an independent contractor depends largely on the right to control the work, but is a very fact intensive determination that takes into account many other factors.
Agents and employees are essential for the day-to-day operations of nearly every business. Most could not function without them. Thus, business leaders should be aware of both the benefits – enhanced ability to perform key business functions, and potential detriments – liability for the employee or agent’s conduct, which can result from their organization’s use of agents and employees. They should weigh the potential benefits of independent contractors (no liability) against the potential limitations (very little control) when considering whether to hire an employee vs. retain an independent contractor. That kind of decision requires thorough knowledge of the organization’s capabilities, as well as a solid knowledge of the law. Vicarious liability may be ancient law, but its importance continues to grow in this complex, modern business environment.