Are Employers Liable for Actions of Employees?
Whether or not an employer is liable for the actions of its employees is essentially an agency liability problem. When looking at agency in the employment context, however, there’s a range of tests and factors that might be involved depending on the jurisdiction. Business lawyers tend to refer to this more broadly as a “scope of employment” analysis. When analyzing scope of employment cases, business attorneys ask if the person is an agent in the employment context based on the scope of their employment and whether the actions took place within or without that scope. The analysis will involve foreseeability, the specific facts and degree of deviation from the scope of employment and the nature of the relationship between employer and employee. Rather than looking at authority, most courts and jurisdictions are going to, in some way, factor in the scope of employment as a major factor. It is difficult to determine and often times, we will see a type of “motive test” where we look at whether or not the person’s actions are motivated in some way to help the employer. If so, that is usually going to be closer to within the scope of employment. These motive test are used to limit the amount of liability because it doesn’t seem fair to hold employers liable for every possible action of employees. Ultimately, and depending on the jurisdiction, there are essentially five factors to determine whether someone’s acting under the scope of employment. None of the factors are dispositive and t’s a factually sensitive inquiry where all involved parties will make the best argument based on their respective positions. There might be a motive test, foreseeability test, detour or frolic test, interference with official duties test or a combination of five factors
Ira S. Bushey & Sons, Inc. v. United States, 398 F.2d 167 (1968)
The Ira S. Budget & Sons. Inc. case is one of the early federal cases involving the scope of employment as it relates to agency liability. In the case, a sailor came back to a dry dock and was intoxicated. Due to this, he crashed and caused rather significant damage to property. The issue in the case was whether the employer was liable for these actions. The employee was a sailor in the US Coast Guard and the government did not dispute his employment. Since this was not in dispute, we know that he was an agent of the government. We can’t have the employer be liable in every single instance, however, because it opens them to too much liability. This is what gave rise to the scope of employment because employers are not responsible for every conceivable action. There should not be liability imposed if the employee’s actions have nothing to do with the agency or employment. The employers have no control. There are certain circumstances where society does not want to impose liability. Scope of employment cases limit liability in the same way that authority does in general agency cases. The scope of employment test will center around the answer to questions such as whether the person was motivated by helping the employer at the time the particular harm occurred or not, If the employee’s actions were to serve the employer, it is typically within the scope of the employment. Liability will also be determined by the foreseeability of the injury or damage. There will be differences defining liability because the test is very vague to determine whether or not the person is helping the employer. In this case, the court says it was foreseeable that a sailor might be drinking which renders the second part of the test vague as well. You are still looking at things that are foreseeable within the scope of employment. Bottom line is the test is not clear and leaves a lot of discretion for the court. The second test, the one adopted by the court, is based on foreseeability. You have to look at the question of whether or not it arises out of the course of employment and is to be expected.
Detours and Frolics
In the Clover v. Snowbird Ski Resort case, the court is dealing with an employee and employer. There’s a skiing accident where the employee was skiing from one location to the next for purposes of his employment. We see the terms detour and frolic introduced into the scope of employment context where liability can differ based on how far someone strays from what they’re supposed to do for the job. Detours are generally minor and frolics are more significant. Another concept involved in scope of employment problems are so-called “detours and frolics.” Ultimately, one of the ways courts might define whether or not someone is liable is how far they have strayed from assigned duties. While it depends on the jurisdiction involved, the common approach is that minor detours don’t prevent liability on an employer whereas complete and total frolics do. Ultimately, the further an employee is away from employment duties the less likely it will be construed that you are in the scope of employment.
Most jurisdictions have some kind of framework establishing that the hiring party is not liable for actions of independent contractors. If you hire someone and do not exercise a lot of control, only that person is liable. There are real difficulties, however, determining whether someone is an agent or an independent contractor which varies based on the amount of control over a particular matter that creates liability. Some jurisdictions also have another layer of exceptions such as where actual agency relationships exist, the employer is responsible for hiring an incompetent contractor or the very act contracted for is a “nuisance per se” (which is the word of art).
The Arguello v. Conoco, Inc. case illustrates this analysis. This case involves racial discrimination by employees at several Conoco locations. All sorts of outrageous behavior occurred but Conoco, the employer, did not want or condonethis behavior or bad press resulting from it. As far as the relationship between the parties, the court found that not all stores were the same. We have stores that are owned by Conoco and there is no agency relationship. There are also branded stores, however, which are required to maintain standards but these are franchises and Conoco did not control the day-to-day operations of the store. The court looked at an agreement to determine the nature of the franchise relationship and determined there is no agency. The language was very clear in the agreement that no agency relationship existed. It is a bit surprising that the court allowed the agreement to stand and contract around agency. There is argument that there was a sufficient amount to control but it is mostly because of the clear language.
Another pertinent case on this point is Majestic Realty Associates, Inc. v. Toti Contracting Co. The contractors in the case were demolishing a building and caused damage to the Plaintiff’s building. The question is whether the contracting company’s principal is liable. The parking authority contracts with them but as an independent contractor. Their explanation was that the crane operator made a mistake. A principal is typically not liable for the actions of an independent contractor but is typically liable for the actions of an agent. We look at whether the principal exercises control and whether or not both parties consent, among other factors. If you have enough control and consent on both sides you have agency but if you do not have enough control, you have an independent contractor.
If the parking authority controlled every aspect of the job, it would be clear that they would be agents. The default rule is that an independent contractor doesn’t create liability for the hiring party. This case illustrates exceptions to the rule. One exception is when the landowner controls the means and manner of the work contracted for. If they say it’s an independent contractor but that party behaves like an agent and the hiring party controls everything, then there is agency. If you act like it’s an agent but call it an independent contractor, there still might be agency liability.
Another exception is when the incompetent contractor is engaged and told how to perform the work such as how to demolish the building. If you employ someone that is incompetent, the law wants to establish liability even if the relationship is one of an independent contractor. We want to make sure that principals hire good people to do the work. It’s another circumstance where we want the hiring party liable because they created the circumstance. The third exception is when you are doing work that is inherently dangerous and can only be carried on with special care because of the risks. Even if you exercise the best care possible, it is still dangerous. Even if you hire someone who is competent and something goes wrong because of the inherent danger, the principal still created a situation. As always, these are fact specific inquiries requiring the expertise of business counsel.
Chris Sawan is both a licensed attorney and a CPA which allows him to provide exceptional service to bankruptcy clients in Toledo, Ohio.
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