Employer Liability: When The Boss Must Pay
A particularly aggressive Minnesota salesman for National Biscuit Co. had a dispute with a grocer he serviced. He wanted his company's cookies prominently displayed on an easy-to-reach shelf. The grocer preferred to save the location for a variety of cookies from a number of manufacturers. One day, with customers in the store, the salesman lost his temper and began shouting. When the grocer tried to quiet him, the salesman assaulted the grocer, beating him badly. In the subsequent lawsuit, Nabisco had to pay for the grocer's injuries.
In Washington, D.C., a furniture deliveryman got into a dispute with a customer when he came to her home to deliver a mattress and box spring. He demanded that she pay cash before he took the mattress upstairs; she countered that he had to let her inspect the mattress before payment. She also insisted that he take a check. When the customer continued to insist on her rights, the deliveryman assaulted and raped her. The delivery company had no record of such behavior by the deliveryman in the past. Nevertheless, a federal appeals court said that a jury could find that the company had to pay for the victim's damages.
These two cases illustrate the outer limits to which courts will go in requiring employers to pay for the wrongs -- both intentional and inadvertent -- committed by their employees. There are literally thousands of less dramatic examples in law books, however, which help define the basic legal rules of what lawyers quaintly call "the law of master and servant." Simply put, this law governs the issue of when an employer must pay for the injuries and property damage caused by employees.
Scope of employment. In most states, courts decide this issue by first asking whether the employee was acting within the scope of his or her employment at the time of the incident that caused the injury. If the employee was acting within the scope of his employment, courts reason that his acts were of some benefit to the employer. It is therefore fair to impute the employee's liability to the employer even though the employer neither intended nor caused the injury. The "scope of employment" test generally requires a court to examine what the employer hired the employee to do, what warnings were given the employee, and whether the employee was on company business when the accident or assault took place.
A Sears, Roebuck & Co. salesman in Indiana, for example, who worked on commission, went in his own car on his day off to solicit a prospective customer. On his way home after his call, he had an accident and injured another driver. Sears was held liable for the victim's injuries because the salesman was arguably doing his job at the time of the crash, even though he was technically off duty. One piece of evidence that no doubt influenced the court's decision was the fact that the company had paid for the salesman's car mileage on the day of the accident. Also, the salesman had other appointments scheduled for later that day.
By contrast, a New Mexico farmer did not have to pay when one of his farmhands, without a license, had a head-on collision while driving a farm tractor on a road near the farm. The farmer had explicitly told his employees not to drive the tractor. The farmhand admitted that he had been warned and also stated that he knew he was driving illegally. The court therefore found that he was acting outside the scope of his employment, and it did not require the farmer to pay for the resulting damage. Courts often reach similar results when accidents happen while employees are on breaks or have detoured substantially from their assigned duties and routes.
Intentional wrongs. Where intentional acts -- such as the violent assault and rape described earlier -- are concerned, the courts use different legal tests to determine whether the employer must pay. Some courts endorse what is called the "work-relatedness" test. Both the assault and rape discussed above, for example, took place following disputes that were related to duties the employee had been given by the employer. It can be argued therefore, that these assaults were "triggered" by the particular job the employee was doing. In fact, the Washington, D.C. and Minnesota courts both found that the acts at issue could be viewed as workrelated. Courts in Mississippi, California, Illinois, Alabama, Connecticut, and in other states also follow this rule.
Most courts, however, would not make the employer pay if faced with the facts of the assault by the salesman and the rape by the deliveryman. These courts will not hold an employer liable unless it is shown that the employee was "actually motivated" by a business concern of the employer at the time. If Nabisco told its salespeople to "do whatever you have to do to get our cookies on the best shelf" and the salesperson interpreted this to include fighting, for example, these courts might make Nabisco pay for the fight with the grocer. All courts would probably hold liable a security company whose guards used force in the line of duty, since such force is both work-related and one of the understood risks of doing the job.
In a case where no relationship exists between the intentional assault and the job -- when, for example, the salesperson gets into a fight at a baseball game or the deliveryperson assaults someone while on vacation -- courts will not make the employer pay.
Who is in control? An employer usually is liable only for the acts of his own employees -- that is, those whom he "controls" in their daily work. When one company hires another company to do a particular job, therefore, and an employee of the subcontractor injures someone, the question arises as to which employer must pay. It is quite common on a building site, for example, to have an owner in overall control, a general contractor who is responsible for doing the construction work, and a great many subcontractors in control of specific jobs. When a painter kicks over a paint bucket from the top of the building and it falls on a pedestrian, who pays? The courts approach this question by asking whether the painter was acting as an independent contractor or whether he was under the control of one of the companies that hired him.
Courts generally examine all the circumstances in these cases. They will ask such questions as, Who paid the painter's wages? Whose tools was he using? Who paid the insurance premiums covering him? If the painting subcontractor was paid a fixed price for the job and handled all of the details such as tools, insurance, choice of employees, and wages, a court will probably find that he is an independent contractor and hold him, rather than the owner or the general contractor, liable. If the general contractor pays the painter by the hour and exercises a great deal of specific control over when, where, and how the painter is to perform his job, however, the painter may be deemed an employee of the general contractor, at least as far as the "who pays" question.
This question arises often when truckers are involved in an accident. If they drive for an independent trucking company that hauls by contract, the hauling company usually must pay for the accidents. If they drive for the company whose product is being hauled, however, that company must pay.
One notable exception to this rule involves jobs that are inherently dangerous. for example, if a contractor hires a subcontractor to do his dynamiting for him on a road-repair job, he will be liable for injuries to bystanders even if the subcontractor is completely independent. The reason for this exception involves public policy. The courts do not wish to make it too easy for companies doing dangerous work to avoid liability by simply farming the job off to another corporation. Courts sometimes use this doctrine to decide liability in certain construction-site cases, as well. Thus, even the independent painter in our example could be deemed an employee of the owner of the site or the general contractor if a court finds that the overall job was inherently dangerous.
The "borrowed servant." A closely related situation that causes a good deal of trouble in the law of master and servant is that of the so-called borrowed servant. These are the cases in which a company "leases" another company's employee for a specific job. For example, who pays when a hired chauffeur driving a corpoate president has an accident -- the chauffeur company that owns the limousine and pays the driver or the corporate passenger's company? Courts decide this question by asking very specifically who was in control of the chauffeur at the time of the accident. Different states, however, have different rules.
Pennsylvania has perhaps the most sensible solution. If the accident occurred in this state, both corporations would be potentially responsible for compensating the victim since both are controlling the driver to some extent. California, Maryland, and Louisiana, among other states, have recently joined Pennsylvania and adopted the rule that recognizes potential liability for more than one employer where a borrowed servant is concerned.
Most states, however, try to determine which employer was exercising primary control at the time of the accident. If the passenger was telling the driver to go unusually fast or by a dangerous route, the passenger's company may have to pay. If, on the other hand, it was a routine trip to or from an airport, with the route determined by the driver, the chauffeur company is usually responsible.
Borrowed-servant cases tend to turn on their particular facts. In one Delaware case, for example, a dredging company leased a bulldozer and an operator, on an hourly basis, from an independent leasing partnership. The contractor told the operator what he needed done and where to do it. Soon after the work began, however, the bulldozer became mired in deep mud. The bulldozer was severely damaged.
The leasing company sued the contractor, claiming that the contractor controlled the bulldozer when it got stuck. The court decided, however, that the leasing company could not recover damages. The leasing company paid the operator's salary and the cost of the machine's upkeep. Moreover, only the leasing company could discharge the operator and only the operator knew how to work the machine. That, said the court, was enough control to require the leasing company to bear its own loss for this sort of accident.
Interestingly, you need not actually hire a borrowed servant to be responsible for his accident. Any employee or person under the company's control may trigger potential liability.
There is really no way to protect your company absolutely from suits brought by people injured by your employees. One way to minimize potential liability, however, is to get whatever insurance is available to cover the kinds of accidents your employees are likely to have. Of course, an employer may also try to recover what he can from the employee who caused the injury.
G. RICHARD SHELL | Columnist
G. Richard Shell is the Thomas Gerrity Professor of Legal Studies, Business Ethics, and Management at the Wharton School. He is the author of three books, including the most recent Springboard: Launching Your Personal Search for Success, which was released in paperback this May.