Who's the boss? Limiting your liability for employee misconduct

Here are some ways to reduce your exposure if your employees get you sued.

Whether harm arises from an accident with a company vehicle, an assault in a customer's home, or harassment of an employee by a co-worker, the victim -- or, more accurately, the victim's attorney -- is going to want to go after the "deep pocket."

This means you, the employer.

"Be smart!"

With exceptions, companies can generally be held liable based on the actions or omissions of their employees in two ways: direct liability, or vicarious liability.

With direct liability, the employer is liable because of its own acts and omissions. Direct liability claims would include negligent hiring, retention, or supervision; some workers' compensation claims; or discrimination. An employer can also become liable for its employees' intentional torts if the employer is found to have "ratified" the misconduct after the fact. Court interpretations of ratification vary from jurisdiction to jurisdiction, but ratification is usually found to occur if the employer learned of the employee's conduct and either "approved" it in some way, or failed to take any action to investigate or to "disapprove" it (for example, by disciplining or terminating the employee).

Vicarious liability is a derivative common-law claim that imposes liability on a company usually because of the negligence of the employee. For an employer to be held vicariously liable, the employee's negligent act generally has to occur in furtherance of the company business (such as running a red light at an intersection while making a delivery to the employer's customer).

There is another type of vicarious liability based on bad acts by employees in significant management roles.

Although it's impossible to ward off all liability for an employee's wrongful acts or neglect, here are some ways employers can protect themselves:

  • Conduct background and reference checks. Background checks don't prevent negligent hiring claims, but they are often very helpful to employers defending claims based on direct liability. In addition, employers in some industries are required to conduct background checks on certain types of employees. Just be sure that your background check procedures comply with state and federal laws, including the anti-discrimination laws and the Fair Credit Reporting Act. Periodic screening during employment is a good preventive tool, as well, and can help employers defend negligent retention claims based on employees who were convicted of crimes after they were hired.
  • Document your screening efforts and investigations. Your good work may be for naught if you don't have thorough documentation of what you did.
  • Hold your subcontractors, temps, and vendors to your standards. Ensure that your contractors and vendors, as well as temporary or shared employees, comply with the standards that apply to your company and your own employees. This can easily be addressed in service or contractor agreements.
  • Consider insurance. Insurance won't affect your potential liability, but it can certainly minimize your monetary exposure in the event of a lawsuit. Get quotes for general liability, employment practices liability, workers' compensation, and errors and omissions insurance policies. In your contractor and vendor agreements, consider requiring the other party to obtain insurance for you at its expense by naming your company as an additional insured.

Until technology completely replaces people in the workplace, employers should be vigilant in minimizing their exposure based on the bad or negligent acts of employees. 

Robin Shea has 30 years' experience in employment litigation, including Title VII and the Age Discrimination in Employment Act, the Americans with Disabilities Act (including the Amendments Act). 
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