Recognize the Business Liability Risks That Arise From Actions of Employees

In this segment we’re going to take a look at general business exposure to tort liability. And then after this segment we’ll move on and look specifically at product liability. When you talk about general business exposure to tort liability, it brings into play an area of law called agency law. And the reason this is so important is that businesses enter into contracts and conduct business through agents, through employees. And the question that arises is, what rights and liabilities are created between the principal, which is the business, and third parties, such as customers, on the basis of the acts of the agent, the employee?

Agents, for instance, can commit the principal to contracts when the principal authorizes the agent to negotiate a contract. And in fact, one of the very important features of negotiation is that if your a third party negotiating with the agent for a business, the very first question you should always ask at the beginning of a negotiation is whether the agent has authority to represent the business. If not, then you’re just spinning your wheels. You’re wasting your time if there is no authority. And in addition to contract liability, an agent can create tort liability when the principal controls the employee, which makes the employee an agent and the agent commits a tort. Injuring a third party, then the principal is liable.

And in fact, the principal can be liable under other theories as well. For example, in some cases, the principal might commit a tort, which would result in direct liability. An example would be where a business hires, let’s say a truck driver, who is known to be a reckless driver. Then the principal has committed a direct tort, which would result in liability when that driver injures someone. A principal also would be liable where the principal authorizes the agent to commit a tort. If the principal says to the agent, for example, shoot that customer, the principal of course would be liable. But the area that creates liability in most cases is called respondeat superior.

Which means, basically, let the superior, let the business, the principal, respond for the acts of an agent. A looser translation might be, if you’re an injured party, if you’re the injured third party, sue the one who has the money, which is the principal. A respondeat superior applies when an agent commits a tort within the scope of business. So, let me give you a local example from where I live. So we have a principal, a bank, who sends an agent, a bank employee, out on an errand.

The employee, becomes confused in her driving and she accidentally starts to drive down a wrong way street. And injures, and in fact kills, a driver of a truck. So, the question is, would the principal, the bank, be liable. And if so, under which of the theories we’ve just discussed? Did the plantiff commit the tort? Did the principal authorize the tort? Or is this a case of respondeat superior? Please hit pause and write down your answer.

And the answer is that this is a case of respondeat superior. We have a situation where the employee, the agent, is committing a tort within the scope of business, and this was the way the case was reported in the local paper. A Washtenaw County jury has awarded $4.2 million to the family of a truck driver killed in a crash in Ypsilanti Township. The jury said that the employee, that’s the agent, and the employer, the principal, the bank, both named as defendants, were responsible for the crash. This was an accident that occurred within the scope of business. Now, where this becomes very complicated is where the agent commits an intentional tort.

And the question is, can an intentional tort be considered within the scope of business? Or is this simply a deliberate wrongful act by the agent? Let’s take a look at this case where we have a customer orders furniture from a store. The store hires a trucking company to deliver the furniture. And, the person who delivers it, the agent, assaults the customer and injures the customer. So the question is whether the trucking company, and also the store, should be liable for the assault. Please hit pause and write down your answer. What do you think the court decided? Should the customer be allowed to recover against the trucking company and the store?

In this particular case the court decided that the evidence would not support a finding that the trucking company had any knowledge that the employee was dangerous. In other words, what the court is saying is, there was no direct negligence on the part of the trucking company. However, if the assault was triggered off or motivated or occasioned by a dispute over the conduct, then and there, of the employer’s business, then the employer should be liable. In other words, what the court is saying is that if this assault occurred within the scope of the business, that under that rule of respondeat superior, the business is liable. But what about the store?

Would the store also be liable, the store that hired the tracking company to deliver the furniture? Again, please hit pause and write down your answer, which should be yes, the store is liable, or no, the store is not liable. The answer would be, no the store is not liable because the trucking company did not act as the agent of the store. And the trucking company is what in the law is called an independent contractor. It delivered the furniture on its own terms. It committed to deliver the furniture, but they way it delivered the furniture were not under the control of the store.

So a very important exception to the rule of liability, when you hire an independent contractor, generally you’re not liable for the acts of the independent contractor. Although, of course, there are exceptions. In China they follow the general rule of vicarious liability. This is a tort liability law that became effective in 2012. Employers are vicariously liable when employees commit the torts in the course of their working duties. And they make it clear under Chinese law that this applies even when a company is using employees hired through labor staffing agencies. Even though those employees might be employees of the labor staffing agency, the employers are still liable for the acts of those employees.

So, that covers the general rules covering tort liability of the company, the principal, and the three areas of liability where the principal, the company, commits a direct tort. And second, where the principal authorizes a tort. And finally, the big area of liability, where the agent commits a tort within the scope of the business. In our next segment, I’m going to give you a quick quiz relating to these principles. And we’ll look at a current problem that is especially important for businesses around the world relating to respondeat superior.