|September 28, 2012|
Consider this hypothetical: a business owner is sued and named as a defendant in a lawsuit. The alleged wrongful conduct was not committed by the business owner, but rather by another defendant in the case. As is typical in cases involving multiple defendants, the plaintiff makes a generic allegation that all defendants were acting as the agents, employees or partners of each other. Under this situation, could the business owner be liable for the actions of one of the co-defendants?
It depends. The extent of a business owner’s potential liability for the actions of another is determined by a number of factors. One of the more critical factors is the nature of the legal relationship between the two parties. Is the co-defendant an employee of the business? An agent? An independent contractor? The following are some general rules and issues to consider in evaluating potential liability concerns relating to your business.
When the Co-Defendant is an Employee
If the co-defendant is an employee of a business, the general rule is that the business will be held vicariously liable for the torts of the employee if the employee was acting within the course and scope of his or her employment. How is this determined? Courts will typically analyze whether the employee’s tort was incidental to his or her job duties and whether it would be foreseeable for a business to bear that type of liability.
For example, a delivery truck driver who is involved in an accident while making a delivery would typically be within the course and scope of employment. One of the driver’s main duties is to drive and deliver goods, so having a vehicular accident while performing those duties would certainly be foreseeable. In contrast, if a grocery store checker leaves the store on her break and drives recklessly, causing an accident, a court would not likely find she was in the course and scope of her employment. Her primary job duties involve ringing up purchased goods and performing in-store tasks such as stocking the shelves, not driving for her employer. Thus, it would not be foreseeable to the employer that a checker would cause injury to another via a vehicular accident.
When the Co-Defendant is an Agent
What if the co-defendant is not an employee, but rather someone authorized to act on behalf of the business owner? Even though an agent is not an official employee, if the business has a right to control the conduct of the agent in its relations with third parties, an agency relationship might be inferred by a court that could lead to a finding of liability. One common example of an agency relationship would involve a creditor and collection agency. The creditor business contracts with the collection agency to negotiate and settle debts on its behalf. The collection agency is permitted to bind the creditor business in its negotiations with debtors, even though the employees of the collection agency are not employees of the creditor business. If a debtor sues the collection agency at any point, the creditor business may also be liable for the collection agency’s torts.
When the Co-Defendant is an Independent Contractor
Generally, a business owner will not be liable for an independent contractor’s torts. The difference between an employee or agent or independent contractor can be confusing, but it is crucial for purposes of potential liability. The key factor in determining whether a person is an employee or an independent contractor is the right of the employer to control the manner and means of accomplishing a desired result. Professionals such as consultants, accountants or physicians will often be considered independent contractors. For example, physicians are typically considered independent contractors, not employees of hospitals because, under California law, hospitals cannot control the practice of medicine. Thus, physicians are typically employed by a medical group which is separate from the hospital, and the hospital in turn contracts with the medical group to provide physician coverage for the hospital.
Even if the co-defendant is an independent contractor, there are still some circumstances where the non-offending defendant can be held liable. The courts refer to this as ostensible agency. Under this doctrine, the court looks at the perspective of the injured party in regard to the relationship between the contractor and the business. If the business, either intentionally or by lack of ordinary care, causes a third person to reasonably believe that the independent contractor is actually an employee or agent, there may be a basis for vicarious liability. The hospital/physician example is useful again here. California courts have held that a hospital may in fact be held liable for a physician’s negligence in certain circumstances. In those cases, the court considered whether the hospital took affirmative steps to indicate the legal nature of the employment relationship with the physician and whether signage was placed indicating that the physician was an independent contractor with the hospital.
Steps to Avoid Responsibility for Someone Else’s Actions
Be clear about who is - and is not - an employee or authorized agent. Many hospitals use signs in waiting rooms to clearly notify patients the physicians are not employees. If you have a business that relies on independent contractors to provide services, make that business relationship clear to your customers. Those who are not agents or employees of the business should be discouraged engaging in conduct that suggests otherwise. Likewise, the business should take its own steps to notify third parties of the lack of a relationship between the entities. For example, if you use a contract, put specific language in it to identify any service providers who are independent contractors.
Consider an indemnity clause in contracts. When a business is working with an agent or independent contractor, it is wise to include an indemnity clause in the contract requiring them to hold the business harmless for any torts or claims that occur.
If you find yourself in the unfortunate position of having to defend a lawsuit, don’t assume that you will not be liable for the acts of other defendants. An early and thorough investigation of the relationship between defendants, and the plaintiff’s perception of these relationships, is crucial to proper evaluation of your potential liability and planning a proper defense for the case.