Vicarious Liability in the Employer-Employee Relationship- Module 1 of 5

Module I: Vicarious Liability in the Employer-Employee Relationship

Introduction

      Under the vicarious liability doctrine, an employer can, in some circumstances, be held legally responsible for an employee’s misconduct.

            Two principles – control and cost-allocation – justify imposing vicarious liability on an employer for an employee’s misconduct. First, an employer determines the nature and scope of an employee’s job responsibilities and has the authority to control the manner in which an employee performs work-related tasks. Second, the goal of the civil justice system is to compensate victims. Companies have the resources to spread the costs of compensating injured victims across their customer bases. A company could, for example, raise its prices slightly to cover potential liability for the inevitable occasional injury. It’s fairer and more efficient to let the company bear the cost of the victim’s injury than to assign the whole cost to the unlucky victim by declining to impose liability on the company.

      In this module, we will examine the legal standards that courts use to determine when an employer is vicariously liable for an employee’s misconduct.

Courts rely on a two-part test when determining if an employer is vicariously liable for an employee’s misconduct. First, courts evaluate whether a person is an “employee” rather than, for example, an independent contractor (to which different rules governing liability apply).[1] Second, if an agent is classified as an employee, an employer will still only be liable if the employee’s misconduct occurred within the scope of employment.

“Employee” Versus Independent Contractor

In United States v. Silk, the Supreme Court set forth several factors that courts must consider when determining whether a person is an employee.[2] The Court emphasized that the "right to control how ‘work shall be done’ is a factor in the determination of whether the worker is an employee.”[3]  The Court stated, in pertinent part:

Generally, the relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done.[4]

The Supreme Court also identified additional factors, stating that, “degrees of control, opportunities for profit or loss, investment in facilities, permanency of relation and skill required in the claimed independent operation are important for decision,” however, “[n]o one [factor] is controlling nor is the list complete.”[5]         

            To summarize, courts will rely on the following factors to determine if a person should be classified as an employee:

The right to discharge. If an employer has the right to fire someone, he is likely be considered an employee.

Furnishing of tools and a place to work. If an employer provides a person with tools and a place to complete work-related tasks, he is likely be considered an employee.

Nature of the work performed. A person will probably not be characterized as an employee if the services performed are distinct from those that the employer typically performs. For example, if the company is a restaurant and someone is brought in temporarily to install an air-conditioning unit, that person is less likely an employee than someone brought in temporarily to wait tables.

The skill level required. If a person performs a service that requires a special skill, he is less likely to be considered an employee. The classic example here is an accountant brought in to prepare a company’s income tax returns.

Length of time. Courts will consider the length of time that the person is retained to perform tasks for an employer. The more permanent the relationship, the more likely that he will be deemed an employee.

The intent of the parties. Courts will consider whether the parties believe they are entering an employee-employer relationship.

Written contract and benefits. If the worker signs a written employment contract and receives benefits, such as health and retirement, he is more likely to be deemed an employee.[6]

 Note that parties cannot stipulate that no employer-employee relationship exists when the factors militate in favor of a finding that it does.[7] If a court determines that an employer-employee relationship exists, “the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial.”[8]

The Supreme Court’s decision in United States v. Silk illustrates how some of these factors are applied.  In that case, the employer, Silk, employed several workmen to, among other things, unload railway coal cars and make retail deliveries of coal by truck.[9] Thereafter, the Internal Revenue Service assessed Silk employment taxes based on its determination that the workers were employees, not independent contractors.[10] Silk argued, and the District Court and Circuit Court of Appeals agreed, that Silk was not subject to the employment tax because the workers were independent contractors, not employees.[11]  

The Supreme Court disagreed, holding that the workers were employees, not independent contractors. In so holding, the Court stated as follows:

They provided only picks and shovels. They had no opportunity to gain or lose except from the work of their hands and these simple tools. That the unloaders did not work regularly is not significant. They did work in the course of the employer's trade or business. Silk was in a position to exercise all necessary supervision over their simple tasks. Unloaders have often been held to be employees in tort cases.[12]

            As such, the Internal Revenue Service acted properly in imposing the employment tax because the individuals were employees, not independent contractors. 

            Note that while that case involved determination of employment relationship for tax purposes,[13] similar principles would apply to tort and liability issues.

Another application: The Valles case

            In Valles v. Albert Einstein Medical Center, the Superior Court of Pennsylvania highlighted the critical elements that distinguish an employee from an independent contractor, stating:

The hallmark of an employee-employer relationship is that the employer not only controls the result of the work but has the right to direct the manner in which the work shall be accomplished; the hallmark of an independent contractee-contractor relationship is that the person engaged in the work has the exclusive control of the manner of performing it, being responsible only for the result.[14]

In Valles, the plaintiff sued Albert Einstein Medical Center (AEMC), claiming that it was vicariously liable for the negligent conduct of a physician who, while employed at Albert Einstein Medical Center, performed a surgical procedure on plaintiff’s brother at the hospital.[15] Unfortunately, the plaintiff’s brother suffered complications from the surgery and, despite additional surgical procedures, subsequently died.[16]

The Superior Court of Pennsylvania held that Albert Einstein Medical Center was not vicariously liable because the physician, although employed by Albert Einstein Medical Center, was akin to an independent contractor, not an employee.[17] In so holding, the court stated:

While we agree . . . that AEMC had a duty to generally oversee [the physician], nothing in the record indicates that AEMC exercised control over the manner in which he was to perform radiology work, such as the aortogram. We fail to see how AEMC could conduct such oversight, absent having another physician present, in light of the fact that the procedure in question is of a highly specialized nature and requires specific skills, education and training in order to be performed. Oversight by AEMC would thus inject the hospital into the physician-patient relationship. Such a situation would be improvident and unworkable as it would create potential conflicts between the hospital and its physician and between the physician and his or her patient.[18]

The court also explained:

It is the surgeon and not the hospital who has the education, training and experience necessary to advise each patient of [the] risks associated with the proposed surgery. Likewise, by virtue of his relationship with the patient, the physician is in the best position to know the patient's medical history and to evaluate and explain the risks of a particular operation in light of the particular medical history. Appellant['s] attempt to impose upon a hospital the duty not only to ensure that physicians obtain informed consent but also to draft the substantive information to be disclosed, ignores these unique aspects of the physician-patient relationship.[19]

            For these reasons, Albert Einstein Medical Center was not vicariously liable for the physician’s allegedly negligent acts.

            Let’s now consider a few examples to determine whether an employer-employee relationship exists.

Example 1

The law firm of Jones, Davis, and Smith, LLP hires an expert witness to prepare a report and, ultimately, testify in support of its client’s position. In this situation, the expert would not be considered an employee because the expert possesses a skill that is independent of the employer’s business, and the expert is providing services for a limited purpose and time.

Example 2

A community college hires an individual as an adjunct professor to teach Philosophy 101 to freshman students. She signs a contract requiring her to teach two days per week for the fall semester at a salary of $3,500 for the course. She receives no benefits and renewal of the contract is subject to a satisfactory review by the Chairperson of the Philosophy Department. In this situation, she would be considered an employee because she signed a contract to provide services that are directly related to the college’s business, namely, educating students, and is subject to the college’s supervision and control.

Example 3

A corporation hires a consultant to evaluate its employees, particularly concerning the quality and efficiency of its employees’ work, and based on these criteria, recommend dismissal of certain employees. In this situation, the consultant is not an employee because the consultant is performing a distinct service unrelated to the employer’s business, and for a limited time and purpose.

Determining whether an act occurred within the scope of employment

Even if an agent is deemed an employee, an employer will not be liable for the employee’s misconduct unless it occurred within the scope of employment or was a reasonably foreseeable consequence of that employment.[20]

Courts have not developed specific tests to determine whether an employee’s conduct occurred within the scope of employment. Instead, courts rely on a variety of factors to make this determination on a case-by-case basis. These factors include:

·         The time, place, and nature of the employee’s alleged misconduct.

·         Whether the alleged misconduct was related to the work that the employee was hired to perform.

·         Whether the employee’s alleged misconduct was an incidental and thus reasonably foreseeable part of the employee’s work.

·         Whether the alleged misconduct occurred while the employee was engaged in a personal, rather than professional, activity.

·         The level or degree of discretion that the employer provides the employee in performing work-related duties.[21]

In conducting this analysis, courts place substantial weight on whether: 

(1) the employee’s conduct is of the general kind the employee is hired to perform;

(2) the employee’s conduct occurs substantially within the hours and ordinary spatial boundaries of the employment; and

(3) the employee’s conduct is motivated, at least in part, by the purpose of serving the employer’s interest.[22]

Ultimately, an employee’s misconduct falls within the scope of employment when such misconduct is so closely connected with what the employee is employed to do or so fairly and reasonably incidental to it, that it constitutes the method of carrying out the employer’s objective.

The “Frolic and Detour” Test

To determine whether an employee’s conduct falls outside the scope of employment, courts sometimes rely on the “frolic and detour” test, which focuses on whether an employee was acting in a capacity that is unrelated to the employer’s business and not pursuant to the employer’s instructions.[23] If the employee deviated only slightly from the employment task, this may be considered only a “detour” and thus remain in the scope of employment.[24] A more substantial deviation may be considered a “frolic” and thus beyond the scope of employment.[25]

When applying the frolic and detour test, courts rely on the following factors:

·         Authorization. Did the employer provide the employee with discretion in the manner and method by which employment-related tasks were completed?[26]

·         Foreseeability. The foreseeability of the employee’s detour, and the relationship to work-related tasks.[27]

·         Time and Place. The amount of time the employee detours (or departs) to complete an employer-directed task, and whether the place where the misconduct occurred is within the areas where an employment-related task was to be performed.[28]

·         Benefit. Did the employer benefit from the employee’s actions?[29]

Let’s consider some examples.

Example 1

An employee is asked to deliver a document to another company 80 miles away. While driving to the other company’s office, the employee stops at a diner for lunch. While driving in the diner parking lot, she hits a parked car. The employer probably would be liable for the property damage. Stopping for lunch is a foreseeable and minor detour and it still within the scope of employment.

Example 2

An employee is asked to deliver a document to another company 80 miles away. While driving to the other company’s office, the employee sees a road sign advertising a casino, 20 miles off the interstate. The employee takes a trip to the casino to gamble for a couple of hours before resuming the delivery trip. While driving in the casino parking lot, she hits a parked car. The employer probably would NOT be liable for the property damage because driving 20 miles out of the way to gamble is not a foreseeable or normal part of making a delivery. It is a “frolic” and is outside the scope of employment.

Negligent Hiring or Retention

Employers may also be liable if they are negligent in selecting, hiring or retaining an employee. For example, if an employer hires someone who has been convicted three times of driving while intoxicated and instructs him to consistently operate motor vehicles during business hours, the employer may be liable if the employee negligently strikes another vehicle or person while intoxicated. Let’s consider two examples.

Example 1

A law firm hires an attorney who specializes in class action lawsuits, and immediately promotes the attorney to a senior associate position in the firm. Three months later, two women who work at the firm allege that the attorney sexually harassed them. Without other facts, the employer would not be liable unless the employer was either negligent in hiring the attorney (such as if the employer knew of prior claims of sexual harassment) or failed to act when it first came to know of such allegations.

Example 2

ABC Company specializes in the construction of mobile homes. After a lengthy interview process, ABC Company hires James to serve as its Director of Marketing. During the interview process, ABC Company conducted a background check and discovered that James was recently convicted of driving while intoxicated while employed at ABC Company’s primary competitor, XYZ Homes, Inc. ABC Company hires James anyway. One morning, James comes to work intoxicated and assaults his administrative assistant. She suffers minor injuries. Is ABC Company liable?

The employer might be liable in this case, albeit not necessarily under a theory of vicarious liability. Although James was previously convicted of driving while intoxicated, that crime had no relationship to the job responsibilities for which he was hired.  Had James been hired as, for example, a truck driver, his prior conviction for driving while intoxicated would have been relevant and likely justified the conclusion that ABC Company was negligent in hiring James.

      In our next module, we will look at cases in which the employer may be liable even when the agent who committed the tort is considered an independent contractor under the standards we discussed earlier.