An Employer's Liability for Employee's Acts
It's a fact of life that accidents happen. A business owner is liable if someone is injured at their business location. That makes sense because the incident occurred on the property itself. If due to the negligence of the employees or a condition of the building itself, the owner's general liability insurance will cover it.
What happens when an employee injures a customer, but the injury did not occur on the property? What if the worker was doing something against company policy, but the owner or manager instructed them to do things that way?
These situations are common. They're known as "employer liability" or legally as respondeat superior. Knowing what they are and how to protect yourself can save small business owners from potential business-ending legal action.
Vicarious liability is a legal theory that holds one person responsible for the acts of another. It is often seen in workplace lawsuits because employees must follow company policy. Vicarious liability applies when one party gives instructions to another person or has delegated authority to them.
For instance, a corporation's board of directors may grant authority to its CEO to negotiate for the corporation. The board will be vicariously liable for any wrongful acts taken by the CEO during the negotiation process.
Respondeat superior is a type of vicarious liability, meaning "let the master answer." Employers are responsible for their employees' acts because employers direct their workers' actions. The employer's liability coverage will cover any property or bodily injury caused by an employee's "negligent act or failure to act in the course of their employment."
Insurance companies define "course of employment" as any action authorized by the employer, closely related to an authorized action, or a deviation from an authorized action known by the employer but never corrected or disciplined.
For example, suppose a worker drives a delivery van for the employer. The employer instructs the driver to take the shortest route from the shop to the customer and back.
- The employer's liability insurance covers the accident if the driver travels the shortest route, runs a red light, and hits another car.
- Suppose the driver usually travels the shortest route, but today there's a marked detour. While on the alternate route, they run a red light and hit another car. In that case, the business owner's policy should cover the accident.
- If the driver travels the shortest route to the customer but makes a side trip for lunch on the way back, runs a red light, and hits another car, the liability insurance policy will not cover the accident. If the employer knew the driver regularly made this side trip and never said anything about the deviation, the insurance might.
Courts sometimes call a known deviation a "detour" and an unauthorized deviation a "frolic." More important is the employee's state of mind and the cause of the accident. If the injuries or damage are due to intoxication or impairment, the courts will likely find that the worker was not following company policy.
Exceptions and Exclusions
Like everything else, there are exceptions and exclusions to the doctrine of respondeat superior, such as:
- Workers' compensation benefits protect employers from workplace injury lawsuits by ensuring injured employees have full coverage for medical expenses due to work-related injuries. All states require workers' compensation insurance except Texas.
- Independent contractors, by definition, are not covered by respondeat superior. Employers should ensure they are not treating contractors as employees; otherwise, they could become responsible for their contractors' actions.
- When the instruction by the employer was criminal and the employee obeyed. Individuals are responsible for their own criminal acts.
Other Types of Employer Liability
Customer and employee injury are the most common areas of employer liability. Any situation that places employees in contact with non-employees can create a risk of liability unless an employer is cautious.
Negligent Hiring or Retention
Negligent hiring involves hiring an employee without sufficient background checks. Negligent retention means keeping an employee dangerously unsuited for the job. Hiring someone with multiple DUIs as a delivery driver may lead to liability if they kill someone while drinking on the job.
Workplace harassment of employees by other employees and managers is not only a problem, it's a violation of federal and state laws. Employers who disregard harassment and discrimination complaints risk sexual harassment lawsuits, legal costs, fines, and more.
Harassment is any unwelcome or unwanted conduct against an individual or group based on race, gender, national origin, religion, disability, age, or genetic information. It can include name-calling, racist or sexist slurs, offensive objects or pictures, graffiti, physical contact, intimidation, or interference with job performance.
If the conduct has reached a level that creates a hostile work environment, the employer is liable for failing to address the situation. An employer must:
- Exercise reasonable care to prevent and correct harassment if it occurs.
- Create a policy for reporting harassment.
- Develop and maintain training procedures for recognizing and preventing harassment.
Failing to do so can result in liability for the harassment and harm resulting from it.
The easy way to handle these types of claims is to fire the misbehaving employee. Unfortunately, the employer may then face an employee lawsuit for wrongful termination. Even if you mistakenly hired a criminal or have proof of wrongdoing, you may be unable to hand them walking papers.
Even in "at-will" states like California, many individuals have legal protections that prevent you from firing them. Retaliatory firing, which is firing someone for making a report to a government agency, is not allowed. Neither is firing anyone who has disclosed a substance abuse issue or requested medical leave for rehab or other treatment.
Employer Liability Insurance
Employers can protect themselves by having the right kinds of insurance in place. Small business insurance can be expensive but can protect you from even more expensive lawsuit payouts. There are different types available:
- Employment practices liability insurance (EPLI) is insurance designed to cover legal action due to your hiring and employment practices. If employees file suit because of hiring, firing, or retention policies, EPLI pays litigation and settlement costs.
- Employer's liability insurance, sometimes called "stop-gap coverage," covers the fees and costs that workers' comp does not cover. Workers' comp pays the medical bills if your business faces legal action in a workers' compensation claim. Employer's liability insurance pays the other parts of any award.
- Professional liability insurance protects companies that provide services for a fee. IT companies, insurance companies, and similar service agencies should have professional liability coverage. Sometimes called "omissions and errors" coverage, it protects you against claims for mistakes or errors in your service.
- Workers' compensation insurance is required in every state but Texas. Workers' compensation coverage protects both the employer and the worker by guaranteeing health insurance for the worker and relieving the employer of liability for the injury. Failing to provide workers' comp insurance can result in extensive legal fees and costs if the employee files suit.
In most states, insurance companies bundle worker's comp and employer's liability insurance together. In the four so-called "monopolistic states" (North Dakota, Ohio, Washington, and Wyoming), businesses must buy workers' compensation insurance policies and other insurance coverage separately.
Get Help With Your Employer Liability
Understanding what your company is and isn't liable for can be challenging. Small business owners need help from insurance agents and business attorneys when deciding if they need employer's liability insurance. You should know if your state requires workers' comp policies and liability insurance, or if your agent can get you both in one policy.
If you need legal defense in a workers' compensation claim, check with a qualified employment law attorney near you. Don't let the liability insurance cost scare you away from making the right decisions about your case.
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