You can be held liable for the conduct of your employees. This is true for various classes of employees, including supervisors, managers, and lower-level employees. Generally, you will not be liable for the acts of independent contractors, but whether or not an individual is legally an independent contractor is often a difficult determination. Because of the potential consequences for you, it is important for you to understand when your employees' conduct can be pinned on you.

Employee or independent contractor?

Generally, employees working during working hours are considered to be your agents. You do not need a specific agreement or a specific understanding for this agency relationship to exist. Generally, however, independent contractors aren't considered your agents. Employers frequently attempt to characterize workers as independent contractors to avoid liability for the individuals' actions. But you cannot simply identify a worker as an independent contractor. A careful analysis must be performed of the worker's job and performance to determine whether he's an independent contractor.

Employers have control not only over what an employee does but also the manner in which it is done. Employers don't control the ways in which independent contractors meet their contractual obligations. The U.S. Supreme Court has noted that an employer has "the right to control the manner and means by which the product is accomplished" by an employee. Thus, the central issue is the presence or absence of the employer's right to "direction and control" over the individual. The more direction and control you exercise, the greater chance that individual will be deemed an employee. If you have little or no direction and control over an individual's performance of certain tasks, then she's likely to be deemed an independent contractor.

To determine the "direction and control" you exercise over a worker, consider the following factors:

1. Is the worker receiving fringe benefits?

2. Is the worker required to obtain approval for absences or vacation?

3. Is the worker provided an office?

4. Is the worker given company business cards?

5. Is the worker expected to follow company rules?

6. Is the worker subject to company discipline?

7. Is the worker required to wear a uniform?

8. Is the worker permitted to refuse an assignment?

9. Is the worker permitted to perform similar work for other companies?

10. Are taxes taken out of the worker's paycheck?

11. Does the worker receive a W-2 form?

12. Does the worker use company supplies and equipment?

13. Is the worker expected to attend regular meetings? 1

4. Does the worker's name appear on the company's payroll records?

15. Is the worker told how to perform tasks?

16. Is the worker expected to follow company leads?

No single factor is conclusive. Each factor is to be considered in making this determination. Why is this distinction important? Because, as mentioned above, generally you will not be liable for the acts of an independent contractor. If a worker is an employee, however, then you may be liable for the employee's acts.

Liability for your supervisors

Usually, you'll be held liable for the acts and statements of your supervisors. This may be true even if the statements are made outside of the supervisor's responsibilities and even if the supervisor is not authorized to make the statements. When you authorize or encourage illegal or discriminatory conduct by your supervisors, clearly you have legal responsibility. On the other hand, you usually aren't liable for isolated instances of illegal conduct by your supervisors especially if you haven't approved of their conduct.

You should be aware that it is a well-established concept of agency law that you may be held liable for the acts of a supervisor even though you have not specifically authorized of forbidden certain acts. That concept is particularly of importance in the situations involving such claims as sexual harassment and invasion of privacy. When a supervisor, has the authority to act or you have knowingly permitted your supervisor to act and a third person dealing with the supervisor reasonably believed that the supervisor had such authority to act, then supervisor's acts will be legally attributed to you. That concept, known as apparent authority, creates liability on your part for conduct that you may not have specifically authorized or forbidden.

Liability for nonsupervisors

In some situations, you may be liable for the acts or conduct of a nonsupervisory employee. If the employee's actions were instigated, encouraged, condoned, or authorized by you (or one of your representatives), then you may be held liable. Very often, this situation arises in sexual harassment claims where the harassing conduct of an employee was encouraged, condoned, or instigated by you or your supervisors. In those situations, you will be held liable for the harassing conduct of the employee.

Liability under contracts

Agency principles apply to contractual liability as well. If your employee is found to be acting as your agent in entering into a contract, then you will generally be liable to a third-party for contracts made by that employee. This is not a problem obviously when you have authorized the employee or granted permission to the employee to enter into the contract. But it is a problem when your employee is acting without authority from you or when the employee's acts are entirely contrary to your desires or intentions.

To avoid this problem, you should clearly instruct your employees and make them aware of all limitations placed on their authority, including the authority to enter into contracts with a third party. It's prudent for you to advise third parties of the limitations placed on the employee with whom they may be dealing. It 's also prudent to reduce those limitations to a written policy available to all employees.

Noncontractual liability

Another general concern of employers is whether employers may be held liable for personal injuries inflicted on others by their employees. Usually, if an employee of yours intentionally commits bodily harm to a customer or co-worker, then he-not you- will be held liable for the resulting injuries. You won't be held liable for your employees' intentional wrongful acts unless they were acting within the scope of their employment and in furtherance of your business. Your liability is determined by the nature of the wrongful act and its relation to what you hired the employee to do. To be held liable for such conduct, it must be your affairs and not solely the affairs of the employee that are being furthered.

You may, however, be liable for the negligent acts of an employee. For example, if your employee is involved in a motor vehicle accident then you may be held liable for the injuries resulting from that accident. You may also be held liable if an employee misappropriates customer money for his own purpose. To protect yourself against problems, you should establish strict work rules that are designed to prevent accidents and situations where you may incur liability problems. Also, you need to enforce these rules to ensure that problems can be avoided.

An expanding concept in this area of the law is the theory of negligent hiring or retention. Under this theory, you may be liable when a third party is injured by your own negligence in failing to select employees competent to perform the services of employment. In other words, you incur liability for your employee's acts because you should not have hired or retained that employee. You have a duty to exercise reasonable care in your selection of employees which includes conducting a reasonable investigation into the employees' backgrounds and work experience. Given the limited information that you may be able to gather on an employee's previous work history, this concept can lead to problems for you.

Conclusion

It's important for you to understand the potential legal problems you may encounter for the actions of someone else. The distinction between an employee and an independent contractor has economic and legal ramifications for you that you need to understand so that you can anticipate problems in the future and attempt to prevent them. As an employer, the potential legal pitfalls are significant. Therefore, you need to concern yourself with the actions of your employees and take proactive steps to avoid those pitfalls.

Reprinted with permission of publisher. First appeared in Connecticut Employment Law Letter (December 2000). For subscription information, call (800)274-6774.