Saturday, March 10, 2018

The Interplay Between Vicarious Liability and Workers’ Compensation in Independent Contractor Debates

What do employers fear more, being bound by the costs of paying workers’ compensation premiums, or being potentially liable for the tortious acts of their employees committed against third parties while within the scope of employment? I found myself musing over this question while reading a very entertaining volume on the origins of the first British workers’ compensation Act. David G. Hanes, The First British Workmen’s Compensation Act, 1897 (Yale University Press 1968). This little volume of a hundred pages or so is a treasure trove of fascinating analyses and accounts of the legal doctrine of personal injury leading to enactment of the first workers’ compensation statute in Britain. As an aside, I should mention that approximately twenty international workers’ compensation statutes pre-dated the c. 1910-11 statutes emerging in the United States.   

As many readers will know, employers are, with certain important limitations, liable for the negligent acts of their employees committed against third parties while in the scope of employment under a principle of vicarious liability known as respondeat superior. Thus, if a delivery driver negligently (or in some cases even intentionally) injures me, I, at least in the abstract, have a legal cause of action against both the driver and the “dispatcher” of that driver, if the two of them are indeed in an employer-employee relationship. Recent news demonstrates that such a fact pattern is not beyond the realm of the imagination.

It is interesting to note that the whole idea of vicarious liability was hotly contested by common law judges throughout the 19th century. Indeed, the earliest English precedents fail to cite authority for the proposition that vicarious liability exists; and no less a luminary than Oliver Wendell Holmes thought the construct a fiction derived from Roman law: if my servant (a chattel) harmed you, you had the right to kill or maim my servant. To avoid this result, I could pay you compensation. Over time, some links in the chain were lost, and it became the rule that I could simply approach you for compensation, even though you were in no sense at fault. Hanes, supra., at 9. Fascinating.

The rather large microeconomic question at play is whether modern companies resisting the Restatement Second of Agency analysis of employee versus independent contractor status do so primarily to avoid tort liability or rather to avoid labor/employment/Tax/ERISA statutory liability (including workers’ compensation obligations). I know that in the real world the answer is probably “both,” but it is simply not the case that modification of the employee definition in one statutory regime will resolve questions, once and for all, in every legal regime. Thus, beware piecemeal proposals for reform. For example, I can virtually guarantee that enactment of a partial “portable benefits” regime—where certain protected industries may, in effect, designate their workers as quasi-employees—will complicate, rather than simplify, the issue of what happens when quasi-employees injure or kill third parties.  One hopes that quantitative analysis could make even a brief appearance in legislative deliberations.

Michael C. Duff

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