Part of being in business is risk management, which means trying to keep your business from being sued. If you're branching out from a sole proprietorship or family-owned business for the first time and hiring employees, one of the most critical things that you need to understand is that you are responsible for everything that your employees say or do under a doctrine of the law known as "respondeat superior." There are limits, however, on how far the liability goes. This is what you should know.
1.) You are responsible for injuries your employees cause while on company business.
If you send an employee out on a coffee run and he takes his own car and causes an accident while trying to make sure that the coffee doesn't tip over, you're responsible for any injuries he causes the other driver or pedestrian -- but probably not for the reason that you think. You're responsible not because he was distracted by the coffee, but because he was running an errand that you sent him on. The responsibility will always come back to the employer, even if you encouraged the employee to drive responsibly and be careful. The victim doesn't have to show that you did anything wrong or even had any reason to suspect that your employee would behave in an irresponsible manner.
2.) Your liability stops once the employee is off the clock, even if the employee is using company materials or is on company property.
Once your employees are off the clock and no longer doing anything business-related, you generally can't be held responsible if they cause an accident. For example, if you allow your salesmen the use of a company car and one of them causes an accident with another car while she's grocery shopping on the internet, you can't be held responsible. Similarly, as long as you have no reason to suspect that your employee is hanging around your auto shop's property after closing, you couldn't be held responsible if he lets his friends in to take advantage of your tools and one of them gets hurt while using your air compressor.
3.) You may be liable for an employee's actions off-the-clock if he or she used information gained from your business to do something illegal.
You do have a certain responsibility to look into your employee's background before hiring them. Otherwise, you can be held liable for acts that they commit using information or access gained through their employment to harm another person through the theory of negligent hiring.
For example, if you failed to do a background check on the new property manager you hired to handle your rental homes and he turns out to have an extensive criminal record for assault and theft, you essentially are liable for handing the keys to these buildings over to someone untrustworthy. There are ways, however, to reduce the likelihood of your liability:
- Perform background checks on any employee that will be trusted with sensitive customer data, including their addresses and financial information.
- Have strict policies that you clearly communicate to your employees about the behavior you expect toward customers.
- Enforce such policies immediately in order to clear out troublesome employees and demonstrate that you have concern for your customer's safety.
Hiring your first employees is a big step for any small business, and it can feel very risky. However, if you have further concerns about your liability, consider talking to an attorney about your hiring practices. An attorney like The Law Office of Vernon Nelson familiar with commercial litigation can help you craft policies designed to minimize your risks.