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Liability Issues With Company Parties

January 1, 2000
Related Topics: Miscellaneous Legal Issues, Recognition, Featured Article
Car World Inc., a sizable manufacturer of auto parts, traditionally has always had their annual holiday party in the early part of December. This year is no different, and Car World prepares their onsite cafeteria for the December 11th party.

Such preparations include setting up tables, lining up the entertainment (by the way, a rock ‘n’ roll band) and arranging food and drinks, including alcohol, for the party. Car World does not hire a caterer to serve the food or drinks. Rather, it is a Car World tradition that district managers act as the servers.

December 11th arrives, and as the clock strikes 10:00 p.m., Car World’s party has really started heating up. The music is playing, people are dancing and many employees are enjoying their portion of free alcohol, including the district managers. In fact, Jim Brasket, an accounting assistant at Car World, seemingly has already had too much to drink.

He arrived at the party at 8:00 p.m. and has had approximately five liquor drinks since that time. He is slurring his words and stumbling through the crowd. Nonetheless, he walks up to Manny Jones, a district manager, and asks for another bourbon and Coke. Manny, having had three drinks himself, does not recognize that Jim is already intoxicated. He makes Jim the drink and gives it to him.

The party ends approximately at 11:00 pm and everybody begins to head home, including Jim. On the way, Jim’s vehicle crosses over the center line and crashes head on into a car full of cheerleaders coming back from a high-school football game. The crash is fatal for all of the cheerleaders.

Subsequently, the parents of the cheerleaders bring an action against Car World for the death of their children. Is Car World in trouble?

Although the actors in the above scenario were born out of fiction, the dilemma facing Car World is all too real. In recent years, companies have begun to reevaluate how and whether to sponsor company parties. This response is due in part to the increase in litigation against companies for injuries or deaths that arise out of such parties.

Recent trends for imposing liability on companies.
Under traditional common law, a supplier of alcohol was not liable for injuries caused by a person who drank the alcohol. Such a rule extended to these third parties injured by the intoxicated person. The rationale for such a rule is that the drinking of the alcohol, not the furnishing of it, is the proximate cause of injury.

However, the modern trend is to allocate liability for the harm between the intoxicated driver and the furnisher of the alcohol. Where an employer gratuitously furnishes alcohol in a social host situation, courts have generally used three theories to address the liability issue.

Dram Shop Acts—In order to avoid the problems of the common-law rules of non-liability of persons selling or furnishing intoxicating alcohol for injuries sustained as a result of the intoxication of the person consuming the alcohol, a number of states have enacted a dram shop law.

Generally, dram shop acts impose civil liability on sellers and/or givers of alcoholic beverages who "cause" the intoxication of a person by giving away alcohol. Many of these statutes are broadly worded to provide that liability may be imposed for either selling or giving intoxicating alcohol.

However, the courts which have considered the applicability of dram shop acts to an employer who provided or permitted the serving of intoxicating alcohol at a social function, such as a company party, have concluded that such statutes only apply to commercial vendors of alcohol and do not include the gratuitous provision of alcohol by an employer.

Negligence—As a general rule, employers are regarded as social hosts at company parties, and courts have traditionally declined to subject social hosts to liability for the gratuitous furnishing of alcohol.

Such reluctance from the courts stems from the fact that the social host has no pecuniary motives in furnishing alcohol to a guest; commercial and quasi-commercial suppliers of alcohol are "more capable" than social hosts in monitoring a person’s alcohol consumption, are usually able to control patrons, and are in better financial position (due to the existence of liability insurance) to do so. Imposing liability on a social host is a matter best left to the legislature.

However, despite their hesitation, some courts have held that an employer is subject to liability for damages under a direct negligence theory when the employer had knowledge or should have had knowledge that the employee was intoxicated and still continued to furnish alcohol. Other courts have found the employer liable when the employer had a significantly greater amount of influence and control over the intoxicated employee than the employer would have had over a non-employee.

Some states have enacted statutes imposing liability on social hosts, including employers, for acts resulting format the furnishing of alcohol to intoxicated persons.

Vicarious Liability—In cases which the intoxicated driver was drinking at a company party or on company premises, a plaintiff may try to recover against an employer on a theory of vicarious liability. A plaintiff may recover from an employer under the doctrine of vicarious liability if he or she proves that the act of the employee complained of was within the employee’s scope of employment.

To be considered within the scope of employment, the employee’s attendance must confer some direct benefit to the employer, excluding good will and improved morale as direct benefits. Moreover, there must be evidence that the employee intended to act in the employer’s interest.

In addressing whether an employer is liable under the "vicarious liability" theory, courts have looked at certain factors. For instance, in situations when an employee’s attendance at a company party is mandatory, a court may find that such a requirement favors a finding that the employee is acting within the scope of employment.

Further, some courts have opined that an employee is within the scope of employment where the party is held during work hours or on work premises. Finally, if an employee is paid for attending the party, a court may likely find that the employee is acting within the scope of employment.

How to minimize a company’s liability.
Although this article is certainly not trying to discourage employers from sponsoring parties due to the fact that cultivating good will among employees results in increased efficiency at the workplace, its purpose is to inform employers that there are risks associated with distributing alcohol at a company party.

Accordingly, if your company plans on sponsoring a party where alcohol is furnished, please be responsible and cognizant for all the potential issues and problems that can arise from these parties.

The following are only a few ways for a company to reduce its liability for an employee’s acts that arise out of a company-sponsored party.

Control alcohol distribution.

  • If alcohol is served, caution employees to be responsible and emphasize that excessive alcohol consumption will not be tolerated.
  • Do not have an open bar where employees are able to drink for free. Individuals are usually less likely to become intoxicated when they are paying for the drinks. Be aware, however, that if you charge for alcohol, other issues do arise—including the need for an alcohol license.
  • If there’s an open bar for employees, distribute drink coupons so that an employee is only allotted one or two alcoholic drinks for the entire party.
  • Avoid having liquor at the bar; only serve beer and wine.

Do not hold the function on company premises.

  • To reduce potential liability and to uphold its work rules, it’s preferable for the employer to not hold the party on the company’s premises. Rather, use a commercial establishment whereby none of the company’s employees are distributing the alcohol. If a company does hold the event on work property, hire professional bartenders.

Do not explicitly or implicitly make attendance mandatory.

  • In one case, an employer implemented a point system for an employee’s work performance. Only at the company party, however, could the employee redeem the points for other tangible goods. The court opined that such a system implicitly mandated attendance by the employees.

Workforce, January 2000, Vol. 79, No. 1, pp. 69-71.

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