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You May Be Liable for Contractors

February 8, 1999
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Related Topics: Contingent Staffing, Staffing and the Law, Featured Article
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Independent contractor "twice removed" won’t insulate employer from negligent hire liability.

Issue:
You are the HR director of a high-end home appliance manufacturer. A terrible tragedy has just been described to you; one of your independent distributors has called to inform you that an independent contractor working for his company has raped a customer after gaining access to her home for purposes of an in-home product demonstration. All sales of your appliances are through such demonstrations.

Shocked and saddened, you hang up the phone while your mind assesses the potential liability involved. All your distributors are independent contractors; moreover, your company’s carefully drafted contract with its distributors provides that you exercise no control over the selection of the distributor’s workers, and that the distributor bears the full cost and responsibility for recruiting, hiring, firing, terminating and compensating its independent contractors and employees.

It’s a terrible crime; there will doubtless be unfavorable publicity but, as you get up to inform the legal department, you feel secure that there is no liability for your company. Are you right?

Answer:
Not necessarily. In this situation, your company is acting as a general contractor, and you have a duty to exercise reasonably any control you retain over the independent contractor’s work. Here, by requiring your distributors to sell home appliances only through in-home demonstrations, you have exercised sufficient control over the sale of your products to end-users to justify imposing a duty of reasonable care in selecting the persons who perform the demonstrations. In fact, in such a situation a vacuum cleaner manufacturer was found to be liable for damages for creating an in-home marketing system without adequate safeguards to eliminate dangerous salespersons from its sales force.

What should you do?

Be extra careful dealing with independent contractors. Make sure you know what you’ve retained control over.
The fact that the manufacturer’s agreement with its distributors allowed the distributors to independently contract with salespeople did not excuse the manufacturer from the duty to act reasonably with regard to the detail—required in-home sales—over which it did retain control. When you evaluate your agreements, focus on whether you have retained control; if you have, ask what kind of responsibility that entails. Either way, you will want legal counsel to review any agreements, as independent contractor status can be tricky.

Educate your business partners on your standards as a responsible employer.
Salespeople who are required to do in-house demonstrations gain access to people’s homes under the auspices of the businesses they represent. A person of ordinary intelligence could anticipate that an unsuitable salesperson would pose a risk of harm. Here, had a background check been made, it would have revealed coworker complaints of sexually inappropriate behavior as well as an arrest record, witness statements, a confession, guilty plea, and an indictment charging the worker with indecency with a child. If this had been known, would he have been hired?

Because of potential liability in this and other cases, the manufacturer has included warnings in its distributor training manuals to do a "thorough criminal background check" on potential sales candidates and has encouraged its distributors to do reference checks to ensure customer safety.

Cite: Read v. Scott Fetzer Co d/b/a/ The Kirby Co, TexSCt, No. 97-0707, decided 12/31/98.

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online, and via the Internet.

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