Under what circumstances can a low/midlevel employee be personally sued for a corporate act?

Question

Let's say, for instance, that the issue at hand was the Exxon Valdez Oil Spill. Exxon was sued of course, and I would imagine that its then chairman would have, or at least could have been, sued.

The perpetrator of the accident was one Captain Joseph Hazelwood of the vessel. From what I understand, he was sued, even though he was a "mid level" employee. Was it his tie to the incident that allowed him to be sued?

Change the facts some. A janitor or plumber working for a contracting agency in "servicing" a client negligently flipped a switch that caused the client's building to be burned down. I would imagine that the agency could be sued. Can that person also be sued, or is s/he too "low level" for this?

Put another way, my understanding is that a person needs to have "standing" in order to be a plaintiff in a case. Is it true that someone (even if low level), similarly needs to have "standing" (or its equivalent) to be a defendant, and if so, what constitutes such "standing?"

Answer 1

The fact that the employer has vicarious liability for acts of its employees "within the scope of employment" does not mean the employees are not also liable for their own acts. In reality, however, the employer is more likely to have insurance for such "acts or omissions" of employees. The plaintiffs can "sue everyone in sight" and let them figure out who actually pays when they are found liable.

That way, when the employee's actions are (for instance) ruled a "personal frolic" or otherwise outside the scope of the employer's liability (in tort or contract), the case doesn't get dismissed for failure to name all the proper parties.

One policy goal is to place financial liability as close as possible to the person most likely to have been able to avoid the harm, thus discouraging such risks, without placing the entire burden on individuals employed in hazardous occupations and without artificially limiting potential sources of compensation.

Answer 2

Other answers have pointed out that the employer and employee can both be sued, and the employer is more likely to be insured, or able to pay, for damages. But why would the employer pay to insure the liabilities of its employees? What happens if a negligent employee is wealthy and the employer company is insolvent?

The plaintiff can recover solely from the employee. This follows from the other answers. But the employee may also be able to recover contribution or an indemnity from the employer. Conversely, an employer may seek contribution from a wealthy employee or well-resourced subcontractor. Because an employer may be partly or wholly liable for its employees' negligence, even if the plaintiff chooses not to sue the employer, it is rational for the employer to insure this risk.

Whether contribution and indemnity are available depends on your jurisdiction, but you can get a high-level view of the general principles in the US and UK by reading old American law review articles, like Bohlen, 'Contribution and indemnity between tortfeasors' (1936) 21:4 Cornell Law Review 552. It would be better to look at a textbook or cases from your jurisdiction, but they usually cost money. According to Bohlen, writing in 1936:

The rule which, except as modified by statute, is accepted law in every common-law jurisdiction other than Minnesota, Pennsylvania, Wisconsin, and, probably, Oregon is that there can be no contribution between joint tortfeasors ... the idea that the burden of bearing the loss caused by the tortious misconduct of two or more persons should not be determined by the choice of the injured person, but by a fair distribution among all those responsible for it, has led not only to the enactment of more or less, but generally less, effective acts allowing contribution in England, in many of the Canadian provinces, and in twelve American states, but also to an express rejection of the rule in Merryweather v. Nixan [(1799) 88 TR 186; 101 ER 1337] by direct decision in Minnesota, Pennsylvania, and Wisconsin, and by a strong dictum in Oregon.

Contribution refers to the right of a joint tortfeasor (somebody who is jointly liable with another for a tort such as negligence, such as the employee and employer) to recover a financial contribution from a co-tortfeasor. Indemnity simply refers to the right to claim 100% contribution from the co-tortfeasor. Bohlen explains why the doctrine of contribution breaks with the history of common law torts:

... the denial of contribution and the concept of tort liability upon which that denial is itself founded have greatly handicapped the intelligent development of the law of torts, and particularly the law of negligence. Had the right to contribution been recognized, particularly had it been made effective through a process by which the one of two co-tortfeasors against whom a separate action was brought could bring the other into court as a co-defendant, the burden of bearing the cost of the liability to which they were both subject could have been fairly divided between them. Had this been done, it would have been more than possible that the instinctive reaction of the bulk of mankind, that in some way or other the later of two wrongdoers is the more responsible for an accident of which both wrongdoings are a substantial cause, would have found a proper expression by requiring the later of the wrongdoers to pay a larger part of the damages than the earlier. Not only would all the intricacies and uncertainties of what the English lawyers call the doctrine of "novus actus interveniens" have been avoided, but a far more equitable result would have been attained.

It is a principle in equity and admiralty and, according to Bohlen, of the common law 'that those who stand in equal risk should bear the burden equally.' So, in many jurisdictions, there is a statute which prescribes a method of adjusting liability between joint tortfeasors whether or not all are sued by the injured party. Local civil procedure may allow defendants to join co-tortfeasors as defendants or third parties to the principal action.

Is it true that someone (even if low level), similarly needs to have "standing" (or its equivalent) to be a defendant, and if so, what constitutes such "standing?"

Generally, a defendant does not need to have standing. However, a civil claim must plead a cause of action against each defendant. For example, an employee might be named as a defendant because he or she was personally negligent, and the employer might be named on the basis of its vicarious liability for the employee's negligence. If no cause of action exists, even assuming the facts asserted by the plaintiff, then the defendant may be able to demur to the claim or seek summary judgment, depending on the relevant court's civil procedure.

Answer 3

This is an interesting question that highlights the nature of liability for low- and mid-level employees for a corporate act, which I have been researching. In this case, with Captain Joseph Hazelwood being charged with negligent discharge of oil, the charges are so because an employee can be liable for their own actions even if the employer has liability for acts of its employees.

In most cases, the employer will insure acts or omissions while not insuring personal frolic or cases of serious neglect. However, the employee can recover indemnity from the employer, just as an employer can seek contribution from a wealthy employee. As a result, it's rational for employees to insure the risk of employee negligence, since the employer can be partly or wholly liable as well.

More complex issues arise when a court tries to find whether the employee is liable or whether they were simply following the orders of their superior. If that employee does not have the money or insurance to pay, as the employer likely would, then litigation will likely not be worthwhile. In the case of Hazelwood, there was evidence that his own contributed to the 1989 oil spill, though his conviction of a lesser charge and fine of $50,000 is relative to his wealth and resources, which were less than that of his employer at the time.

Answer 4

Employer and employee are both liable, and can both be sued. However, there are two problems with suing the employee: One, the employee may be found not liable if all he did was following the orders of his boss. Two, winning a case is not enough if you are after money - you need to win a case against someone who has either money or an insurance that will pay.

So the employee can be sued, and sued successfully (in principle), but often one would not bother.

Answer 5

The employee can be sued if the employee personally participated in committing a tort, or entered into a contract as an undisclosed agent of the corporation.

While this is rarely an issue for a solvent large corporation, employees are often the more desirable defendant in a thinly capitalized closely held corporation in which the wealth owner of the corporation does a lot of the work in do it yourself manner.

This could include a breach of a legal duty owed by an officer or director that ran directly to a shareholder (although most such duties run only to the corporation and not to individual shareholders and could only be enforced by the corporation or by shareholders bringing a derivative action).

An employee is not liable for breach of contract when entering into a contract as a disclosed agent of the corporation. Similarly, an employee could not be held liable purely as a consequence of a corporation's ownership of property (e.g. potentially responsible party liability under CERCLA, the Superfund law).

Fraud is a tricky area. The Janus case held that for purposes of federal securities laws, an employee or agent who knowingly drafts a false offering statement issued in the name of the company and not any employee or agent, that only the company has federal securities law liability, but the rule is the opposite in most cases for state common law fraud liability, under which both the named author of the fraudulent statement and anyone who participated in drafting it could be held liable.

An employee could also be held liable on a fraudulent transfer theory if the employee was given corporate property by the corporation when it was insolvent that was not supported by reasonably equivalent consideration.

Certain statutes also create personal liability for employees. For example. under the Internal Revenue Code a person who is responsible for writing checks withholding taxes from employees has personal liability to the U.S. government if the tax is not withheld as required by law.

Even when an employee is not liable to a third party, an employee or agent can be liable to a company for breaching a duty owed to the company (e.g. a duty not to disclose trade secrets pursuant to a non-disclosure agreement).

An employee or agent can also be responsible to a company for causing a company to be bound to an agreement because the employee or agent has "apparent authority" to do so, even though the employee or agent didn't have actual authority to do so, if the overstepping of the employee or agent's boundaries causes harm to the company.

The rules are different for government employees who have sovereign immunity for most of their acts not specifically excepted by statute unless they constitute intentional violations of civil rights for which they have no qualified immunity.

The perpetrator of the accident was one Captain Joseph Hazelwood of the vessel. From what I understand, he was sued, even though he was a "mid level" employee. Was it his tie to the incident that allowed him to be sued?

He would have liability as a consequence of his own personal negligence.

Change the facts some. A janitor or plumber working for a contracting agency in "servicing" a client negligently flipped a switch that caused the client's building to be burned down. I would imagine that the agency could be sued. Can that person also be sued, or is s/he too "low level" for this?

Yes. The employee whose negligent act caused the problem could be sued.

Put another way, my understanding is that a person needs to have "standing" in order to be a plaintiff in a case. Is it true that someone (even if low level), similarly needs to have "standing" (or its equivalent) to be a defendant, and if so, what constitutes such "standing?"

There is no equivalent to standing for defendants. They either have liability under a theory brought by a plaintiff (which generally requires a causal connection pursuant to a breach of duty by the defendant), or one doesn't. Standing need not be shown to raise an affirmative defense.