Is a Business Responsible For the Misconduct of An Employee?
The Principle of Vicarious Liability May Make a Master, Meaning a Person or Entity That Hires Another, Legally Liable For Misconduct By the Hired Servant. This Vicarious Liability May Arise Regardless of Whether the Servant Is An Employee, Subcontractor, or Other Type of Agent Performing On Behalf of the Master.
Understanding the Principles of Vicarious Liability Including Risk upon Employers, Contractors, Agencies, and Others
When a business or person hires another business or person to perform duties, the hirer may be held liable for an incident arising from the conduct of the hiree. This principle whereby the law may impose financial responsibility an employer due to the conduct of an employee or agent, among others, is known as vicarious liability.
The principle of vicarious liability arises within the common law, meaning judge made decisions, rather than the statute law; albeit, there are statutes that due prescribe liability upon an employer, among others, for misconduct by an employee, among others. The general principles of vicarious liability, including explanation that the principle exists as a matter of public policy, was very well articulated by the Supreme Court within the case of Bazley v. Curry,  2 SCR 534 wherein it was said:
26 Vicarious liability has always been concerned with policy: Fleming, supra, at pp. 409 et seq. The view of early English law that a master was responsible for all the wrongs of his servants (as well as his wife’s and his children’s) represented a policy choice, however inarticulate, as to who should bear the loss of wrongdoing and how best to deter it. The narrowing of vicarious responsibility with the expansion of commerce and trade and the rise of industrialism also represented a policy choice. Indeed, it represented a compromise between two policies __ the social interest in furnishing an innocent tort victim with recourse against a financially responsible defendant, and a concern not to foist undue burdens on business enterprises: Fleming, ibid. The expansion of vicarious liability in the 20th century from authorization-based liability to broader classes of ascription is doubtless driven by yet other policy concerns. “[V]icarious liability cannot parade as a deduction from legalistic premises, but should be frankly recognised as having its basis in a combination of policy considerations” (Fleming, at p. 410).
27 A focus on policy is not to diminish the importance of legal principle. It is vital that the courts attempt to articulate general legal principles to lend certainty to the law and guide future applications. However, in areas of jurisprudence where changes have been occurring in response to policy considerations, the best route to enduring principle may well lie through policy. The law of vicarious liability is just such a domain.
28 Recognizing the policy-driven perspective of the law of vicarious liability, La Forest J. in London Drugs, supra, opined that vicarious liability was traditionally considered to rest on one of two logical bases: (1) that the employee’s acts are regarded in law as being authorized by the employer and hence as being the employer’s acts (the “master’s tort theory” or “direct liability theory”); or (2) that the employer was the employee’s superior in charge or command of the employee (the “servant’s tort theory”) (at pp. 335-36, citing G. H. L. Fridman, The Law of Torts in Canada (1990), vol. 2, at pp. 314-15; Atiyah, supra, at pp. 6-7; G. Williams, “Vicarious Liability: Tort of the Master or of the Servant?” (1956), 72 L.Q. Rev. 522). La Forest J., quoting Fridman (at p. 315), went on to note, however, that “neither of the logical bases for vicarious liability succeeds completely in explaining the operation of the doctrine . . . ‘express[ing] not so much the true rationale of vicarious liability but an attempt by the law to give some formal, technical explanation of why the law imposes vicarious liability’” (p. 336). Faced with the absence in the existing law of a coherent principle to explain vicarious liability, La Forest J. found its basis in policy (at p. 336): “the vicarious liability regime is best seen as a response to a number of policy concerns. In its traditional domain, these are primarily linked to compensation, deterrence and loss internalization.”
29 Fleming has identified similar policies lying at the heart of vicarious liability. In his view, two fundamental concerns underlie the imposition of vicarious liability: (1) provision of a just and practical remedy for the harm; and (2) deterrence of future harm. While different formulations of the policy interests at stake may be made (for example, loss internalization is a hybrid of the two), I believe that these two ideas usefully embrace the main policy considerations that have been advanced.
30 First and foremost is the concern to provide a just and practical remedy to people who suffer as a consequence of wrongs perpetrated by an employee. Fleming expresses this succinctly (at p. 410): “a person who employs others to advance his own economic interest should in fairness be placed under a corresponding liability for losses incurred in the course of the enterprise”. The idea that the person who introduces a risk incurs a duty to those who may be injured lies at the heart of tort law. As Cardozo C.J. stated in Palsgraf v. Long Island R. Co., 162 N.E. 99 (N.Y. 1928), at p. 100, “[t]he risk reasonably to be perceived defines the duty to be obeyed, and risk imports relation; it is risk to another or to others within the range of apprehension.” This principle of fairness applies to the employment enterprise and hence to the issue of vicarious liability. While charitable enterprises may not employ people to advance their economic interests, other factors, discussed below, make it fair that they should bear the burden of providing a just and practical remedy for wrongs perpetrated by their employees. This policy interest embraces a number of subsidiary goals. The first is the goal of effective compensation. “One of the most important social goals served by vicarious liability is victim compensation. Vicarious liability improves the chances that the victim can recover the judgment from a solvent defendant.” (B. Feldthusen, “Vicarious Liability for Sexual Torts”, in Torts Tomorrow (1998), 221, at p. 224.) Or to quote Fleming, the master is “a more promising source of recompense than his servant who is apt to be a man of straw” (p. 410).
31 However, effective compensation must also be fair, in the sense that it must seem just to place liability for the wrong on the employer. Vicarious liability is arguably fair in this sense. The employer puts in the community an enterprise which carries with it certain risks. When those risks materialize and cause injury to a member of the public despite the employer’s reasonable efforts, it is fair that the person or organization that creates the enterprise and hence the risk should bear the loss. This accords with the notion that it is right and just that the person who creates a risk bear the loss when the risk ripens into harm. While the fairness of this proposition is capable of standing alone, it is buttressed by the fact that the employer is often in the best position to spread the losses through mechanisms like insurance and higher prices, thus minimizing the dislocative effect of the tort within society. “Vicarious liability has the broader function of transferring to the enterprise itself the risks created by the activity performed by its agents” (London Drugs, per La Forest J., at p. 339).
32 The second major policy consideration underlying vicarious liability is deterrence of future harm. Fixing the employer with responsibility for the employee’s wrongful act, even where the employer is not negligent, may have a deterrent effect. Employers are often in a position to reduce accidents and intentional wrongs by efficient organization and supervision. Failure to take such measures may not suffice to establish a case of tortious negligence directly against the employer. Perhaps the harm cannot be shown to have been foreseeable under negligence law. Perhaps the employer can avail itself of the defence of compliance with the industry standard. Or perhaps the employer, while complying with the standard of reasonable care, was not as scrupulously diligent as it might feasibly have been. As Wilkinson J. explained in the companion appeal’s trial judgment (at para. 69):
If the scourge of sexual predation is to be stamped out, or at least controlled, there must be powerful motivation acting upon those who control institutions engaged in the care, protection and nurturing of children. That motivation will not in my view be sufficiently supplied by the likelihood of liability in negligence. In many cases evidence will be lacking or have long since disappeared. The proof of appropriate standards is a difficult and uneven matter.
33 I agree. Beyond the narrow band of employer conduct that attracts direct liability in negligence lies a vast area where imaginative and efficient administration and supervision can reduce the risk that the employer has introduced into the community. Holding the employer vicariously liable for the wrongs of its employee may encourage the employer to take such steps, and hence, reduce the risk of future harm. A related consideration raised by Fleming is that by holding the employer liable, “the law furnishes an incentive to discipline servants guilty of wrongdoing” (p. 410).
34 The policy grounds supporting the imposition of vicarious liability __ fair compensation and deterrence __ are related. The policy consideration of deterrence is linked to the policy consideration of fair compensation based on the employer’s introduction or enhancement of a risk. The introduction of the enterprise into the community with its attendant risk, in turn, implies the possibility of managing the risk to minimize the costs of the harm that may flow from it.
35 Policy considerations relating to the fair allocation of loss to risk-creating enterprises and the deterrence of harms tend to support the imposition of vicarious liability on employers. But, as Fleming notes, there often exists a countervailing concern. At one time the law held masters responsible for all wrongs committed by servants. Later, that policy was abandoned as too harsh in a complex commercial society where masters might not be in a position to supervise their servants closely. Servants may commit acts, even on working premises and during working hours, which are so unconnected with the employment that it would seem unreasonable to fix an employer with responsibility for them. For example, if a man assaults his wife’s lover (who coincidentally happens to be a co-worker) in the employees’ lounge at work, few would argue that the employer should be held responsible. Similarly, an employer would not be liable for the harm caused by a security guard who decides to commit arson for his or her own amusement: see, e.g., Plains Engineering Ltd. v. Barnes Security Services Ltd. (1987), 43 C.C.L.T. 129 (Alta. Q.B.).
36 On further analysis, however, this apparently negative policy consideration of when liability would be appropriate is revealed as nothing more than the absence of the twin policies of fair compensation and deterrence that justify vicarious liability. A wrong that is only coincidentally linked to the activity of the employer and duties of the employee cannot justify the imposition of vicarious liability on the employer. To impose vicarious liability on the employer for such a wrong does not respond to common sense notions of fairness. Nor does it serve to deter future harms. Because the wrong is essentially independent of the employment situation, there is little the employer could have done to prevent it. Where vicarious liability is not closely and materially related to a risk introduced or enhanced by the employer, it serves no deterrent purpose, and relegates the employer to the status of an involuntary insurer. I conclude that a meaningful articulation of when vicarious liability should follow in new situations ought to be animated by the twin policy goals of fair compensation and deterrence that underlie the doctrine, rather than by artificial or semantic distinctions.
Interestingly, the Bazley case involved vicarious liability claims as against the employer of Curry, a non-profit organization known as the Children’s Foundation, for acts of sexual abuse upon children inflicted by Curry. As explained in Bazley by the Supreme Court, public policy warrants that employers, as the masters within a master-servant relationship, should be held vicariously liable for misconduct by an employee where the enterprise of the employer creates or enables the circumstances in which a wrongdoing may be caused by an employee. In this respect, the Supreme Court stated:
37 Underlying the cases holding employers vicariously liable for the unauthorized acts of employees is the idea that employers may justly be held liable where the act falls within the ambit of the risk that the employer’s enterprise creates or exacerbates. Similarly, the policy purposes underlying the imposition of vicarious liability on employers are served only where the wrong is so connected with the employment that it can be said that the employer has introduced the risk of the wrong (and is thereby fairly and usefully charged with its management and minimization). The question in each case is whether there is a connection or nexus between the employment enterprise and that wrong that justifies imposition of vicarious liability on the employer for the wrong, in terms of fair allocation of the consequences of the risk and/or deterrence.
38 Where the risk is closely associated with the wrong that occurred, it seems just that the entity that engages in the enterprise (and in many cases profits from it) should internalize the full cost of operation, including potential torts. See generally A. O. Sykes, “The Boundaries of Vicarious Liability: An Economic Analysis of the Scope of Employment Rule and Related Legal Doctrines” (1988), 101 Harv. L. Rev. 563. On the other hand, when the wrongful act lacks meaningful connection to the enterprise, liability ceases to flow: Poland v. John Parr and Sons,  1 K.B. 236 (C.A.) (noting that the question is often one of degree). As Prosser and Keeton sum up (Prosser and Keeton on the Law of Torts (5th ed. 1984), at pp. 500-501), when the harm is connected to the employment enterprise:
The losses caused by the torts of employees, which as a practical matter are sure to occur in the conduct of the employer’s enterprise, are placed upon that enterprise itself, as a required cost of doing business. They are placed upon the employer because, having engaged in an enterprise, which will on the basis of all past experience involve harm to others through the torts of employees, and sought to profit by it, it is just that he, rather than the innocent injured plaintiff, should bear them; and because he is better able to absorb them, and to distribute them, through prices, rates or liability insurance, to the public, and so to shift them to society, to the community at large.
39 The connection between the tort and the employment is broad. To say the employer’s enterprise created or materially enhanced the risk of the tortious act is therefore different from saying that a reasonable employer should have foreseen the harm in the traditional negligence sense, making it liable for its own negligence. As Fleming explains (supra, at p. 422):
Perhaps inevitably, the familiar notion of foreseeability can here be seen once more lurking in the background, as undoubtedly one of the many relevant factors is the question of whether the unauthorised act was a normal or expected incident of the employment. But one must not confuse the relevance of foreseeability in this sense with its usual function on a negligence issue. We are not here concerned with attributing fault to the master for failing to provide against foreseeable harm (for example in consequence of employing an incompetent servant), but with the measure of risks that may fairly be regarded as typical of the enterprise in question. The inquiry is directed not at foreseeability of risks from specific conduct, but at foreseeability of the broad risks incident to a whole enterprise. [Emphasis added.]
40 On the other hand, this analysis’s focus on what might be called “general cause”, while broader than specific foreseeability, in no way implies a simple “but-for” test: but for the enterprise and employment, this harm would not have happened. This is because reduced to formalistic premises, any employment can be seen to provide the causation of an employee’s tort. Therefore, “mere opportunity” to commit a tort, in the common “but-for” understanding of that phrase, does not suffice: Morris v. C. W. Martin & Sons Ltd.,  1 Q.B. 716 (C.A.) (per Diplock L.J.). The enterprise and employment must not only provide the locale or the bare opportunity for the employee to commit his or her wrong, it must materially enhance the risk, in the sense of significantly contributing to it, before it is fair to hold the employer vicariously liable. Of course, opportunity to commit a tort can be “mere” or significant. Consequently, the emphasis must be on the strength of the causal link between the opportunity and the wrongful act, and not blanket catch-phrases. When the opportunity is nothing more than a but-for predicate, it provides no anchor for liability. When it plays a more specific role __ for example, as permitting a peculiarly custody-based tort like embezzlement or child abuse __ the opportunity provided by the employment situation becomes much more salient.
41 Reviewing the jurisprudence, and considering the policy issues involved, I conclude that in determining whether an employer is vicariously liable for an employee’s unauthorized, intentional wrong in cases where precedent is inconclusive, courts should be guided by the following principles:
(1) They should openly confront the question of whether liability should lie against the employer, rather than obscuring the decision beneath semantic discussions of “scope of employment” and “mode of conduct”.
(2) The fundamental question is whether the wrongful act is sufficiently related to conduct authorized by the employer to justify the imposition of vicarious liability. Vicarious liability is generally appropriate where there is a significant connection between the creation or enhancement of a risk and the wrong that accrues therefrom, even if unrelated to the employer’s desires. Where this is so, vicarious liability will serve the policy considerations of provision of an adequate and just remedy and deterrence. Incidental connections to the employment enterprise, like time and place (without more), will not suffice. Once engaged in a particular business, it is fair that an employer be made to pay the generally foreseeable costs of that business. In contrast, to impose liability for costs unrelated to the risk would effectively make the employer an involuntary insurer.
(3) In determining the sufficiency of the connection between the employer’s creation or enhancement of the risk and the wrong complained of, subsidiary factors may be considered. These may vary with the nature of the case. When related to intentional torts, the relevant factors may include, but are not limited to, the following:
(a) the opportunity that the enterprise afforded the employee to abuse his or her power;
(b) the extent to which the wrongful act may have furthered the employer’s aims (and hence be more likely to have been committed by the employee);
(c) the extent to which the wrongful act was related to friction, confrontation or intimacy inherent in the employer’s enterprise;
(d) the extent of power conferred on the employee in relation to the victim;
(e) the vulnerability of potential victims to wrongful exercise of the employee’s power.
It is important to note that the vicarious liability principle applies to all master-servant relations, or more modernly known as principal-agent relations. In particular, common occurrences of vicarious liability issues arise within contractor and subcontractor relations whereas a contractor is hired by a property owner to perform completion of a project and the actual work is outsourced to a subcontractor or an independent tradesperson. In such circumstances, the contractor hired by the property owner remains obligated through the principle of vicarious liability to both perform the work correctly and completely as well as to do so safely. The confirmation that vicarious liability applies to contractors who hire subcontractors was stated quite succinctly in Vandenbrink Farm Equipment Inc. v. Double-D Transport Inc., 1999 CanLII 14947 wherein it was said:
48 A correct statement of the applicable law may be found in Professor Fridman’s The Law of Torts in Canada, vol. 2 (Toronto: Carswell, 1990) at pp. 340-41:
The fundamental idea which justifies vicarious liability for the negligence of an independent contractor is that the negligence in question is not merely casual or collateral, but entails a breach of duty that was conclusively imposed on the employer of the contractor. The contractor’s negligence, in effect, amounts to a failure of the employer to fulfill his statutory or common law obligation as well as a failure of the contractor to fulfill the obligation that was on him by virtue of his contract with the employer. In such situations, qui facit per alium facit per se. By employing a contractor who has not satisfied the obligation in question, the employer has himself failed to satisfy it. Therefore, he is personally liable.
49 See, also, Fridman, at p. 342, where the learned author adds this:
The duty in question may even arise under a contract. If its performance is entrusted to an independent contractor, whose negligence in doing the very act which his employer had undertaken to perform by the terms of the contract resulted in the damage, the employer of such contractor will be liable. In McEown v. Roy-L Canadian Fuels Ltd., the defendant employed a contractor to install an oil burner, as the defendant was obliged to do under a contract between the defendant and a firm in which the plaintiff’s husband was a partner. The contractor was negligent in the way the burner was installed, with the result that the plaintiff’s premises were damaged by oily smoke. The defendant was liable for that negligence.
The Vandenbrink decision, while providing a clear and concise confirmation regarding vicarious liability involving contractors and subcontractors, merely reiterates a longstanding point of law. Indeed, per Randall's Paints Ltd. v. Tanner et al, 1969 CanLII 324 and many cases cited within, the vicarious liability principle arising from relations within the contracting trades is very well established whereas it was stated:
Tanner cannot escape liability because the work was done by McSweeney as an independent contractor. Bower v. Peate (1876), 1 Q.B.D. 321, was a case somewhat similar to the present in that the independent contractor had agreed to undertake the task of excavating on adjoining property and supporting the plaintiff's house so far as was necessary during the progress of the work. The contractor did not provide sufficient underpinning or proper support and the plaintiff's house collapsed as a result. The case differs from the present in that it was acknowledged that the plaintiff was entitled to the support of the defendant's soil for his house. The report does not indicate whether this was a right acquired by agreement or prescription. In any event, there was a duty on the part of the defendant in both cases toward the plaintiff. In answer to the submission that the contractor alone was liable, Cockburn, C.J., stated at p. 326:
. . . a man who orders a work to be executed, from which, in the natural course of things, injurious consequences to his neighbour must be expected to arise, unless means are adopted by which such consequences may be prevented, is bound to see to the doing of that which is necessary to prevent the mischief, and cannot relieve himself of his responsibility by employing some one else -- whether it be the contractor employed to do the work from which the danger arises or some independent person -- to do what is necessary to prevent the act he has ordered to be done from becoming wrongful.
In Penny v. Wimbledon Urban District Council,  2 Q.B. 72 at p. 78, Romer, L.J., says:
When a person, through a contractor, does work which from its nature is likely to cause danger to others, there is a duty on his part to take all reasonable precautions against such danger, and he does not escape from liability for the discharge of that duty by employing the contractor if the latter does not take these precautions.
The above cases were followed in Savage v. Wilby et al., 1954 CanLII 52 (SCC),  S.C.R. 376,  3 D.L.R. 204, where Cartwright, J. (as he then was), in dealing with exceptions to the general rule that where an independent contractor selected without negligence is employed to do a lawful act the principal is not liable for his negligence, states at pp. 382-3 S.C.R., p. 209 D.L.R.:
Assuming this to be a correct statement of the general rule, it is a rule to which there are exceptions, one being that where the act which the independent contractor is employed to do is one which in its nature involves a special danger of injury to the property of another a duty is imposed upon the party employing the independent contractor to take special precautions to prevent such injury and he can not escape liability for failure to discharge such duty by delegating its performance to another.
And at p. 380 S.C.R., p. 207 D.L.R., of the same case, Kellock, J., stated:
. . . vicarious liability arises where the danger of injurious consequences to others from the work ordered to be done is so inherent in it that "to any reasonably well- informed person who reflects upon its nature the likelihood of such consequences ensuing, unless precautions are taken to avoid them, should be obvious, so that were the employer doing the work himself his duty to take such precautions would be indisputable."
Other cases in point are Honeywill & Stein, Ltd. v. Larkin Bros., Ltd.,  1 K.B. 191; Capilano Bungalow Court Ltd. v. Kitson (1961), 1961 CanLII 381 (BC SC), 29 D.L.R. (2d) 625; Balfour v. Barty-King et al.; Hyder & Sons (Builders) Ltd., Third Parties,  1 Q.B. 496; Sturge v. Hackett,  3 All E.R. 166; and Holinaty v. Hawkins and Neilsen's Maintenance Ltd., 1965 CanLII 222 (ON CA),  1 O.R. 9 at p. 11, 52 D.L.R. (2d) 289 at p. 291, where Schroeder, J.A., says:
The principle is well established that the employer who employs a contractor to do an act involving the creation of or the interference with a dangerous thing is liable for the negligence of the contractor in not preventing the dangerous thing from causing damage.
The contractor McSweeney is also liable on the same principle. He undertook the work in his general contract and even supervised it. He was present and knew of the danger and actually constructed the 33-foot abutment support. The fact that he had a subcontractor to do the actual excavation does not relieve him particularly when he supervised the latter's work. The subcontractor Purcell is also liable because its employee performed the negligent act of excavation. The three defendants are therefore jointly and severally liable to the plaintiff Randall's Paints Ltd. for the damage sustained by it. The goods of the plaintiff Pratt & Lambert Inc. were lawfully in the said premises and the three defendants are similarly liable to that plaintiff for its damage.
Age old principles applicable to master-servant relationships hold that a person who hires another, whether that be a business who hires an employee, a contractor who hires a subcontractor or tradesperson, among others who enter into principal and agent relations, may be held vicariously liable for the conduct of the hiree.