Employee misdeeds -- who pays?

• Author: Spendlove, Gretta
• Position: Of Counsel - Litigation - Brief Article

In April 2000, Utah stockbroker Greg Simper committed suicide. According to The Salt Lake Tribune, Simper left a suicide note in which he admitted to stealing from his customers for years. This spring, after a lengthy investigation, the Utah Division of Securities sued Simper's employer, Kansas City-based Sunset Financial Services Inc., as well as five of Simper's supervisors. The state claimed that Simper had been inadequately supervised.

The claims made against Simper's employer are not an isolated case. Merrill Lynch recently offered a settlement for damages caused to investors by its stockbrokers recommending stocks that they privately dismissed as poor buys.

When an employee causes damage, plaintiffs immediately eye the "deep pocket" of the employer. Is an employer always responsible for the bad acts of its employees? If not always, when? And what can an employer do to protect itself?

"Let the Master Answer." The most common legal theories holding an employer liable for acts of an employee are "respondeat superior" and negligent hiring or supervision. The Latin words "respondeat superior" literally mean "let the master answer." The phrase describes the general rule that the employer is responsible for those acts of its employees that are within the scope of their employment, but not for acts outside the scope of employment.

"Obviously, the fight is over what's inside and what's outside the scope of employment," explains Salt Lake City employment lawyer Steve Gordon. Luckily, Utah courts have provided some guidelines. They look at whether the acts are the general kind the employee is employed to perform, whether the acts occur within the time and geographical boundaries of employment, and whether the acts serve the employer's interests.

"In abduction cases, such as a child being stolen from a daycare center or a baby from a hospital, the employer is usually not held liable under a respondeat superior theory," Gordon explains, "because the employee is clearly not hired to abduct babies, and the abduction doesn't help the employer. There may be issues of fact in transportation cases, as when a delivery person gets in an accident while making a detour to buy a hamburger or run a personal errand,"

Negligent Hiring and Supervision. A separate ground for employer liability is negligent hiring and supervision. Plaintiffs who seek liability from employers for negligence must prove that the employer did not comply with reasonable standards of...