Legal and Regulatory

A Construction Executive’s Personal Liability for Employment Decisions

Liability for negligent hiring, supervision and retention of employees is a risk for tort claims. Fortunately, the risk can be mitigated by best practices and losses can be covered by insurance.
By James T. Dixon
August 10, 2021
Topics
Legal and Regulatory

"Tort" is an area of law relating to acts and failures to act for which the courts will impose liability upon one person who has harmed another, physically or financially. The word “tort” is derived from the medieval Latin term “tortum,” which means “injustice.” Negligence is perhaps the most common theory of recovery within tort law, and through negligence claims people are held liable if their actions fail to meet a particular standard of care owed to another.

In the business setting, many claims can be made only against the company, but individual liability is a risk for tort claims. Liability for negligent hiring, supervision and retention of employees is one such claim. Fortunately, the risk of liability for such claims can be mitigated by best practices, and losses can be covered by insurance.

A claim for negligent hiring, supervision or retention begins with the tortious conduct of one of the company’s employees. For a corporate officer to be personally liable for the damages that arise from that conduct, that officer must have been negligent in the hiring, retention, training or supervision of that employee. Usually, but not always, the conduct of the employee is a criminal act.

In Brown-Spargeon, et al v. Paul Davis Systems of Tri-State Area, Inc., et al., 2013-Ohio-1845 (12th Dist.), a subcontractor’s employee was accused of stealing from the property owner. The general contractor was not responsible because that person was not its employee. The subcontractor, however, was that person’s employer and knew of the employee’s prior convictions, so the case proceeded against it.

In Jackson v. Hogeback, et al., 2014-Ohio-2518, a carpenter hired by the project owner physically assaulted another company’s employee. The owners of the project had some knowledge of the assailant’s prior acts of violence, so the case proceeded against them. For the employer to be liable, typically that entity must know of the employee’s problem behavior and must fail in some way to prevent the harm that results.

The risk of exposure to negligent hiring, supervision and retention claims can be mitigated by adherence to best practices. When it comes to hiring, it is not always as easy as conducting a background check and refusing to hire someone with a criminal record. State laws vary on the use of criminal records, with some states following “fair chance” hiring laws to help those with a record obtain jobs. Retention and supervision decisions can be made with a focus on foreseeable outcomes arising from known challenges.

Losses, suffered by the executive personally or by the company, can be avoided through the purchase of appropriate insurance. Employment practices liability insurance, which also covers wrongful termination, harassment and discrimination claims, can shift the cost of a legal defense and the payment of a judgment to an insurance carrier. In some states, the same can be said for a standard commercial general liability policy. In California, a negligent employment practice is an “accident” under such policy. See Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., Inc., (2018) 418 P.3d 400.

Employment practices liability is one of the many risks addressed by construction executives, and that risk is made critical by the potential for personal liability. Consultation with legal, human resources and insurance advisors will provide insight on the means to mitigate this risk and avoid related losses.

by James T. Dixon
Jim Dixon helps members of the construction industry manage risk, avoid loss, and resolve disputes on projects throughout the country. Jim drafts and negotiates construction contracts, advises clients during construction, and resolves disputes through mediation, arbitration and litigation. He has handled claims related to defective construction, schedule delays, disruption and acceleration, differing site conditions, unapproved change orders, payment and performance bonds, and mechanic’s liens. Jim is adept at advancing bid protests on public projects, in resolving disputes on tunneling projects, and in addressing disputes on projects utilizing the integrated project delivery system.

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