The American Law Institute approved a controversial new provision of the Restatement of Torts, Third expanding vicarious liability to employers for certain sexual assaults committed by employees against third parties who are “particularly vulnerable.” The Special Rule, if adopted by the courts, would expand risk and exposure for employers across a host of industries.
The Special Rule on Vicarious Liability for Sexual Assault (Special Rule) marks a significant departure from the traditional vicarious liability doctrine, which has historically declined to impose liability on an employer for criminal conduct of its employees when the conduct clearly falls outside of the course and scope of their employment.
While courts have imposed vicarious liability for certain criminal acts where the employee’s conduct is intended to serve the employer’s interests in some way (such as a speeding delivery driver), a substantial majority of courts have declined to impose vicarious liability for sexual assaults, which have been considered categorically outside the scope of employment and contrary to any employer’s intended business purposes.
But, according to the Reporters’ Introductory Note on the Special Rule, the historical application of the vicarious liability doctrine has often left victims of sexual abuse without an avenue to financial recovery, as the perpetrators often end up in prison and/or judgment-proof. The Special Rule represents a divergence from the historical application driven by the perceived need for change to allow for recovery from employers, purportedly to deter bad actors, compensate victims, and seek justice.
The Special Rule provides that:
[A] factfinder may find an employer vicariously liable for its employee’s sexual assault of a person if:
(1) the nature or conditions of the employee’s employment creates a reasonably foreseeable risk of sexual assault;
(2) the person is particularly vulnerable, by reason of age, mental capacity, disability, incarceration, detention, confinement, medical need, or other similar circumstance;
(3) the employer facilitates the sexual assault by providing the employee with substantial power, authority, or influence over the person; [and]
(4) the sexual assault occurs when the employee is performing work assigned by the employer or engaging in a course of conduct subject to the employer’s control.
The authors describe the Special Rule as having been created through synthesis of various “doctrinal hooks.” Among the “hooks” cited by the authors is the “aided-by-agency test,” which reasons that if the very existence of the employer-employee relationship in some way enabled the tortious conduct, vicarious liability should attach, rather than the standard scope-of-employment doctrine focusing on the employee’s intent to serve their employer.
The authors also point to the “course-of-conduct test,” seemingly expanding the scope of the preexisting “notice” elements of traditional claims to include instances where an employer should know of the dangerous characteristics of its employee based on a combination of events.
Other “hooks” that the authors say justify promulgating this new rule include the “characteristic-risk” approach, the “foreseeability test,” the doctrine of nondelegable duties, and the Ellerth-Faragher doctrine under Title VII of the Civil Rights Act of 1964, all of which are referenced but without any further explanation of relevance.
WHEN DOES THE SPECIAL RULE APPLY?
The Special Rule provides a non-exhaustive list of the types of employees and particularly vulnerable persons that have been cited in cases across the country to support the imposition of vicarious liability on employers in matters involving sexual assault.
The cases cited to help illuminate the bounds of “particularly vulnerable person” include those where the perpetrator-employees are police and correctional officers, group and nursing home caregivers, counselors, transportation company employees, and youth sports coaches, and/or where the victims were mentally or physically impaired patients at nursing and group homes, children, parishioners, asylum seekers, interns, ride-sharing app users, cruise, train, and bus passengers, hotel guests, and even convenience store clerks.
In sum, the Special Rule, if adopted by the courts, attaches liability not where a sexual assault furthers an employer’s business interests as contemplated by the traditional rule but rather where the nature of the employment itself places the employee in a relationship of power, access, or control over a “particularly vulnerable person.” Where sections (1) through (4) of the Special Rule are met, vicarious liability strictly applies.
Importantly, the Special Rule explicitly excludes independent contractors from its application and references a need for “guardrails” to avoid “disproportionate burden on employers.” The Special Rule does not, however, provide any examples of such guardrails or discuss any applicable defenses or actions an employer could take to avoid strict liability for sexual assaults committed by its employees.
IMPLICATIONS AND RECOMMENDATIONS
The Special Rule places healthcare, education, hospitality, entertainment, and many other high-contact businesses at significant risk of being held vicariously liable for the criminal conduct of an employee merely because the nature of the industry requires interaction with “particularly vulnerable” people.
Moreover, the Special Rule would, as a practical matter, eliminate certain of the traditional defenses available for such companies by allowing a plaintiff to prevail even where the employer defendant met or exceeded the applicable standards of care by imposing vicarious liability on the employer from the employee’s conduct, rather than independently assessing whether that employer acted negligently.
This threat of increased exposure will require companies to consider the depth of their institutional understanding of any power dynamics present between their employees and customers and take concrete actions to mitigate risk, including the following:
Commit to Early Evaluation and Resolution
Conduct early, thorough investigations of any allegations to collect critical evidence, evaluate witness credibility, assess risks, and inform settlement values. Identifying potentially high-exposure claims early may allow for resolution at lower values. While this may require investing more resources in prelitigation claim handling, given the overall increased exposure threatened by the new Special Rule, such an investment is more than justified.
Analyze Contractual Risk Shifting
Employers will want to review any contract that places its agents in power, access, or control over a “particularly vulnerable person” to ensure that the counterparty risks are appropriately assigned through indemnity and insurance provisions. Consult with counsel on potential relationship shifting to that of an independent contractor as opposed to traditional employee where appropriate.
Review Insurance Coverage
Ensure your insurance policies adequately cover claims related to sexual misconduct and that the scope and limitations of those policies are understood.
Enhance Hiring Practices and Policy Enforcement
Implement background checks and reference verifications, particularly for roles involving power imbalances or contact with vulnerable populations.
Improve Surveillance and Documentation Practices
Where appropriate and legally permissible, enhance video surveillance in high-risk areas such as entrances, common spaces, and areas with minors. Ensure footage is reviewed and securely stored for a sufficient duration to aid in internal investigations or litigation defense.
Set Aside Contingency Funds for Legal Challenges
Allocate dedicated funds to address potential legal exposure arising from sexual misconduct allegations, including defense costs, settlements, and judgments.
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