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Limited Liability Contractors
R. Alex Whitlock
Beldar has an
excellent post about judicial nominee Priscilla Owen and how she has been misrepresented in the LA Times. Though I agree with him on Owen, I am inclined to disagree with both of them on the case itself:
The legal issue raised by the case was whether Kirby, the vacuum cleaner manufacturer — which hadn't hired the rapist, and was in fact twice-removed from him — could be held responsible for the rape. A majority of the Texas Supreme Court held that in these particular circumstances — because of the unusual degree of control that the manufacturer had retained and enforced on its distributors like Sena's company — the manufacturer could be held liable even at its remote distance from either the rape or from Sena's investigation and hiring of the rapist.
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Let's look at an analogy that might strike closer to home (so to speak) for more average citizens. Suppose you hire a general contractor to remodel your house. He in turn hires a painter, who jumps your back fence and rapes your next-door neighbor. Justice Owen would read Texas law to say that the rape was not your fault, and that your neighbor can't successfully sue you (but can sue the rapist and, maybe, your general contractor). But the result and maybe the logic of the majority opinion from which Justice Owen dissented suggest the opposite — you're on the hook, baby, 'cause that rapist couldn't have gotten into your back yard to jump your fence unless you'd hired the guy who hired him, so get out your wallet (or call your homeowners' insurance company and tell it to get out its wallet). Now, Justice Hecht thinks — and he's probably right — that on these slightly different facts (or if it'd been Tupperware instead of Kirby vacuums), the majority would have stuck to old, traditional tort law, and that the majority's departure in the Read case was an aberration. But when we're looking at promoting judges to a life-tenured position, do you want the squishy, sympathetic judge who makes aberrations, or the firm (i.e., old-fashioned), principled judge who sometimes says, even if it's harsh, "You've been hurt, but you still can't sue these particular folks for what happened to you because it wasn't their fault"?
I agree that in the above case it is probably not the fault of the homeowner. However, I don't think we can take that and universally say that nobody anywhere should be held accountable for the people they hire themselves hire. I imagine that the above case would be different if, for instance, the homeowner knew that there had been problems with the general contractor before (because the contractor generally hires the same painter) and hired them anyway. That's not what Kirby did, of course, but it is one example of how someone can be held accountable for the actions of someone that they hired had hired.
Or, in the case of Kirby, distanced themselves from the salespeople precisely to avoid liability in, among other things, cases like this (or more common than rape, cases of theft).
As it turns out, the Kirby business model is not one with which I am completely unfamiliar. To say the least. Beldar is absolutely right that Kirby maintains a distance from its distributors, who maintain a distance from the actual salesmen (they are careful to point out that they are not employees but independent contractors). While I'm ordinarily inclined to agree with Beldar and say that a company without control cannot be held liable, one of the reasons that they use this particular model is to insulate themselves from lawsuits. Or if that wasn't their motivation, it's been a benefit that cannot have escaped their attention.
The world of Kirby sales is a somewhat seedy one. Fly-by-night companies set up. They'll hire a bunch of contractors that they will later be very reluctant to actually pay. They'll change the Then when things start getting hot, they'll fold and pop up somewhere else under a different name. The original company will be bankrupt, but no one has lost any money and the stiffed employees have no recourse. Whether or not this is legally the way it should be, it is the experience of at least half the people I know that have worked in that system.
The employees, like the customer, often give these companies the benefit of the doubt because they are allied with the Kirby name. In the case of the customers, they let them in to the home in part because they think that they actually work for Kirby. Kirby simultaneously benefits and avoids liability.
Kirby, of course, can easily turn a blind eye to all this because they're contractors. They profit from it, but are not responsible for it. I'm not a lawyer, so I can't speak to what the legality of it is as it exists now, but if I were a juror and the prosecution could demonstrate that the company was hiding behind contractors to limit liabilities, I wouldn't have a problem voting in favor the plaintiff.
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Observations
 
Alex,
NOT LEGAL ADVICE:
Generally speaking, employers are not vicariously liable for the negligence or crimes of their independent contractors. That is probably the primary reason that the notion of an independent contractor exists.
Ever wonder why no hospitals ever hire doctors as employees? It would make them liable for any med mal committed by the docs. All docs are independent contractors, usually by being members of a physician group that itself contracts with the hospital.
a big part of the raison d'etre for business organizations in general is to limit liability -- tax, contract, and tort.
 
But are they liable if they are negligent themselves? In other words, if they know that something is going to happen (or is happening) and instead of stopping it they merely set it up so that they don't get their hands dirty, are they completely in the clear even if they had someone else do their dirty work for them?
If so (and, legally, I suspect so and suspected so even as I was writing this post) that doesn't provide very much disincentive to make money of the misdeeds of others.
Using the hospital metaphor, if a hospital grants privileges to a clearly incompetent doctor (and they know the doctor to be incompetent, or reasonably should have known), even if that doctor is part of a group they are contracting through, then they ought to be held liable.
I'm not saying that's what the law says, but that I would probably be inclined to read it that way if I could as a juror. The judges might overrule my jury, though they did not in this case.
And as I said (think I said? meant to say?), this doesn't reflect negatively on my view of Owen as a judge. I probably should have left her off the second sentence of this post.
 
There is a direct tort known as negligent hiring, where a company/employer can be held liable for hiring someone who commits tort X without running proper background checks, for example.
main point here is that this is direct liability. you're saying the company itself screwed up. not the same as vicarious liability, which is saying that the company should pay for the torts committed by its employee, even if the company itself was not negligent.
the specter of direct liability creates some incentive for an employer to watch whom they hire, even as an independent contractor, because IC status is not a defense to direct liability.
important point re hospitals (and this is starting to run into a lot of my practice, so beware of verbal diarrhea):
granting of privileges is NOT equivalent to an employment relationship, in any way, shape or form. there's no compensation for any privileges, no employment relationship of any kind. it is simply a right to see patients in the clinical setting, sometimes with admitting privileges, sometimes without.
if a hospital grants privileges to a doctor whom has all sorts of problems on his record in the NPDB, for example, then perhaps they might be liable in some way (though not for negligent hiring, because granting of privileges is not hiring), though credentialing decisions are often shielded from liability by the state and federal peer review privileges (makes sense -- if every disgruntled doc could sue a hospital for revoking his privileges, no one would ever serve on the credentialing committees).
there is a tort cause of action in texas known as negligent credentialing -- the analogue to negligent hiring in the medical privilege context, and that would probably be the available tort.
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