When a company fails to follow reasonable standards of care in the course of its business, it can create serious risks to members of the public. For example, the safety of the public routinely depends on trucking companies, hospitals, highway construction contractors, and taxi services to exercise reasonable care to prevent needless injury. The common law in turn recognizes that if a corporate employee does not use reasonable care in the course of the company’s business and harms a person, then the corporation can be held accountable in a negligence action. The flip side to a company’s right to enjoy profits is its responsibility to bear the costs of harms caused in the creation of those profits.
However, sometimes a company may hire independent contractors instead of direct employees to perform work that may expose the public to harm. Oregon common law places substantial barriers against making a corporation pay for the cost of harms caused in the furtherance of its business if the corporation chose to label and pay the person that caused the harm an independent contractor as opposed to an employee.
Indeed, one may never even know when a company uses independent contractors in performing its basic business activities. For example, when we go to the hospital, the Emergency Room physician may be an independent contractor. Under traditional agency law, the hospital may argue it is not responsible for that doctor’s substandard care of a patient. Likewise, many trucking companies depend on independent contractor drivers, so that when those drivers fail to drive with reasonable care and cause needless injury to an individual or even a whole family, the company may try to avoid having to bear any of the costs of those human losses. As a result of this independent contractor liability exception, many corporations in many different kinds of businesses rely substantially on independent contractors rather than direct employees. Unfortunately for members of the public, independent contractors often do not have adequate insurance to cover the costs of the harms.
The Oregon Supreme Court recently clarified when companies can take advantage of this exception to corporate vicarious liability. In Eads v. Borman,315 Or 729 (2012), the Court explained that if an independent contractor in furtherance of a corporate business causes a harm to a member of the public, then the corporation may nonetheless may be held accountable under a theory of apparent agency. The Court explained that the key questions to determine whether a corporation can be held vicariously liable for harms caused by an independent contractor under a theory of apparent agency are:
- Whether the corporation held itself out, expressly or implicitly, as a direct provider of a service that could lead a reasonable person to conclude that the actor that provided that service was the corporation’s employee in doing so; and
- Whether the plaintiff when seeking out such service looked to the corporation, rather than to the independent contractor, as the provider of the service.
So take for example the case of a taxi passenger who is injured by the bad driving of the cabbie who is an independent contractor to a larger taxi company. If the taxi company represented that it provided a taxi driving service, and the injured person when seeking the taxi service looked to the taxi company for that service as opposed to the individual driver, then the company may be vicariously liable. Another example would be a patient injured by the substandard conduct of an independent contractor ER doctor. If the hospital represented itself as a direct provider of the emergency room care to that patient, and the patient went to the hospital in reliance on that representation, then the hospital is may be liable for harms caused by the ER doctor’s conduct.