Legal liability
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In law, liable means "responsible or answerable in law; legally obligated".[1] Legal liability concerns both civil law and criminal law and can arise from various areas of law, such as contracts, torts, taxes, or fines given by government agencies. The claimant is the one who seeks to establish, or prove, liability.
Theories of liability
Claimants can prove liability through a myriad of different theories, known as theories of liability. Which theories of liability are available in a given case depends on nature of the law in question. For example, in case involving a contractual dispute, one available theory of liability is breach of contract; or in the tort context, negligence, negligence per se, respondeat superior, vicarious liability, strict liability, or intentional conduct are all valid theories of liability.
Each theory of liability has certain conditions, or elements, that must be proven by the claimant before liability will be established. For example, the theory of negligence requires the claimant to prove that (1) the defendant had a duty; (2) the defendant breached that duty; (3) the defendant's breach caused the injury; and (4) that injury resulted in recoverable damages.
Theories of liability can also be created by legislation. For example, under English law, with the passing of the Theft Act 1978, it is an offense to evade a liability dishonestly. Payment of damages usually resolves the liability. A given liability may be covered by insurance. In general, however, insurance providers only cover liabilities arising from negligent torts rather than intentional wrongs or breach of contract.
Liability in business
In commercial law, limited liability is a method of protection included in some business formations that shields its owners from certain types of liability and that amount a given owner will be liable for. A limited liability form separates the owner(s) from the business. The limited liability form essentially acts as a corporate veil that protects owners from liabilities of the business.[2] This means that when a business is found liable in a case, the owners are not themselves liable; rather, the business is. Thus, only the funds or property the owner(s) have invested into the business are subject to that liability. If, for example, a limited liability business goes bankrupt, then the owner(s) will not lose unrelated assets, such as a personal residence (assuming they do not give personal guarantees).[3] Forms of businesses that offer the limited liability protection include limited liability partnerships, limited liability companies, and corporations. Sole proprietorships and partnerships do not include limited liability.
This is the standard model for larger businesses, in which a shareholders will only lose the amount invested (in the form of stock value decreasing). For an explanation, see
There is an exception to this rule, however, which allows a claimant to litigate against the owner(s) of a limited liability business, if the owner(s) have engaged in conduct that justifies the claimant's recovery from the owner(s): This exception is called "piercing the corporate veil." Courts generally try not to utilize this exception unless there have been serious transgressions. Limited liability aids entrepreneurs, businesses, and the economy in growing and innovating. Therefore, if courts often chose to pierce the veil, that innovation would be restricted. The exact test a court will use to determine if the veil needs to pierced vary by state in the United States.[4]
For sole proprietorships and general partnerships, the liability is unlimited. Unlimited liability means that the owner(s) of the business have the full responsibility of assuming all the business's debts. This can include seizure of personal assets in the face of bankruptcy and liquidation.[5] Professionals in limited liability partnerships and limited liability companies will have unlimited liability for their own torts and malpractices. The limited liability of the business will no longer apply for these wrongdoings.[6]
For business owners, there are main categories of liability exposure to be aware of in order to protect their businesses from liability and financial troubles and issues. The first is employment-related issues where the larger the work force, and the more turnover there is, the larger the likelihood of liability lawsuits such as
Product liability
Product liability governs civil lawsuits between a plaintiff and defendant who furnishes defective goods that caused loss or injury 11.
Product liability and its prevalence in the law has changed throughout history. In the 19th century, it worked to both the manufacturers' and other sellers' advantages. "Caveat emptor" ("let the buyer beware") reigned supreme in this area of the law. In this era, the seller had no liability unless they had made an express promise to the customer that was not received. The 19th century was also when the Industrial Revolution was beginning and changing the business world. In order to promote this rise in industrialization and manufacturing, the law avoided allowing damage recoveries that would weaken new industries.[citation needed] In the 20th and 21st centuries, there was no longer this need to protect manufacturers from liability.[citation needed] If anything, there was more of need to impose liability standards on industries because consumers had less power to freely bargain with corporations and other business forms.[citation needed] Furthermore, the complexities and intricacies of goods was increasing, making it harder for the average buyer to determine manufacturing issues when purchasing these goods. Now a new phrase dominates liability: "caveat venditor" or "let the seller beware." The law finds that sellers and manufacturers can face more liability for defects with the help of insurance and socializing the damages by raising prices and forcing the consumer to pay for it.[6]
If a manufacturer is found to be negligent, that means they breached their duty to the customer by not eliminating a reasonably foreseeable risk caused by the product. The manufacturer can be seen as negligent if there are problems in the manufacturing process, do not properly inspect their products, do not give a reasonable warning to the customer when the product has a foreseeable risk of harm, and/or the design lends itself to risk of harm. The magnitude and severity of the foreseeable harm are also assessed when looking at negligence.[6]
Liability as it relates to employers and employees
There is a form of liability that exists between employers and their employees. This is called vicarious liability. For it to apply, one party has responsibility for a third party, and the third party commits an unlawful action. An employer may be held liable for the actions of an employee if it is unlawful (i.e. harassment or discrimination), or the employee's negligent actions while working causes damages to property or injury.[8]
Respondeat superior ("Let the superior answer") is a legal principle that dictates when an employer is responsible for the actions of an employee. Employers should worry about this rule when the employee commits a tort or harmful act when the employee was acting within the course and scope of employment at the time of the incident. The term "scope of employment" is when an employee is doing work assigned by their employer or is completing a task that is subject to the employer's control. To test whether the conduct that led to the incident is within the scope of employment, one must determine:
- If it was the type of task the employee was employed to perform
- It occurred flexibly within the authorized work time period
- The incident was not unreasonably far away from the employer authorized location
- The incident was motivated, at least in part, for the purpose of serving the employer
If these four factors are found to be true, the employer will have to answer for the tort. The reasoning behind this legal principle is because it is thought that the employer is best suited for bearing the financial burden, employers can protect themselves against this burden with insurance, and the cost can be passed to customers by raising prices.[6] On the other hand, if the employee was found to have either detoured or frolicked then defining the scope of employment becomes trickier. The rule of frolic and detour changes how the liability applies. A frolic is when the employee causes a tort when completing an activity that is unrelated to their job. If it is found that the employee had frolicked, the employee would then be liable for damages. For example, if a delivery driver does not complete his deliveries for a few hours so he can do some personal shopping, and on his way to the store, he hits a pedestrian. A detour is more minor. The employee is still participating in a non-work related activity, but the activity is not a major disregard for work duties. An example of a detour would be if on the way to deliver a package, a delivery driver stops at a drive-thru to grab something to eat. When pulling away from the restaurant to continue with deliveries, the driver hits a pedestrian. Here, the employer could still be liable for these damages because the detour was minor.[9]
An employer can also be liable for a legal principle called negligent hiring. This happens when in the process of hiring a new employee, the employer does not check criminal pasts, backgrounds, or references to ensure the applicant did not pose a potential danger if hired as an employee. An employer can also face liability and repercussions if they know that the worker poses a potential danger but keeps them on the job. This is called negligent retention. To avoid claims regarding negligent hiring or retention, employers should be diligent when hiring employees who will have a lot of contact with customers and the public (especially if they will have access to vulnerable members of the public, go to customers' homes, and/or have access to weapons), and dismiss any employees who pose a potential danger.[10]
It is important for employers to note whether someone working for them is an
An employer should also be aware on how the extent of their liability can change based on the agreements their agents make. An agent is a person who has the power to act on behalf of another party (typically the principal). Usually, a principal is liable for a
Additional concepts
Economists use the term "legal liability" to describe the legal-bound obligation to pay debts.[11]
See also
References
- ^ LIABLE, Black's Law Dictionary (10th ed. 2014)
- ISBN 978-0-9970566-1-7.
- ^ "Limited Liability". LII / Legal Information Institute. Retrieved 2020-12-18.
- ^ Gevurtz, Franklin A. (1997). "Piercing Piercing: An Attempt to Lift the Veil of Confusion Surrounding the Doctrine of Piercing the Corporate Veil". Oregon Law Review. 76: 853.
- ^ Tarver, Evan. "With Unlimited Liability, You Are Responsible for Any Business Debts". Investopedia. Retrieved 2020-12-05.
- ^ ISBN 978-1260091809.)
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: CS1 maint: multiple names: authors list (link - ^ "Liability Definition – Entrepreneur Small Business Encyclopedia". Entrepreneur. Retrieved 2020-12-05.
- ^ Kenton, Will. "Vicarious Liability". Investopedia. Retrieved 2020-12-05.
- ^ "Frolic and Detour". LII / Legal Information Institute. Retrieved 2020-12-13.
- ^ "Employer Liability for an Employee's Bad Acts". www.nolo.com. Retrieved 2020-12-14.
- ISBN 0-13-063085-3.)
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: CS1 maint: location (link