Institutional Liability for Employees' Intentional Torts: Vicarious Liability as a Quasi-Substitute for Punitive Damages

Abstract

Modern day vicarious liability cases often address the liability of enterprises and institutions whose agents have committed intentional acts. Increasingly, when employers are sued, the line is blurred between the principal’s vicarious liability for its agent’s acts and its own direct liability for hiring and/or failing to supervise or control its agent.

From an economic deterrence perspective, the imposition of vicarious liability induces employers to adopt cost-justified preventative measures, including selective hiring and more stringent supervision and discipline, and, in some instances, to truncate the scope of their business activities. Negligence-based direct liability likewise induces employers to adopt cost-justified preventative measures (without constraining activity levels to the degree that strict liability does). This raises questions. Why doesn’t direct employer negligence liability suffice, in terms of deterring employees’ intentional torts? Or conversely, so long as there is vicarious liability, is there any need for direct negligence liability at all?

In this Article, I argue that, as a form of strict liability, vicarious liability will have an edge over direct employer negligence liability to the extent that there is a significant risk of under-detection of the failures of an employer’s preventative measures. Traces of this under-detection rationale for vicarious liability can be found in the academic literature and court decisions, but it warrants further elaboration. The risk of under-detection provides a strong justification for the expansion of the scope of institutional or employer vicarious liability.

The under-detection rationale, moreover, has the potential to serve as a coherent framework for some modern doctrinal debates, including whether punitive damages should be imposed either vicariously or directly upon employers when their employees commit intentional torts. Specifically, I argue that the under-detection rationale correspondingly strengthens the case for punitive damages in direct negligence cases and weakens the case for punitive damages imposed in vicarious liability cases. Focusing on under-detection, vicarious liability acts as a quasi-substitute for punitive damages. And seen through this lens, Restatement (Second) of Torts § 909, Punitive Damages Against a Principal—typically defended as a “complicity rule” limiting the imposition of vicarious punitive liability on fairness grounds—is justified on economic deterrence grounds by allowing punitive damages coupled with direct negligence liability but limiting its operation in the vicarious liability sphere.

Keywords: vicarious liability, punitive damages, institutional liability

JEL Classification: K13, K41