The employer’s vicarious liability

The author criticizes the legal doctrines that base the employer’s vicarious liability for the torts of servants and employees on a ‘presumption of fault’. These doctrines attempt to maintain the unity of the system based on the ‘no liability without fault’ principle.

1. The control criterion;

2. the economic dependence criterion; and

3. other criteria elaborated by the French and American doctrines.

Trimarchi’s analysis begins by noting that people have no practical interest in insuring against a risk unless they can foresee and calculate the risk, and as long as they are judgement-proof’ because of a lack of assets. Thus, vicarious liability must be placed on the owner of a business, because repeated expo­sure to the risk allows for calculation, and the owner is not without assets. Only the owner can reduce or distribute the risk costs through insurance or modification, substitution or termination of the risky activity. By placing liability on the person who can translate the risk into cost, the rule provides an economically efficient incentive while guaranteeing recovery for injured third parties and keeping total damages within tolerable limits.

Having clarified the function of article 2049 of the Italian Civil Code, Trimarchi analyses its scope of application.

The first type of relationship (contractual relationship between A and B) received particular attention in the legal doctrine because it occurs so fre­quently. At the outset, if A and B have an employer/employee type of relationship, the torts of B are within the scope of vicarious liability because B’s torts are among the risk of A’s enterprise (when A is both employer and entrepreneur). However, if the relationship between A and B is not defined by the parties as an employer/employee relationship, two elements must be clarified. First, for the operating party to act without implying the vicarious liability of the other party it is necessary to have capital to operate the business enterprise and there must be enough capital to cover the damages caused by the risks created. Second, there must be enough capital to give some economic incentive to take steps towards prevention. In such cases the judge has to decide whether the capital is large enough to cover the risk (on an empirical basis).

When the activity does not require significant capital, the criterion of the ownership of capital cannot be applied and continuity and exclusivity of the relationship between A and B becomes determinative. In these cases, if the relationship between A and B is occasional, the word ‘risk’ may not be appropriate because, as defined, risk requires static regularity and continuity over time. Here the tort committed by B against C is considered casus fortuitus to A, and does not fit within the concept of vicarious liability.

Trimarchi notes that the law places limits on attempts to immunize the master/employer by burdening the employee with the risk. Such immunity is allowed only when the performing party can effectively perform at his own risk, so that the principal cannot profit by, in modern economic language, externalizing the cost of the risk by contract. The determination that an immunizing contract is not valid is made on objective criteria, without refer­ence to the American doctrine of bad faith. This is sensible to Trimarchi, because where the risks are distributed according to objective economic criteria, intent (or lack of intent) to breach the law is irrelevant.

This approach is confirmed by Italian law 1369, of 23 October 1960, enacted contemporaneously to Trimarchfs work on the subject.

According to Trimarchi, only the contractual nature of the underlying relationship is relevant for risk sharing, while the criteria adopted by the legal doctrine and the courts⁴ have only persuasive value. The immediate and practical effect of determining the criteria is that Trimarchi can identify the scope of the rule’s application. Thus, he devotes several pages of his mono­graph to considering whether vicarious liability, identified according to the economic analysis of the law, can apply in the following cases:

1. satellite enterprises and subsidiaries;

2. subcontractors;

3. small businessmen;

4. professionals and artists;

5. managers and administrators;

6. agents and attorneys;

7. athletes;

8. regular partnerships, de facto partnerships and similarly structured con­tracts;

9. non-contractual relationships;

10. accessory service; and

11. complimentary service.

The issue involving employees borrowed by a different employer also de­serves analysis. What happens when A lends to B his employee C (borrowed servant) for a certain period of time, and C causes injuries (both physical and economic) to an unrelated party D while performing his work for B? Who is liable for this injury, A, or B, or both? The Italian courts have traditionally resolved such problems through the imposition of joint and several liability on A and B.

The problem, once again, is the accurate application of the concept articu­lated by article 2049 of the Italian Civil Code. As analysed under a functional (economic) approach, the vicarious liability of the employer provides eco­nomic sharing of the risk created by the enterprise. Seen in this light, the Italian cases fall into the following categories:

1. A is an entrepreneur; B is not an entrepreneur. The vicarious liability will only apply to A, who is able to bear the risk of the enterprise by translating such risks into costs and by controlling the risks and associ­ated costs.

2. A is an entrepreneur; B is also an entrepreneur. If the service is per­formed by C only for the benefit of one of the two enterprises, the problem is easily resolved: liability is attached only to the enterprise that is benefiting from the service.

3. A is an entrepreneur; B is also an entrepreneur; the service is performed by the worker for the benefit of both enterprises. In this case, if A and B have contractually allocated the risk, their agreement should assign the risk. If such a contract does not have clauses regulating liability towards third parties, the problem may be solved by stipulating an insurance contract that covers the risk. If the problem remains unresolved, the author assumes that both A and B are jointly and severally liable, with equal shares in the internal apportionment of the loss.

Trimarchi notes that the solution to (3) suits both the structure and the function of the rule in article 2049 of the Italian Civil Code:

It suits the function of risk distribution because, in our hypothesis, it is strictly related to both enterprises and can be predicted, calculated, insured, and trans­lated into cost by either of the two entrepreneurs. It suits the preventive function, because both entrepreneurs can control the employee, though in a different manner.

Before vicarious liability is established against an employer, the rule of vicarious liability requires that the employee’s injury-causing act was related to the performance of his duties. Indeed, the employee is not always a mere cog in the industrial and commercial machine. Employees are capable of independent actions that should not impose vicarious liability on the entre­preneur. Trimarchi therefore determines the scope of employee actions that can result in vicarious liability of the employer.

After determining the function, structure and scope of the rule of vicarious liability, Trimarchi proceeds to the essential study of the concept of fortuitous event, understood as limit of liability for damage caused by things. The study of the doctrine of fortuitous event suggests the possibility, recognized by the Italian legal system, that the fortuitous event represents key evidence in favour of the entrepreneur. Again, Trimarchi’s discussion connects the rule to its function.

First, the fortuitous event is characterized by its relativity. In other words, the determination of the fortuitous character of an event varies according to the approach adopted. In this sense there are no fixed rules establishing a benchmark for determining which events may qualify as fortuitous. The determination depends on the practical objectives of the rule to which it is applied. Second, Trimarchi demonstrates through a variety of arguments that it is inadequate to equate a fortuitous event with lack of fault. Having reached these conclusions, he argues that further analysis of the concept of fortuitous event requires a re-examination that refers to the function of the rule in which it appears. In the context of the complementary rules of strict liability for enterprise risk and vicarious liability, events that create risks which are not ascertainable or calculable should be considered fortuitous. In the context of enterprises, even very low-risk activities present ascertainable, calculable risks because of repetition.

Next, Trimarchi analyses the relationship of fortuitous event and force majeure. These terms are often confused in legal doctrine and dominant jurisprudence (both Italian and foreign). As with all of Trimarchi’s analyses, his discussion of force majeure is based on the function of risk liability. Therefore, the definition of force majeure as ‘unavoidable event’ seems un­convincing. If it is understood as an unavoidable event, and if the function of strict liability, as mentioned earlier, is to create an economic incentive to eliminate enterprises (or parts of enterprises) that are socially unproductive because of the connected unavoidable risks, then damage caused by force majeure must be borne by the entrepreneur. Because inevitability is an essen­tial aspect offorce majeure, it is inadequate to limit the risk of the enterprise.

In sum, Trimarchi’s approach does not exclude unavoidable risks from the risk of enterprise. Inevitability, narrowly interpreted, however, may justify the exclusion of an injury (both physical and economic) from the concept of risk when the risk would not be reduced even if the business activity is curtailed. For example, liability could be excluded when the damage is caused by an external factor that is not facilitated, amplified or extended by the product.

Thus, Trimarchi characterizes the concept of fortuitous event by reference to the following factors. The first is the level of predictability. If an event is such that it cannot be considered part of the typical risk of the activity, it may be deemed fortuitous. The concept of fortuitous events, indeed, ‘refers only to events in which the risk is lower than such rare probability, because the fortuitous nature of an event constitutes a limitation to risk liability (which results from lawful activities), and not fault liability’.

Second, even damages caused by activities with low risk may not be exempted from liability as fortuitous when they are repeated in a business undertaking. Risk liability is normally connected to the performance of a business activity and not to single acts, thus liability may be attached even if the act that caused the injury (both physical and economic) is very safe, for even very safe acts may be risky when repeated.

The third factor is related to the knowledge available to the entrepreneur, according to which the foreseeability must be measured. The standard must be objective and thus connected to the science and technology available at the time when the entrepreneur should have insured himself against the risk. The function of strict liability is not to punish, but to attach liability to whoever objectively creates the risk that can be translated into cost and be economi­cally manageable through the ordinary methods of a good manager. An enterprise which is mismanaged by the entrepreneur and his assistants must suffer the economic consequences of the mismanagement.

The concept of a fortuitous event can also be clarified by Trimarchi’s hypothesis that article 2051 of the Italian Civil Code is not only applicable to dangerous activities, but is also applicable to business activities with risks that can be translated into costs. Strict liability is always connected to ‘busi­ness activities that present a risk’ and not to ‘things that present a risk’. Trimarchi finds the legal foundation for his hypothesis in the legal ruling that only a fortuitous event excludes liability. In other words, proving the exist­ence of a fortuitous event means proving that the loss is not connected to a manageable risk. Strict liability must be applied in the field of business activities and the same incident may constitute a fortuitous event to common citizen, but not to the entrepreneur.

Thus, Trimarchi concludes that the function of the rule according to which there is no liability for a fortuitous event is to exclude the entrepreneur from a non-manageable risk that cannot be taken into consideration in a cost-benefit analysis prior to its occurrence. Also, the fortuitous event category is nar­rowed by the operation of the rule of large numbers: the more developed the business organization to which the risk is inherent, the narrower the category of the fortuitous event.

After examining the relationship between force majeure and fortuitous event, Trimarchi briefly addresses the question of loss caused by the activity of third parties unrelated to the business activity. The concept cannot be connected to the idea of fault, as some suggest, thus he states that the loss caused by a third party (intentionally or not) does not constitute another ground of exemption of the entrepreneur’s liability, unless the third party’s activity presents the characteristics of the fortuitous event.