Possible Liabilities When Employees Use Vehicles in Your Business

Filed under Vehicles & Equipment. Fact checked on May 24, 2012.

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If your employees use business vehicles, or perhaps your personal vehicles while they are working for you, you must understand your liability for having employees use your vehicles and do what you can to reduce it.

Business owners who wouldn't think of allowing employees to operate dangerous machinery without safety measures and policies in place often don't have firm polices in place governing the use of business vehicles. Yet it doesn't take much imagination to foresee how much damage a 5,000 pound vehicle, traveling 40 miles an hour can do, and your business and/or you personally could be held responsible.

If you are concerned that you're one of the business owners who has not given this subject enough thought, take action now! There are many things that you can do to lower the risks associated with having employees drive your vehicles. Familiarize yourself with some common ways that you or your business may be held liable for an accident, along with ways to reduce your risks.

Vehicle Liability Arguments

If one of your employees is involved in an accident while driving a company vehicle and a victim of the accident sues, the victim's attorney will most likely make one or more of the following arguments for holding you liable:

  • respondeat superior
  • negligent hiring or retention
  • negligent lending of a vehicle
  • negligent maintenance of a vehicle

Chart Summary of Vehicle Liabilities

The following chart sums up the elements of each of these grounds for a lawsuit and suggests ways to limit your risks in each case.

Four Common Ways That Your Company May Be Held Liable for an Accident
Respondeat Superior
Summary You could lose if: Help protect yourself
Basically, a party who sues you would claim that, since your employee was doing work for you when the accident happened, you're liable. Your employee was (at least partially) at fault in the accident.

Your employee was acting in the scope of job at the time of the accident.

Establish clear, narrow policies on use of vehicles by your employees if possible.

Enforce vehicle policies; use employee discipline if necessary.

Maintain adequate insurance.

Negligent Hiring or Retention
Summary You could lose if: Help protect yourself
Party who sues you says you are liable because you erred in hiring/not firing the employee involved in the accident. You should've taken more care (checking references or criminal records) in hiring.

You knew/should've known the employee wasn't good and didn't fire him.

Conduct thorough hiring checks.

Terminate employees who should be terminated.

Do periodic performance reviews; deal with problems promptly.

Maintain adequate insurance.

Negligent Lending of Vehicle
Summary You could lose if: Help protect yourself
Similar to Negligent Hiring or Retention, except that you erred in allowing the employee to drive the company vehicle, rather than when you hired/retained him. You should have known the employee was unfit to drive your vehicle. If, for example, the employee was under the influence of any medication or was either not licensed to drive or not trained to use the vehicle. Insist on proof of driving licenses; keep proof on file.

Suspend/revoke vehicle use by any employees who commit serious driving offenses.

Consider driver training.

Maintain adequate insurance.

Negligence Associated with the Vehicle's Condition
Summary You could lose if: Help protect yourself
The party who sues you says you're liable because you failed to maintain the vehicle in a safe condition. You're liable even if you employed a very competent driver. Your vehicle was somehow negligently maintained.

Condition of the vehicle (bad tire, for example) helped cause accident.

Maintain vehicle better than safety standards require.

Have your mechanic check vehicles periodically; use our checklist for evaluating used vehicles as a guide.

Maintain adequate insurance.

There may be additional arguments used against you in certain cases, which will vary depending on applicable state law. Moreover, different states may use different names to refer to these four arguments. However, nearly every argument used against you will bear some relation to one of the arguments described above.

Understanding the Theory of Respondeat Superior Liability

One of the hazards of having employees use vehicles to perform work for you is possible respondeat superior liability. Unlike some of the other liabilities of having employees use your vehicles, you face respondeat superior liability even if your employees get into accidents while driving their own vehicles. In fact, you'll find that respondeat superior liability can come into play after any unfortunate incident — not just auto accidents — where an employee has harmed someone else or someone else's property.

Respondeat Superior Liability Explained

The phrase respondeat superior is a Latin term that lawyers sometimes use. The term may be "translated" as:

If your employee,

  • is at fault for an accident (or an incident); and
  • was doing work for you at the time of the accident/incident (lawyers will often refer to this as "acting within the scope of employment"); then
  • you may be held liable for damages arising from the accident/incident.

The first reaction many people have after respondeat superior is explained to them is to exclaim something like, "That doesn't sound fair! Do you mean to tell me that if a painter runs a red light on the way to do a job and gets into an accident that the painter's employer is liable? A boss can't sit in the passenger's seat next to every employee and tell them how to drive! What will those lawyers think of next . . . "

Why it's the law. The idea of respondeat superior may make more sense to you if you think about this: suppose the painter in our example showed up at your house and instead of painting the house white, like you ordered, painted it in a nice florescent lime? Would you be more willing to hold his employer liable now? Probably. Yet a boss can't always afford to sit and watch an employee brush each stroke of paint onto a building. Clearly, at some point the law has to draw a line. In most states, this "line" is that employers will be held liable for wrongful acts committed by their employees if those acts were committed within the scope of employment.

Employer Defenses Against Respondeat Superior Liability

The key to reducing your liability under respondeat superior is found in the words "within the scope of employment." (Some courts prefer wording like "furthering a purpose of the employer.") Thus, defending a respondeat superior claim typically involves one of the following options:

  • Establishing that an employee committed an intentional wrong, which makes it unlikely that he or she was acting within the scope of employment. Be careful about relying too much on this type of defense. Most people would say slugging a customer is intentional, that it's wrong, and that it probably couldn't serve any purpose for a business owner. But think about a bouncer working in a bar and you realize that such issues aren't always clear. And while running a red light is arguably an intentional wrong, if it is done to get a few gallons of paint before the hardware store closes, it unquestionably creates a liability issue.
  • Establishing that the employer had a policy prohibiting employees from doing whatever it was that the employee was doing that resulted in an accident. This defense usually works best, but it has some obvious limitations. You can't get away with making a policy against something after it has happened. And a "policy" against "skidding out of control when driving a company vehicle" would probably not fly with a court if you tried using that as a defense either. However, it's possible that a vehicle policy requiring employees to obey all traffic laws at all times — even if it means arriving at a job late, or losing some business — could be useful in the case where an employee runs a light.

    Moreover, a policy restricting or prohibiting personal use of your vehicles may be useful. Many accidents occur in such circumstances. After all, employees who are off duty may be more likely to have been drinking. Or they may try to do something with a vehicle that the vehicle was not intended to do, such as moving a dinette set and chairs with a plumbing supply van so that the rear doors are left wired shut with a chair ready to fall out of the back.
  • Depending on good vehicle insurance to cover damages resulting from accidents and unfortunate incidents. In many respondeat superior cases, this may be your most viable option because accidents do happen while employees are performing duties within the scope of their jobs. While you can't always avoid such accidents, the right insurance coverage can go a long way to avoid a devastating financial loss.

Negligent Hiring, Retention and Lending of Vehicle Claims

The theory underlying negligent hiring and retention claims — if they relate to an auto accident involving one of your employees and a company vehicle — is that you are liable for the accident because of the sloppy job you have done in hiring, or not firing, the employee who then caused the accident. As a lawyer who is helping someone to sue you sees things, if you had not hired (or retained) the employee, there would never have been an accident.

Unlike some of the other liabilities from employee use of your vehicles, you can be sued under a negligent hiring/retention theory for any unfortunate incident involving an employee, not just vehicular accidents.

So what are some effective defenses to negligent hiring or retention claims? Usually your best defense to a negligent hiring/retention argument is proving one of the following:

  • that there was nothing wrong with your employee
  • that you had no way of knowing there was something wrong with your employee

We'll leave it to your lawyer to argue that there was nothing wrong with your employee when, and if, the time comes that you need to assert that defense. But we can help you take steps now that will later help you prove that you are, and always have been, a conscientious employer.

  • If you are considering hiring an employee, be very careful in the recruiting and hiring process. In particular, be careful to do a thorough background check and avoid negligent hiring.
  • If you already have employees, deal with any noticeable problems promptly by disciplining or, where necessary, terminating any problem employee.
  • If you conduct regular performance reviews, it can help you document the fact that you monitor your employees.

These steps can help show that you are not negligent about handling your responsibilities as an employer.

Negligent Lending of a Vehicle Theory

In negligent lending cases, you are liable because you let an employee use a company vehicle when you knew (or should have known) the employee was unfit to drive.

What can you do about employer liability for negligently lending a vehicle? To reduce your liability from negligent lending suits against you, you can:

  • Obtain adequate insurance on all of your vehicles. Ask your insurance agent about any vehicle safety programs he or she can recommend.
  • Be sure that any employees who use your vehicles have all licenses and permits required to operate the vehicles that they use. You should keep this documentation on file, but in a file that is separate from other personnel records. (Some government agencies, such as the Equal Employment Opportunity Commission (EEOC), may take a dim view of employers who keep photocopies of picture ID's like driver's licenses in personnel files. This is because they can be used to identify a person's race, sex, and age and, theoretically at least, facilitate unlawful discrimination.)
  • Draft and enforce vehicle policies that alert you when an employee is not fit to drive. However, be careful about having employees tell you about such things unless you are prepared to have someone drive in their place. The worst thing you can do is let an employee take the wheel after that employee has specifically told you that he or she unfit to drive.

Negligent Vehicle Maintenance

In negligent maintenance cases, you will be liable for an accident if a condition of your company vehicle made it unsafe to drive and that condition (for example, faulty brakes or a bad tire) contributed to the accident. Unlike some of the other liabilities from employee use of your vehicles we discuss, you can be sued by both your employee and anyone the employee injures with your vehicle if it was negligently maintained.

What are the grounds for negligent maintenance lawsuit grounds? A lawyer who sues you for negligent maintenance will usually argue the case in one of two ways: negligence per se vs. "ordinary negligence."

  • Negligence per se. The argument that is by far the easiest for the lawyer if the facts lend themselves to it, is to show that the condition of the vehicle made it unlawful to be driven at the time. A vehicle with brake lights that fail to function correctly, or a vehicle that has not undergone a mandatory safety inspection that would have caught the problem that led to the accident, are two examples. The lawyer's term for driving a vehicle in an unlawful condition is negligence per se.
Warning

In many states, once an attorney establishes the unlawful condition of a vehicle (negligence per se) and shows that it contributed to the accident, you become automatically liable. The only issue left for a jury in such a case may be simply determining the amount you'll have to pay. The lesson here, and the strategy for reducing your liability under this theory, is simple: Never allow your vehicle to be operated in a condition that could be considered unsafe or unlawful. Even the shortest of distances is not worth the risk!

  • Ordinary negligence. Even if your vehicle is not in a condition that makes it unlawful to drive, it may give rise to an "ordinary" negligent maintenance claim. To establish "ordinary" negligence, a lawyer usually must show all of the following:
    • The reasonable person standard. A reasonable person would have spotted and repaired a given condition in the vehicle that made the vehicle less safe (but not necessarily unlawful) to drive. For example, maybe one of your tires showed uneven tread wear and had a small bald spot in it.
    • You and your agents did not repair the given condition. Continuing our example, let's suppose you did not have the tire changed. Of course, it's entirely possible that you didn't even know there was a bald spot on the tire. Remember, it's not necessarily what you knew, but what a reasonable person would have known. Note, however, that you may be in more trouble if you knew there was a bald spot and did nothing about it than if you simply didn't know about the bald spot.
    • The condition contributed to an accident. The condition contributed to an causing bodily or property injury to the person who sued you. If the tire on the vehicle in our example blew out and caused your employee to lose control, there is a strong case for causation. On the other hand, if the accident was caused by someone who ran a red light, the fact that there is a bald spot on one tire is less relevant, but perhaps not completely irrelevant. (A lawyer could argue that your employee would have avoided the vehicle that ran the red light if your vehicle had been equipped with proper tires. Or the lawyer could try to use the bad tire as evidence that you are a negligent person who doesn't care about the condition of your vehicle.)

There is one more thing you should understand about these kinds of cases: after an accident, many people — and especially lawyers — will do a lot of "Monday morning quarterbacking." Even if a tire on your vehicle had a bald spot on the side closest to the vehicle, where it was unlikely that anyone would have seen it, a good lawyer can make you look like a degenerate employer. Just imagine the attorney pointing to a woman in a wheelchair saying, "She would still be walking if this employer had just taken two minutes to take a close look at the tires on his company vehicle once in a while."

Reducing the Likelihood of Successful Claims

What can you do to reduce the likelihood of successful negligent maintenance claims? Obviously, the quality of your vehicle is the focus of these claims. Thus, taking steps to ensure that your vehicles are adequately maintained and documenting that you have taken those steps is usually your best defense. Here are some things that can help you to protect yourself:

  • Again, obtain and maintain adequate insurance on all of your vehicles. Ask your insurance agent about any vehicle safety programs he or she can recommend.
  • Establish vehicle policies that instruct employees to report any problems with your vehicles immediately, and direct them not to drive any vehicles in an unlawful or patently unsafe condition. Be sure to do something about reported problems as soon as possible.
  • Conduct periodic maintenance and safety checks on your vehicles. Even better, have a qualified third party — such as a certified mechanic — do the checks. Keep a file of papers documenting the fact that you have done these checks. You can use those documents to help convince a jury that you are not negligent about the safety of your vehicles.
Tools to Use

If you are concerned about keeping your vehicles in good condition, and documenting the fact that you conduct regular vehicle inspections, you should consider downloading a copy of the checklist for evaluating used vehicles from our Business Tools.

The checklist is a handy two-page size and includes spaces for any comments you want to make. You can also give a copy to a mechanic whom you trust and ask him or her to inspect your vehicle.

Setting Vehicle Policies to Reduce Employer Liability

There are numerous good reasons for having a vehicle policy if you have employees using your vehicles, but arguably the most important is that the right vehicle policy can help you reduce respondeat superior liability. The term "respondeat superior" is a legal way of saying, "As long as your employee is using your vehicle to perform work for you, I'm holding you responsible if the employee gets into an accident with that vehicle." Therefore, if your policy prohibits employees from using your business vehicles for personal use, and for example, an employee gets into an accident with one while transporting some paint the employee was going to use to paint his house, it's easier to argue that you are not responsible for the accident.

Suggestions For Drafting Vehicle Policies

Drafting a vehicle policy is the best way to set and communicate the rules regarding employees' use of vehicles. Here are are a few suggestions for drafting vehicle policies that meet your needs:

  • Be restrictive, but practical, about use of your vehicles. The less your employees use your vehicles for personal use, the better. Less personal use usually means less mileage put on your vehicles. Less personal use also makes it less likely that you'll end up liable for accidents that your employees could get into while doing things, like moving their furniture, that don't generate profits for your company.

    On the other hand, a certain amount of personal use may be inevitable. One example is the employee who stops by McDonald's for lunch between work jobs. Another example is where an employee's home is closer to a work site than your company office. In such a case it may be more practical to let the employee commute to work in your vehicle.
  • Use firm, but positive, language. Unless your employees take your policy seriously, it doesn't do any good. When you draft a vehicle policy, therefore, it usually helps to indicate what may happen to employees who violate the policy. Because different violations of the policy may call for different consequences, don't be too specific unless you need to be. For example, your policy could use phrases like, "Unauthorized personal use of a company vehicle may result in loss of vehicle privileges, or more serious discipline up to and including discharge..." and "Use of company vehicles while under the influence of alcohol or illegal drugs will result in immediate termination." Remember that even if your policy describes serious consequences for employees who violate the policy, you can still present the policy in a positive way.
Example

You could include an introduction to the policy that says something like:

"Our company vehicles cost a lot of money to purchase, maintain, and insure. When employees use company vehicles for unauthorized purposes, this drives up our vehicle costs in many ways, and it hurts the company's bottom line. This hurts us all because it means less money for such things as salaries, benefits, and product development. Therefore, please help us by observing the following vehicle rules..."

  • Have a flexible policy in place. Make your policy flexible enough to cover a variety of situations. If you list vehicle uses that are prohibited, use terms like "including, but not limited to."
  • Prohibit illegal use. Be sure to prohibit vehicle use by employees who are under the influence of alcohol or illegal drugs.
  • Require notice of legal drug use. To reduce the chances of a successful negligent lending of a vehicle claim being made against you, consider a provision in the policy that will alert you when an employee is under the influence of a legal drug that impairs driving. (For example, an allergy medicine that causes drowsiness.) Be careful about having employees tell you about such things unless you are prepared to have someone drive in their place. The worst thing you can do is let an employee take the wheel after the employee has specifically told you that he or she is unfit to drive.
  • Enforce your policies. Be prepared to enforce your vehicle policies by disciplining your workers.

Tax Consequences of Vehicle Policies

Good vehicle policies help limit the tax consequences of having employees use vehicles. The IRS is wary of people who try to lower their income and payroll taxes by negotiating with their employers for fringe benefits — which these people assume are non-taxable — instead of higher salaries. For this reason, the IRS has special rules requiring employers to report the fringe benefit associated with having a company car as taxable compensation. If it is practical for you to establish vehicle policies that restrict personal use of your vehicles by employees, it may save you the hassles of withholding the value of vehicular fringe benefits from employee paychecks, and sending that money to the IRS.

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