Should an Employer have Civil Liability

When business and social ethics is not enough to guide corporate actions, society as a whole, relies on the judicial system to help define acceptable business practices and punish violators. From the American Industrial Revolution to the current globalization business practice, new laws have been enacted to prevent corporate crimes throughout the years. Criminal acts can take forms of fraud and misappropriation, environmental and safety hazards, and antitrust. [1] Many corporations that generate large profit become under regulated because of the size and complexity of the organization, thus, many corporations have been held liable in for monetary damages and fines for employees’ corporate crimes. In addition to financial loss, corporations suffer from tarnish reputations and loss of stakeholders’ trust. Employers must have civil liability for criminal acts of an employee if (1) the act was committed while employed under the organization and when (2) the employee cannot pay the monetary fines in damages for their criminal action to discourage criminal behavior within the organization.

Employers have liabilities over the acts of their employees even if employees acted without authorization from the employer. Under the doctrine of respondeat superior, a corporation a liability if an employer committed an illegal act under their employment, through the organization, and the act was to seek benefit. [2] Employers have a duty of care to select, train, and retain employees that are fit and suitable to the company and the public. If a criminal act was committed by an employee in the workplace, the employer has breach their duty of care to select, train, and supervise the employee. [3] Employers hire employees to represent them; in this case, even if the employee disobeys the employer’s requests, the employee is still acting under the representation of the employee. If an employee’s criminal act resulted in damages, the employer should be held liable for hiring an unfit employee to represent the company. For example, if a convicted child molester was hired at a children’s day care center, and the employee was caught molesting a child in the company, the employer was be held liable for the employee’s action because of their negligent hiring. Negligent hiring holds the employer responsible and liable to take preventive measures from exposing dangerous individuals to the public such as convicted child molesters. [4] Employers are liable for negligent hiring because they unknowingly hired an employee that was willing to commit a crime against the company and/or the public. Such crimes could have been avoided with the proper background check and screening. Negligence hiring is not limited to convicted felons, but also of hiring unfit employees. Employers should seek to hire employees that have the ability to perform the job and create the least liability for the company. It is the employer’s responsible to employees that fit in to the organization needs and culture, and also willing to abide laws and regulations.

Employers should be liable for employees’ criminal acts if employees are not able to compensate the party at loss. Fraud is a common criminal act that company executives commit to increase their pay out. Most corporation fraud takes place in accounting to deceive the public of the company’s actual income and profits, or tax evasion. Accounting fraud causes the public to believe the company is doing well so people will be interest in buying their stocks at a premium price. Managers and executive may commit criminal acts that result in a larger monetary damage than they can pay. Corporation liability is justified on the grounds that managers do not have enough wealth to pay for social damages. [5] In the case of SCE vs. WorldCom, the company was ordered to pay an amount of $2,250,000,000 in penalties and to victims of the fraud. [6] Although the fraud was committed by the CEO of WorldCom, Bernard J. Ebbers, the damages were paid out of the WorldCom’s pocket because he was not able to compensate for damages and his criminal actions were acted under WorldCom. Vicarious liability is the strict liability of a principle or the firm for the misconduct of an agent or an employee. [7] Companies and employers are directly responsible and held liable for all of their subordinates’ actions, therefore employers should be responsible for the civil damages that incurred by the employees.

Prosecution should not only be limited to individuals, but corporations should also be prosecuted in order to guide and maintain business morals and ethics to a high standard, to avoid future criminal acts, and to control employees’ positive behavior to uphold the law. If the penalty is passed on the firm, employees will be affected from either loss of job, lower salaries, or stricter regulation to their job. Penalties are not limited to cash fines, but also include probation, debarment, and/or loss of license. [8] Probation periods may be lengthy and stressful to employees because it involves a government agency closely monitoring their actions. Debarment and/or loss of license may result in a company’s loss of profit or market share because they were not allowed to sell or manufactured their product. As a result of penalties and fines, the WorldCom filed for bankruptcy and most of the employees lost their jobs. Penalties and fine should be imposed on the employer because it is a direct correlation to the employees’ job security and salaries. If employees are aware of the consequence of criminal act in the workplace can affect their jobs, employees would be motivated to abide the law.

Corporate prosecution is necessary to uphold laws and to ensure public trust in Domestic Corporations. In the case of Newby V. Enron Corp. case, executive individuals and the corporation was both prosecuted for fraud. [9] Enron instantly lost their reputation as a good and profitable company and competitor. As a result of Enron’s fraudulent activities, hundreds of employees immediately lost their job and thousands of people were impacted by the billion of dollars lost to a few executives that allowed the fraudulent activities. Criminal acts caused distrust in public towards corporation because corporations handles large amount of money that was lost through criminal acts. As the government investigates, punish, and set preventive measures, the public, including customers and investors would be wary to do business with American corporations because of their bad morals decisions. The economy would be hindered by the loss of public interest in American Corporations. For example, after the Enron scandal was made public, their stock severely plummeted in one day, making the corporation virtually worthless. Corporate liability ensures the consumers and pubic that someone will be held responsible for the damages. The public and consumers should trust the government to protect them from corporate crime and they can be compensated for their damage. To enforce laws and regulations to corporations, the government can preserve the U.S. economy and instill trust in consumers.

Society as a whole can benefit from employers being held liable for their employees’ actions. Progressively, new laws hold employers liable for acts that happened under their supervision. Corporations are quite heavily involved – and by all accounts more and more so – in setting and shaping the law and its is exactly here where moral issues are increasingly evaluated and ethical decision-making enacted. [10] In order to improve the business ethics and moral standards, employers will have to sustain to heavy regulations and laws to provide stakeholders with confidence that criminal act can be eliminated. Sarbanes Oxley Act of 2002 applies stricter regulation of corporations accounting records and financial reporting as a result of WorldCom and Enron scandals. [11] After an unfavorable result to public, the government investigates and determines if the acts were wrongdoings and if the damages to the affect majority of the public. New laws and regulations are implemented try to prevent the situation from happening again. New laws can only be implemented after the “crime” was committed. Laws and regulations that hold employers liable for employees’ acts protects that party at damage and ensure reasonable compensation either through the employee at fault and/or the employer.

Ultimately, employer should be liable for criminal acts of their employees because the employer failed to select, train, and supervise the employee in order to prevent the crime act. Employees’ criminal acts reflects of the employer because the act was committed at the workplace in seek of benefit to the company. Employer needs to be held liable for compensating damages if the employee cannot full compensate the party at loss because the criminal act was committed under the employer’ supervision. Employer liability ensures the public that a party will be held responsible and punished for the damages, which provides security and encouragement to engage in business with domestic companies.