Employer Liability for the Acts of Employees

In our previous post, we discussed general rules applicable to the transportation of cannabis both across and within state lines. Here, we discuss the issue of who is responsible when an accident happens – or worse, an intentional wrongful act is committed – by an employee driver or a third-party service engaged in the legal transportation of cannabis. It is important for business owners to understand the protections and liabilities embedded in various employment relationships and establish appropriate procedures for protecting against liability for accidents, injuries, or damages caused while engaged in the transportation of cannabis, as well as other work-related activities.

I.   Unintentional Acts

When a driver unintentionally commits an act that causes injury or damage, the law of agency determines who is responsible for the resulting damages.

The law of agency states that a principal (the owner of a licensed marijuana business) will be held responsible for any unintentional accidents, injuries, or damages caused by their agents (employee drivers) so long as the agents are acting within the scope of their duties as an employee. An agent is acting within the scope of his or her duties as an employee when he or she acts “on the principal’s behalf and subject to the principal’s control.” 3rd Restatement, § 1.01. However, activities of employees that are not expressly authorized by the principal can still fall within the scope of employment and subject the business owner to liability.

In order to determine if non-authorized activity of an employee falls within the “scope” of his or her employment for the purpose of imposing liability on a business owner, courts analyze whether the employee’s activity constituted a frolic or a detour from his or her duties. If the court finds the activity the employee was engaged in at the time he or she caused damages was a “detour” – that is, a mere departure from an assigned task – it will decide that the activity was within the scope of the employment and assign liability to the principal. However, if the court finds that the employee’s activity occurred during a “frolic” – a new and independent journey outside the scope of the agency – then the principal-licensee will not be held liable for damages caused by his or her agent-employee.

For example, consider a state in which cannabis transportation and delivery is permitted to be conducted by employees among licensed businesses (e.g. Oregon). In this state, a licensed marijuana business owner Owen properly sends employee Ewing to deliver cannabis to a lab testing facility. On his way to the facility, Ewing is driving along a road and momentarily looks away from the road to send a text message on his cell phone, rear ending another car, and causing the driver of that car to go to the hospital for medical treatment. In such a case, Owen would likely be held liable for the damages caused by Ewing’s negligence (the act of text messaging while driving) – including the repair of the car, medical bills, and others. This is because Ewing was acting with the scope of his agency as an employee driver by driving the vehicle to the facility at the time his negligence caused injury.

However, in this same scenario, if – instead of text messaging while driving – Ewing drove thirty minutes off-route to pick up his dry cleaning and t-bones another call while pulling out of the dry cleaner’s parking lot, the court will have to decide whether Ewing’s actions constitute a frolic or a detour, and assess liability accordingly. If the court decides that Ewing’s side-trip was a detour, a mere departure from his assigned task of driving to the testing facility, then the court will hold Owen responsible for the damages Ewing caused. On the other hand, if the court decides that Ewing’s side-trip was a new and independent journey unconnected to his assigned task, then the court will hold Ewing responsible for the damages he caused.

II.   Intentional Acts

With respect to intentionally wrongful acts, the courts reject this frolic-detour framework described above altogether. Instead, to determine whether an employee’s actions subject the business owner to liability, courts employ one of two tests: (A) the motivation test, or (B) the work-related test.

In the former, the motivation test, the principal business owner is liable for the intentionally wrongful act of his agent employee if the intentional wrongful act was committed by the agent for the purpose of promoting the principal’s interest. In the latter test, that work-related test, the principal business owner is liable for the intentionally wrongful act if the wrongful act was intentionally committed within a work-related time and space, and/or if the act is natural or contemplated by the nature of the employment. Further, if a business owner expressly authorizes his or her employee to commit a wrongful act, the principal is liable for the damages the employee causes.

III.   Independent Contractors

However, the rules change greatly when the intentionally wrongful act is committed by an independent contractor a business owner may have hired, as opposed to an employee, which includes third-party transporters of cannabis. That is, generally, a business owner is generally not liable for any accidents or injuries caused by an independent contractor –­– with a few exceptions.

Independent contractors are different from employees (agents) with respect to their relationship with the principal. Unlike employees, independent contractors “are not controlled by the other nor with respect to his physical conduct in the performance of the undertaking.” Restatement (Second) of Agency § 2. Generally, because principals do not exercise the same control over independent contractors as they do their own employees, the law does not impose liability on the principal for the independent contractor’s acts the same way it does with respect to the acts of employees.

However, independent contractors can “become” agents of a principal for the purpose of liability, and business owners should be knowledgeable about how to best structure such relationships to minimize their liability. Wrongful acts of independent contractors may become the liability of principals when principals exercise an uncharacteristically high level of control over the tools, methods, and conduct of the contractor. Also, business owners may assume liability for the acts of independent contractors through estoppel. This means that when the principal’s own actions and statements reasonably cause a third-party to believe that the contractor is authorized to act as the principal’s agent, the principal will not be permitted to later claim he had no control over, or responsibility for, the actions of the company’s apparent agent.

Take the example of business owner Owen and employee Ewing again, but this time consider that Owen’s business is licensed in Washington, where licensed third-party service providers are permitted to transport cannabis within the state. If Owen engages Ewing as an independent contractor through Ewing’s Cannabis Delivery Co., a third-party transportation service, to transport Owen’s product to the testing facility and Ewing – driving a vehicle belonging to his own third-party company – gets in either of the previously described accidents (caused by his text messaging while driving, or pulling out of a dry cleaners parking lot), Owen would generally not be held liable for any damages in either scenario. Ewing alone would be on the hook for the repair of the other car, the medical bills, and other injury or damages he caused. However, if Owen exercised an uncharacteristically high level of control over Ewing – by making him drive Owen’s truck, for example – the court may impose liability on Owen. Additionally, if Owen attends multiple trade conferences and represents to his colleagues that Ewing is his trusted employee, Owen may be later estopped from escaping liability for damages Ewing caused.

IV.   Practical Steps for Business Owners, Employees, and Independent Contractors

It is important to know the laws that apply to your business before offering or engaging in any cannabis transport services or activities. Knowledge of these general principles allows business owners and licensees, as well as employees and contractors, to be as prepared as possible should driver liability issues arise. Cannabis industry participants can anticipate such issues and plan ahead to minimize risk: maintain thorough transportation manifests, implement clear product tracking processes, and engage high quality employees in order to prevent problems before they even arise.