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How Can You Avoid Liability When Your Employees Go Rogue?

June 10, 2015 by Jim Radogna

How Can You Avoid Liability When Your Employees Go Rogue?

A recent news story highlighted how a dealership, where eight former managers and salesmen had been criminally charged for unfair and deceptive acts and practices, now faces a civil lawsuit from customers who claim the dealership was involved in a criminal enterprise during the purchase of their car. The suit also seeks to be certified as a class-action case to represent all customers who may have been injured in transactions with the dealership.

The lawsuit was filed in Federal Court under the Racketeer Influenced and Corrupt Organizations (RICO) Act (wait, isn’t that just for gangsters???). The complaint alleges that dealership employees “perpetrated a pervasive scheme to defraud customers, and in doing so formed an enterprise engaged in organized crime."

While the dealership steadfastly maintains that the lawsuit has no merit because “it never tolerated wrongdoing”, the question remains can they prove it?

Here’s the challenge - under a legal doctrine known as "respondeat superior", an employer will generally be liable for the actions of its employees if the employee was doing his or her job, carrying out company business, or otherwise acting on the employer's behalf when the incident took place. This is true even if the employer had no intention to cause harm and played no physical role in the harm.

The good news is that if an employer can convince a court or regulatory agency that the employee acted independently or purely out of personal motives, the employer might not be liable.

So what’s it going to take for a dealership to persuade an adversary that they’re not liable?

A key factor in avoiding liability for the actions of “rogue employees” is the ability to demonstrate a “good faith effort” at compliance. US Supreme Court rulings in the late 1990s set a precedent that employers could avoid or reduce liability if they exercised “reasonable care” to prevent and promptly correct noncompliant employee behavior. Reasonable care includes establishing compliance policies and procedures, training all employees on those policies, and documenting employees’ understanding of the policies and procedures. This is especially important during litigation – the proof that an offending employee knew and understood a given policy but chose to ignore it.

We certainly wish this dealership luck in defending this lawsuit and hope that they can demonstrate a good faith effort at compliance. As they say “Bad luck is what happens when lack of preparation meets a challenge.”

Are you ready to avoid "bad luck" and ensure your employee training policies are up-to-date and can withstand audits or incidents?  Contact [email protected] today.




Posted in: Sales & Finance Compliance Tags: employee training, employee training records, policy procedures, rogue employees