Become a Financial Modeling & Valuation Analyst (FMVA)®. Enroll today to advance your career!
Login to your new FMVA dashboard today!

Vicarious Liability

The potential legal responsibility of one party for actions that cause harm, even if they aren’t the party that directly caused the harm

What is Vicarious Liability?

Vicarious liability is a legal term used to explain the legal responsibility one party may hold for actions that cause harm, even if they aren’t the party that directly caused the harm. Also sometimes referred to as imputed liability, vicarious liability states that any party who is into an authoritative legal relationship with another party is legally responsible if their actions cause harm to the other party.

 

Vicarious Liability

 

Vicarious Liability in the Workplace

One of the most common examples where vicarious liability comes into play is in the workplace. The company – the employer – is vicariously liable for the actions, words, and deeds of its employees, specifically when the actions, words, or deeds are conducted in the name of, or on behalf of, the company. It is true when the company or one of its employees either intentionally or unintentionally causes harm. Harm could be done to a fellow worker/employee, a client, or even a collaborative company and its employees.

Employers are often unaware that they can be held liable for the actions of one or more of their employees. Even if the employee(s) is held directly responsible for the actions that cause harm, the employer may be found vicariously liable as well.

Unless there is undeniable proof that the employee(s) acted without the knowledge or consent of the employer, or that the negligent behavior was done outside of the employee’s terms of employment with the employer, the employer can be, and often is, found vicariously liable.

 

Examples of Vicarious Liability Offenses

There are a variety of actions/behaviors that can cause harm and that an employer could be held vicariously liable for. They include, but are not limited to, the following:

  • Breach of copyright
  • Libel
  • Harassment (sexual or otherwise)
  • Slander
  • Breach of confidentiality
  • Bullying
  • Physical abuse/causing of bodily harm
  • Mental abuse

 

Third-Party Offenses and Gray Areas of Vicarious Liability

A significant amount of gray area exists surrounding what constitutes “harm.” In certain instances, actions may be taken that cause harm to the clients or customers of a company. Third-party vicarious liability can occur if it can be proven that a client or customer was caused harm in the name of, on behalf of, or under direction from, the company in question.

It’s important to note that an employer can still be found vicariously liable for an employee’s actions even after the departure of the offending employee. There’s also a substantial amount of gray area surrounding when vicarious liability should, and does, end.

 

Why Vicarious Liability Exists

Vicarious liability exists outside of the employee/employer relationship, including in areas such as the medical field and business partnerships. On a much smaller scale, someone who owns a vehicle is vicariously liable for the actions of any individual whom they permit to operate their vehicle.

The fact is that vicarious liability is designed to keep individuals and larger parties accountable and make sure that someone or some entity is held responsible for harm caused to the innocent. The reality is that vicarious liability – and all the gray areas within it – can lead to sometimes frivolous, ridiculous, and unfair legal recourse for employers, companies, or relatively innocent or unknowing parties.

 

Additional Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Contingent Liability
  • Indemnification
  • Reneging
  • Safe Harbor

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!