When Contract Should Preempt Tort Remedies: Limits on Vicarious Liability for Acts of Independent Contractors

Article excerpt

I. INTRODUCTION

The current law regarding whether a company can be held vicariously liable for the torts of independent contractors is a morass. Companies do not know in what circumstances liability will attach. Uncertainty and inconsistency are rife and well documented.2 As the use of outsourcing continues to increase in the United States, an accurate assessment of the potential liability risks associated with independent contractors has become even more important. Companies in the United States are increasingly using independent contractors who are based overseas to perform a wide variety of functions, including not only customer service "call centers," but also medical services, such as radiology and medical imaging diagnostics.3 More than ever, the law of vicarious liability needs to be predictable so that companies can make informed operational choices about who they hire. Companies should know what liability risks they reasonably face - both to assess whether the benefits of an undertaking outweigh the costs, and, more pointedly, to assess whether to use independent contractors rather than hire their own employees, over whom they have the greatest control. Currently, business choices simply fall hazard to guesswork, or worse, 'inflated risk assessment,' resulting from a conclusion that there is always a risk that a company will be held liable for the acts of independent contractors, regardless of the circumstances.

This Article evaluates when, if at all, it is appropriate to hold companies that hire independent contractors liable for the acts of those independent contractors. Part II provides background regarding the current state of the law of vicarious liability, including its historical underpinnings, and the factors that contribute to unpredictability. Part III analyzes and critiques alternative theoretical models that scholars have advanced to address the problems in the current law. Scholars contend that a desirable model of liability is one that serves the oftstated "twin" goals of tort law: deterrence and compensation.4 An important addition to these goals, however, which many scholars seem to overlook, is that tort law should also improve - or at least not hinder - economic efficiency. The current system of vicarious liability, as well as the proposals that have been advanced by scholars, do a poor job of advancing all three goals. Part IV of this Article advances an alternative theory called "Contract Preemption." Under this theory, torts are divided into two categories - those involving injury to a third party that entered into a contract relationship with the independent contractor and was ultimately injured, and those torts involving injury to a third party that has no privity with either the independent contractor or the company that hired the independent contractor.

This Article's primary thesis is that the model of tort liability necessarily should be different in these two very different constructs. The current vicarious liability model, as well as the alternative theories that have been advanced by scholars, have made no distinction between these two categories of torts because their focus is solely on the relationship between the company that hired the independent contractor, and the independent contractor. That relationship, while important, should not be the sole focus. Any model of tort liability should also consider the relationship between the independent contractor and the third party that is ultimately injured by the independent contractor. Under the Contract Preemption theory, parties who are injured in the first category of torts, where there is a contract relationship, should be limited to seeking recovery for their injuries from the independent contractor, but subject to one condition - the tort victim must have had clear notice that he or she was entering into a contract with an independent contractor. So long as the victim had clear notice, no vicarious liability can attach to the company that hired the independent contractor. …