Work Smart

This exception is really just a specific example of the first exception--namely, personal commission of a tort. Here, personal liability is predicated on the fact that the owner has personally committed a tort (i.e., the improper hiring or supervision of the employee) that is separate from, and in addition to, the tort committed by employee.

In addition, while this exception, too, is usually incorporated in state statutes governing professional corporations, LLCs and limited liability partnerships (LLPs) operated by professionals, it will apply in all states as a matter of common law and will apply to all businesses, not simply to those businesses providing professional services.

Smith & Jones, LLC, a law office, hires a new attorney, Stevens, as an employee. Smith does all of the hiring for the firm. He interviews Stevens twice before hiring him. Smith makes sure that the LLC hires Stevens, so that the LLC, rather than Smith or Jones personally, will be the principal in any transactions initiated by Stevens.

Let's say that, ten months later, Stevens commits an act of malpractice, costing a client $400,000 in losses. Then, as it turns out, Stevens actually had dropped out of law school in his first year. This fact was never discovered by the firm, as Smith found him knowledgeable concerning the law during the two interviews and never conducted a background check.

It is likely that Smith will be sued personally for this loss due to negligent hiring.

Jones should have no personal liability for negligent hiring, because he did not personally participate in the hiring of Stevens. However, both Smith and Jones may face personal liability because it is likely that they each will have committed yet another personal tort--negligent supervision of Stevens.

In addition, of course, Stevens will be personally liable for his act of malpractice, and the LLC itself will be liable under the doctrine of respondeat superior. Nevertheless, the greatest concern to Smith and Jones will be the fact that all of their personal assets outside the business will now be exposed to liability for this tort.

Had Smith conducted a proper background check, he would have avoided this liability. Let's say he did and finds that Stevens' background passes muster. In addition, assume the firm had instituted reasonable measures to train and supervise Stevens. Here, Smith and Jones should face no personal liability for malpractice committed by Stevens, because they will not have personally committed a separate act of negligence and because the LLC is Stevens' principal.

Of course, with a proper background check and proper supervision, the likelihood that Stevens will commit a tort is significantly reduced in any event.