When A Corporation Is Not Liable For Its Employees’ Actions Under New York Law November 30, 2009

Although we’ve written about the concept of an employer being held legally responsible for the acts (or omissions) of its employees that were committed in the performance of their job (see, “Why A School Was Deemed Responsible For A Science Experiment That Went Awry“), there is a very important exception to this rule that should be relatively self-evident, and is grounded in notions of fundamental fairness: the employer, or principal, should not be held liable for wrongful actions (such as fraud) that the employee  committed solely for his own benefit, and outside the scope of his employment (or agency). In legal speak, this concept is referred to as in pari delicto, or, the “adverse interest” doctrine.

A word of caution is in order, though, because New York’s courts have construed this exception  very narrowly - the adverse interest exception applies only when the agent has “totally abandoned” the principal’s interests and is acting entirely for his own or another’s purposes (see, e.g., Center v Hampton Affiliates, 66 NY2d at 785).

And, since this is an affirmative defense, you can probably guess who has the burden of proving that the employee acted for entirely selfish reasons: that’s right – the employer.

Jonathan Cooper is a New York Business Litigation and New York Commercial Litigation Lawyer with a focus on New York breach of contract and New York business fraud claims before the Nassau, Queens, Brooklyn, Bronx, Westchester and Suffolk County courts of New York State. For more information, feel free to contact his Long Island office at 516-791-5700.

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