Widget Corporation's Liability and Alternative Dispute Resolution

The Widget Corporation is facing a dispute with a Texas customer over the installation of widgets by an independent contractor, Lyle, who caused an injury to the customer's employee. Despite being an independent contractor, Lyle was still liable for his actions under the principles of vicarious liability. The Corporation has several defenses available to reduce its liability, including the fact that the installation itself is not inherently dangerous. To resolve the dispute, the Corporation can consider alternative dispute resolution methods such as arbitration or mediation, which can help negotiate a settlement and limit the Corporation's liability.

Practice of Business and ethics- extent to which the employer can be held liable for the acts of an
independent contractor
The question of the ‘course of employment’ and ‘within the scope of the duties’ when given a wide
definition includes delegation of authority, regular employment or hiring of independent contractors
on work to work basis. Although the procedural and the substantive laws binding the principle of
respondeat superior, in a strict sense, is (W.H. Anderson Company, 1961) not binding between the
employer and an independent contractor, the question of vicarious liability arises between the two,
making the employer liable for the acts of the independent contractor under certain circumstances.
When the principal who directs another to act in a particular manner, it is expected that he takes
reasonable care and caution in supplying proper goods and ensuring that the deliverables are fitted
as per safety guidelines; whosoever, he may choose to employ. In this case, the corporation had
supplied the widgets to Texas Customer as per the specifications and had given clear instructions to
Lyle to proceed with the installations of the widgets. However, due to sheer negligence the last
widget installed by Lyle gave way causing suffering and injury to the Texas customer.
This report analyzes whether the Widget Corporation is liable; and, if so to what extent and limit.
Since the business involves a number of ethical issues, it is vital to understand whether the
corporation has acted in an ethical manner and in accordance with the principles of business and
ethics. This report also analyzes whether this issue can be resolved in an equitable manner and in
accordance to the terms and conditions acceptable to both the corporation and the Texas customer.
Issues the company will face
If the company is liable for the tort committed due to the negligence of independent contractor,
during the scope of employment?
Whether the company had given clear instructions pertaining to installation and inspection of
widgets to Lyle?
Whether the company has supervised and overlooked the installation and made sure that the
widgets installed by him are fit for use and safe consumption of the customer?
Whether the corporation had taken reasonable care before employing Lyle as contractor for
installation of widgets?
Liability of the employer for the negligence of the independent contractor
As a long established doctrine of respondeat superior that the employer of an independent
contractor is immune from vicarious liability for damages to a third party for the negligent acts of
contractor, committed during the performance of the agreement. § 409, (Prosser, 1984) of the Law
of Torts, state the general Law principles governing the employer and independent contractor
wherein, the principals are not liable for the torts and acts of independent contractor. However, in
case where the where the principal has provided specifications for the independent contractor’s
procedures and processes, the principal is made liable. The independent contractor has to follow the
instructions of the principal, which will also entail liability to the principal. (Jennings, 2015) In other
words, the independent contractor steps into the shoes of the principal to carry out the duties as per

the instructions given by the principal. For which reason, the same has to be carried out by use of
reasonable care, caution and understanding.
 In this case, Lyle has carried out the specific instructions given by the contractor, which he
failed to follow; as a result of which the injury was caused. The principal is liable as it was his
duty to oversee and supervise that the work is carried out in the manner in which it has to
be carried out.
The relation between employer and an independent contractor presupposes that the employer has
to regularly inspect the work of the independent contractor to make sure that it is being performed
in accordance with the contract specification. Such supervision is a part of the employer’s duty and
will not change the worker’s status as an independent contractor (Miller, 2014). This is all the more
so, when there is reasonable danger that can be expected such as this case. In the case of Bower v
Peate, (1876) it was held that “ a man who orders a work to be executed, from which in the natural
course of things, injurious consequences must be expected to arise, unless means are adopted by
which such consequences may be prevented, is bound to see to the doing of that which is necessary
to prevent the mischief and cannot relieve himself of his responsibility by employing someone else
to do what is necessary to prevent the act he has ordered to be done from becoming wrongful ” this
holds true whether the person is an independent person, or a contractor or an employee. Similarly,
in the case of Privette v. Superior Court (Contreras) (1993) it was held that a person engaging the
services of an independent contractor to perform work that is inherently dangerous can be held
liable for tort damages when the contractor's negligent performance of the work causes injuries to
others.
 Ethically speaking, Widget Corporation owed a duty of reasonableness and care towards the
customer that necessarily entails supervision during the course and after the installation.
Having failed to adhere to the basic checklist that is required of every employer, the
corporation has failed to exercise its duty of due care and reasonableness.
In determining whether the employer can be held responsible for he acts of the independent
contractors, it is vital to examine the nature or work and the relationship binding the two. Although
the rules are prescribed by the IRS, similar parameters are adopted to measure the nature and
extent of the liability of the employers over independent contractors. (IRS, 2016) The criteria used by
the courts in determining whether a worker has the status of an employee include the following
questions:
 How much control can the employer exercise over the details of the work?- in this case, it is
the corporation which has the wherewith alls with respect to the installation methods,
stating considerable control over the details of the work
 Under whose direction and instructions is the work being carried out?- in this case,
employer’s direction is a must signifying employee status
 Whether the employer supplies the tools with respect of work?-since it is the corporation in
this case, it signifies the status of employee (Roger LeRoy Miller, 2014)
Lyle having committed this act of negligence during the course of his business with the
corporation also fulfills all the above parameters required for independent hiring of contractors
for which the principal can be held liable.

Adding to the above points in determining the control, an employer-contractor agreement provides
the evidence of extent of control. The contract gives an input into the contractor’s methods by
requiring the contractor to carry out his work as per the terms and conditions specified by the
employer. The requirements for such determination have been laid down in Joseph v Hess Oil
(2011), where it has been held that the contract though, is not a conclusive proof; can prove to be a
sufficient proof in determining control of an employer on the independent contractor.
The employer-contractor relationship which exerts significant control over the details of the work
shows a typical employer-employee relationship, as against the one who controls the more general
process by which the assignment is accomplished- who can be termed as an independent contractor.
(NJ 425, 1959)The level of autonomy, the language of the contract is a determinative factor in
assessing the relationship between the two. Applying the factors determining the relation between
the employer and independent contractor to this case, it can be established that the Corporation
had control over the methods of installation and the tools involved for the process. The wherewithal
of the manner in which the widgets are installed is determined and exercised by the Corporation,
which goes to prove that the employer is liable for the acts of the Lyle to the extent of the job
undertaken by him.
Defenses that the Corporation may take-in the light of business ethics
The Texas customer had accepted the delivery of the widgets from Lyle after inspection and
examination, is what is clear from the case. Hence, as a defense, the Corporation can state that the
customer had done the necessary formalities and gave a ‘go ahead’ signal to proceed with the
installation. Examination of the deliverables is thus a strong defense that is available to the company
to be not held liable for the injury caused to the Texas customer.
Secondly, the corporation can take a defense that the work delegated to the contractor was not
inherently dangerous in nature. By stating and proving that the widgets manufactured by the
company is not inherently dangerous by nature so as to cause loss to person and property, or injury
to others, the Corporation may be to some extent, be successful in avoiding the liability on itself.
The installation of widgets is not of a nature that could involve a peculiar danger or special risk.
(Rowlett, 2013) In order to prove that the nature of the job is not abnormally dangerous, it is vital to
state that the likelihood of the harm resulting from such installation is minimal and that there is little
or no risk of harm to person, land or chattels of others.
Extent to which the Corporation is liable for negligence of the independent contractor
The Corporation is liable for the actions and negligent actions committed by the independent
contractors both under law and equity. Although by a thumb rule, Widget Corporation is not
vicariously liable for hiring the independent contractor, it has been proved beyond reasonable doubt
that the relationship between the two is sufficiently close to make vicarious liability appropriate. This
makes the corporation liable for the breach of act committed by Lyle. However, one of the strong
defenses in this case, being that the installation of widgets by itself, is not an inherently dangerous
activity. This defense can, to a certain extent reduce the liability of the Corporation. Using the
Alternative Dispute Resolution methods, particularly arbitration and mediation, Widget Corporation

can engage the services of a qualified person to negotiate on the monetary compensatory damages
that it has to pay to the Texas customer.
Remedies available for Widget Corporation
The Corporation can resolve this issue with the Texas customer by way Alternative Dispute
Resolution i.e., arbitration, mediation and negotiation. One of the plausible outcomes that can be
expected by resorting to Alternative Dispute Resolution would be to negotiate on the terms and the
monetary damages sought by the plaintiff. It must, however be remembered that this although will
not absolve the liability of the corporation in entirety, it will limit the liability of the corporation to a
great extent.
It is therefore clear and established that although the Corporation has hired an independent
contractor in this case; it is liable for acts committed by Lyle under the given circumstances of the
case. In the present case, since the principles of vicarious liability are applicable for the injury caused
by the negligence of Lyle, the Corporation is liable to the extent of their liability. Secondly, Lyle
committed this act during the course of employment and within the scope specified by his employer,
which makes him liable under the act. Despite the application of the strict liability principles, there
are a number of defenses that are available to Lyle, which the corporation can avail in order to prove
their non-liability in the case as mentioned above.
References:
Bower V. Peate (1876) 1 Q.B.D. 321,326
IRS. (2016, November 28). Independent Contractor (Self-Employed) or Employee? Retrieved
December 10, 2016, from IRS:
https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-
employed-or-employee
Jennings, M. M. (2015). Business: Its Legal, Ethical, and Global Environment (10th Edition ed.).
Stamford: Cengage LEarning .
Majestic Realty Associates, Inc. v Toti, 153 A2d 321 (Supreme Court of NJ 1959).
Miller, R. L. (2014). How can an employer use independent contractors? In Business Law Today, The
Essentials: Text and cases (11th edition ed.). New York: Cengage Advantage Books.
Pierre P.Joseph v. Hess Oil Virgin Island Corp, 2009-00054 (United States Court of Appeals for III
Circuit December 8, 2011).
Privette v. Superior Court (Contreras), S024758 (Superior Court of Santa Clara Jul 19,, 1993).
Prosser, W. L. (1984). Prosser and Keeton on the law of torts (5th ed.). (W. L. Prosser, Ed.) Michigan:
West Publication.
Roger LeRoy Miller, F. B. (2014). Essentials of the Legal Environment (4th edition ed.). (R. Dewey, Ed.)
Mason: Cengage Advantage Books.

Rowlett, G. A. ( 2013). How To Recover For A Subcontractor’s Negligence. National Association of
Subrogation Professional , 72-77.
W.H. Anderson Company. (1961). American Trial Lawyers Association . (p. 86). NACCA.
MEMORANDUM
To: Widget Corporation
From: Legal Counsel
Re: Widget Corporation-Texas Customer
Date: December 10, 2016
Introduction
Negligence due to the act of independent contractor – Lyle, while installing widgets for a Texas
Customer.
Statement of Facts
Widget Corporation having received orders from a customer in Texas, sub contracted the delivery
and installation of the widgets to Lyle. The specifications as to the installation have been provided
vide contract agreement. After taking delivery, the customer instructed Lyle to proceed with the
installation. However, since he was running late for his son’s soccer match, he quickly installed the
last widget but did get the bolts to tighten to spec. To his dismay, the last widget was wrong and an
employee of the Texas customer was injured by the last widget installed by Lyle. The customer has
now filed suit for $ 70,000 against the Corporation.
Ethical Issues: Whether the corporation vicariously liable for the act of Lyle during the scope of
employment but due to his own negligence? Whether the CEO can be held liable in the present
case?
What are the ethical consideration and methods to resolve the dispute?
Rule:
In case of a Corporation, the structure and formation of the company ensures limited liability for all
the officers of the company. The CEO in the present case cannot be made liable for the company’s
debts or liabilities. The principle of vicarious liability, on the face of it is not applicable between the
employer and independent contractor. However, by rule of exception certain parameters are
considered by the courts to determine the nature of the employment.
a) The extent of supervision that is required to carry out the job in hand
b) Under whose direction is the work being carried out and

c) The person who supplies the tools and material required for carrying out the job
Alternative solution to the case:
One of the effective remedies that are available to Widget Corporation is to resolve the matter by
opting for an Alternative Dispute Resolution method. It could either be by means of arbitration,
negotiation or mediation. Alternatively, a summary jury trial can be opted for an equitable and
speedy remedy. In my opinion however, the Corporation has to try to resolve the matter by means
of an arbitrator or by a negotiation method. Not only is it a flexible option between the parties, but
will help save costs, time and energy besides ensuring a speedy and equitable remedy between the
parties.
Arbitration and mediation: The arbitration can lead to innovative results in dispute resolution, since
it is a result of mutual consent and negotiation between the parties. The arbitrator’s award is quick,
legally binding and is pronounced having due regard and respect to the individual claims made by
the parties.
Mediation on the other hand, can help parties resolve their disputes amicably and upon the terms
and conditions that are acceptable to both the parties. The mediator, who is a third party, only
assists the parties to achieve a fruitful solution to the problem.
Summary trial: as a quick and equitable method; albeit judicial, summary trial is effective where the
litigants are unable to settle their disputes quickly. One of the reasons could be due to the differing
expectation of how a jury will view their claims. This offers a quick, alternative and effective dispute
resolution.
Recommendation:
Having due regard to the facts of the matter, and considering the fact that the Corporation is
inclined to act in an ethical manner; it is recommended to seek an arbitration in the matter. It will
not only help save costs, but can aid peaceful negotiation and amicable settlement between the
parties. Because of its flexibility, arbitration has many advantages. On the flip side, the arbitrator’s
award is not appealable. Hence, it is vital that the parties negotiate and arrive at an effective
solution during the process of arbitration.
Conclusion:
With the number of defenses available, the Corporation has a good case for itself. Hence, an
equitable solution can be meted out with the help of an ADR.