Friday, June 6, 2014

Indemnification

Back in the early 1990s I attended a class "What Every Employee Must know about the Legal System"

This post is a quick recap of what I remember.

Indemnification


Many employees think that they will be indemnified by their employer as a matter-of-course.  That is wrong.

Employers do not indemnify employees.  Employers defend policies and procedures.  The employee will be defended as a byproduct of the employer's defense of those policies and procedures as long as the employee can document that he/she followed those procedures.

Joint-and-Several Liabiliy


People mistakenly assume that normal logic applies in the legal area.  It does not.

Suppose Sally spilled hot coffee on Smedley T. Wakenfuss's prize poodle and burns result.  Smedley's lawyer files a suit claiming that Mr Wakenfuss suffered $30M dollars of damage and that Sally, the server, was 90% responsible for the damage and Joe's Coffee was 10% responsible for equipment that produced excessively hot coffee.

Smedley's lawyer wins.  Sally, on paper owes $27M and Joe's Coffee owes $3M.  Sally has no money.  How much money does Smedley receive?

Smedley gets $30M, all paid for by Joe's Coffee.  Joe's Coffee is responsible for extracting the $27M from Sally.

The legal reasoning is that after the judgement but before the check is written Smedley is out $30M (the damages) and had 0% responsibility.  The balances of justice are somewhat more level if Smedley is "made whole" and the party that had some culpability is out $27M, but holding an IOU.

From the lawyer side, the game becomes a matter of creating a list of litigants that includes the egregiously guilty and at least one with deep pockets who was positioned to receive at least one splatter of fertilizer.

Joe's Coffee will defend Sally if she was following policies and procedures because policies and procedures are the company.  The company may have assets and it may have competitive advantages but the P&P are the documented embodiment of the company's culture.  The company must defend those P&P to the gates of Hades if it is to continue to exist.  And Sally will be defended as an unintended consequence of that.  Even if the store manager hates Sally.  It is not a matter of favoritism or "liking".  It is a matter of company survival.

But what if they lose?


So you ask, but what if Joe's Coffee loses?  If Joe has decent legal representation Joe will file a counter-suit.  You should have been thinking, "Why did Smedley have his dog in the coffee shop?"

Right....Smedley very likely has some degree of responsibility for (defined here as the ability to influence or negate the event) the chain of events.  The legal reasoning, that Smedley be made whole due to his having zero responsibility becomes vulnerable if/when Smedley is proven to have exercised influence that led to the "accident".  At that point he no longer has "zero" guilt.

Perhaps Smedley thought it was OK to bring his dog into the shop because it was a "prize", hypoallergenic poodle.  Perhaps he thought it was OK because it was on a leash.  Smedley's claim becomes toast when it is shown that Sally tripped on the leash that was attached to the dog that was prohibited from being in the shop.

Back to P&P


The employer is under no obligation to indemnify (pay for legal representation) an employee if the employee did not follow P&P.

In fact, they might vigorously throw that employee under-the-bus to refute the contention that the company had even 10% liability.  Should that happen, Sally is not only fending off Smedley, she must also defend herself against her former employer.

Suppose Sally did not dispense the coffee into the cup, add the cream and snap down the cover (as trained).  Suppose she decided to bring the boiling pot of coffee over to fill Smedley's cup and was momentarily distracted by the smart phone that she was not allowed to carry (shop rule) while on the clock.  In that moment of distraction she dumped 3 quarts of boiling water on the poor poodle.

Joe's Coffee immediately fires Sally....To demonstrate that they follow procedures and don't take non-compliance of P&P lightly.  Then they interview all of the managers to see if they "looked the other way" while Sally answered her phone or walked about the shop with a full pot of coffee.  If they say that they looked the other way, then their jobs are also in jeopardy....but of course they will claim it must be the first time Sally ever violated either of those rules.

So the bottom line is that employees have no guarantee of being indemnified by their employer.  The employer defends policies and procedures.  You will receive some degree of protection if you can prove you followed the P&P.  Expect bad things, very bad things to happen if you violate P&P and an accident happens on your watch.

No comments:

Post a Comment