Borrowed Servant Doctrine: Risks Associated with Asserting Control
Temporary workers (“temps”) are a part of many businesses. Some companies use temps to fill a void left while an employee is on leave, others utilize temps in determining whether or not to offer a permanent position, and still others have temps as part of their everyday business functions. No matter what the reason is, when you bring a temp into your workplace, exerting too much control over him could lead to an increased risk of liability.
Temps are typically hired and made employees of a temp agency. They are then placed within a business as an independent contractor. As long as they are employees of the temp agency, the temp agency can potentially be liable for the temp’s actions. However, if the business in which the temp is placed begins to exert control over that temp, the employer/employee relationship may shift, opening the business up to liability. This is known as the borrowed servant doctrine.
In a recent Texas Court of Appeals case, Davis-Lynch, Inc. v. Asgard Technologies, LLC, Davis-Lynch, Inc. (“DLI”) brought suit against its staffing company, Asgard Technologies, LLC (“Asgard”) for negligence, breach of fiduciary duty, and breach of contract. Asgard placed a temp at DLI as a receptionist. At all points in time, this temp was an employee of Asgard. After 2 years, DLI moved the temp to the accounting department and eventually promoted her to head of accounting. While in the accounting department, the temp allegedly embezzled over $15 million from DLI.
One claim DLI brought against Asgard was respondeat superior. This claim would allow DLI to hold Asgard, as the temp’s employer, liable for the actions of its employee. Had DLI been successful on this claim, it would have allowed it to recover the embezzled $15 million from a company much more likely to be able to pay. The borrowed servant doctrine prevented this from happening.
The borrowed servant doctrine states that the employer that has the right to direct and control the actions of the employee is vicariously liable for the employee’s actions. Since the temp had been moved to accounting, she reported directly to DLI for day-to-day work, accounting issues, and personnel issues. She was also trained by DLI employees. Asgard had no involvement with the temp’s transfer to accounting, and Asgard personnel in the accounting department did not report to Asgard. The court held that it was DLI, and not the temp’s employer, Asgard, who had the right to control Moreno. Therefore, Asgard could not be liable for the temp’s theft under a respondeat superior claim.
This case is a perfect example of why your company should be careful as who it treats as employees. Drafting employee and independent contractor agreements can be a helpful way to define the business relationship. If there is a shift in the workplace between positions, titles, or control, seeking out legal advice could save you from unwanted and unexpected liability later on.