Avoiding liability for actions of third-party employees
 
Avoiding liability for actions of third-party employees
25 JULY 2016 7:26 AM

A partnership between a hotel and its business tenant, such as a restaurant, spa or fitness center, can be a good thing, but how liable is the hotel when third-party employees get into trouble?

The management of a luxury downtown hotel seeks to offer its guests on-site fitness and spa facilities, so it enters into an agreement to lease space to a business that provides these services, and it promotes them as an amenity to hotel guests.

The hotel would be able to leverage the services of the spa and fitness business to offer an additional amenity to guests and capture additional revenue. The fitness and spa center would benefit from the patronage of travel-weary hotel guests seeking rejuvenation. From a business perspective, it’s a win-win-win for all involved.

These types of business relationships between operators and third parties are hardly newsworthy. Hotels often lease space to restaurant, retail and service businesses to provide additional revenue from the property and offer its guests amenities without the expense of managing and staffing them.

So what could possibly go wrong for the hotel owners and its management company?

A recently filed lawsuit caught my attention. The plaintiff—an out-of-town guest at a luxury hotel—alleges she was sexually assaulted by a staff member employed by a third-party spa and fitness center. The suit names the hotel’s owners, the management company operating the property and, of course, the fitness and spa company and its staff member as defendants.

The hotel owners and management were not indifferent to the manner in which the spa and fitness center operated, including its employment practices. According to the complaint, the lease agreement included provisions that employees of the tenant fitness and spa business should comport to standards set by the personnel policies and training of the hotel, and the hotel reserved the right to order the spa and fitness center to reassign or remove its employees for violating these policies.

Nevertheless, even in this kind of joint arrangement governed by careful performance terms, businesses have limited control over the employment practices of third parties. Sure, a violation of the terms might be the basis of a breach of the lease agreement; however, the more pressing question is what is the extent of liability—if any—of the hotel owners and management for the actions of the spa and fitness center employee?

Liability for employee wrongful acts
The fitness and spa business’s potential liability is much clearer. Sophisticated operators are familiar with the duty to screen employee applicants and to avoid hiring and terminate employees who might pose a threat to guests. Employers can be found liable for the wrongdoing or negligence of their employees under the legal doctrine of respondeat superior, which is Latin for “let the master answer.”

This theory is well established in most U.S. jurisdictions, and it says that the employer can be held responsible for damages caused by the employee in the “course and scope” of his or her job.

Negligent hiring and negligent retention also can be the foundation for claims against operators, when guests—or other employees—are injured by the wrongdoing or negligence of an employee. If it could not be proven that the wrongful act was committed in the course and scope of the employee’s duties, an adequate investigation into the employee’s background during the hiring process might be able to show he or she had a history of dangerous driving, theft, violent behavior, etc. A claim of negligent retention might be supported if it could be shown that employer became aware of the employee’s wrongful acts after hiring, and continued his or her employment in spite of the risk to others.

Foreseeability is at the heart of third-party liability
What about the hotel’s liability for the acts of employees of the spa and fitness center?

Hotels have a common-law duty to protect their guests from foreseeable harm. A breach of that duty would be the basis for a negligence claim. And at the heart of any legitimate claim for liability stemming from the acts of third parties—including other guests and non-guests—is “foreseeability.”

Also, as a general legal principle, a business owner is not liable for the wrongdoing or negligence of a third party unless the risk of the wrongful act is sufficiently foreseeable to justify imposing a duty on the business owners to protect guests while they are on the hotel property. In other words, would reasonable owners or managers be able to anticipate the wrongdoing or negligence before the act?

In the case of the spa, there are so-called “bad facts” that might support the plaintiff’s claim that the owners or management should have foreseen the spa employee’s acts. Perhaps the hotel had become aware of the spa employee’s history of wrongdoing or negligence. Or perhaps guests had complained to front-desk staff about the questionable behavior of spa staff. And, in either case, perhaps hotel management failed to investigate and address the matter, and simply continued to offer the spa as an amenity and expose guests to potential harm.

On the other hand, the hotel’s defense team might argue the acts were not foreseeable and that management sought assurance that the spa employed careful hiring and retention practices before entering a joint venture or enterprise, and there was no evidence that the hotel operator or its staff were aware of the third-party employee’s threat to guests. In summary, any evidence that tends to show the bad acts of the spa employee—if proven—were not foreseeable to the hotel would support the hotel’s defense that it took all reasonable steps to protect its guests against foreseeable harm.

A word about indemnification
If the relationship is formalized and in writing, the agreement could include language in which the fitness and spa company agreed to “indemnify” the hotel and management companies against future damage or liability for claims against the wrongful acts of its employees.

The language wouldn’t necessarily prevent the hotel company from being named in the suit; however, if damages were awarded, the indemnifying party would assume the responsibility for paying a damages award. Of course, the commercial general liability insurers of both the hotel and the other business would want to review this language, as well.

Lack of a formal agreement would not necessarily insulate the hotel from liability. An injured party might claim liability via “joint enterprise,” in other words, an informal relationship between two or more parties in which each party contributes resources for a common purpose. For example, the hotel informally agreed to refer business to the spa, and the spa informally agreed to provide discounts to hotel guests, with nothing in writing.

The take-home points
Cooperative relationships such as described above allow properties to leverage third-party business expertise and resources to provide both additional attractive amenities for guests and revenue. They do not relieve the owner’s or operator’s duty to protect guests from foreseeable harm resulting from the wrongdoing or negligence of third-party employees.

Barry Shuster JD, MBA, MSB, is an attorney, editor and interim chair and visiting associate professor at North Carolina Central University School of Business, Department of Hospitality & Tourism Administration, where he teaches courses in hospitality law & ethics and hospitality finance.

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