In a recent Shanghai court case, a Shanghai company was held liable for RMB1,000,000 for a wrongful death caused in a traffic accident by a driver temporarily hired by the company’s employee.

To handle an intellectual property matter in Hebei Province, an employee working in the Shanghai company’s intellectual property protection department contacted a driver he knew and asked the driver to take him to Hebei. The driver was a part-time employee of a car rental company and drove the employee to Hebei in one of the car rental company’s cars; however, no contract was ever signed with the car rental company. During the trip, the car was involved in a traffic accident killing one person. The police concluded the driver hired by the Shanghai company’s employee was responsible for the accident.

The deceased’s family sued the employee and the Shanghai company. The Xuhui District People’s Court of Shanghai originally held that the Shanghai company was not liable for the driver’s conduct, but on appeal, the Shanghai First Intermediate People’s Court reversed the original judgment and remanded the case for new trial due to the lower court’s failure to ascertain facts and its erroneous application of law. At the conclusion of the new trial, the Xuhui District People’s Court of Shanghai held that an employment relationship did exist between the Shanghai company and the driver because the Shanghai company’s employee, as the representative of the Shanghai company, hired the driver with pay to perform a job duty. Thus, the driver was deemed to work for the Shanghai company, which made the Shanghai company liable for the death caused in the accident during the performance of those job duties.

Key Take-Away Points:

As shown by this case, a company might assume tort liability for the actions of an individual directly hired by its employee for the purpose of performing the company’s work assignment. Under tort law, the company could claim compensation from the employee (i.e., the driver in this case) if the employee caused the injury intentionally or through gross negligence. However, a more prudent approach would be to mitigate this tort risk completely by directly contracting with a corporate or institutional service provider rather than directly hiring or paying an individual independent contractor, because there is always a risk that an individual independent contractor will be deemed an employee of the company.