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EMPLOYERS CANNOT MAKE EMPLOYEES PAY FOR ERRORS OR MISTAKES

In New Jersey an employer cannot recover damages from their employee caused by the employee’s negligent errors or omissions.  Incredibly, this was not always the case. At one time, our New Jersey courts permitted employers to sue their employees to recover monies it the employer had to pay to third parties for damages caused by the employee’s negligence.  Frank Martz Coach Co. v. Hudson Bus Transportation Co, 23 N.J. Misc. 342 (N.J. Sup. Ct. 1945).  However, 16 years later in Eule v. Eule Motor Sales, 34 N.J. 537 (1961), the New Jersey Supreme Court found the proposition that an employer could seek indemnification from its employees to be “anachronistic”:

“The theoretical liability of an employee to reimburse the employer is quite anachronistic. The rule would surprise the modern employer no less than his employee. Both expect the employer to save harmless the employee rather than the other way round, the employer routinely purchasing insurance which protects the employee as well. ***”

The change in law articulated in Eule, has been applied by our New Jersey courts since then.  See e.g., Fried v. Aftec, Inc., 246 N.J. Super. 245 (App. Div. 1991) (New Jersey does not permit an employer to seek indemnity from an employee for acts of negligence causing the employer losses); Brown v. United Cerebal Palsy/Atlantic & Cape May, Inc., 278 N.J. Super. 208, (N.J. Law Div.  1994) (“The employee should not, therefore, be required to bear that cost by way of indemnification to the employer.”)

In Fried, the Appellate Division declared that, “absent a special agreement, an employee whose best efforts resulted in poor performance, causing a loss of profits, does not become liable for such losses in a breach of contract action.  Id. at 258.  Quoting from Carmichael v. Lavengood, 44 N.E. 2d. 180 (Ind. App. 1942), the appellate court made clear that:

In the absence of an express agreement by which the agent expressly agrees to be so bound, the agent is not an insurer of the success of his undertaking and he does not guarantee his principal against incidental losses, and if he acts with good faith and with due care he is not liable for losses which result from a mere mistake. (emphasis added).

Fried at 259; cited with approval by Interlink Group Corp., USA v. Am. Trade & Fin. Corp., 2014 U.S. Dist. LEXIS 98236 (D.NJ. decided July 18, 2014).  The court in Fried concluded that, “… permitting an employer to seek indemnity from an employee for acts of negligence causing the employer losses.  Rather, the employer usually indemnifies the employee.” Id. at 259.

The rationale of not permitting an employer to seek indemnification from its employees for negligent acts or omissions of its employees is a sound, if not obvious one. If employees could be held financially responsible for mistakes they made on the job, employees would go to work fearing financial ruin should they make a mistake at work which causes their employers to incur damages. One can readily imagine many unfair scenarios playing out if employees had to indemnify their employers for mistakes made on the job, such as:

  • A legal secretary who negligently fails to file a Complaint in Court resulting in the missing of a statute of limitations on a case, could be financial responsible to his or her employer who is sued by the client for legal malpractice damages.

 

  • A store security officer could be found financially responsible for paying for all losses to a store owner for items stolen because they negligently surveilled the store and didn’t catch the shoplifter.

 

  • A security guard at a bank who failed to stop a robber could be held liable to the bank for payments the bank had to make to customers injured during the commission of the crime.

 

If the law allowed an employer to hold its employees financially responsible for damages caused by negligence in the performance of their duties, it would likely lead to a complete breakdown of the employer – employee relationship as we now know it. Thankfully, the law here in New Jersey was changed back in 1961 to prevent employee indemnification claims from happening.

If you believe your employer is treating you unlawfully, you may have a legal remedy. Call the attorneys at Mashel Law (732) 536-6161 or fill out the contact form on this page for immediate help. Mashel Law, located in Morganville, New Jersey, is dedicated to protecting the rights of employees.