Utah Supreme Court issues Important Decision Holding Employers May Owe Duty of Reasonable Care to Third-Party in Hiring, Traning & Supervising Employees

In a recent decision written but Justice Lee (with a very well-reasoned dissent by Justice Nehring), the Utah Supreme Court in Graves v. North Eastern Services, Inc., 2015 UT 28, held that the “fault” to be apportioned under Utah Code Section 78B-5-818 (Utah's comparative negligence statute) is not limited to negligence but extends to intentional torts. Additionally, and perhaps more importantly for Utah employers, the Court held that employers may owe a duty of reasonable care to third-parties in hiring, training and supervising employees in certain circumstances. Lastly, the Court held that expert testimony on the standard of care was not needed with respect to questions of ordinary negligence. Where the standard implicates scientific matters beyond the capacity of an ordinary juror, however, expert testimony may be required, such as in medical malpractice cases.

In Graves, the parents of a minor girl who had been assaulted at one of the Defendant's client'' residences, filed suit against the assaulting employee and later added claims against his employer based upon its negligence in hiring, supervising and training the assaulting employee.  After discovery, the employer filed a motion for summary judgment claiming, among other things, that it owed no duty of care to the minor - a third-party guest in the home of the Defendant's clients - in its hiring, training, and supervision of employees. Soon after the filing of the  motion, the parents voluntary dismissed their claims against the assaulting employee. The Defendants then filed a notice asserting their intention to seek apportionment of comparative fault to the employee under Utah Code Section 78B-5-818. The District Court denied the motion for summary judgment on the negligence claims. It also approved dismissal of the assaulting employee as a defendant and ruled that apportionment as to his intentional conduct was improper under section 78B-5-818.  The Court's ruling was then appealed to the Supreme Court.

The Supreme Court affirmed in part and reversed in part the District Court's decision, holding 1) that  the “fault” to be apportioned under Utah Code Section 78B-5-818 is not limited to negligence but extends to intentional torts; and 2) that employers owe a duty of reasonable care in the hiring, training and supervising of employees.

The facts at issue on the summary judgment motion were fairly straightforward. One of the Defendants provided residential treatment services to mentally and physically disabled clients under a contract with the State of Utah, Department of Human Services. It provided services to its clients under a plan of care, which included, in some cases, interaction with children as part of the care plan. The services were provided in residential neighborhoods at various locations. At a duplex where services were being provided to clients, a minor girl was sexually assaulted by an employee.

The record indicated that the main door to the duplex was often left open during the summer, allowing children to come in or out as they pleased. One of the residents of the duplex was known for having candy on hand in his room. When neighborhood children asked about candy, the Defendant's staff would sometimes retrieve it for them from the client’s room. Alternatively, the client or the staff would sometimes invite the children into the duplex to find the candy. The record also indicated that the Defendant's staff had maintained a portable swimming pool outside the open door to the duplex. The principal purpose of the pool was for the benefit of a client, and neighborhood children often used it to play in during the summer. Neighborhood children also often entered the residence to watch television or videos with the residents and/or Defendant's staff.

The minor  was sexually abused by an employee. On that day the minor was playing in the common area outside of the duplex, asked for some candy, and was invited into the residence to watch television with the employee and one of the residents. The minor was then sexually assaulted by the employee in a bathroom of the residence.

At issue on Defendant's motion for summary judgment were the Defendant's actions in hiring and supervising the employee, and training staff. The evidence established that the employee who had assaulted the minor had been terminated from a recent job in the same field for sexually abusive conduct, The employer, in its interview, apparently never asked about  previous employment, and the interviewing employee indicating that she had never been trained to ask such questions. The evidence was disputed as to whether the employer had contacted the assaulting employee's former employer to obtain information regarding his prior employment. In addition, the assaulting employee's supervisor had received no training on how to keep children safe from assault or other harm.

In holding that the employer owed a duty of care to the minor, the Court emphasized the distinction between malfeasance and misfeasance, based on its precedent, and noted that "a key threshold question regarding duty is whether the plaintiff’s harm is alleged to have been caused by (a) an affirmative act of the defendant or (b) an act of a third party that the defendant failed to prevent.  In the former case, the duty of care is clear. However, "in the latter case the general rule is the contrary. A person generally has 'no duty to control the conduct of third persons.'"

However, the Court emphasized that a defendant may have a duty to control the conduct of third persons where a special relationship exists between the parties. Relying on Section 317 of the Restatement (2nd) of Torts, the Court found the basis for a duty of an employer to exercise reasonable care in preventing an employee from acting outside the scope of employment in “intentionally harming others.” The duty requires "proof (a) that the employee who intentionally harms another is on premises he is entitled to enter only by virtue of his status as an employee, and (b) that the employer knows or has reason to know that he has the ability to control the employee and knows or should know of the necessity and opportunity for exercising such control. In this cause, the Court found that "it was more than foreseeable" that Defendant's employees would come into contact with the public, and children, and thus the employer should have known of the necessity and opportunity for exercising control over the employee.

In a puzzling move that potentially allows negligent employers and others to escape meaningful liability, the Court held that fault under the comparative fault statute should be apportioned among intentional torts.  Finding that apportionment under the comparative negligence statute is not just for breaches of duty but for any act or omission that proximately causes or contributes to injury or damages, the Court read the text of the  statute to call for apportionment for torts like the sexual assault committed in this case.

The opinion includes a very forceful and well-written decent from Justice Nehring arguing that the Utah Legislature did not intend for the allocation of fault to include intentional torts. Central to his dissent are the policy implications of the Court's holding. Noting that "the concern that allowing allocation to intentional tortfeasors could have the consequence of rendering the duty of reasonable care by others unenforceable, making it unlikely that a jury would ever allocate a significant portion of fault to an unintentional actor.

Utah Supreme Court Clarifies "Good Cause" to Quit Standard for Receipt of Unemployment Benefits in Utah

In an opinion issued today the Utah Supreme Court settled the appropriate standard of review for an appellate court's review of a denial of unemployment benefits, holding that in a case of a worker quitting for good cause, the determination is a fact-like mixed question, and appellate courts should apply a deferential standard of review to a lower tribunal’s resolution of this issue, but must be vigilant to ensure that they are based on correct legal principles. Sawyer v. Dept. of Workforce Services, 2015 UT 33, ¶ 47. The Court further held, in a victory for employees, that the relevant inquiry in a good case quit case is whether a reasonably prudent person would be justified in quitting under the circumstances, and that quitting in order to avoid a discharge does not automatically bar an employee from receiving unemployment benefits. Id. at ¶ 30.

In Sawyer, the Dept. of Workforce Services denied Sawyer’s application for unemployment benefits based upon its finding that she quit her job without good cause.  Sawyer was a special education teacher for Jordan District who had received two bad performance evaluations. She was informed if she had another bad evaluation she would be terminated in accordance with the District's policy (or given the option to resign).  The record indicated that "Sawyer had little confidence that she could perform at a level that would allow her to pass a third evaluation" and that she was "concerned that if she were terminated that she would not find future employment as a teacher." Accordingly, Sawyer elected to resign rather than submit to a third evaluation.  Id.at ¶ 5. She subsequently filed for unemployment benefits.  Her benefits were denied on the basis that she had quit without good cause. On appeal the Department's ALJ affirmed the decision, and Sawyer appealed again to the Workforce Appeals Board. The Board held that “[q]uitting in order to avoid a discharge . . . does not establish good cause.”  Id. Ms. Sawyer appealed the Board's determination to the Utah Supreme Court. The Supreme Court reversed and remanded the case for further proceedings consistent with its opinion.

Under Utah law, an individual who is involuntarily terminated by their employer can apply for unemployment benefits and receive those benefits unless the employer proves the employee was terminated for "just cause." Just cause requires that the employer establish the employee had the requisite knowledge, culpability and control with respect to the issue that led to the employee's termination. In contrast, an individual is ineligible for unemployment benefits if he or she quits “without good cause.” U.C.A. § 35A-4-405(1)(a).  Under Utah Law, “[g]ood cause is established where the unemployment is caused by pressures so compelling that a reasonably prudent person would be justified in quitting under similar circumstances.” Hurst v. Indus. Comm’n, 723 P.2d 416, 419 (Utah 1986). At issue in Sawyer was whether quitting to avoid imminent discharge can ever be justified for purposes of establishing "good cause" for quitting.

Relying on the persuasiveness of a Supreme Court decision from Oregon, the Court held "that the administrative judge and appeals board erred by concluding that the possibility that Ms. Sawyer could have retained her job was sufficient to defeat her employment benefits claim. Good cause to quit is measured by the objective standard of whether “a reasonably prudent person would be justified in quitting under similar circumstances.” Sawyer, at¶ 30 (citing Hurst v. Indus. Comm’n, 723 P.2d 416, 419 (Utah 1986)).  The Court went on to explain:

This assessment should be based on the information that the worker knew or should have known at the time of the resignation . . .Reasonably prudent persons, of course, must often make decisions based upon an assessment of potential consequences rather than in the context of certain outcomes. Little in life is guaranteed. In evaluating whether a reasonably prudent employee would quit in order to avoid a potential termination, administrative law judges and courts should consider (1) the likelihood of termination, in spite of the employee’s reasonable efforts to remain employed, and (2) the degree to which termination will negatively affect future employment.




In other words, in some case, quitting to avoid a discharge may constitute good cause, and DWS and
Courts should look to the likelihood of termination and the degree to which termination will negatively affect future employment.  Because the administrative law judge and appeals board did not assess whether a reasonable person in Ms. Sawyer’s shoes would have quit, but rather whether there was some possibility that she could have retained her job, the Court concluded that an incorrect legal standard was applied to the facts of the case.

The situation in Sawyer is a situation often confronted by employees who see the writing on the wall, but are fearful that quitting will disqualify the employee from receiving unemployment benefits. The fact that an employee can realistically determine the "negative affect" a termination while have on future employment in determining whether to quit should alleviate this problem, and at least give an employee options where termination is imminent and the impact of termination will make finding another job very difficult.

The Department of Workforce Services has issued regulations that set forth the standard for proving good cause. To establish good cause under the regulations, an employee seeking unemployment benefits must show continuing the employment would have caused an adverse effect which the claimant could not control or prevent. R994-405-102. Further, the employee must show that  an immediate severance of the employment relationship was necessary. Moreover, even though there is evidence of an adverse effect on an employee, good cause does not exist where the employee reasonably could have continued to work while looking for other employment, or had alternatives that would have made it possible to preserve the job, or failed to provide the employer with notice of the hardship.

Sawyer makes clear that employees who are faced with termination need not hold out for the employer's decision to terminate in order to be eligible for the receipt of unemployment benefits.

For more information about the Court's decision in Sawyer, or Utah unemployment benefits, please contact Stavros Law P.C. at 801-758-7604 or visit stavroslaw.com.

Utah Supreme Court Clarifies Scope of Utah Payment of Wages Act by Holding LLC Managers are not Personally Liable for Unpaid Wages

In a much anticipated decision for Utah employers and employees, the Utah Supreme Court in Heaps v. Nuriche 2015 UT 26, held that the Utah Payment of Wages Act (UPWA) does not include LLC managers as "employers" who are liable for the non-payment of wages under the UPWA. As noted earlier, this ruling is contrary to the Labor Commission's long-standing interpretation of the scope of the UPWA, and its practice of holding officers liable for wage claim violations.

At issue in Heaps was whether the UPWA imposed personal liability on managers of a limited liability company for unpaid wages of employees.  The Plaintiffs, Ron Heaps and Phillip Sykes, along with other individuals, founded Nuriche, LLC, a limited liability company formed in Nevada which conducted business in Utah.  Heaps and Sykes brought suit alleging that the other founding members of Nuriche promised them compensation and other benefits in connection with their employment by Nuriche, but that Nuriche and the remaining managers refused to provide the promised compensation upon their termination of employment.

The District Court granted summary judgment for Nuriche on the Plaintiffs' claims under the UPWA, and the Plaintiffs appealed. On appeal, the Plaintiffs argued that the plain language of the UPWA imposes personal liability on LLC managers for unpaid wages. In contrast, Nuriche argued, among other things, that the UPWA did not hold LLC managers personally liable.

The UPWA provides that an “employer shall pay [unpaid] wages to [an] employee within 24 hours
of the time of separation.” U.C.A. § 34-28-5(1)(a). Under the UPWA, the term "employer"
includes every person, firm, partnership, association, corporation, receiver or other officer of a court of this state, and any agent or officer of any of the above mentioned classes, employing any person in this state." Id. § 34-28-2(1)(c) (emphasis added). Plaintiffs argued that the LLC managers were agents and officers of Nuriche, who were thus employers under Section 34-28-2(1)(c). The Court, however, looked at the statutory language and found that "while the phrase 'agent or officer of any of the above-mentioned classes' encompasses a large group of individuals, that phrase is narrowed by the last clause of the definition." Id. at ¶14.  Further, "[t]he last clause—'employing any person in this
state'—modifies each of the terms in the preceding list. Thus, the statute limits the definition of employer to one who employs."  Id.  Because the Plaintiffs were employed directly by Nuriche, and not the LLC managers, the Court found the managers were not personally liable for unpaid wages.

The Court went on to explain that its holding was supported by principals of corporate law, including the limited liability of officers, shareholders and directors, and other situations where the Utah legislature has expressly imposed personal liability (in contrast with the UPWA). The Court emphasized that "[h]ad the Legislature intended to impose personal liability in contravention of long-standing principles of corporate law, it would have done so expressly as it has in other sections of the code." Id. at ¶16.

It further rejected the Plaintiffs' argument to restrict the liability of agents and officers to those who have the ability to remove employees from the payroll. In rejecting this argument, the Court held it was not supported by the language of the UPWA. And, to allow liability for all officers and employees would cause an absurd result the Legislature could not have intended.  Id. at ¶17-20.  Of course, as a practical matter, no officer or agent ever directly employs any employee, and the legislature's inclusion of the language "any agent or officer of any of the above-mentioned classes"  in Section 34-28-2(1)(c) is essentially rendered meaningless by the Court's reading of this Section. Nonetheless, the Court was clearly concerned with the scope of this language, and thus decided to read this Section out of the statute by use of the modifying clause.

Moving forward, while the decision was limited to LLC manages it is clear that any agents or officers who do not actually employ an employee are not subject to liability of the UPWA. However, there may be other grounds to hold such agents and officers liability, including for unjust enrichment, promissory estoppel and potentially negligent misrepresentation and fraud.

For additional information about the Court's decision, or the payment of wages to employees in Utah, please contact Stavros Law P.C. at 801-758-7604, or visit www.stavroslaw.com.