On July 10, 2024, the Minnesota Supreme Court joined the ranks of approximately 34 other states. Minnesota now recognizes a common law cause of action for the tort of Negligent Selection of an Independent Contractor. Companies that rely on independent contractors to assist them in their work are now exposed to additional liability.
In the Alonzo v. Menholt case, the issues before the Supreme Court were: (1) whether the tort of negligent selection of an independent contractor should be recognized in Minnesota, and (2) whether a company that retained an independent contractor whose driver caused personal injuries to a third-party while transporting its products should be held directly liable for those injuries.
The Court recognized the new cause of action but was evenly split on liability. The Court cautioned, however, that whether liability can be established is “fact-dependent” and “turns on the circumstances of each individual case.” This creates potential liability for companies relying on independent contractors. Exposure to such liability shifts depending on the circumstances of each case.
Further details about the Alonzo v. Menholt decision are discussed below.
Another Exception to the General Rule of Non-Liability
As noted by the Supreme Court, there is a “general rule of non-liability” for those that hire independent contractors. That general rule has eroded over the years. The Court noted there is now a “long list of existing exceptions.”
The Court added that analogous claims already exist for negligent hiring in the employment context and negligent credentialing.
Understanding that some critics may claim the Court is expanding common law too far by recognizing this new cause of action, the Supreme Court explained “a claim for negligent selection of an independent contractor is not an exception to the general rule of non-liability for those that hire independent contractors.” The Court rationalized this newly recognized tort “holds a principal liable for its own negligence in selecting an independent contractor,” explaining this aligns the new cause of action with the “‘fundamental concept of tort law that liability follows tortious conduct.’”
Scope of Liability for Negligent Selection of an Independent Contractor
The scope of this new liability is narrowly drawn. It only provides relief in instances involving “physical harm to third persons.”
Minnesota’s Supreme Court relied heavily on Section 411 of the Restatement (Second) of Torts in defining this new liability for companies pursuing business in Minnesota. Section 411 provides:
[A principal] is subject to liability for physical harm to third persons caused by [their] failure to exercise reasonable care to employ a competent and careful contractor
(a) to do work which will involve a risk of physical harm unless it is skillfully and carefully done, or
(b) to perform any duty which the [principal] owes to third persons.
The Supreme Court was careful to refer to a “principal” rather than an “employee” in relying on Section 411 of the Restatement (Second) of Torts. It wanted to avoid confusion that may otherwise suggest circumstances involving vicarious liability, thus distinguishing the direct liability imposed by negligent selection of an independent contractor claims from vicarious liability claims against an employer.
In setting out the specific elements of this newly recognized tort claim, the Minnesota Supreme Court relied on “comment b to [S]ection 411 to define the ‘extent’ of the rule” and concluded:
[T]o prevail [on a claim for negligent selection of an independent contractor], a claimant must establish that the principal (1) breached their duty to exercise reasonable care in selecting a competent and careful contractor, and (2) that this breach of duty caused the claimant’s physical harm.
Based on the Supreme Court’s discussion, it is clear “[t]he text, comments, and illustrations [of Section 411] of the Restatement [(Second of Torts] . . . are instructive in defining the tort’s scope and application, and how Minnesota district courts and juries will consider such claims.”
Concerns about Recognizing Claims for Negligent Selection of an Independent Contractor
The prospect of the Minnesota Supreme Court recognizing a tort claim for negligent selection of an independent contractor in Alonzo v. Menholt attracted a fair amount of concern from the defendant and groups filing amicus briefs with the Supreme Court.
For example, the party hiring the independent contractor at issue in Alonzo argued that “‘[c]reating a duty to vet and investigate independent contractors (and their employees) would immediately result in undue burden, additional costs, and delay for entities utilizing independent contractors.’”
The Minnesota Defense Lawyers Association echoed these concerns. It argued that imposing “‘an amorphous duty to vet contractors hired to do work that they themselves are unsuited to carry out competently or carefully . . . would spark and be kindling for unfair litigation burdens and settlement pressures’” on those hiring independent contractor.
Similarly, the Minnesota Chamber of Commerce voiced its concern that “‘the adoption of Section 411 would erode the significant benefits of independent-contractor relationships and instead increase businesses’ risk and costs.’”
The Supreme Court listened to those concerns and addressed many of them in discussing how the elements of this newly recognized cause of action would be established.
The Duty to Exercise Reasonable Care in Selecting a Competent and Careful Contractor
The Supreme Court discussed how the duty of care recognized as the first element of this cause of action would be established. It stated that the duty of care “turns on the circumstances of each individual case.” It is “fact-dependent.” The Supreme Court provided a non-exhaustive list of two important factors to consider:
1. “‘[T]he danger to which others will be exposed if the contractor’s work is not properly done,’” and
2. “‘[T]he character of the work to be done—whether the work lies within the competence of the average [person]’” or requires special skill and training.
As to the first factor, the Court explained “‘the amount of care’” required would be “‘proportionate to the danger involved in failing to use it.’” And that “more dangerous work requires greater care than work that, if improperly done, would result in ‘a comparatively trivial injury.’”
As to the second factor, the Court explained that for “work that requires no special skill or training, and that poses a minimal risk of physical danger if improperly done, a principal ‘is entitled to assume that a [contractor] of good reputation is competent.’” Accordingly, a “principal need not inquire into that contractor’s actual competence, nor verify the accuracy of their purported reputation, unless the principal actually knows that the contractor is incompetent or has a bad reputation.”
But “when hiring a contractor to do work that is not ‘within the competence of the average [person],’ a principal has a heightened duty to ensure that the contractor is competent.” Under those circumstances, a company hiring an independent “‘contractor to do such work may well be required to go to considerable pains to investigate the reputation of the contractor.’”
This duty creates a sliding scale of due diligence on the part of the hiring party to reasonably vet the independent contractor. As the risk of physical harm to third parties increases, so too must a company’s vetting procedure.
The Breach of Duty Must Cause the Claimant’s Physical Harm
The Supreme Court also discussed how causation must be established as the second element of this newly recognized cause of action.
The Court expressly “requires that the harm at issue ‘result from some quality in the contractor which made it negligent for the employer to entrust the work to [them].’” That way, if an independent contractor “is incompetent given a ‘lack of skill and experience or of adequate equipment but not in any previous lack of attention or diligence,’ then the principal will only be liable for harm caused by that ‘lack of skill, experience, or equipment, but not for’ harm caused ‘by the contractor’s inattention or negligence.’”
The Supreme Court’s intent by imposing this “causation requirement” was to limit the availability of claims for negligent selection of an independent contractor “to circumstances when the principal could have reasonably anticipated the harm.” This creates liability only when a principal’s failure to exercise reasonable care would disclose a deficiency with the independent contractor and the alleged physical harm caused by the independent contractor results from that deficiency.
Practical Consequences
Outsourcing work to independent contractors in light of the Supreme Court’s recent decision in Alonzo v. Menholt just became more complicated.
Businesses exercising prudent discretion will want to consider whether their historic practices for hiring independent contractors needs to change to include new best practices.
For example, an initial evaluation must be conducted to determine whether there is a reasonably foreseeable potential for physical injury to which others will be exposed if an independent contractor’s work is not properly performed. If so, then vetting procedures should be implemented to ensure an appropriate, qualified independent contractor is hired.
The Supreme Court made clear that an evaluation procedure can help shield a business from this new claim. Companies should consider (1) soliciting a job application, (2) conducting an interview, (3) verifying prior driving experience and licensure, (4) running a background check on the applicant, (5) conducting a criminal history search, (6) reviewing the applicant’s driving record, and (7) performing an internet search on the applicant.
Further, the evaluation process for independent contractors likely should be conducted by an individual with sufficient knowledge, understanding or experience to appreciate whether the failure of an independent contractor to properly perform its duties could result in physical injuries.
In other words, because a “heightened duty” applies when selecting an independent contractors to do work that is not within the general competence of an average person, a company needs to ensure it is properly determining what kind of work the independent contractors it retains is performing and whether it constitutes work that is “highly dangerous unless properly done.”
Such a determination may not be straightforward or clear—except in hindsight. For example, in the Alonzo v. Menholt case, the independent contractor was hired to provide drivers to haul farm products on public roads. The driver used by the independent contractor had a suspended license, an active felony arrest warrant, multiple driving-while-impaired (DWI) convictions, and recent speeding infractions. An evenly divided Supreme Court split on whether the party hiring the independent contractor had violated its duty of care.
Businesses regularly engaged in hiring independent contractors that perform driving on their behalf should consider adding vetting requirements in their contracts with independent contractors.
Requiring independent contractors to demonstrate their hiring and screening procedures allows businesses to walk away from working with independent contractors that choose not to reasonably vet their hires. Going forward, businesses will be held to the standard of whether they knew, or should have known, that the independent contractor was skilled and competent for the work assigned.
An established vetting procedure for selecting an independent contactor will help refute claims for violating this newly recognized cause of action. Documentation to demonstrate compliance with those vetting procedures will also help avoid this new liability.
This newly recognized cause of action places special importance on making sure independent contractors maintain sufficient levels of insurance, in the correct categories of liability, by insurance companies that carry an acceptable AM Best rating. The Alonzo v. Menholt decision reiterates the role of proper insurance coverage combined with appropriate contract provisions concerning indemnification.
There will likely be an initial surge of cases that assert claims for negligent selection of independent contractors until the precise parameters of such a claim are adequately explored and answered by both the parties and the courts.
Claims for negligent selection of independent contractors may also be attractive to the plaintiffs’ bar as the factual barrier to alleging a claim can ostensibly be satisfied by alleging a defendant failed to exercise reasonable care to employ a competent and careful contractor. The very fact of an accident involving physical harm and a third-party independent contractor may, therefore, be alleged to breach the “careful contractor” element of the claim—suggesting a low threshold for asserting such claims even if an independent contractor is otherwise “competent.”
The level of proof needed to assert negligent selection of an independent contractor claims is also possibly lower in at least one other respect. Unlike claims involving vicarious liability, there may be no need to demonstrate the level of control by a principal under which an independent contractor was operating at the time of an accident when asserting claims for negligent selection of an independent contractor.
Lastly, direct liability for negligent selection of an independent contractor claims necessarily provides an added source of recovery triggering additional insurance coverage. It remains to be determined if this added source of recovery will be viewed by the plaintiffs’ bar as an efficient source for recovery.
Read the full decision here.