Reforming the Respondeat Superior Doctrine
The debate surrounding FCPA enforcement and a compliance defense should be expanded to focus on the real issue at play – corporate criminal liability under the doctrine of respondeat superior. The Chamber of Commerce has focused on the FCPA reform issue and has failed to gain much traction, especially in light of recent publicly-disclosed FCPA investigations.
Several years ago the Chamber pursued changes in corporate criminal liability through proposals to reform the doctrine of respondeat superior. Now that the FCPA reform effort has stalled, the Chamber may want to renew its efforts to focus on corporate criminal liability and respondeat superior.
A corporation can be held criminally liable for the conduct of a single employee, if such conduct occurs within the scope of the person’s employment by the company, and the conduct was committed, in part, by a desire to benefit the company. Such liability can be imposed despite a company’s efforts to ensure compliance by its employees. In a sense, the doctrine has been adopted by courts as a means to impose strict liability on companies for the actions of a single employee.
Criminal cases against a company are rarely based on the conduct of one individual. Most cases involve multiple employees, but nonetheless liability can be imposed despite company compliance programs. The frequent refrain in this situation is that “if the compliance program was so good, then a violation would not have occurred.” In other words, the government is holding companies to a strict liability standard and ignoring companies’ compliance programs.
Recent decisions in the civil context have started to cut back on the strict application of respondeat superior. The Supreme Court has cut back on the doctrine of respondeat superior in considering vicarious corporate liability in the civil context – the application of Title VII sexual harassment cases and the imposition of punitive damages against corporations. In the sexual harassment cases (Faragher v. City of Boca Raton and Burlington Industries, Inc v. Ellerth) , the Supreme Court ruled that an employer should be able to raise an affirmative defense that it had reasonable policies to prevent sexual harassment when there was no evidence the supervisor of the employee was involved or condoned the alleged sexual harassment.
In the punitive damages context, the Supreme Court, in Kolstad v American Dental Association ruled that punitive damages should not be imposed against a company based on the actions of an employee in violation of Title VII. The Court cited the fact that imposing punitive damages in this situation was unfair and would create a disincentive for a company to create strong anti-discrimination policies and compliance programs.
The Supreme Court’s decisions cutting back on corporate liability for the actions of its employees seems at odds with the current state of the law governing corporate criminal liability. Why should it be easier to establish corporate criminal liability for a single employee’s actions in contrast to a civil case against a company under Title VII for discrimination or sexual harassment? The Supreme Court’s reasoning concerning corporate incentives to adopt and implement compliance programs applies equally to companies seeking to avoid criminal liability.
There are serious questions whether the purposes of criminal punishment – deterrence and retribution — are served by imposing criminal liability on companies for the actions of a single or a small number of employees which are contrary to the company’s compliance program. The occurrence of a violation does not conclusively establish that a company’s compliance program is ineffective. People act for a variety of reasons, some of which can be addressed by a compliance program and some which cannot be addressed by a compliance program. If a company is held strictly liable no matter how much time and effort it devotes to compliance, the company has little incentive to commit to the compliance program. In the absence of factual link between the criminal conduct of an employee and the company’s supervisors or senior managers, is it fair to impose criminal liability on the company
Those who advocate for reforming the doctrine of respondeat superior need to address how such a narrowing can be crafted. Should liability for the conduct of an employee be attributed to the company if some level of management was aware of, or participated in, the criminal conduct? Or should corporate criminal liability depend on some showing that the company did not have an effective compliance program? I have addressed the problems with this latter standard in my prior post on the FCPA compliance defense issue.
It is clear that the Supreme Court needs to address this issue – when and in what context, we can only wait and hope.
Maybe they should tackle the responsible corporate offficer doctrine first.
Great post – nice to see the FCPA reform debate put in proper US context. Now what about a bit of comparative international law?
Corporate liability in the UK took a ‘great leap forward’ with Section 7 of the Bribery Act, partly encouraged by the example of the FCPA but also by the OECD’s good practice guide on criminalisation of foreign bribery. This OECD guide is ‘Annex 1’, the sister standard to ‘Annex 2’ or the 2009 good practice guide on internal controls, ethics and compliance. It goes as follows:
Member countries‟ systems for the liability of legal persons for the bribery of foreign public officials in international business transactions should not restrict the liability to cases where the natural person or persons who perpetrated the offence are prosecuted or convicted.
Member countries‟ systems for the liability of legal persons for the bribery of foreign public officials in international business transactions should take one of the following approaches:
a. the level of authority of the person whose conduct triggers the liability of the legal person is flexible and reflects the wide variety of decision-making systems in legal persons; or
b. the approach is functionally equivalent to the foregoing even though it is only triggered by acts of persons with the highest level managerial authority, because the following cases are covered:
– A person with the highest level managerial authority offers, promises or gives a bribe to a foreign public official;
– A person with the highest level managerial authority directs or authorises a lower level person to offer, promise or give a bribe to a foreign public official; and
– A person with the highest level managerial authority fails to prevent a lower level person from bribing a foreign public official, including through a failure to supervise him or her or through a failure to implement adequate internal controls, ethics and compliance programmes or measures.
Which boils down to saying that respondeat superior goes far beyond international requirements or even good practice, with headroom to accomodate a suitable FCPA ‘compliance defence’.