A Victory for Non-subscribers:

The Firm and TXANS
Team Up to Help Set a Valuable Precedent

Thanks in part to the Texas Association of Responsible Non-subscribers ("TXANS") and The Firm on December 13, 1996, the Texas Supreme Court reversed a decision by the San Antonio Court of Appeals that would have allowed employees of non-subscriber companies to sue corporate officers individually for on-the-job injuries. Leitch v. Hornsby, 935 S.W.2d 114 (Tex. 1996). Had this decision been affirmed, corporate officers would have faced negligence suits from injured employees without the benefit of common law defenses such as contributory negligence, fellow employee negligence, or assumption of the risk by the injured employee.

Recognizing the Court of Appeals decision as a threat to non-subscribers, Steve Bent, Executive Director of TXANS, contacted us to help TXANS fight the decision. We readily agreed to file an amicus curiae, or "friend of the court" brief on behalf of TXANS urging the Texas Supreme Court to reverse the Court of Appeals decision. In the TXANS brief written by The Firm and David Dodge argued that the duty to provide a safe workplace belonged exclusively to the employer corporation, and not to the corporate officers. The Texas Supreme Court agreed, ruling that a corporate officer acting on the corporation's behalf has no individual duty to provide employees with a safe workplace. That duty belongs solely to the corporation as an entity. All claims against the individual officers were dismissed as a matter of law.

The Trial

Grady Hornsby was an employee of Pro Com Marketing Services, Inc., a non-subscribing corporation engaged in the business of marketing cable television services and installing television cable.

While unloading a spool of cable from his truck, Hornsby injured his back. Hornsby sued Pro Com and its two owners, Russell Leitch and Hal Crews in their individual capacity, alleging they had been negligent in failing to provide him a safe workplace. In particular, Hornsby alleged that Leitch and Crews were individually negligent in denying his requests for a lifting belt and dolly.

The jury returned a verdict finding that the corporation, and Leitch and Crews in their individual capacity, were each negligent, and awarded Hornsby almost $700,000 in damages. Because the jury found joint and several liability, Hornsby could seek full payment from Leitch and/or Crews directly, without even attempting to collect from Pro Com. The jury found Leitch and Crews individually liable, despite concluding they were not the "alter ego" of Pro Com.

The Court of Appeals Opinion

The San Antonio Court of Appeals agreed with the jury. That court said a corporate officer can be held personally liable for corporate wrongdoing when the officer is an active participant in the tortious conduct, or when the officer knew about the wrongdoing and failed to take corrective action. The court of appeals concluded that because Leitch and Crews knew Hornsby needed a lifting belt and dolly, but refused to get him this equipment, they were personally liable for his injuries. (Could this happen in your company?)

The Supreme Court's Response

On December 13, 1996, the Texas Supreme Court reversed, finding "the court of appeals erred because it did not properly analyze the source of the duty breached." The Supreme Court stated that it has long been the law in Texas that "when the employer is a corporation, the law charges the corporation itself, not the individual corporate officer, with the duty to provide the employee a safe workplace." The court recognized that corporate officers could not be negligent unless the officers owed the injured party a duty. "Thus," the court concluded, "unless alter ego is established, corporate officers and agents are subject to personal liability for their actions within the employment context only when they breach an independent duty of care." The corporate duty of care is not imputed to its officers.

What This Means to You

Leitch contains two important messages for non-subscribers. First, corporate managers and officers can make business decisions about workplace safety without worrying about personal liability for errors in judgment. The Texas Supreme Court's finding that Leitch and Crews were not individually liable for Hornsby's injuries does not mean, however, that the corporation cannot be held liable.

Second, in order for you to gain the liability protection of the corporate veil, the corporation must be maintained as a legally meaningful entity. Management of corporate non-subscribers should keep the legal identity of the corporation separate from that of the officers, managers and shareholders. It is important to have your corporate minutes and records kept, and up to date. Have meetings. Another way to avoid a finding of "alter ego" is to have adequate corporate financing. In the context of workplace safety, this means that non-subscriber corporations should have an adequately funded employee injury benefit plan in place. Such a plan compensates the corporation's employees in event of a legitimate workplace injury. Otherwise, a finding of "alter ego"--that the corporation is a sham and has no legal existence--may be possible. If such a finding is made, the individuals actually in control of the sham corporation could still be held personally liable for the corporation's torts--such as failure to maintain a safe workplace for employees. Be smart about your business. Avoid problems! Have your corporate meetings and keep minutes! Get a workplace injury benefit plan, and pay legitimate claims!

In Conclusion

The duty to provide a safe workplace belongs to the corporation, not the individual officers, managers, or directors of the corporation. This makes the corporation the only entity liable for workplace safety decisions. However, in order to gain protection from personal liability, non-subscribers must first operate in the corporate or other limited liability form of business; and second, must make sure the corporation is not a sham, but a real and meaningful legal entity. Our firm can assist you in getting your corporate records in proper and legal form.