Should Advisors Be Concerned About “Negligent Selection of ICs?”

Our attention was drawn recently to a decision of the Minnesota Supreme Court addressing the question: is there a cause of action (grounds for a lawsuit) based on a negligent selection of an independent contractor? The Court’s answer was “yes.” What does this mean for travel advisors and the companies/hosts with which they are affiliated?

In one sense nothing is surprising about the outcome. Careless conduct that leads to harm for another is generally available as a subject for suit and recovery of proved damages. Nevertheless, this was a “case of first impression” in Minnesota and is instructive in several respects. It also raises some interesting questions of how the legal principles involved may affect the relationship between agencies/hosts, their ICs, and the travelers they serve.

The Minnesota Case

The issue in Alonzo v Menholt arose in a fairly common scenario though not one typically encountered in the travel space.  The precipitating event was a vehicle accident: a truck driven by Lopez left its lane and struck the truck driven by Alonzo, causing serious injuries to Alonzo. “Lopez had a suspended license and an active felony arrest warrant. Lopez also had multiple driving-while-impaired (DWI) convictions and recent speeding infractions.”

At the time of the crash, Lopez worked as a W-2 employee truck driver for Braaten Farms …. Braaten Farms, in turn, worked as an independent contractor for Menholt Farms” to help move its harvested beets.

The opinion states that “in hiring Lopez, Bratten Farms did not solicit a job application, conduct an interview, verify whether Lopez had any truck driving experience, run a background check, conduct a criminal history search, review Lopez’s driving record, or search for Lopez on the internet.” Thus, Bratten Farms hired Lopez without doing even the most basic vetting of his qualifications.

Alonzo sued Menholt claiming it was “negligent in selecting Braaten Farms as an independent contractor.

The state Supreme Court in Alonzo notes that “the tort of negligent selection of an independent contractor is recognized by a majority of states” and is recognized by the Restatement (Second) of Torts §411. For that and other reasons, it held that “Minnesota common law recognizes the tort of negligent selection of an independent contractor.” However, “On the claim at issue, the claimant prevails only if they can prove the principal’s [Menholt Farms] negligence, rather than by holding the principal liable based only on the contractor’s [Bratten Farms] concurrent wrongdoing.”

Stated differently, “to prevail, 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.”

What constitutes “reasonable care” is situation-specific to each case. The relevant factors include the danger to others if the contractor’s work is not properly done and whether the work is within the competence of the “average person” or requires “special skill and training.”

“For such 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…The 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.”

Significantly for the application of these principles to travel advisors, the Court elaborated that,

“a heightened duty to inquire into a contractor’s reputation or actual competence, when it exists, may more often fall on persons or entities in a professional setting who have a greater capacity to understand the work at issue and its attendant risks, and to ensure that their contractors are competent and careful.”

That language suggests the principles of the case would apply in the travel space, given the special knowledge that selling travel competently requires.

Further, citing a case from Alaska, the Court said:

“many persons or entities that habitually rely on independent contractors already have procedures in place to ensure that they do not hire those who are incompetent or careless.”

Further, there is a causation element to this that means a claim of negligent selection of an IC will be limited to cases in which the principal could reasonably have anticipated the harm that must arise from a quality in the IC that made it negligent for the principal to entrust the work to the IC.

Practical implications for travel advisors

Given that the principles set out in the Minnesota case are the same in most other states, the main “learning” of the decision is straightforward:

Travel advisors/agencies engaging ICs must use reasonable care in vetting the ICs that are going to be associated with the advisor/agency. This includes the obvious ones, such as obtaining and validating references, evaluating prior work examples, having a clear understanding between the parties as to the type of travel the IC will be selling and to whom, and having a contract that protects the principal for negligent behaviors of the IC.

One word of caution: the contract with the IC must not be so restrictive that it might be viewed by a court or labor/tax authority as creating an employer-employee relationship. This can be complicated. For that reason, every contract establishing an IC relationship for an advisor/agency should be reviewed by competent counsel.

There is also a question whether the principles of the Alonzo case apply to scenarios not involving physical harm but, as is more typical in the travel space, only involve financial damage. My judgment is that there is no basis to believe the principles of negligent selection are limited to cases of physical harm. Prudent management of an advisor-principal’s business relations with ICs requires attention to the negligent selection issue. Again, counsel should be engaged in shaping the agreements that establish the working relationship.