The doctrine allows a corporate officer to avoid individual liability for an act committed within the scope of employment.

Ohio courts have explained the rationale for this so-called “corporate shield” as applying the notion that it would be unfair to force an individual to defend a suit brought against him personally in a forum within which the only relevant contact was an act performed not for personal benefit, but for the benefit of an employer.

Thus, the doctrine protects individual employees from liability for decisions made on behalf of employers.

Unfortunately, as with most general rules, there are exceptions. One exception allows a litigant to “pierce the corporate veil” and hold the individual liable when the following three conditions are present:

1.         Control over the entity by those to be held liable is so complete that the entity had no separate mind, will or existence of its own;

2.         Control over the corporation by those to be held liable was exercised in such a manner to commit fraud or an illegal act against the person seeking to disregard the entity form; and

3.         Injury or unjust loss resulted to the litigant from such control and wrong.

Predictably, it is not always easy to identify situations where an individual may be hauled into court in a distant location and held personally, as opposed to vicariously responsible, for a tort.

To clarify the issue, courts apply a test for analyzing relevant factors to evaluate the potential for individual liability. The test requires an analysis predicated on the following factors:

1.         The entity owes a duty of care to a third person, breach of which has caused a damage for which recovery is sought;

2.         The duty is delegated by the principal or employer to the defendant officer;

3.         The defendant officer has breached the duty through personal, as opposed to technical or vicarious fault; and

4.         With regard to the personal fault, personal liability cannot be imposed upon the officer simply because of his general administrative responsibility for performance of some function of his employment.  The officer must have a personal duty to the injured third person, breach of which has specifically caused the person’s harm.

When an employee or officer of an entity is identified as a defendant in a tort action, the defense should immediately craft an affidavit citing relevant corporate by-laws and policies and denying any personal responsibility of the individual employee or officer.

For peace of mind, it is important to remember that public policy disfavors individual liability for acts on behalf of an employer. Historically, courts are hesitant to allow actions to proceed against individuals so as not to punish employees attempting to fulfill their employment obligations in good faith.

Limiting individual liability allows the employee and officers of entities to perform their job duties without fear of personal repercussions, which ultimately furthers the interest of both the individual and the employer.

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Kevin P. Murphy is a lawyer with Harrington, Hoppe & Mitchell, Ltd. He can be reached at kmurphy@hhmlaw.com or at (330) 392-1541.