Corporate Legal Liability: Everything You Need to Know
Corporate legal liability is a corporation's legal responsibility related to any criminal actions that were committed by the employees of the corporation.3 min read
Corporate legal liability is a corporation's legal responsibility related to any criminal actions — or in some cases, their failure to act — that were committed by the employees of the corporation. The corporation can face prosecution and punishment if the actions were made to benefit the company, if the company was negligent, or if poor management of the company caused issues.
What Is Corporate Liability?
Corporate legal liability covers the following:
- Fraud claims where an employee of the company has been accused of wrongdoing, violations like water contamination, and trespassing.
- Contracts and obligations entered on behalf of the corporation by employees, officers, or corporate directors.
- Contracts entered into before the formation of the corporation. After formation, the corporation takes on the legal liability for these contracts.
In reference to business torts, a corporation has a level of liability for the period of time the employees or directors were employed depending on the type and the expected result of the tort. Corporations will, as a general rule, avoid the liability for intentional torts where employees and directors were involved. If the tort was something the corporation's directors could foresee, or if the corporation received financial benefits from the tort, the corporation will be liable. This applies to a tort intentionally committed by an employee.
Punitive damages will not generally be assessed if the tort was committed by the employee. If the corporation authorized the tort, the corporation might have to pay punitive damages.
Corporate Criminal Liability
In some instances, corporations can be held criminally liable. In place of jail, the corporation may be dissolved, or there will be derivative criminal liability for employees, directors, or officers of the corporation. In cases of human rights abuses, the liability addresses any illegal behavior made by the business. Actions may be criminalized when they break laws related to the following:
- Humanitarian law, internationally.
- Workplace safety.
- Consumer safety.
The laws are put in place to protect people from any abuse of human rights and provide remedies to these situations. It is illegal for companies and individuals to ignore these laws. Unfortunately, the cases that have come to fruition do not always result in the defendant corporations being held accountable for the violations. And, the victims don't always see a positive resolution or removal of the human rights violations.
Challenges in Prosecuting Human Rights Abuses
Challenges in the prosecution of those accused of human rights abuses stem from two major factors:
- The challenge that comes with prosecuting a corporation, not an individual.
- The power and influence corporations hold over governments directly related to their economic impact. This impact lowers the probability of creating new legislation to prosecute these abuses.
In areas where there is existing legislation, authorities may not prosecute due to lack of experience with these cases and a desire to limit the negative economic impact. Governmental laws can also limit the chance of prosecution because the laws prevent corporations from being prosecuted criminally. If the criminal activity does not occur in the United States, the criminal law of the state will be applied, which removes jurisdiction and the ability to prosecute.
If prosecution is possible, the burden of proof is the main challenge. The evidence required in criminal cases is much higher than that of civil cases. Processing and analyzing the evidence may cost too much time or money, or the authority may lack the skills needed to handle evidence.
Corporate Criminal Case Examples
Corporate criminal cases happen around the world and include many that involve illegal dealings between companies and hostile countries. Examples include the following:
- Providing surveillance equipment to Libya.
- Providing army vehicles to the Democratic Republic of Congo.
- Money laundering with the Democratic Republic of Congo.
- Human rights violations by the Kaweri Coffee Plantation and the government of Uganda.
Corporate criminal charges have also been filed against corporations for their actions:
- Murder charges against 21 people, including high-level executives of BHP Billiton, Vale, and Samarco, stemming from a dam collapse.
- Torture and war crimes charges against five Blackwater security guards.
- Criminal complaints against the Chiquita for making payments to paramilitary.
- Death and serious bodily charges made against the president and factory supervisor of Chisso.
- Being complicit in the murder of a trade unionist by Nestlé.
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