AAA North Jersey, Inc.: A Case Summary

FACTS: Defendant, AAA North Jersey, Inc. (“AAA”), contracted with Five Star Auto Service (“Five Star”) to perform towing and auto repair services for AAA. Defendant Terence Pershad, a tow-truck driver employed by Five Star, received a call through AAA to assist a crashed car. Upon Pershad’s arrival at the crash site, Pershad and Plaintiff Nicholas Coker (a passenger of the crashed car) began fighting, which ended soon after Pershad assaulted Plaintiff with a knife. Plaintiff filed suit in a New Jersey state court against Pershad, Five Star, and AAA. The trial court determined that AAA held no responsibility for the alleged negligence of Five Star in hiring Pershad, and granted AAA summary judgement. Coker appealed the trial court’s ruling to the New Jersey Appellate Court.

ISSUE: Can a principal be held vicariously liable for negligent acts committed by an agent the company could not exert significant control over?

HOLDING: No. The New Jersey Appellate Court affirmed the lower court’s ruling.

REASONS: A principal cannot be vicariously liable for the negligent acts of an independent contractor the principal has hired. In determining whether an agent qualifies as an independent contractor, the
court examines whether a principal has the right to control the manner in which an agent performs his or her work. To do so, the courts examine a number of different criteria. These criteria include the extent of control a principal holds over the details of the work, whether the agent is engaged in a distinct occupation or business, if the work is usually done under the principal’s direction, the skill required to perform the obligated task, whether the principal supplies the tools necessary to complete the relevant undertaking, and the length of time for which the agent is employed. In this case, the court ruled that Defendant AAA had no control over the manner and means of Five Star’s work, and thus could not be held liable for Pershad’s actions. The contract between AAA and Five Star specifically established Five Star as an independent contractor under the employ of AAA. Additionally, as AAA provides a wide variety of mechanical services, hiring Five Star to tow cars does not represent an extension of AAA’s primary business activity and therefore qualifies Five Star as an independent contractor. Five Star also completed its assigned work without supervision from AAA, purchased all its own trucks and equipment, and chose the employees it sent on towing calls. Finally, Five Star operated its own business and performed mechanical repairs for customers besides AAA, which indicates that Five Star did not engage in a distinct occupation while working for AAA. All of the above reaffirm AAA’s lack of control over Five Star and thus cement Five Star’s independent contractor status.
Taser International, Inc. v. Ward

FACTS: Plaintiff, Taser International, Inc. (“Taser”), a developer of electronic control devices (i.e. stun guns) and their accessories, employed Defendant Steve Ward as an “at-will” employee of Taser for the period between January 1, 2004 and July 24, 2007. Defendant, from April 2007 until his resignation in July, began taking steps to develop a clip-on camera with the intent to leave Taser and create a new business. Defendant formally resigned on July 24, 2007 and officially began a new business, Vievu LLC, to market his clip-on camera product. Taser later filed suit against Defendant, alleging, among other things, that Defendant had breached his fiduciary duty and duty of loyalty to Taser by engaging in actions aimed at competing against Plaintiff. Taser moved for partial summary judgment on the liability aspect of the breach of the duty of loyalty and fiduciary duty claims. An Arizona trial court entered partial summary judgment in favor of Plaintiff, prompting Defendant to appeal the decision to Arizona’s Court of Appeals.

ISSUE: In determining whether an employee has breached his or her fiduciary duty, will the court focus on the extent of an employee’s pre-termination design and development efforts?

HOLDING: Yes. Reversed and remanded for further proceedings to determine issues of material fact.

REASONS: An employee owes his or her employer a fiduciary duty to act with good faith and loyalty.
This duty expands the responsibilities of an employee by requiring that he or she acts only for the benefit of his or her employer. In so acting, employees must refrain from undertaking any measure that results in secret profits for the agent, including engaging in any competition with a current employer. Employees can, however, take action in preparation for competition while still employed, so long as this preparation does not take the form of acts in direct competition with the employer’s business. In determining whether an activity constitutes competition or a mere preparation to compete, courts focus on the nature of an employee’s preparations to guide their
interpretation. In this case, the court found that certain parts of Defendant’s pre-termination activities represented actions markedly different than direct competition, and thus do not form any basis for liability. The court also found, however, that if Defendant knew about Plaintiff’s efforts to developing a recording device that would compete with Defendant’s proposed design, Defendant’s actions could have constituted direct competition and represented a breach in Defendant’s fiduciary duty. The court thus reversed and remanded the case for further proceedings to determine issues of material fact as to the extent of Defendant’s pre-termination design and development efforts.