Employer-sponsored social events: Don’t let liability risks scorch your summer fun

by Angela N. Johnson

Summertime usually brings warm, sunny days for making fun-filled memories. For employers, it can be a time for company-organized social events, such as picnics, baseball games, or competitive recreational activities. This article identifies ways to minimize any potential liability arising from such activities. 

Social events and alcohol consumption
Several states have enacted “dram shop laws,” which make any person or business entity liable for “furnishing” alcohol (including selling, serving, or providing it) to a person who then causes injury to another person. Under such laws, any social host who furnishes alcohol—including an employer—may be liable to a third person for the conduct of the alcohol consumer.

Here’s an example: Harry attends a picnic at the local baseball park sponsored by his employer. The event includes (at no cost to employees) a food buffet with unlimited soft drinks and a variety of alcoholic beverages. All drinks (including alcohol) are stored in freely accessible coolers at the end of the buffet line. Company supervisors and managers also partake in the festivities, but no one monitors employees’ alcohol consumption.

Tommy, Harry’s supervisor, sees Harry make multiple trips to the beer cooler, forgoing the buffet line. As he watches Harry stumble away with his beers, Tommy hopes he has a designated driver. Not wanting to put a damper on the festivities, he says nothing. While driving home after the picnic, Harry collides with a car driven by Johnny, causing them both personal injuries.

Under dram shop laws, the company is liable to Johnny for his injuries, which may include medical bills, pain and suffering, lost wages during his recovery as well as any future lost wages, and damages to his car. Johnny’s injuries were a foreseeable consequence of Harry’s overindulgence in the company-provided alcohol.

The company’s liability to Johnny is the same regardless of whether he is its employee. The company isn’t liable to Harry under a dram shop law because it applies only to injuries to third parties. However, the company could be liable to Harry under some state’s negligence principles.

This is an unfortunate, and not uncommon, scenario. In many cases, employers could eliminate liability for alcohol consumption by simply not furnishing it. That isn’t to say employees are prohibited from purchasing alcohol from the ballpark or another venue on their own dime. However, if you still want to furnish alcoholic beverages at company-sponsored events, there are a few ways to minimize your potential exposure:

• Attempt to limit the amount of alcohol consumed by giving each employee a certain number of drink tickets or limiting the time frame during which alcohol will be served.
• Consider the timing of serving food and alcohol. For instance, provide one alcoholic drink before the meal with appetizers and stop serving alcoholic drinks after that.
• Communicate to employees in advance that excessive alcohol consumption will not be tolerated.
• Consider whether your existing alcohol consumption policies apply to employer-sponsored events (and, if they do, remind employees about them). Or consider enacting an excessive alcohol consumption policy informing employees they are expected to drink responsibly, not drink and drive, and otherwise abide by all company policies even for off-site company-sponsored events.
• Make a variety of nonalcoholic beverages available.
• Provide alternative free transportation for employees.
• Do not compensate employees for time spent at the event.
• Designate exempt employees as “spotters” to look out for coworkers who may have had too much to drink. Employees who are exempt from overtime under the Fair Labor Standards Act (FLSA) cannot claim that they were required to work off the clock and are entitled to compensation for their duties at the event.

Alternatively, you could hire a professional bartender and direct him to refuse to serve alcohol to intoxicated employees. Note, however, that any person designated to perform such a task becomes an agent of the company for the purpose of determining who was the “furnisher” of alcohol. In other words, his errors are effectively your company’s errors. It isn’t enough to hire a bartender or go to a restaurant where employees can order alcohol if the company is ultimately picking up the tab. The bartender is merely an agent of the company, and paying the tab at a restaurant still means you are furnishing the alcohol.

In addition to dram shop laws, common-law negligence principles can create liability for your company to an injured third party or even an alcohol-consuming employee. It’s impossible to minimize exposure from harm to separate third parties. However, one way to minimize liability directly to an alcohol-consuming employee under negligence principles is to use a carefully crafted waiver (which will be discussed later in this article).

Liability for injuries at recreational events
Employee injuries during recreational activities connected in some way with the employment may be compensable under state workers’ compensation laws when:

1. Attendance is encouraged or mandatory;
2. The activity is sponsored by the employer; and
3. The event may produce some benefit to the employer.

For example, ABC Company learns the local recreational softball league is popular in the community—many people (including several clients) attend games to cheer on friends and family. Wanting to increase its exposure within the community, ABC posts fliers at every time clock asking employees to consider joining an ABC-sponsored softball team.

The flier informs employees that ABC will pay the league’s entry fee and provide team uniforms adorned with the ABC logo, but employees must provide their own bats and other equipment. If the team ranks in the top 10 at the end of the season, each team member will receive a $200 bonus. Finally, ABC will grant excused absences to employees who must miss work to play in the championship game, which will require travel on a Friday (a typical workday).

In this example, the company likely will be liable under workers’ compensations laws for any injuries sustained by employees engaged in the recreational activity (including during team practices or games). However, to minimize its exposure, ABC should:

• Let an interested employee take the lead in planning activities.
• Minimize any control of the activity or organizational logistics.
• Not provide any incentive or other encouragement for employee participation.
• Require the use of paid time off for absences and apply its ordinary attendance policy (e.g., enforce the accumulation of attendance points or the number of permitted absences).
• Provide a nominal sponsorship check (e.g., $1,000 or less) for the team leader to use toward team expenses, but not dictate how the funds are used.

Here’s another example: Suppose a company manager is considering three internal candidates for promotion. He realizes that he doesn’t know any of the three employees on a personal level and decides to invite all three to a golf outing. During the outing, one employee is struck with a rogue golf ball. In this example, the employees will likely believe attendance at the golf outing is mandatory and part of the evaluation for promotion.

Wage and hour considerations
Some company-sponsored events are designed to bring together employees and clients. While that might make sense from a cost-benefit perspective and demonstrate your appreciation to both your workers and your customers, such a get-together may become compensable “working time” under the FLSA. Of course, the best way to minimize liability under the FLSA is to exclude nonexempt employees from customer or client functions while inviting, or even requiring, exempt employees to attend. However, that isn’t always possible or desirable.

To minimize the risk that such events become “on the clock” working time, you might consider the following:

• Inform employees that attendance is voluntary and there will be no ramifications for not attending (e.g., attendance will not be a consideration for evaluations or wage increases).
• Do not keep records or lists of people who attend or don’t attend.
• Schedule the event outside normal business hours.
• Host the event off-site.
• Refrain from engaging in any business during the event, including making speeches about company matters, distributing employee bonuses, or handing out performance awards.
• Avoid asking FLSA-covered employees to perform any functions at the party for the benefit of the company.

Avoiding liability through waivers
It’s impossible to completely avoid liability for social and recreational events, even with a carefully drafted waiver. However, waivers can minimize your exposure, prompt employees to think twice before engaging in reckless behavior, and address other issues not directly related to the activity.

Waivers should be carefully drafted by legal counsel and tailored for the event. The task involves understanding legal nuances that can render a waiver unenforceable and even unintentionally impose liability under unrelated statutes or common-law contract principles. When drafting an applicable waiver, an attorney will consider, among other things:

• Whether the language is clear enough that a court or jury will find a typical employee could understand it;
• The waiver’s scope and who is released from liability;
• Who is bound by the waiver (i.e., whether the employee’s spouse, dependents, or heirs are prevented from taking action based on the employee’s injury);
• Whether the employee can legally waive his rights or claims to legal remedies for a particular type of claim; and
• Whether the waiver should include a provision addressing related issues such as alternative transportation or medical care, and who bears the costs.

Importantly, in many states waivers will not override statutory protections such as coverage under workers’ compensation laws. However, they can go a long way toward reducing your exposure to negligence claims. It’s also prudent to contact the applicable liability insurance carrier to discuss coverage, including coverage for when workers’ compensation laws don’t apply (and workers’ comp coverage is therefore ineffective).

Bottom line
The risk of liability resulting from company-sponsored social events and recreational activities need not scorch the fun. Company activities bolster employee morale, strengthen relationships, and promote team building. They are valuable and shouldn’t be discontinued because of your fear of liability if something goes awry. However, considering your exposure to liability (and identifying ways to limit your exposure) should be part of the planning process. Consult with counsel about ways to reduce your exposure for specific activities.

Angela N. Johnson is an attorney with  Faegre Baker Daniels LLP, practicing in the firm’s South Bend office. She may be contacted at angela.johnson@faegrebd.com.