When is an Employer Liable for Torts Committed by its Employees in Japan?

In Japan, as in many jurisdictions, employers can be held legally responsible for wrongful acts committed by their employees that cause harm to third parties. This principle, known as "employer liability" (使用者責任 - shiyōsha sekinin), is primarily governed by Article 715 of the Japanese Civil Code. Understanding the scope and application of this liability is crucial for businesses operating in Japan, as it can have significant financial and reputational implications.

The Underlying Principles of Employer Liability

Japanese law attributes employer liability to a combination of fundamental legal and social policy considerations, primarily:

1. The Risk Creation Principle (危険責任の原理 - Kiken Sekinin no Genri): By engaging in business activities and employing individuals to carry out those activities, an employer creates a sphere of potential risk to third parties. When an employee's tortious act within this sphere causes harm, the employer, having created or expanded this risk, is considered an appropriate party to bear responsibility.
2. The Benefit Principle (報償責任の原理 - Hōshō Sekinin no Genri): An employer derives economic and other benefits from the work performed by its employees. The underlying idea is that the entity profiting from an activity should also bear the associated risks and losses that arise from it. If an employee's tort occurs in the course of activities that ultimately benefit the employer, it is considered fair for the employer to be accountable for the resulting harm.

While both principles contribute to the rationale, scholarly emphasis has often been placed on the benefit principle.

Legal Nature of Employer Liability: Vicarious or Own Fault?

There has been academic debate regarding the precise legal nature of employer liability under Article 715:

• Vicarious Liability Theory (代位責任説 - Dai'i Sekinin Setsu): This is the prevailing view in both case law and academic circles. It posits that the employer is held liable for the tort committed by the employee. The employer, in a sense, steps into the employee's shoes to compensate the victim for the harm caused by the employee's wrongful act. Under this theory:
  • The employee's act itself must fulfill all the elements of a tort (e.g., intent or negligence, causation, damage).
  • The proviso in Article 715(1), which allows an employer to escape liability if they prove due care in selecting/supervising the employee or that damage would have occurred anyway, is seen not as defining the basis of liability (i.e., employer's fault) but as providing specific, limited grounds for exemption based on policy considerations. This means that employer liability under this dominant view is not strictly an "intermediate liability" based on a presumed fault of the employer that can be rebutted.
  • This vicarious liability model aligns well with the underlying principles of risk creation and benefit, which are often associated with stricter forms of liability. Consequently, successful exemptions under the proviso are exceedingly rare.
• Own Fault Theory (自己責任説 - Jiko Sekinin Setsu): An alternative view suggests that employer liability stems from the employer's own fault, specifically negligence in the selection and supervision of the employee. From this perspective, the liability would be akin to general tort liability under Article 709, but with a crucial difference: the burden of proving the absence of fault in selection and supervision would be shifted to the employer. This would indeed make it a form of "intermediate liability."

Some commentators suggest that these theories are not mutually exclusive; employer liability can be seen as vicarious (as the employer answers for the employee's tort) and, simultaneously, as a form of original liability based on the employer's creation and management of business risks, which doesn't necessarily require fault in the traditional sense of negligence.

Essential Elements for Establishing Employer Liability

For a victim to successfully hold an employer liable under Article 715, the victim must typically plead and prove the following elements:

1. Infringement of the victim's right or legally protected interest.
2. A tortious act by the employee (H), meaning the employee acted with intent or negligence concerning their harmful act.
3. The occurrence of damages (and their monetary amount).
4. A causal link between the employee's tortious act and the infringement of the victim's right and the resulting damages.
5. The existence of an "employment relationship" (使用関係 - shiyō kankei) between the employer (Y) and the employee (H) at the time of the tortious act.
6. The employee's tortious act was committed "in the execution of the business" (事業の執行につき - jigyō no shikkō ni tsuki) of the employer.

Defining the "Employment Relationship" (Shiyō Kankei)

The term "employment relationship" under Article 715 is interpreted broadly and is not confined to formal, contractual employment. The key factor is the existence of a de facto relationship of command and supervision (実質的に見て使用者が被用者を指揮監督するという関係 - jisshitsuteki ni mite shiyōsha ga hiyōsha o shiki kantoku suru to iu kankei) by the employer over the person who committed the tort.

Several factors are generally considered irrelevant in determining this relationship:

• Whether a formal contract of employment exists.
• Whether the work is temporary or continuous.
• Whether the business is for-profit or non-profit.
• Whether the business activity itself is legal or illegal.

The emphasis is on whether the employer had the position or authority to command and supervise the individual, not necessarily whether they actually exercised such supervision in the specific instance leading to the tort.

Examples where such a relationship has been found include:

• "Name lending" (名義貸 - meigikashi) scenarios: Where one party allows another to use their name or business license, and the "lender" is deemed to have a position to supervise the "borrower's" activities conducted under that name (e.g., a licensed transportation business allowing an unlicensed individual to operate under its trade name, Supreme Court, June 10, 1966, Minshu 20-5-1029).
• Situations involving close familial or personal relationships where one person exercises de facto control and direction over another's actions, even if not in a formal employment context (e.g., an elder brother giving specific driving instructions to an inexperienced younger brother driving the elder's car, Supreme Court, November 27, 1981, Minshu 35-8-1271).
• The relationship between the top leader of a hierarchically structured organized crime group and a lower-ranking member engaging in fundraising activities that utilize the group's power and influence (Supreme Court, November 12, 2004, Minshu 58-8-2078).

"In the Execution of the Business" (Jigyō Shikkōsei)

For employer liability to attach, the employee's tortious act must have been committed "in the execution of the business" (or "in connection with the execution of the business"). This requirement is also interpreted broadly by Japanese courts.

The Apparent Authority / Outer Appearance Theory (Gaikei Hyōjun Setsu 外形標準説)

The prevailing judicial approach to determining jigyō shikkōsei is the "outer appearance theory" (外形標準説 - gaikei hyōjun setsu). Under this theory, an act is considered to be "in the execution of the business" if, when viewed objectively from its outward appearance, it seems to fall within the scope of the employee's duties or to be closely related to them, even if the act was not actually part of their assigned job, was an abuse of authority, or was committed for the employee's personal benefit. (e.g., Supreme Court, July 16, 1957, Minshu 11-7-1254).

• Rationale for Transactional Torts: Particularly in cases involving an employee's tortious business transactions (e.g., fraud), the rationale for this broad interpretation is the protection of third parties who reasonably rely on the appearance that the employee is acting within the scope of their employment or authority (Supreme Court, April 20, 1967, Minshu 21-3-697 – this case, however, specifically linked the rationale to transactional conduct).
• Limitation – Victim's Bad Faith or Gross Negligence: An important limitation to the outer appearance theory exists. If the third party (victim) knew that the employee was acting outside their actual authority or illegally, or was grossly negligent in not knowing this, the employer may escape liability. The burden of proving the victim's bad faith or gross negligence rests with the employer. "Gross negligence" on the part of the victim is interpreted strictly, requiring a level of carelessness almost akin to intentional wrongdoing, such that it would be unfair to afford the victim protection. Simple negligence by the victim might lead to a reduction in damages under comparative negligence principles but would not typically negate employer liability entirely.

Application to Non-Transactional (Factual) Torts

The "outer appearance theory" or similar reasoning is also applied to non-transactional torts, such as:

• Traffic Accidents: Courts examine whether the employee's use of a vehicle (even their own, or a company vehicle outside strict work hours) had an objective connection to the employer's business (e.g., commuting directly to a work site as instructed, or using a vehicle in a manner that appeared business-related). (e.g., Supreme Court, November 8, 1962, Minshu 16-11-2255; Supreme Court, September 22, 1977, Minshu 31-5-767).
• Assaults or Fights by Employees: For intentional torts like assaults committed by employees, courts often look to whether the act was "triggered by and closely related to the execution of the employer's business" (使用者の事業の執行行為を契機とし、これと密接な関連を有する - shiyōsha no jigyō no shikkō kōi o keiki toshi, kore to missetsu na kanren o yūsuru). The "reliance by a third party" aspect is less prominent in these cases, with more focus on the nexus between the employment and the wrongful act. (e.g., Supreme Court, November 18, 1969, Minshu 23-11-2079).

Employer's Defenses Under Article 715(1) Proviso

Article 715(1) includes a proviso that theoretically allows an employer to escape liability if they can prove either:

1. That they exercised due care in the selection of the employee and in the supervision of the business; OR
2. That the damage would have occurred even if such due care had been exercised.

Practical Reality of the Defense:
In practice, this defense is extraordinarily difficult for employers to establish successfully. The proviso is often described as a "dead letter" (空文化している - kūbunka shiteiru) in Japanese legal commentary. Courts interpret the required level of "due care" very strictly. This near-impossibility of exemption is consistent with the underlying view of employer liability being rooted in principles of risk creation and benefit, where exemption would typically require circumstances akin to force majeure or a complete lack of connection to the business.

• Employee's Lack of Capacity to Bear Responsibility: Prevailing views and court practice generally allow an employer to raise the employee's lack of sekinin nōryoku (capacity to bear responsibility, e.g., due to mental incompetence or minority) as a defense to their own liability under Article 715. However, some legal scholars question this, arguing that the policy reasons for exempting an incapable individual from personal liability do not necessarily justify exempting their employer, especially if employer liability is grounded in risk management or the employer's own organizational responsibilities.
• Impact of the Act on Liability for Fire: If an employee negligently causes a fire, the special Act on Liability for Fire (失火責任法 - Shikka Sekinin Hō), which generally requires "gross negligence" for liability, applies. Case law has established that the "gross negligence" standard is assessed with respect to the employee's conduct, not the employer's care in selection or supervision (Supreme Court, June 30, 1967, Minshu 21-6-1526). This is seen as supporting the vicarious nature of employer liability.

Employer's Right of Recourse Against the Employee

If an employer is held liable under Article 715 and compensates the victim, Article 715(3) grants the employer a right of recourse (求償権 - kyūshōken) against the negligent employee.

However, this right of recourse is not absolute. The Supreme Court has held that the employer's claim against the employee can be limited based on the principle of good faith (信義則 - shingisoku) and the fair sharing of loss between the employer and employee (Supreme Court, July 8, 1976, Minshu 30-7-689). The rationale is that the employee was acting within the employer's business sphere, contributing to its activities from which the employer benefits, and the employer typically has greater capacity to absorb or distribute such losses. Factors considered by courts when determining the extent of this limitation include the nature and scale of the business, the employee's working conditions and duties, the nature of the tortious act, and any measures taken by the employer for risk prevention or loss distribution (e.g., insurance). The burden of proving facts that justify such a limitation on recourse lies with the employee. This principle of limited recourse also applies if an employer directly sues an employee for damage caused to the employer's own property due to the employee's negligence in the course of employment.

Liability of Proxy Supervisors

Article 715(2) extends similar liability to a proxy supervisor (代理監督者 - dairi kantoku sha)—a person who supervises the business on behalf of the employer. To be held liable as a proxy supervisor, the individual must have actual authority to supervise the specific work of the employee who committed the tort; a general managerial title alone is not sufficient (Supreme Court, May 30, 1967, Minshu 21-4-961, holding that a company representative is not automatically a proxy supervisor). Like employers, proxy supervisors can theoretically invoke the due care defense, but it is rarely successful.

Employee's Direct Liability and "Non-True" Joint and Several Liability

It is important to remember that the employee who committed the tort remains directly liable to the victim under general tort principles (Article 709 of the Civil Code). When both the employer (under Article 715) and the employee (under Article 709) are liable for the same damage, their obligations are considered to be "non-true joint and several obligations" (不真正連帯債務 - fushinsei rentai saimu). This means the victim can claim the full amount from either party (or portions from each), but once the total damage is compensated, claims against both are extinguished to that extent. Certain legal incidents that affect one obligor in a true joint and several obligation (e.g., interruption of the statute of limitations against one affecting all) do not necessarily apply in the same way to non-true joint and several obligations (e.g., the statute of limitations running against the employee does not automatically affect the claim against the employer, Taishin-in, June 30, 1937, Minshu 16-1285; a release of the employee does not automatically release the employer, Supreme Court, April 21, 1970, Hanrei Jihō 595-54).

If the employee compensates the victim, the question of whether they can seek contribution from the employer ("reverse recourse" - 逆求償 - gyaku kyūshō) is generally answered in the negative by the prevailing view, consistent with the vicarious liability model.

Employer's Own Tort Liability (Corporate Negligence)

Distinct from vicarious liability under Article 715, a corporate employer can also be held directly liable under Article 709 for its own tortious conduct. This is often referred to as "corporate negligence" (法人自身の不法行為責任（法人過失論）- hōjin jishin no fuhō kōi sekinin (hōjin kashitsu ron)).

This can arise in situations of:

• Organizational Negligence (組織過失 - Soshiki Kashitsu): Where the harm results from systemic failures within the company, such as inadequate safety systems, deficient operational protocols, or improper organizational structure (e.g., a railway company's insufficient safety measures leading to an accident).
• Aggregated Negligence: In complex cases like widespread pollution or food poisoning incidents, where it may be difficult to pinpoint the specific fault of individual employees, the collective actions or omissions of multiple unidentified employees, viewed as part of the overall corporate activity, can be considered the corporation's own negligence. (e.g., Fukuoka District Court, October 5, 1977, Hanrei Jihō 866-21 – the Kanemi oil poisoning case).

Conclusion

Employer liability under Article 715 of the Japanese Civil Code is a broad concept, deeply rooted in principles of risk allocation and the idea that those who benefit from business activities should also bear the associated harms. The prevailing vicarious liability model, coupled with the stringent interpretation of the "due care" defense, means that employers face a high likelihood of liability for torts committed by their employees "in the execution of the business." The scope of this latter requirement is extensive, often determined by the "outer appearance theory," which prioritizes the protection of third parties. While employers have a theoretical right of recourse against negligent employees, this is often limited by courts to ensure a fair sharing of the loss. This framework of vicarious liability exists alongside the potential for employers, particularly corporations, to be held directly liable for their own organizational negligence under general tort principles.