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The Economic Loss Rule

It started well enough, with a temp agency providing an employer with a bookkeeper. The temp did so well that she was eventually hired full-time. Unfortunately, it turned out that she was a convicted embezzler, and she stole over $70,000 of the employer's money before being caught. The employer sued the temp agency, claiming that it was negligent in failing to discover that the employee was an embezzler. However, the court dismissed the case, citing the "economic loss rule."

The economic loss rule states that an injured party may not recover for another's negligence if the only loss is an economic loss. The basis of this rule is that a monetary loss in a business relationship should be dealt with by the parties' contract. If the contract is silent, and no one was hurt, why should the courts intervene?

Despite the fact that the employer lost tens of thousands of dollars, the court found that the employer could not recover its loss from the temp agency. As this case reminds us, the courts do not always provide relief for injured parties.

© 2011 Lucas Law

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