Master-Servant Rule


DEFINITION of 'Master-Servant Rule'

A legal guideline stating that employers are responsible for the actions of their employees in many circumstances. If an employee acts negligently - even if the employer was not aware that the employee was doing so - the employer could face fines or a lawsuit. Since the Master-Servant Rule places the onus on the employer, it is important that the employer set the guidelines for appropriate employee behavior.

BREAKING DOWN 'Master-Servant Rule'

For example, an accountant working for a large accounting firm intentially overlooks erroneous sales claims by a manufacturer he is balancing the books for. If the manufacturer is audited and the sales claims are disputed, the accounting firm could be held liable for the accountant's errors.

  1. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the ...
  2. Tort Law

    The area of law that covers the majority of all civil lawsuits. ...
  3. Administrative Law

    The body of law that governs the administration and regulation ...
  4. Common Law

    In the United States, a body of unwritten laws based on precedents ...
  5. Civil Money Penalty - CMP

    A punitive fine imposed by a civil court on an entity that has ...
  6. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
Related Articles
  1. Retirement

    Build A Wall Around Your Assets

    Learn how to protect your money from lawsuits, creditors and other judgment proceedings.
  2. Entrepreneurship

    Don't Get Sued: 5 Tips To Protect Your Small Business

    Find out what you can do to limit risk and keep your business running smoothly.
  3. Home & Auto

    Cover Your Company With Liability Insurance

    Every business is susceptible to legal action. Find out how to protect yours.
  4. Home & Auto

    Protect Your Company From Employee Lawsuits

    Understanding employment practices liability insurance is easy, once you know the basics.
  5. Professionals

    4 Ways Companies Can Relieve Workplace Stress

    Workplace stress can cost companies tons of money in lost productivity and absenteeism. Some of that is out of their control, but often they are the cause.
  6. Professionals

    Prevent Employees From Hacking You Computer System

    Cyber security attacks from a current or ex-employee can cause a lot of pain. Here is how to avoid such attacks.
  7. Economics

    The 5 Countries That Produce the Most Carbon Dioxide (CO2)

    Learn about the top five countries, China, the United States, India, Russia and Japan, that are the largest contributors to carbon dioxide emissions.
  8. Entrepreneurship

    Hire Your Kids at Your Small Business – Here's Why

    And how to make sure you do it the right way, following IRS guidelines.
  9. Economics

    Explaining Silo Mentality

    A silo mentality occurs when certain departments in an organization do not share information or knowledge with other departments.
  10. Entrepreneurship

    What Does It Mean To Be Self-Employed?

    A self-employed individual works for herself instead of working for an employer that pays a salary or hourly wage.
  1. How often do mutual funds report their holdings?

    The Securities and Exchange Commission (SEC) requires mutual funds to report complete lists of their holdings on a quarterly ... Read Full Answer >>
  2. What protections are in place for a whistleblower?

    Whistleblowers can play a critical role in ensuring the compliance, safety, honesty and legal fairness of governments and ... Read Full Answer >>
  3. What should a whistleblower do if their employer retaliates?

    Although specifically prohibited by employment law, employer retaliation against whistleblowers for exposing employers' wrongdoings ... Read Full Answer >>
  4. Will a hike in the minimum wage result in deadweight loss to businesses and labor?

    There have been studies which show that hikes in minimum wage create deadweight loss to business and labor. It is possible ... Read Full Answer >>
  5. What does a merger or acquisition mean for the target company's employees?

    Suppose one sporting goods manufacturer merges with or acquires another sporting goods manufacturer. Before the merger and ... Read Full Answer >>
  6. Does technology follow the law of diminishing marginal returns?

    The law of diminishing marginal returns does sometimes apply to the technology industry. The law states that as employee ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!