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.

Investopedia explains '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.



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