How two wrongs may make a right, but four do not – The interesting case of Dutch employers’ liability

Dutch employers’ liability for workplace accidents is a very interesting topic, not only from a legal perspective, but also from a law and economics one. It is one of the few systems in Europe where liability is still based on the fault of the employer, whereas most countries apply a form of strict/no-fault liability or a system of no-fault insurance. It is interesting because the Dutch Civil Code explicitly refers to prevention of work-related losses. Law and economics focuses exactly on the behavioural incentives that are provided by tort liability, instead of on the compensation aspect. In this article, I provide an answer to the question of how Dutch employers’ liability compares to the law and economics desiderata. At first glance, the design of this type of liability (fault liability) is contrary to what law and economics would advocate (strict liability). In addition, the level of care that courts require from the employer seems to be excessively high. Interestingly, both characteristics together result in a situation which, from a law and economics perspective, is almost indistinguishable from the desired strict liability. So, two wrongs may make a right: the ‘wrong’ choice for fault liability combined with the ‘wrong’ level of due care results in the ‘right’ application of (quasi) strict liability. Therefore, at least in theory, employers receive the correct behavioural incentives, which induce them to take the optimal level of care and activity. However, when we subsequently turn our attention to employees, things look less perfect. Law and economics scholars argue that in situations where not only the tortfeasor but also the victim can influence accident probability, both parties should receive behavioural incentives. This implies that a rule of strict liability should be accompanied by a defence of contributory or comparative negligence. The Dutch employer liability regime contains a defence of intent or wilful recklessness on the part of the employee. From a law and economics perspective, this defence provides inadequate incentives to the employee, which is a third wrong. An often-heard response to this line of reasoning is that tort victims will receive behavioural incentives for fear of being involved in an accident in the first place, so the lack of a full defence of contributory or comparative negligence is not problematic. If this is true, then the damages the victims receive do not make them ‘whole’, which introduces a fourth wrong: uncompensated losses. This second set of two wrongs does not make a right, because if victims receive incomplete compensation, tortfeasors do not fully pay for the losses they have caused. This may reduce the behavioural incentives the tortfeasors receive, who may hence not choose optimal levels of care and activity after all.