Dram Shop Liability in Texas: The "Safe Harbor" Defense Explained

The Texas Dram Shop Act became law in 1987.  Before its enactment, Texas law did not impose liability on sellers of alcohol who "over-served" intoxicated patrons.  In passing the Dram Shop Act, the Legislature provided the exclusive remedy for liability resulting from injuries caused by a provider's negligence in serving persons who are "obviously intoxicated" to the point that they are a clear danger to themselves and others. The Act was intended to represent a balancing between the need to protect the public from over-service, and the desire to protect providers from litigation.

Although the Act provides an avenue for liability against providers of alcohol, it also provides a statutory defense against liability.  This "Safe Harbor" defense is codified as section 106.14 of the Texas Alcoholic Beverage Code ("TABC").  It was intended by the legislature to provide protection to alcohol providers who complied with its requirements.  In actual practice, it has failed to provide much protection at all, as courts have rarely found the defense to apply.  This article discusses the requirements to satisfy the "Safe Harbor" defense.

The "Safe Harbor" Defense

Section 106.14 provides:

(a) For purposes of this chapter and any other provision of this Code relating to the sales, service, dispensing, or delivery of alcoholic beverages to a minor or an intoxicated person or the consumption of alcoholic beverages by a minor or an intoxicated person, the actions of an employee shall not be attributable to the employer if:

(1) the employer requires its employees to attend a commission-approved seller training program;

(2) the employee has actually attended such a training program; and

(3) the employer has not directly or indirectly encouraged the employee to violate such law.¹

Which Party Bears the Burden of Proof?

The Legislature enacted this provision to give employers an incentive to ensure that their employees attend a TABC approved training program.  The provision is also intended to provide a broad shelter from liability for an employer who has complied with the first two elements while also ensuring that this shelter is not abused.  However, the provision is silent on which party bears the burden of proof to establish the three required elements.

Prior to 2008, courts often required the employer to establish all three elements, including proving a negative for the third element.  However, in 20801, Inc. v. Parker, the Texas Supreme Court held that the employer only has the burden to establish the first two elements.²  After these two elements are established, the burden shifts to the plaintiff to show that the employer either directly or indirectly encouraged the employee in question to over-serve.  The Court explained that the variety of acts or omissions that could constitute encouragement is "potentially limitless," and it is very unlikely that any particular form of encouragement will be present in a given case.  As such, the Court reasoned that requiring every provider to prove that it did not encourage its employees to over-serve would be an "inefficient and uneconomical" use of judicial resources because proving a negative "is always difficult and frequently impossible."

Who is an Employer?

Texas law provides that an “employer” for purposes of 106.14(a) includes “all vice-principals” of the company.  The term "vice-principals" includes those engaged in the performance of nondelegable or absolute duties of the master or those to whom the master has confided the management of the whole or a department or division of his business.  This means that any encouragement by a vice-principal manager is considered encouragement by the employer provider.  Additionally, if a vice-principal manager served the alcohol, the "Safe Harbor" provision would not apply because the manager would not be an employee within the terms of the provision.

What Constitutes Direct or Indirect Encouragement?

As previously noted, the Texas Supreme Court issued its first opinion interpreting section 106.14(a) of the Texas Alcoholic Beverage Code in 20801, Inc. v. Parker.  The Court explained that the direct or indirect encouragement prong reflects the Legislature’s concern that an employer might abuse its protection from liability by encouraging its employees to violate the law in an effort to increase profits.  This prong allows a plaintiff the opportunity to rebut the defense in case the employer is not entitled to protection from liability.

Direct Encouragement

The Court held that a plaintiff can show encouragement by direct evidence that the provider knowingly ordered or rewarded over-service.  For example, an employer can encourage an employee to violate the law or threaten an employee with punishment for not violating the law—both are considered direct encouragement.

Indirect Encouragement

A plaintiff can also show encouragement indirectly by circumstantial evidence that the provider engaged in behavior that a reasonable provider should have known would constitute encouragement.  Indirect encouragement deals more with an employer that simply does not care what the correct procedure is for serving alcohol.

The Court provided a non-exclusive list of some scenarios it might accept as circumstantial evidence:

[An employer] might, without so intending, encourage its employees to over-serve by himself serving obviously intoxicated persons and thus modeling inappropriate behavior, or by failing to punish over-service, or by setting an excessively high minimum sales quota without regard to the number of patrons.³

In other words, the Court explained that although encouragement is generally intentional, it is possible for providers to negligently encourage their employees to violate the law.  The Court stated that the relevant comparison for negligent encouragement will be to a reasonable provider of the defendant's type (a bar or liquor store owner) and the circumstances in these cases will include a provider's awareness of, and reliance on, its employees' successful completion of an approved seller program.  The Court noted that in most cases a plaintiff will be able to argue that a provider's encouragement to over-serve was established by behavior over a period of time, rather than by any one specific act or omission.

How Can Employers Seek to Stay within the "Safe Harbor"?

Although the "Safe Harbor" defense exists to protect employers, it is key that employers are both aware of and involved in the activities taking place in their particular establishment to avail themselves of this protection.  Therefore, in order to attempt to stay within and be able to rely upon the "Safe Harbor" defense, providers of alcohol should, at a minimum:

• Require employee training at a TABC approved training course
• Confirm that employees have attended training and are re-certified as required
• Maintain documentation of training of each employee who serves alcohol
• Maintain written policies against the over-service of alcohol and develop procedures intended to prevent such over-service from occurring
• Ensure compliance with the written policies and procedures that are put in place
• Discipline those employees who violate the policies, up to and including termination

¹ TEX. ALCO. BEV. CODE § 106.14(a).
² 20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008).
³ Id.

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