In October 1994, appellants John H. Hedquist, Jr., Marianne Hedquist, and John H. Hedquist III, the latter both individually and as the trustee for a profit sharing plan and trust, filed suit against appellee Merrill Lynch, Pierce, Fenner & Smith “Merrill Lynch”, a Merrill Lynch employee, and several other individuals, seeking damages allegedly resulting from actions purportedly taken by the defendants in December 1990. In December 1996, the Hedquists dismissed with prejudice their complaint against the Merrill Lynch employee.1 The dismissal with prejudice stated specifically that it did not apply to any of the other named defendants. A year later, the trial court entered an order dismissing the claims against Merrill Lynch, finding that the Hedquists had failed to state a claim upon which relief could be granted since the claims against Merrill Lynch were predicated on the purported acts of the Merrill Lynch employee who the plaintiffs had voluntarily dismissed with prejudice from the case. Relying on its decision in Harris v. Hanna Creative Enterprises, 208 Ga. App. 549 1 430 SE2d 846 1993,2 the Court of Appeals affirmed the trial court’s decision, ruling that the Hedquists’ dismissal with prejudice of the employee operated as an adjudication on the merits and that, in a suit by the third party based on the doctrine of respondeat superior, a judgment on the merits in favor of the employee against the third party is res judicata in favor of the employer. Hedquist v. Merrill Lynch, 236 Ga. App. 181 1 511 SE2d 558 1999. We granted the Hedquists’ petition for a writ of certiorari, asking the parties to address whether the Court of Appeals erred in holding that tort claims against an employer which are based on the doctrine of respondeat superior must be dismissed if the suit against the allegedly negligent employee has been dismissed with prejudice. We agree with the Court of Appeals that, under res judicata, an employer is entitled to dismissal of the third party’s tort action based on respondeat superior when the employee’s dismissal from the case resulted from an adjudication on the merits; however, we disagree with the Court of Appeals’ determination that a plaintiff’s voluntary dismissal with prejudice of the employee constitutes an adjudication on the merits. Furthermore, we do not endorse Merrill Lynch’s contention that the portion of the renewal action filed against the employee in October 1996 was dismissed as a matter of law on statute of limitation grounds. Accordingly, we reverse the judgment of the Court of Appeals.
1. “Where the liability of the employer to an injured third person is purely derivative and dependent entirely upon the doctrine of respondeat superior, a judgment on the merits in favor of the employee and against the third person is res judicata in favor of the employer in a suit by such third person. . . .” Gilmer v. Potterfield, 233 Ga. 671 1 212 SE2d 842 1975. A judgment on the merits is one which adjudicates the liability of the defendant to the plaintiff. Rowland v. Vickers, 233 Ga. 67, 68 209 SE2d 592 1974. A dismissal with prejudice of the action against the allegedly negligent employee does not impose a bar to further litigation against the vicariously liable employer because the dismissal with prejudice “adjudicates only the non-liability of that defendant to the plaintiff . . . and is not the equivalent of a judgment rendered in favor of the plaintiff against the defendant. . . .” Id. As the Court of Appeals stated in Thornton v. Ware County Hosp. Auth., 215 Ga. App. 276 1 450 SE2d 260 1994,
