There is a serious flaw in everyone’s interpretation of the law here. A diocesan priest is a secular man. Neither the pope, nor the local bishop, nor his pastor or his immediate superior have any authority over his private conduct anymore than they would over John H. Catholic sitting in the pews.
The law refers to jurisdiction. Jurisdiction means that the pope is the highest ranking authority when it comes to matters such as governance, giving and withdrawing faculties to preach, absolve and witness marriages. Only the pope can authorize ordinations, which he does through the bishops for the diocese and through the religious superior for religious orders. Only the pope can suppress a diocese, religious house, religious order or an institution that is owned by a religious order.
In brief, the law is speaking about the popes authority in areas of sacraments, faculties, institutions, religious and secular institutes, dioceses, finances and other legal matters that do not involve the private lives of those who are not members of religious orders.
Even in the case of those who are members of religious orders, the pope’s authority is limited to governance. He has no authority over conscience and moral acts. He is the highest ranking superior of all religious orders, but like all religious superiors, he can only control what is specified in the rule of the order or the constitutions of the congregation.
In the areas mentioned above, his authority is absolute, his word is final and there is no appeal.
In matters or moral and prudential judgment, the pope’s authority is a moral authority. He has no way of exercising direct control over any Catholic.
The canon cited above is not about an employer employee relationship. It’s about faculties, jurisdiction and governance.
The pope is no more my employer than President Obama is the employer of the Joint Chief, the Chief Justice or head of the FBI.
As far as Vatican City is concerned, the same rules that apply to the USA apply to Vatican City. If you are a federal employee, the employer is liable for certain actions on the part of the employee, but not every action. Imagine the federal government being held liable for every soldier who has raped.