Law and Ethics 10- Agency and Employment Relationships

  1. agency
    a legal relationship in which the parties agree, in some form, that one party will act as an agent for another party, called the principal, subject to the control of the principal
  2. In all agency relationships, the principle authorizes the agent to provide services or accomplish some task on behalf of the principal and under the principals charge.
  3. classification of agents
    • employee agents
    • independent contractor agents
    • gratuitous agents
  4. employee agents
    individual employees who are authorized to transact business on behalf of the employer/principal

    employer/principal typically sets the work hours, salary, and exercises control over the working conditions and responsibilities

    principal provides tools or heavy equipment to the agent
  5. principals are liable for the actions or omissions (such as negligence) of employee agents
  6. In order to be classified as an employee agent, the employee must have some source of authority  to represent the employer

    not every employee can be an employee agent
  7. independent contractor agents
    • is not considered an employee
    • has NO legal protections (minimum wage, overtime..)
    • principal has NO liability for actions or omissions
    • usually work based on a deadline
    • usually send an invoice for payment Imonthly or longer typically)
    • more than one client/customer
  8. gratuitous agents
    • agents who act on behalf of a principal WITHOUT receiving any compensation
    • example: roommate to pick up laundy
    • rights and duties are the same as paid except the care applicable to the gratuitous agent isnt as great
  9. The status of an agent is based off of the
    actual working relationship NOT the agreement between the parties
  10. IRS three prong test
    • not binding in court
    • behanvioral aspects of the agency (does the company control what the worker does and how the worker does the job assigned)
    • the financial arangements between the principal and the agent (are the business aspects of the workers job controlled by the payer)
    • the type of working relationship the parties had in terms of benefits and promises of continuing employment
  11. agency transaction
    • creation of an agency
    • performance of obligations and duties
    • termination of agency
  12. Creation of an agency relationship
    • - defined in terms of consent and control
    • - described as a fiduciary relationship that results from manifestations of consent by the principal to the agent to act on the principals behalf subject to her control
    • - the agent also must give consent to perform the act
  13. courts do not look to the subjective intent, but rather the objective standard of what a reasonable person would have concluded
  14. Liability can arise either through a contract obligation or through vicarious liability (liability for another) tort
    when a third party claims that the principal is liable for an agents act, he is asserting that the principal is responsible for any legal conseqences of that act (damages or losses suffered by the third party) 
  15. Primary sources of an agents power (in creating an agency)
    • actual authority
    • apparent authority
    • ratification
  16. actual authority
    When the parties either expressly agree to create an agency relationship or where the authority is implied based on custom or course of past dealings
  17. apparent authority
    power to bind the principal from the appearance of legitimate authority

    determining is very difficult

    key- determine if a third party was objectively reasonable in her belief that the apparent agent is in fact authorized to act for the pricipal
  18. ratification
    • - occurs when the principal affirms a previously unauthorized act
    • - retroactive power (after the fact)

    • occurs by either:
    • - expressly ratifying the transaction
    • - not repudiating the act by retaining the benefits
  19. contract liability to third parties
    • fully disclosed
    • partially disclosed
    • undisclosed
  20. Fully disclosed agency
    • when the third party is aware of the indentity of the principal and knows that the agent is acting on behalf of the principal
    • only the principal is obligated to the third party
    • agent has no liability
    • third parties have no legal recourse against the agent if the principal fails to meet her obligations under the contract
  21. Partially disclosed agency
    • if the third party knows the agent is representing a principal, but DOES not know the actual identity of the principal
    • some cases the agent may identify the principal as "interested real estate buyer"
    • BOTH the principal and the agent may be liable for the obligations under the contract
    • law imposes liability on the agent in the event that the principal does not perform her contractual obligations
  22. Undisclosed Agency
    when a third party is completely unaware that an agency relationship exists and believes that the agent is acting on her own behalf in entering a contract

    agent is fully liable to perform the contract

    if the agent is made to pay, the agent has the right to indemnification from the principal
  23. tort liability to third parties
    • a principal may be liable for an agents tort (mostly negligence) even though the principal hasnt engaged in any wrongful conduct
    • - mostly true if an employee agent

    -liabilities for principals of agents that are classified as employees is derived from the doctrine of respondeat superior
  24. vicarious liability/ doctrine of respondeat superior
    involves one party's liability for the act of another party

    • - holds true for employee agents and non agent employees
    • - principals are NOT liable for negligent acts of agents that are independent contractors

    *** must have occurred within the scope of the employment
  25. scope of employment
    • in order for the principal to liable, the agents tortious conduct must have
    • 1. been related to her duties as an employee of the principal
    • 2. occurred substantially within the reasonable time and space limits
    • 3. been motivated, in part, by a purpose to serve the principal
  26. doctrine of responeat superior is limited by scope of employment and
  27. Frolic
    during the workday am agent does something purely for her own reasons unrelated to employment

    this is considered outside the zone that is governed by responeat superior

    if the conduct is a small-scale deviation that is normally expected in the workday, that is NOT considered a frolic, but rather a simple detour
  28. detour
    are still within the ambit of respondeat superior
  29. intentional torts by an agent
    thought to be outside the scope of employment and employers are NOT liable unless the assault has a close connection to serving the principal
  30. Negligent hiring doctrine
    tort based theory of liability for employers for negligent or intentional torts of employees when the employer has reason to know that the employee may cause harm within his scope of employment

    *requires employers to take necessary steps (criminal backgrounds and reference checks)

    - liability generally focuses on the employer's methods for determining suitability for the position
  31. negligent retention
    if circumstances arose after the hiring process that should have given notice to the employer of a potential for an employee to cause harm
  32. independent contractors and negligent hiring
    most cases the indepenent contractor is the sole responsible party

    • one exception is when:
    • the principal has been negligent in hiring and is based on the pecurial risk doctrine that is rooted in the Restatements. The doctrine requires a principal to take reasonable steps to determine the fitness of an independent contractor agent to perform an inherently dangerous task.
  33. fiduciary duty
    • duties that define an agency relationship
    • requires the agent to act according to higher standards than nonfiduciaries in a transaction.
    • consist of 5 subduties: loyalty, obedience, care, disclosure and accounting
  34. Loyalty
    • centerpiece of the fiduciary duty
    • requires the agent hold the principal's objectives paramount (except where principal agrees otherwise in advance)
    • agent must act solely for the benefit of the principal in all matters connected with the agency
    • must refrain from self dealing or other conflicts of interest
    • must keep information confidential
  35. obediance
    duty to obey lawful instructions from the principal and cannot substitute her own judgement for the judgement of the principal (unless specifically authorized)
  36. care
    • duty to act with due care when conducting business on behalf the principal.
    • requries the agent to act in the same careful manner when conducting the principal's affairs as a reasonable person would use in conducting her own personal affairs
    • agents wtih specialized knowledge are held to a standard of care that is higher than nonspecialist
    • a gratuitous agent is held to a lower standard of care than a paid agent
  37. disclosure
    • ongoing duty to keep the principal informed and disclosed to any and all relevant facts to the principal
    • duty is based on a notion that agents may blind principals
    • must be included for all phases of the relationship
    • includes if he has a lack of information about an important fact (estimates verses actuals)
  38. accounting
    • unless otherwise agreed the agent must keep appropriate written records for any money that the agent spends or receives in the course of the agent's representation.
    • includes a prohibition to intermingle the principals funds and the agents own funds/possessions.
  39. principal's remedies for breach
    if an agent's breach of duty to the principal causes damages to the principal, the principal may recover those damages by suing the agent for the breach.

    if the agents breach resulted in the principal's becoming liable to a third party, then the agent must indemnify and hold harmless the principal from any losses as a result of the liability.
  40. rescission and disgorgement
    if the agent breaches the duty of loyalty, the principal's remedies also include the ability to rescind any transaction between the principal and agent.

    A court may also order the agent to return any funds earned as a result of the breaching conduct (disgorgement).  
  41. Duties and Obligations of the Principal to the Agent

    - principal has a duty to reimburse and indemnify its agents
    • payments made or expenses incurred within the agents actual authority
    • payments made by the agent for the principals benefit, but done without authority, so long as the agent acted under a mistaken good faith belief that he had the authority to act
    • claims made by 3rd parties on contracts entered into by authorized agents on behalf of the principal
  42. in order to obtain the principals protection, the agent must give the principal reasonable notice of the claim and cooperate with the principal in managing the defense
    • principal does NOT have a duty to reimburse or indemnify the agent if the payments made or expenses incurred were
    • 1. outside the agents actual authority
    • 2. from losses resulting from the agents negligence
    • 3. from losses resulting from the agents intentional tort or an illegal act
  43. agents remedies for breach

    when a principal breaches a duty owed to an agent, the agent generally has the right to recover damages in court
    the most common breach is when the principal refuses to reimburse or indemnify the agent

    the agents sole remedy is to file suit in order to collect any money owed to the agent and for reimbursement of out of pocket and incidental costs.
  44. Termination of the agency relationship
    • effect of the terminination of the agency relationship also terminates the principal's duties and obligations to the agent and to third parties
    • failing to properly notify appropriate parties may result in continued liability of the principal for acts of the agent despite termination.
    • in general, an agency relationship is terminated through express acts or through operation of law
  45. Express acts
    • termination by the principal is known as revocation.
    • when the agent initiates the termination is it known as renunciation
    • *the legal power of termination is NOT synonymous with the legal right of termination 
    • meaning the termination may still be unlawful because the law did not give the principal the right to end the agreement before mutual performance, the agent may be entitled to damages as a result of the principals misconduct of wrongful termination
    • an agency relationship may be terminated by expiration (time period, or event/purpose)
  46. Operation of Law
    • agency may also be terminated as provided for by statute or through certain common law doctrines.
    • destruction of an essential subject matter of the relationship
    • if either the principal or agent dies, files for bankruptcy, or does not have the mental capacity to continue the relationship (if the death is not known it is ok to continue until it is found out, unless it is in bad faith)
  47. Employment at will doctrine
    • deep seated common law rule that exists in some form in every US jurisdiction
    • permits employers to terminate an employee with or without advance notice and with or without cause, subject to certain exceptions.
    • Exceptions: an express contract, implied contract, or some specific statutory or public policy-based protection against job termination (ex: anti-discriminatory laws)
  48. Express contracts
    rights of the employee in the case of termination are spelled out in the contract
  49. labor contracts
    • rights to nonmanagement employees
    • collective bargaining agreements (CBAs), negotiated by a labor union on behalf of a group of employees
    • provides a protection by prescribing a process that must be used by the employer before terminating an employee.
    • designed to ensure that employees are being treated consistent and with standards in the CBA.
  50. implied contracts
    employer acted in a manner in which a reasonable person would believe that the employer intended to offer an employee protection from termination without cause.

    • arises in 2 scenarios:
    • 1. in a manual or bulletin
    • 2. oral promise made by an employer 
  51. Statutory Prohibitions
    • anti-discrimination laws that prohibit termination
    • absence due to jury
    • attempting to union
    • whistle blowers- employee/agent who reports unlawful conduct to authorities
  52. Public Policy Exception
    • contridict public policy (welfare of the general public)
    • narrowly applied in common law rule that places the public welfare ahead of the rights of an employer
    • Ex: guard fired for leaving an armed car to assist in a armed robery one black away, he was reinstated for doing the right thing
    • refusal to commit an illegal act
    • exercising a legal right
    • or performed an important act
Card Set
Law and Ethics 10- Agency and Employment Relationships
Law and Ethics 10- Agency and Employment Relationships