MGMT 311 Agency Relationships PDF

MGMT 311 Division of Human Resources and Organizational Effectiveness  Chapter 19 Agency Relationships Agency Law Formation of Agency Relationship Duties, Rights, & Remedies of Agents and Principals Agent’s Authority Liability in Agency Relationship Terminatio...

MGMT 311 Division of Human Resources and Organizational Effectiveness  Chapter 19 Agency Relationships Agency Law Formation of Agency Relationship Duties, Rights, & Remedies of Agents and Principals Agent’s Authority Liability in Agency Relationship Termination of an Agency  Agency Law Agency is defined as the “the fiduciary relations that results from the manifestation of consent by one person to another that the other shall act in his/her behalf and subject to his/her control, and consent by the other so to act”. – Fiduciary is at the heart of Agency Law It can be a noun or adjective- when used as an adjective “fiduciary relationship” Types of Agency Relationships in Business: – Employer-Employee Relationship and Employer-Independent Contractor Relationship Employer- Employee Relationship- typically all employees who deal with 3rd parties are deemed to be agents of the business/owner(s). – Salesperson in department store- making sales binding on owner – Overlap between Employment and Agency Law (based upon common law) – Employment Laws do not apply Independent contractors Employer-Independent Contractor relationship- – Independent contractor is a person who contracts with another to do something for them but who is not controlled by the other party. The IC may or may not be an agent. Homeowner hires a real estate agent to sell their home; Hire a plumber to fix a leaky toilet – Contractor and Subcontractors are IC  Determination of Employee Status The criteria considered when determining whether a person is employee or contractor is: – How much control does the employer exercise over the details of the work? More control and detail= employee – Is the worker engaged in an occupation/business distinct from that of the employer? If so, indicates IC – Is the work usually done under the employer’s direction or by a specialist w/out supervisor? If done under employer discretion- employee – Does the employer supply the tools at the workplace? If so-employee – For how long is the person employed? Long period of time-employee – What is the method of payment- time period or at the completion of job? Payment by time- every 2 weeks or monthly-employee – What degree of skill is required? Great deal of skill-IC Usually, great protection for workers being categorized as employee than IC; Great benefit for Employers to have workers categorized as IC – Rational- Unemployment benefits/taxes; payroll taxes; Workers’ comp.  Determination of Employee Status Cont’d IRS Criteria- most important factor is the degree of control the business exercise on the worker. – IRS closely scrutinize firm’s classifications b/c of tax liabilities involved with employees. If misclassified firm may be on the hook for paying all applicable taxes Employee status and “Work for Hire”- ordinarily a person who creates the copyright work is the owner of the copyright- unless it is a “work for hire” – Under copyright law- any copyright work created by an employee within the scope of his/her employment at the request of the employer is a “work for hire” – When an employer hires an IC- the IC owns the copyright The parties may agree that the work is a “work for hire”  Formation of Agency Relationship ARs are normally consensual. They are formed by voluntary consent and agreement between the parties. – Normally does not need to be in writing & consideration not required – Individual does need contractual capacity to be principal Rationale-can’t legally enter a K, should not do so indirectly through an Agent – An agency relationship created for illegal purpose unenforceable Agency by agreement- most agency relationships are based upon expressed or implied agreements that the agent will act for the principal and the principal agrees to have the agent so act. – Agency agreement can be formed thru expressed written or oral Ks.  Formation of Agency Relationship Cont’d Agency by Ratification-if a person who is not an agent (or acting outside the scope of his/her authority) makes a K on behalf of another (principal) and the principal affirms (by actions/words) the K the agency relationship has been created by ratification. – Ratification requires intent and intent can be expressed by words/actions. Agency by Estoppel- is when a principal allows/causes a 3rd party to believes that an agent is acting on behalf of the principal and causes the 3 rd party to act on that belief in his/her detriment. – The 3rd party must prove that he/she reasonably believed an agency relationship existed (using reasonable person standard); and – That the principal’s conduct/statements was the cause of the belief (not the agents). After all you are estopping the principal not the agent Agency by law- Cts may find agency relationships absent formal agreements – Family relationships Actions of one spouse may impose liability upon the other; Parent and child as well – Emergency situations Life saving measure  Duties owed to the Principal Once the principal-agent has been established each party owes the other the duty to act with the utmost good faith. Agents generally owe principals five duties: – Performance; notification; loyalty; obedience; accounting Performance- an implied condition is that the agent will use reasonable diligence and skill performing the work. Failing to do may result in breach of contract. – Reasonable person standard- ordinary care for level of skill advertised – Agents acting gratuitously (w/out payment) cannot be liable for breach of K; no K b/c no consideration Maybe liable for a tort Notification- an agent is required to notify the principal of all matters that come to his/her attention concerning the subject matter of the relationship. AKA-Duty to inform. Loyalty-most fundamental duty; basically, agent must act solely for the benefit of his/her principal and not in the interest of themselves/3rd party. – It could be a breach of loyalty to disclose confidential information during or after the relationship – Agent’s loyalty must be undivided; can not result in secret profits for agent/3rd party Unless the all parties agree to the arrangement Obedience- the agent has a duty to follow all lawful & clearly stated instructions – Unless an emergency situations arises; no clear- must act in good faith and reasonable Accounting- the agent must keep track and make available an account of all property & funds received & paid out. No comingling of funds (big issue for attorneys).  Duties owed to the Agent Duties generally owed to the Agent- compensation, reimbursement & indemnification, cooperation, and safe working conditions Compensation- agent working for principal expects payment. – Principal must pay the agreed upon value for the services & timely Reimbursement & Indemnification- principal must reimburse the agent for any necessary expenses incurred during the arrangement. The principal must also indemnify an agent for liabilities incurred because of authorized acts of the agent. – Principal not responsible for expenses nor must indemnify the agent for misconduct/negligence or unauthorized acts. Cooperation-principal has the duty to work with the agent and to assist the agent in performing his/her duties. – Exclusive agency- cannot compete against the agent Safe working conditions- common law requires principal to provide safe working premises, equipment, and conditions. Tort; WC; OSHA Rights & Remedies-every duty of the principal, the agent has a corresponding right and vice versa. One breaches the other is entitle to a remedy. Remedies arise out K and/or Tort law.  Agent’s Authority An agent’s authority to act may be actual (expressed or implied) or apparent. – If the agent acts outside the scope of their authority, they may still bind the principal. Expressed Authority-is declared in clear, direct & definite terms- can be done orally – Equal Dignity Rule- some jurisdiction require that if the K must be in writing, so must the agent’s authority to enter the K, other wise the K voidable: exceptions to equal dignity rule are: Executive officers of a corporation can conduct normal & business transactions w/out written authority from the corp.; When the agent acts in presence of the principal, the rule does not apply; When the agent’s signature is merely a formality. – Power of Attorney- giving an agent power of attorney confers express authority. POA- is a written document usually notarized; it can be special or general; terminates on death or incapacity. Implied Authority- this allows agent to what is reasonable & necessary to carryout the expressed authority and accomplish the objectives of the relationship. – Can be implied by custom or inferred from the position the agent occupies; cannot contradict expressed authority Apparent Authority- is when the principal by words/actions cause a 3rd party to believe that the agent has authority to act, even though they did not (neither expressed or implied). – This usually occurs through a principal’s pattern of conduct over time – Ct will apply agency estoppel when a principal has given a 3rd party reason to believe that an agent has authority to act. If the 3rd party reasonable relies on the principal representations to their detriment, the principal will be estopped from arguing the agent exceed their authority.  Agent’s Authority Cont’d Emergency powers- when unforeseen emergency demands action by an agent to protect or preserve the property and rights of the principal, but the agent is unable to communicate with the principal, the agent has emergency power. – If the agent acts outside the scope of their authority, they may still bind the principal. Ratification-occurs when the principal affirms or accepts responsibility for an agent’s unauthorized act. The principal is now bound and treated as if the agent had expressed authority to act. The requirements for ratification are as follows: – The agent must have acted on behalf of the principal who subsequently ratifies the action; – The principal must know all the material facts involved in the transaction; – The principal must affirm the agent’s act in its entirety; – The principal must have legal capacity to authorize the transaction at the time the agent engages in the act and at time of ratification; – Principal’s affirmation must transpire before the 3rd party withdraws from the transaction; and – The principal must observe the same formalities when ratifying the act as required to undertake the act.  Liability in Agency Relationship Liability for Contracts depends on how the principal is classified and whether the action of the agent were authorized or unauthorized. Classifications of Principals are: – Disclosed principal- identity is known to the 3rd party at the time K was formed – Partially disclosed- identity is Not known; but the 3rd party knowns the agent may be acting for a principal at the time the K is formed. – Undisclosed-totally unknown and no knowledge that the agent is acting in an agency capacity Authorized Acts-if the agents acts w/in the scope of his/her authority, the principal is obligated to perform the K regardless of principal’s status. – Agent’s liability under the K will depend on whether the principal’s status was undisclosed or partially disclosed. Disclosed or partially disclosed principal- is liable to a 3rd party for a K made by the agent. – If the principal is disclosed the agent has no K liability for performance. – If partially disclosed most jurisdictions treat the agent as a party to the K- thus liable under the K.  Liability in Agency Relationship Undisclosed Principals for authorized acts- principal is liable for the K and must indemnify the agent. – Once the undisclosed principal identity is revealed, the 3rd party can elect to hold either the principal or agent liable under the K – The undisclosed principal can require the 3rd party to fulfill the K; unless one of the following are true: The undisclosed principal was expressly excluded as a party in the written K; The K is a negotiable instrument signed by the agent with no indication of signing in a representative capacity Performance of the agent is personal to the K; thus, allowing the 3 rd party to refuse the principal’s performance. Unauthorized Acts- if the agent has no authority but contracts with a 3rd party, the principal cannot be held liable under the K. The agent is solely liable. – If the principal is disclosed or partially disclosed, and the agent contracts with a 3rd party without authorization the agent’s liability is based upon implied warranty of authority. – Implied warranty of authority- holds that the agent has the authority to enter the K on behalf of the principal. If 3rd party knows the agent does not have the authority; no liability by the agent Actions by e-agents- today the same agency principals apply to human agents and e- agents. E-agents is a semiautonomous software that can execute specific tasks. – E-agents can enter into binding agreements on behalf of their principals. Example internet orders  Liability for Torts & Crimes Liability for a principal for an agent’s torts or crimes depends on several factors. Principal’s Tortious Conduct- a principal who acts through an agent may be liable for harm resulting from the principal’s own negligence/recklessness. – This could arise by improper instructions; authorizes the use of improper materials or tools; or establishes improper rules that results in the agent’s committing a tort. – A principal who authorizes an agent to commit a tort may be liable to persons or property; b/c the act is principal committing the act Liability for agent’s misrepresentation- a principal is exposed to tort liability whenever a 3rd party sustains an injury due to an agent’s misrepresentation. – The principal’s liability depends on whether the agent was actually or apparently authorized to make representations and whether the representations were made within the scope of agency. Liability for Agent’s Negligence- agent is liable for his/her own actions. A principal may also be liable for harm an agent causes to a 3rd party under the doctrine of respondeat superior ( let the master respond). – Respondeat Superior- hold that a principal/employer is liable for any harm caused to a 3rd party any an agent/employee in the course or scope employment. RS- is like the theory of strict liability in that liability is imposed regardless of fault – The doctrine imposes vicarious liability (indirect liability) b/c the principal/employer is being held liable for torts committed by the agent/employee Scope of employment- is the key to determining whether a principal may be liable under the doctrine of Respondeat Superior. Cts will look at the following factors to determine whether or nor the agent's acts were w/in the course and scope: – Was the employee’s act authorized by the employer; – The time, place, & purpose of the act; – Was the act one that is commonly performed by the employees on behalf of the employer; – To what extent was the employer’s interest advanced by the acts; – To what extent was the private interest of the employee were involved – Did the employer furnish the means or instrument by which an injury inflicted. – Did the employer have reason to know that the employee would perform the act in question and had the employee done it before; – Did the act involve the commission of a serious crime.  Liability for Torts & Crimes Cont’d The difference between a “detour” and “Frolic”- if an agent merely takes a detour from his principal’s business the principal is liable as opposed to a “frolic of his own” and not in any way on his principal’s business the principal will not be liable. – An employee going to and from work or from meals is outside the scope of work; however, is travel is required and while traveling that is considered w/in the scope of work. Liability for Agent’s intentional torts- most intentional torts have no relation to their employment, and their employers will not be held liable. – Must look at the doctrine of respondeat superior; the employer may be liable for intentional torts. Bouncers at Bars; Security guards; Police Officers- employees who has propensity to act Liability for Independent Contractor’s torts- an employer is not liable for the physical harm caused to a 3rd person by the negligent act of IC in the performance of the K. – Rationale- the employer lacks requisite control of the contractor’s performance However- if the contract involves “hazardous activities” strict liability will be imposed Liability for Agent’s crimes- principal is normally not liable for an agent’s crimes even if committed within the scope of employment. – Exception- if the principal or employer participated in the crime by conspiracy or other action  Termination of an Agency Agency law and K law are similar in that both may be terminated by an act or by operation of law. – Once terminated the agent no longer has the right to bind the principal – For apparent authority to terminate the 3rd party needs to be notified of the termination. Termination by Act of the parties may include: – Lapse of time; achievement of purpose; occurrence of specific event; mutual agreement; option of one party. – The act of termination is called revocation if done by the principal and renunciation if done by the agent. Wrongful termination- while both parties have the power to terminate an agency relationship, one or both parties may not have the right the right to do so. Wrongful termination may subject the canceling party to a lawsuit for breach of K. – Agency at will- the principal may still be required to give the agent reasonable notice of termination. Notice of termination- when parties terminate an agency, it is the principal’s duty to inform any 3rd party who knew of the relationship that it has been terminated. – No specific notice is required; however apparent authority will continue until 3rd party receives notice of termination. Termination by operation of law- generally no duty to notify 3rd parties: Circumstances include – Death or insanity; impossibility (subject matter is destroyed); Changed circumstances; Bankruptcy; War (no way to in-force legal rights)  Andrew Barna 518 229 1954 [email protected]