BusAd 2900 - Ch. 10 (Agency) Legal Environment of Business (text: Melvin, Guerra-Pujol)
3 categories of agents
1. Employee agents, 2. Independent contractor agents, 3. Gratuitous agents.
Respondeat superior
A common law doctrine under which a principal (employer) is liable for the tortious action of the servant or agent (employee) when that act resulted in physical harm or injury and occurred within the agent's scope of employment.
Apparent authority
A course of the agent's authority that occurs when there is an appearance of legitimate authority to a third party rather than express authorization by the principal.
Ratification
A retroactive source of the agent's authority that occurs when the principal affirms a previous unauthorized act by either 1. expressly ratifying the transaction or 2. not repudiating the act.
Restatement (Third) of agency
A set of principles, issued by the American Law Institute, intended to clarify the prevailing opinion of how the law of agency stands.
Actual authority
A source of the agent's authority that occurs either when the parties expressly agree to create an agency relationship or when the authority is implied based on custom or the course of past dealings.
Negligent retention
A tort that may impose liability on an employer if, after the hiring process, the employer becomes aware that an employee may present harm to third parties.
Negligent hiring doctrine
A tort-based theory of liability for employers for negligent or intentional torts of employees when the employer had reason to know that the employee may cause harm w/i his scope of employment. (Why there are background checks/references).
Undisclosed agency
A type of agency relationship in which 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 contract.
Fully disclosed agency
A type of agency relationship in which the third party entering into the contract is aware of the identity of the principal and knows that the agent is acting on behalf of the principal in the transaction. Only principal is contractually obligated to the third party. Third parties have no legal recourse against agent if principal fails to meet obligations under contract.
Partially disclosed agency
A type of agency relationship in which the third party knows that the agent is representing a principal but does not know the actual identity of the principal. Law imposes liability on the agent in the event that the principal does not perform her contractual obligations.
ABC presumes agent is an EMPLOYEE, unless three tests are satisfied:
A. the indiv. is free from direction/control, B. service is performed outside the usual course of business of the employer, and C. the indiv. is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.
Express acts
Acts by which an agency relationship is terminated; can be either simple communication of the desire to terminate, the expiration of a fixed term, or satisfaction of purpose.
Accounting
Agent must keep appropriate written records for any money that the agent spends or receives in the course of the agent representation.
Principal
An agent's master; the person from whom an agent has received instruction and authorization and to whose benefit the agent is expected to perform and make decisions pursuant to an agency relationship.
Frolic
An exception to the respondeat superior doctrine that occurs when an agent, during a normal workday, does something purely for her own reasons that are unrelated to her employment.
Gratuitous agents
Anyone who acts on behalf of a principal without receiving any compensation.
Employee agents
Anyone who performs services for a principal who can control what will be done and how it will be done.
Independent contractor agent
Anyone who performs services for a principal who has the right to control or direct only the result of the work and not the means and methods of accomplishing the result. No legal protections of employee, and no liability for the principal for action and omissions of an independent contractor.
Agency law
Body of laws that govern the relationships created when one party hires another party to act on the hiring party's behalf.
Loyalty
Centerpier of fiduciary obligation. Requires that an agent hold the principal's objectives paramount. Agent is obliged to advance the principal's interest over her own and act solely for the benefit of the principal.
Detour
Conduct classified as a small-scale deviation that is normally expected in the workday and, therefore, is within the ambit of respondeat superior.
Substance-over-form analysis
Courts apply this to determine the classification of an agent. Based on direction and control that the principal has over the agent in terms of setting the agent's work schedule, pay rate, and determining the level of day-to-day supervision.
Creation of an agency
Defined in terms of consent and control. Fiduciary relationship that results from manifestations of consent by the principal to the agent to act on the principal's behalf subject to her control. Agent must also consent to perform the act.
IRS three-prong test
Determines an agent's status. Not binding in court, though is cited in court. 1. Behavioral aspects of the agency, 2. financial arrangements b/w principal and agent, 3. type of working relationship the parties have in terms of benefits and promises of continuing employment.
Fiduciary duty
Duties that define an agency relationship collectively. Consists of loyalty, obedience, care, disclosure, and accounting.
Obedience
Duty to obey lawful instructions from the principal and cannot substitute her own judgment for the judgment of the principal (unless authorized).
Going-and-coming rule
Employers are generally not liable for tortious acts committed by employees while on their way to and from work.
Manifest
First step in creating an agency. Agent agrees, with apparent and evident to the senses, to act for the principal. In the context of agency law, courts apply an objective standard to determine whether the principal intended that an agency be created.
Breaching due care for a gratuitous agent
Held to a lower duty of care than a paid agent, so care to the principal must be so reckless that a reasonable person would regard the conduct as grossly negligent.
Breach of duty (liability)
If an agent's 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.
Breach of duty (general)
If an agent's breach to the principal causes damages to the principal, the principal may recover those damages by suing the agent for breach.
Rescission
If the agent breach the duty of loyalty, principal's remedies can also include the ability to rescind any transaction b/w the principal and agent.
Disgorgement
If the agent breaches the duty of loyalty, the court may order the agent to return any funds earned as a result of the breaching conduct.
Physical injury requirement
If the employee's misconduct causes physical harm to a third party's person and/or property, the employer is liable for both the injury and any related economic losses. Doesn't apply for harm to emotional state, reputation, or purely economic loss.
Scope of employment
In order for a principal (employer) to be liable for the employee's tort, the act must have occurred w/i the employee's scope of employment. An attempt to place some limitation on the principal's liability.
Agency transaction
Involved one party hiring another party to transact business on behalf of (or perform a task for) the hiring party.
Vicarious liability
Liability that a supervisory party (typically and employer) bears for the actionable conduct of a subordinate or associate (such as and employee).
Termination
Method of ending an agency relationship whereby either the principal (revocation) or the agent (renunciation) simply communicate the desire to dissolve the relationship. Also terminates the principal's duties and obligations to the agent and to third parties.
Operation of law
Method whereby an agency relationship is terminated as provided for in a statute or through certain common law doctrines covering the destruction of essential subject matter, death, bankruptcy, or lack of requisite mental capacity.
Consent
Occurs when an agent agrees to act for the principal. In the context of agency law, courts apply an objective standard to determine whether the agent did in fact agree to the agency relationship.
Operations
One solution for limiting liability for misclassification through operational methods related to direction and control. Don't supervise the independent; they should perform without direction of the principal. Use progress reports within invoices to monitor quality control.
Agreement
One solution for limiting liability for misclassification. Need not be lengthy or complicated, but should be clear that no employment relationship exists and should describe the work assignment or project the independent contractor is to perform. Not required to be written, but that's a helpful way to document the working relationship.
Screening
One solution for limiting liability for misclassification. Only hire independent contractors who have incorporated their own businesses, rather than those who operate as sole proprietors or partners.
Verification
One solution for limiting liability for misclassification. filing a Form SS-8 gives the principal/employer assurances that either 1. the classification by the employer is correct, or 2. that the classification needs to be changed and that similar positions in the future should be classified that way.
Agent
One who agrees to act and is authorized to act on behalf of another (the principal), to legally bind the principal in particular business transactions with third parties pursuant to an agency relationship.
Disclosure
Ongoing duty to keep the principal informed and tell any and all relevant facts to the principal. This includes any pertinent negatives
Control
Parties must have an understanding that the principal is in control of the agency relationship. Control need not be total or continuous and need to extend to the way the agent performs, but principal defines tasks and objectives.
Agent's authority
Power to bind the principal in a certain transaction. Arises primarily through 1. actual authority, 2. apparent authority, and 3. ratification.
Unauthorized acts of agents
Principal is responsible for the act of an authorized agent even if particular acts were unauthorized.
Peculiar risk doctrine
Requires a principal to take reasonable steps to determine the fitness of an independent contractor agent to perform an inherently dangerous task.
Due care
Requires the agent to act in the same careful manner when conducting the principal's affairs as a reasonable person would in conducting her own personal affairs.
Indemnification
Right of reimbursement from another for a loss suffered due to a third party's act or default.
Destruction
So long as the agent's role is predicated on some particular property being at the disposal of the principal and the property is no longer practically or legally available, agency is automatically terminated.
ABC test
Statutory standard used to many states to determine agency status.
Agent's contract liability
There are circumstances in which the agent may be held liable to perform the contract in the event that the principal refuses to perform.
Intentional torts
Thought to be outside the scope of employment, and , therefore, employers are not liable for such conduct unless assault has close connection to serving the principal.
Fiduciary relationship
Two parties may agree that one will act for the other party's benefit with a high level of integrity and good faith in carrying out the best interests of the represented party.
Reimburse and indemnify
When an agent acts on behalf of its principal, the agent may incur expenses, make payments, suffer an injury, or cause damages to third parties, and principal must make it right.