Business Law Test 2 Part 2

What are the differences between disclosed, partially disclosed, and undisclosed principals?

1. A disclosed principal is a principal whose identity is known by the third party at the time the contract is made by the agent. 2. A partially disclosed principal is a principal whose identity is not known by the third party. Nevertheless, the third party knows that the agent is or may be acting for a principal at the time the contract is made. 3. An undisclosed principal is a principal whose identity is totally unknown by the third party. In addition, the third party has no knowledge that the agent is acting in an agency capacity at the time the contract is made.

Discuss the duties owed by a principal to his or her agent.

1. Compensation: Principal must pay the agreed-on (or reasonable) value for the agent's services. 2. Reimbursement and Indemnification: Principal must reimburse the agent for any funds paid out at the principal's request, as well as for necessary expenses. 3. Cooperation: Principal must cooperate with and assist an agent in performing his or her duties. 4. Safe Working Conditions: Principal must provide a safe working environment for agents and employees.

What are a principal's rights and remedies against an agent?

1. Constructive Trust: Anything that an agent obtains by virtue of the employment or agency relationship belongs to the principal. An agent commits a breach of fiduciary duty if he or she secretly retains benefits or profits that, by right, belong to the principal. Therefore, the agent holds such property in a constructive trust (an equitable trust imposed for reasons of fairness) for the principal. 2. Avoidance: When an agent breaches the agency agreement or agency duties under a contract, the principal has a right to avoid any contract entered into with the agent. This right of avoidance is at the election of the principal. 3. Indemnification: In certain situations, when a principal is sued by a third party for an agent's negligent conduct, the principal can sue the agent for indemnification-that is, for an equal amount of damages. The same holds true if the agent violates the principal's instructions.

What are some of the factors that can determine whether an individual is considered an employee or an independent contractor?

1. If the employer exercises considerable control over the details of the work and the day-to-day activities of the worker, this indicates employee status. This is perhaps the most important factor weighed by the courts in determining employee status. 2. If the worker is engaged in an occupation or business distinct from that of the employer, this points to independent-contractor, not employee, status. 3. If the work is usually done under the employer's direction, this indicates employee status. 4. If the employer supplies the tools at the place of work, this indicates employee status. 5. If the person is employed for a long period of time, this indicates employee status. 6. Payment by time period, such as once every two weeks or once a month, indicates employee status. 7. If a great degree of skill is required, this may indicate that the person is an independent contractor hired for a specialized job and not an employee.

Discuss the duties owed by an agent to his or her principal.

1. Performance: Agent must use reasonable diligence and skill when performing duties. 2. Notification: Agent is required to notify the principal of all matters that concern the subject of the agency. 3. Loyalty: Agent has a duty to act solely for the principal's benefit. 4. Obedience: Agent must follow all lawful and states instructions from the principal. 5. Accounting: Agent must provide records of all property and funds received or paid out on the principal's behalf.

Identify the ways in which an agency relationship may be terminated.

1. Termination by Act of the Parties: Bases for termination by act of the parties include lapse of time, achievement of purpose, occurrence of a specific event, mutual agreement, and at the option of one party. 2. Termination by Operation of Law: Death or insanity, impossibility, changed circumstances, bankruptcy, and war.

List and briefly discuss the major labor law statues.

1. The Davis-Bacon Act requires contractors and subcontractors working on federal government construction projects to pay "prevailing wages" to their employees. 2. The Walsh-Healey Act applies to U.S. government contracts. It requires that a minimum wage, as well as overtime pay at 1.5 times regular pay rates, be paid to employees of manufacturers or suppliers entering into contracts with agencies of the federal government. 3. The Fair Labor Standards Act extended wage-hour requirements to cover all employers engaged in interstate commerce or in producing goods for interstate commerce. Certain other types of businesses were included as well. The FLSA, as amended, provides the most comprehensive federal regulation of wages and hours today.

(a) What state and federal statutes protect employees from the risks and effects of employment-related injury, death, or disease? (b) What is that protection?

1. The Occupational Safety and Health Act: Notice, records, and reports. Inspections.

What are an agent's rights and remedies against a principal?

1. Torts and Contract Remedies: Remedies of the agent for breach of duty by the principal follow normal contract and tort remedies. 2. Demand for an Accounting: An agent can also withhold further performance and demand that the principal give an accounting. 3. No Right to Specific Performance: When the principal-agent relationship is not contractural, the agent has no right to specific performance. An agent can recover for past services and future damages but cannot force the principal to allow him or her to continue acting as an agent.

Discuss the contractual liability of the principal, agent, and third party when the principal is (a) disclosed, (b) partially disclosed, and (c) undisclosed.

A disclosed or partially disclosed principal is liable to a third party for a contract made by the agent. If the principal is disclosed, the agent has no contractual liability for the nonperformance of the principal or the third party. If the principal is partially disclosed, in most states the agent is also treated as a party to the contract. Thus, the third party can hold the agent liable or contractual nonperformance. When neither the fact of an agency relationship nor the identity of the principal is disclosed, the undisclosed principal is bound to perform just as if the principal had been fully disclosed at the time the contract was made.

Discuss the criminal liability of a principal for the acts of agents.

An agent is liable for his or her own crimes. A principal or employer normally is not liable for an agent's crime even if the crime was committed within the scope of authority or employment. An exception to this rule is made when the principal or employer participated in the crime by conspiracy or other action.

Describe/Discuss the doctrine of respondeat superior.

An agent is liable for his or her own torts. A principal may also be liable for harm an agent causes to a third party under the doctrine of respondeat superior, a Latin term meaning "let the master respond." Under the doctrine of respondeat superior, the principal-employer is liable for any harm caused to a third party by an agent-employee in the course or scope of employment. The doctrine imposes vicarious liability, or indirect liability, because the principal-employer is being held liable for torts committed by an agent-employee.

How is an agency relationship created?

By agreement of the parties, by ratification, by estoppel, and by operation of the law.

Is an employer liable for an independent contractor's torts? Why or why not?

Generally, an employer is not liable for physical harm caused to a third person by the negligent act of an independent contractor in the performance of the contract. This is because the employer does not have the right to control the details of an independent contractor's performance.

Discuss the tort liability of a principal for the (a) authorized acts of agents, (b) unauthorized acts of employees, and (c) unauthorized acts of independent contractors.

If the agent has no authority but nevertheless contracts with a third party, the principal cannot be held liable on the contract. It does not matter whether the principal was disclosed, partially disclosed, or undisclosed. The agent is liable.

What happens if a principal does not ratify an agent's unauthorized act?

If the principal does not ratify the contract, the principal is not bound, and the third party's agreement with the agent is viewed as merely an unaccepted offer. Because the third party's agreement is an unaccepted offer, the third party can revoke it at any time, without liability, before the principal ratifies the contract. The agent, however, may be liable to the third party for misrepresenting her or his authority.

What is a principal-agent relationship?

In a principal-agent relationship, the parties have agreed that the agent will act on behalf and instead of the principal in negotiating and transacting business with third parties.

Explain the Equal Dignity Rule

In most states, the equal dignity rule requires that if the contract being executed is or must be in writing, then the agent's authority must also be in writing. Failure to comply with the equal dignity rule can make a contract at that point as a mere offer. If the principal decides to accept the offer, the acceptance must be ratified, or affirmed, in writing.

What are some important provisions of the Fair Labor Standards Act (FLSA) of 1938?

It prohibits oppressive child labor. It provides that a minimum wage of $7.25 per hour must be paid to covered nonexempt employees. Under this law, any employee who works more than forty hours per week must be paid no less than 1.5 times her or his regular pay for all hours worked over forty.

Discuss the laws protecting employee privacy.

Look on page 651.

What protection(s) does/do employees have from the financial impact of retirement, disability, death, hospitalization, and unemployment?

Look on pages 649 and 650.

Define an employer-employee relationship.

Normally, all employees who deal with third parties are deemed to be agents. Employment laws (state and federal) apply only to the employer-employee relationship.

What were the purposes behind the adoption of the National Labor Relations Act (NLRA) of 1935?

This act established the rights of employees to engage in collective bargaining and to strike.

Discuss the doctrine of employment at will as well as any exceptions to that doctrine.

Under this doctrine, either party may terminate the employment relationship at any time and for any reason, unless doing so violates an employee's statutory or contractual rights. There are exceptions based on contract theory, tort theory, and public policy.

What are the rights of employees and the obligations of employers under the Family and Medical Leave Act (FMLA) of 1993?

When an employee takes FMLA leave, the employer must continue the worker's health-care coverage on the same terms as if the employee had continued to work. One returning from FMLA leave, most employees must be restored to their original position or to a comparable position (with nearly equivalent pay and benefits, for instance). The FMLA requires employers that have fifty or more employees to provide unpaid leave for specified reasons.

What notice, if any, is required to third parties when an agency terminates?

When the parties terminate an agency, it is the principal's duty to inform any third parties who know of the existence of the agency that it has been terminated. If the principal knows that a third party has dealt with the agent, the principal is expected to notify that person directly. For third parties who have heard about the agency but have not yet dealt with the agent, constructive notice is sufficient. If the agent's authority is written, however, normally it must be revoked in writing (unless the written document contains an expiration date).

Distinguish among (a) actual express authority, (b) actual implied authority, and (c) apparent authority.

a) Actual express authority: Authority declared in clear, direct, and definite terms. Express authority can be given orally or in writing. b) Actual implied authority: An agent has the implied authority to do what is reasonably necessary to carry out express authority and accomplish the objectives of the agency. Authority can be implied by custom or inferred from the position the agent occupies. c) Apparent authority: An agent has apparent authority when the principal, by either word or action, causes a third party reasonably to believe that the agent has authority to act, even though the agent has no express or implied authority.