Module 12 - Lists
Criteria Used by the Courts In deciding whether a worker is categorized as an employee or an independent contractor, courts often consider the following questions:
1 - How much control does the employer exercise over the details of the work? 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 - Is the worker engaged in an occupation or business distinct from that of the employer? If so, this points to independent-contractor, not employee, status. 3 - Is the work usually done under the employer's direction or by a specialist without supervision? If the work is normally done under the employer's direction, this indicates employee status. 4 - Does the employer supply the tools at the place of work? If so, this indicates employee status. 5 - For how long is the person employed? If the person is employed for a long period of time, this indicates employee status. 6 - What is the method of payment—by time period or at the completion of the job? Payment by time period, such as once every two weeks or once a month, indicates employee status. 7 - What degree of skill is required of the worker? 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.
Modern business practice allows several exceptions to the equal dignity rule:
An executive officer of a corporation normally can conduct ordinary business transactions without obtaining written authority from the corporation. When the agent acts in the presence of the principal, the rule does not apply. When the agent's act of signing is merely a formality, then the agent does not need written authority to sign.
Termination by Operation of Law Certain events terminate agency authority automatically because their occurrence makes it impossible for the agent to perform or improbable that the principal would continue to want performance. We look at these events here. Note that when an agency terminates by operation of law, normally there is no duty to notify third persons.
Death or insanity. The general rule is that the death or insanity of either the principal or the agent automatically and immediately terminates an ordinary agency relationship. Knowledge of the death or insanity is not required. Some states, however, have enacted statutes that change the common law rule to require an agent's knowledge of the principal's death before termination. Impossibility. When the specific subject matter of an agency is destroyed or lost, the agency terminates. Similarly, when it is impossible for the agent to perform the agency lawfully because of a change in the law, the agency terminates. Changed circumstances. Sometimes, an event occurs that has such an unusual effect on the subject matter of the agency that the agent can reasonably infer that the principal will not want the agency to continue. In such situations, the agency terminates. Bankruptcy. If either the principal or the agent petitions for bankruptcy, the agency usually is terminated. In certain circumstances, such as when the agent's financial status is irrelevant to the purpose of the agency, the agency relationship may continue. Insolvency, as distinct from bankruptcy, does not necessarily terminate the relationship. (An insolvent person is one who cannot pay debts as they come due or whose liabilities exceed his or her assets.) War. When the principal's country and the agent's country are at war with each other, the agency is terminated. In this situation, the agency is automatically suspended or terminated because there is no way to enforce the legal rights and obligations of the parties.
The requirements for ratification can be summarized as follows:
The agent must have acted on behalf of an identified principal who subsequently ratifies the action. The principal must know all of the material facts involved in the transaction. If a principal ratifies a contract without knowing all of the facts, the principal can rescind (cancel) the contract. The principal must affirm the agent's act in its entirety. The principal must have the legal capacity to authorize the transaction at the time the agent engages in the act and at the time the principal ratifies. The third party must also have the legal capacity to engage in the transaction. The principal's affirmation (ratification) must occur before the third party withdraws from the transaction. The principal must observe the same formalities when ratifying the act as would have been required to authorize it initially.
Bey indicates that he is acting as an agent on behalf of an unidentified client—Cuisine LLC—when he enters into a contract with Diners Bistro. Cuisine is
The correct Answer is "a partially disclosed principal." Cuisine is a partially disclosed principal. A disclosed or partially disclosed principal is liable to a third party for a contract made by the agent.
Erin indicates that she is acting as an agent on behalf of an identified client—Flight Services Inc.—when she enters into a contract with Go Airlines. Liability to Go for nonperformance of the contract may be imposed on
The correct answer is "Flight Services only." Cuisine is a partially disclosed principal. A 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.
Luis hires Mieko to act as his agent to buy Ngoc's Southeast Asian Café. Luis tells Mieko to reveal only that she is buying the restaurant on behalf of a third party, without telling Ngoc's seller who that third party is. When Mieko negotiates with Ngoc, she does not say anything about Luis or any third party. Luis is
The correct answer is "Luis is an undisclosed principal." Although Luis told Mieko that she was negotiating on behalf of a third party, she failed to mention it in her negotiation with Ngoc. This leaves Luis totally undisclosed. An undisclosed principal is a principal whose identity is totally unknown by the third party.
Miklos employs Nathalie to handle a list of financial transactions on Miklos's behalf. This power will terminate on
The correct answer is "Miklos' death or incapacity." This power will terminate on Miklos' death or incapacity. The general rule is that the death or insanity of either the principal or the agent automatically and immediately terminates an ordinary agency relationship. Knowledge of the death or insanity is not required. Some states, however, have enacted statutes that change the common law rule to require an agent's knowledge of the principal's death before termination.
Aiden hires Buck to manage Aiden's Cattle Ranch. Buck agrees to act on Aiden's behalf, subject to Aiden's control, and Aiden trusts Buck to so act. Their relationship is
The correct answer is "a principal and an agent." Their relationship is a principal and an agent. Section 1(1) of the Restatement (Third) of Agency1 defines agency as "the fiduciary relation [that] results from the manifestation of consent by one person to another that the other shall act in his [or her] behalf and subject to his [or her] control, and consent by the other so to act." In other words, 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.
Diamonds & Gold Inc. hires Esmé to buy gems and precious metals from various sources on its behalf. In this relationship, Diamonds is
The correct answer is "a principal." Diamonds is the owner of the business. That, by definition, makes them the principal.
Rosa introduces Sal to her friend Trey as "my associate." Sal purports to act as Rosa's agent in a business transaction with Trey. If Rosa is liable for Sal's actions, it will be because their relationship is
The correct answer is "an agency by estoppel." If Rosa is liable for Sal's actions, it will be because their relationship is an agency by estoppel.
Motor Parts Sales Inc. hires Nolly to work on its shipping dock, accepting deliveries, and dispatching trucks, and dealing with customers and drivers. With respect to Motor Parts, Nolly is most likely
The correct answer is "an agent." Nolly is most likely an agent. Normally, all employees who deal with third parties are deemed to be agents. In this case, Nolly is dealing with third parties - customers and drivers.
Nora works at Oil & Gas Inc. She is a sales representative who works with Oil & Gas customers. The company closely supervises its sales reps, and dictates their schedules. With respect to third parties, Nora is
The correct answer is "an employee and agent." Nora is an employee and agent. As a sales rep Nora is dealing with third parties - customers, which makes her an agent. Because the company closely supervises its sales reps and dictates their schedules, she is also an employee.
Rosario is a chef and caterer who hires out on a per-project basis to companies with on-location work sites, as well as to the hosts of banquets and other events. In this capacity, Rosario is
The correct answer is "an independent contractor." An independent contractor is a person who contracts with another to do something for them but who is not controlled or supervised directly by the hiring party.
Denny, a certified public accountant and an investor, and Ethel, an insurance salesperson and a realtor, may create an agency relationship for
The correct answer is "any legal purpose." Denny and Ethel can form an agency relationship for any legal purpose. Agency relationships normally are consensual. They come about by voluntary consent and agreement between the parties. Normally, the agreement need not be in writing, and consideration is not required. A person must have contractual capacity to be a principal.
Ira serves in a representative capacity for Jett. Key is injured through Ira's negligence. Jett may be liable to Key if Ira's conduct occurred
The correct answer is "in the course and scope of Ira's employment." Jett may be liable to Key if Ira's conduct occurred in the course of Ira's employment.