Chapter 17

What is the difference between an employee and an independent contractor? How do agency relationships arise? When is a principle liable for the agent’s actions? When is the agent liable? What are some of the ways in which the agency relationship can be terminated? Learning Objectives

Introduction Agency= Principal and Agent. Understanding agency is crucial to understanding the legal environment of business. Principals use agents to be able to conduct multiple business operations simultaneously in various locations. The principal has the right to control the agent in matters entrusted to the agent.

Agency is a “fiduciary” relationship based on trust and confidence. Distinguish Employee vs. Independent Contractor Relationships. Agency Relationships Employer Employee Independent Contractor

Employee vs. Independent Contractor Analysis x Is there a great degree of skill required? x Does the Employer exercise a great degree of control over the details of the work? I.C. E’ee Factors Courts Consider: (“X” = Yes) x Is the worker engaged in an occupation or business distinct from Employer? x Is the work usually done under Employer’s supervision? x Does Employer provide the tools? ? How is the worker paid and how long has he been employed?

Employer Liability Determining whether the worker is an employee or an independent contract affects liability of Principal/Employer. Tax Liability: Employer liable if employee. Contract Liability: Employer not necessarily liable. Tort Liability: Employer liable for torts of employee within scope of employment. “ Works for Hire”: Graham v. James (1998).

How Agency Relationships Are Formed Consensual Agreement. No consideration required. Principal needs contractual capacity, Agent does not. Can be for any legal purpose.

Types of Agencies Agency by Agreement. Formed through express consent (oral or written) or implied by conduct. Agency by Ratification. Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent.

Types of Agencies Agency by Estoppel. Principal causes a third person to believe that another person is the Principal’s Agent, and The third person acts to her detriment in reasonable reliance on that belief.

Types of Agencies Agency by Operation of Law. Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal. Necessaries for family. Emergency.

Duties of Agents and Principals Performance: reasonable diligence and skill (special skills). Notification to P. Loyalty (no conflict of interest). American Express v. Topel (1999). Obedience. Accounting.

Principal’s Duties to Agent Compensation (Express or Implied). Reimbursement and Indemnification. Cooperation. Provide safe working conditions.

Agent’s Authority Principal is liable for acts entered into by Agent when she gives Agent either actual or apparent authority: Actual Authority: express or implied. Apparent Authority: estoppel, emergency and ratification.

Express Authority Can be oral or written. “Equal Dignity Rule”: if law requires written contract, Agent’s authority must be in writing. Failure to comply with the rule renders contract voidable. Exceptions: Officer acting for Corporation. Agent acts in Principal’s presence. Power of Attorney (ordinary v durable).

Implied Authority Inferred or conferred by custom, Agent’s position or what is reasonably necessary to carry out Agent’s express authority. What the Agent reasonably thinks the Principal means.

Apparent Authority Principal, by either word or act, causes 3rd party to reasonably believe that Agent has authority to act for Principal. If 3rd party changes legal position by relying on Principal’s representations, Principal is estopped from denying Agent had authority to contract.

Ratification Authority 1. Agent must act on behalf of Principal. 2. Principal must affirm entire deal. 3. Principal must affirm before 3rd party withdraws from transaction. 4.Principal and 3rd party must have legal capacity to contract when Agent made the deal. 5. Principals must know all the material facts involved in the transaction.

Liability for Contracts Principal’s liability for Agent’s contract depends on whether Agent’s actions were authorized or unauthorized. Principals are classified as: Disclosed: identity known to 3rd party. Partially Disclosed: 3rd party knows he is dealing with Agent, but doesn’t know Principal’s identity. Undisclosed: 3rd party does not know he is dealing with an Agent, and Principal’s identity is totally unknown.

Liability: Authorized Acts Disclosed or partially disclosed Principal is liable to 3rd party if Agent acts within scope of authority. Agent has no liability to 3rd P for disclosed Principal’s non-performance. (Agent may be liable if Principal is partially disclosed).

Liability: Authorized Acts If undisclosed Principal, no liability unless: Principal expressly excluded. Contract is a negotiable instrument. Agent’s performance is personal. 3rd party would have contracted if he knew the Principal’s identity. McBride v. Taxman Corp (2002).

Unauthorized Acts Unauthorized acts outside of Agent’s express, implied or apparent authority. If Agent has no authority, Principal is not liable, but Agent is liable.

Principal’s Liability For Agent’s Torts Agent is liable to 3rd party for his own torts. Principal may be liable for Agent’s torts if they result from: Principal’s own tort. Principal’s authorization of tort. Agent’s unauthorized but fraudulent conduct made within scope of agency. Respondeat Superior 

Liability for Agent’s Negligence Applies only to Employer-Employee relationships. Principal/Employer is vicariously liable for Agent/Employee’s negligent torts if committed within the Agent’s “course and scope of employment” ( respondeat superior ). Distinction between Detour vs. Frolic .

Scope of Employment X Did the act involved a serious crime? X Did Employer have reason to know Employee would do the act? X Did Employer furnish instrumentality (tools)? X Did act advance Employer’s interests? X Was act commonly performed by Employees? ? ? The Time place and purpose of act (factually based) X Was Employee’s act authorized by Employer? Employer NOT Liable Employer Liable Factors: For Principal to Be Liable, Agent’s Act must have occurred within the Course and Scope of Employment. (X = Yes)

Liability for Agent’s Intentional Torts Principal liable for intentional torts committed with the scope of employment. Employee is a tortfeasor as well. Employer is liable for Employee’s acts which Employer knew or should have known the Employee had a propensity to commit.

Liability for Independent Contractor’s Torts First determine whether worker is employee or independent contractor. General rule: Employer is not liable for acts of independent contractors because Employer no right to control. Exception: hazardous activities Independent Contractor is liable for her own torts.

Principal Liability: Review Worker P Generally Not Liable (unless strict liability) Outside CSE-P Not Liable Within CSE -P Liable “ Course and Scope of Employment” Independent Contractor Employee Factors

Liability for Agent’s Crimes General Rule: Agent is liable, Principal is not, unless: Principal authorized or participated in crime. Some jurisdictions hold Principal liable for violating statutes.

How Agency Relationships Are Terminated Agency can be terminated by: An Act of the Parties; or By Operation of Law. Once agency terminated Agent has no actual authority to bind the Principal, but may have apparent authority to bind Principal.

Termination By Act of the Parties Lapse of Time. Purpose Achieved. Occurrence of a Specific Event. Mutual Agreement. Termination by One Party. Notice of Termination.

Termination By Operation of Law Death or Insanity of either Principal or Agent: automatic. Impossibility. Changed Circumstances. Bankruptcy. War.

Chapter 17

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Chapter 17