Business And Its Legal Environment Management 246 Professor Charles H Smith Agency and Employment Law Chapters the first 19 20 and the first 21 Spring 2010 Introduction to the Law of Agency Agency law involves situations where person or business may be liable for misdeed committed by another person or business Generic agency relationship is principal agent more specific labels are employer employee and employerindependent contractor An agency relationship is often simply called an agency Agent is someone who acts on behalf of a business entity or another person the principal the agent is the principal s fiduciary see page 478 for detailed definitions of agency and fiduciary Determining Whether an Agency Exists Agency by agreement most common way to create an agency can be in writing or oral though writing may be required by statute of frauds Example employment contract contract between building owner and plumber for installation of plumbing in building Agency by ratification principal s subsequent approval of action or acceptance of benefits due to action by person claimed to be the principal s agent Example person signs contract on behalf of principal without principal s knowledge but principal performs as stated in contract Agency by estoppel principal s act statement creates appearance of an agency objective reasonable person standard agent s act statement cannot create agency Example principal refers to person as her agent or his representative despite no agency Determining the Limits on an Agent s Authority Even if it is clear that agency exists there are usually limits on an agent s authority Actual authority most common Express written or oral instructions by principal to agent Implied usually shown by custom and practice of the particular agency Apparent authority Agent s appearance of authority can be based on principal s act statement objective reasonable person standard agent s act statement cannot be the basis of apparent authority Agent s Duties to the Principal Care aka business judgment rule or due diligence agent required to use best efforts and act appropriately under the circumstances focus on effort not success Loyalty agent cannot 1 compete with principal or 2 use confidential information learned during agency for personal profit Obedience agent must 1 obey principal s instructions and 2 obey laws applicable to agency Accounting agent required to account to principal re all funds spent and received on principal s behalf Notification principal charged with all knowledge gained by agent during agency Principal s Duties to the Agent Compensation principal must compensate agent per contract Reimbursement principal required to reimburse agent for money spent by agent on principal s behalf usually per contract Indemnification if agent sued for act done during agency principal must pay for 1 agent s defense e g lawyer costs and 2 settlement or judgment against agent Cooperation principal required to provide agent with what agent needs to work per agency e g information Provide safe working conditions usually covered by safety statutes rules e g building code safety regulations for specific workplace such as construction site Liability of Principal and or Agent to Plaintif Contracts was agency disclosed to the other party to the contract How to disclose the agency If so principal not agent will be liable responsible to perform contract If not agent not principal will be liable responsible to perform contract Torts agent always liable principal may also be liable if Negligence agent within course and scope of agency respondeat superior ask if there is a substantial departure from job duties very broad definition Fraud 1 agent has principal s actual or apparent authority and 2 agent in course and scope of agency Employee vs Independent Contractor Important issue since different rights and responsibilities come into play when a worker is classified as an employee or independent contractor Some reasons why classifying a worker as an employee or independent contractor is important include Employer s responsibility for withholding taxes from worker s paycheck Employer s obligation to comply with certain statutes e g legal requirement to carry worker s compensation insurance Worker s right to collect worker s compensation or unemployment benefits Classification of worker not done in vacuum many cases statutes and other guidelines used see next slide Employee vs Independent Contractor cont Three factors in IRS Publication 15A Behavioral control Financial control Type of relationship See http www irs gov pub irs pdf p15a pdf for details and examples pages 6 9 only If you are unsure about the details of the law rely on these basic rules More control exercised by employer over worker more likely worker is employee Less control exercised by employer over worker more likely worker is independent contractor At Will Employment Rule Employment is generally at will Employer or employee may end employment relationship at any time for any legal reason e g incompetence economics or even a silly reason Termination usually based on statement s and or act s by one or both parties Constructive termination employer makes conditions so intolerable that reasonable person would quit e g sexual harassment case Employment may be terminated due to operation of law e g completion of work or time stated in contract Two week notice required by law or just a good idea Exceptions to At Will Employment Rule An exception to the at will employment rule can support a wrongful termination lawsuit examples include Termination in violation of public policy when employee fired in retaliation for Refusing to do illegal act Being a whistle blower Based on contract law Employment contract specifies reasons for termination such as good cause or some other limited circumstances Employer promises permanent or lifetime job Process or reasons for termination set forth in union agreement or employee handbook Discrimination sexual harassment discussed in later slides Worker s Compensation Applies to employees only not independent contractors Intended to provide injured employee with streamlined procedures and prompt remedy Employee s injury must Be the result of an accident no matter who caused accident Occur in course and scope of employment broadly defined If both are present then worker s compensation is employee s exclusive remedy against employer Worker s Compensation cont Damages in worker s compensation normally