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UT Knoxville BIOL 240 - Chapter 20 (FA14)-2

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Slide 1Sec.1: Agency RelationshipsAgency RelationshipsAgency RelationshipsEmployer-Employee RelationshipEmployer-Independent Contractor RelationshipDetermination of Employee StatusDetermination of Employee StatusMisclassification of WorkersLiability for Employees vs. ICsOwnership of CopyrightsSec. 2: Formation of the Agency RelationshipFormation of Agency RelationshipFormation of Agency RelationshipFormation of Agency RelationshipSec. 3: Duties and Rights of Agents and PrincipalsAgent’s Fiduciary Duty of LoyaltyDuties of Agents and PrincipalsSec. 4: Scope of Agent’s AuthorityScope of Agent’s AuthorityApparent AuthorityAuthority by RatificationSec. 5: Liability for ContractsSec. 6: Liability for Torts and CrimesLiability for Agent’s NegligenceScope of EmploymentAgent’s Intentional Torts & CrimesSec. 7: Termination of an Agency1AgencyChapter 202Sec.1: Agency Relationships“Agency” is a consensual legal relationship between two parties, whereby one party (“principal”) agrees to have another party (“agent”) act on his behalf, and the agent agrees to do so. An agent may represent the principal in business dealings with third parties and may be authorized to enter into contracts that bind the principal. An agent has a fiduciary duty to act primarily for the principal’s benefit.Agency law is largely based on state common law (court decisions). Employment statutes (Ch. 21 & 22), which govern many aspects of employer-employee relationships today, incorporate many agency law concepts.3Agency RelationshipsPrincipals can be business entities or individuals. Legal entities, such as corporations, LLCs and partnerships, can only act through agents. For example, an officer of a corporation is its agent; employees are typically agents of their employers; GPs are agents for their partnerships. An agent can be hired for specific transactions or jobs, such as selling a parcel of real estate or creating a software program for a specific purpose. Other agents may work full-time for the principal, such as employees.4Agency RelationshipsFor legal and tax purposes, workers are classified as either employees of the principal or independent contractors. Proper classification of workers is based on legal criteria. This classification is important in determining the rights and obligations of the principal and agent.Depending on their duties, both employees and independent contractors can be agents of the principal.Employees who deal with third parties on behalf of their employers are “agents” of the employer. Ex.: store manager, salesperson; project engineer, CFO; clerks.For this class, assume that all employees are agents of their employers.5Employer-Employee RelationshipEmployment laws generally only apply to employees---not to independent contractors. These laws include income tax and SS withholding obligations, employer matching of SS taxes, workers compensation, unemployment insurance, employment discrimination laws, etc.To ensure compliance with such laws, it is important that employers properly classify their workers as either “employees” or “independent contractors.”Employers have the ability to control the details of how an employee carries out his work. The ability to be controlled by the employer is the key factor distinguishing employees from independent contractors.6Employer-Independent Contractor RelationshipAn employer-independent contractor relationship exists when a principal hires another (“independent contractor”) to perform some work, and the principal has no control over the details of how the work gets done.An “independent contractor” (“IC”) is not an employee of the principal. Whether the IC is an agent depends on the assigned work; some ICs are agents with respect to only one task (e.g., real estate agent hired to sell a parcel of land) while others may have broad authority to act for the principal (e.g., financial manager). Many independent contractors are not agents of the employer (e.g., website designer; house painter; building contractor; truck driver who owns his own truck).7Determination of Employee StatusProper classification of workers as “independent contractors” or “employees” is critical because it establishes the parties’ respective rights and responsibilities to each other and third parties.Facts and circumstances determine the legal nature of the relationship rather than the language of an employment agreement. The substance of the relationship, rather than what the parties call it, determines the legal relationship that exists. Control over the performance of the work is the key factor (e.g., determining the manner, location, hours of work).8Determination of Employee StatusFactors Considered by Courts Emp. I.C.Does the Employer exercise a great degree of control over the details of the work?Yes NoIs the worker engaged in an occupation or business distinct from Employer?No YesIs work usually done under Employer’s supervision? Yes NoDoes Employer provide the tools? Yes NoHas the worker been employed a long time? Yes NoIs the worker paid at the end of the job? No YesIs there a great degree of skill required? No Yes9Misclassification of WorkersEmployers have a financial incentive to misclassify workers as independent contractors rather than as employees; therefore, misclassification of workers is pervasive problem that may adversely affect workers and federal and state governments. State and federal employment laws (e.g., tax withholding, Social Security matching contributions, unemployment compensation, wage laws, workers’ compensation) apply to employees but not to independent contractors. Compliance with these laws can be very expensive for employers, so using independent contractors is usually less expensive than hiring employees. Misclassification of employees as “independent contractors” is common, and has caused workers, state attorneys general, and the IRS to pursue legal actions against employers.10Liability for Employees vs. ICsEmployment discrimination laws apply to employees but not to independent contractors. See Case in Point 20.1 (p.467). Co-host of television show sued the TV station for discrimination when they terminated her work after she became pregnant. (Note: federal law prohibits discrimination against pregnant employees.) An employer is not “vicariously liable” for the torts of the independent


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