Chapter 20: Agency
The law defines agency as a fiduciary relationship between two persons whereby one acts on behalf of the other with his or her consent.
Employer-Employee Relationships
Employees who deal with third parties are taken as agents. For instance, sale transactions carried out by sales people bind the principal to the customer.
The fact that some employees are considered to be agents leads to an overlap between employment and agency law.
However, agency law has a broader reach compared to legistlations that govern employment.
Employer-Independent Contractor Relationship
Relationships between principals and contractors do not always involve agency relationships. For Example, an agreement between a homeowner and a real estate agent is an agency relationship while an agreement between an insurance broker and an insurance company is not.
Determination of Employee Status
In determining whether an individual is a contractor or an employee, the courts use criteria that involve factors such as the extent of the employer’s control, the duration, payment method, skills required, and supervision details.
The IRS pays close attention to the employer’s control in classifying a worker as an employee or independent contractor.
The IRS can change the classification of a worker regardless of how the employer has classified him or her.
According to the Copyright Act, an employer is the owner of copyrighted material that an employee creates within his or her employment agreement.
However, in the case of an independent contract, the work belongs to the contractor unless there is an agreement giving ownership to the employer.
Formation of the Agency Relationship
Consent forms the basis of agency relationships where both parties voluntarily agree to the interaction.
While a principal requires a contractual capacity to enter into an agency agreement, anyone can be an agent with or without the means to contractor ant
These relationships can be created for any legitimate objective. When created for illegal purposes, an agency relationship becomes unenforceable.
The four ways in which agency relations are formed are listed below.
Agency by Agreement
The majority of agency relationships agreements are expressed in agreements that allow agents to act on behalf of their principals. These agreements can be either oral or written.
Agency by Ratification
Ratification involves a contract that is made by an individual (who is not an agent) on behalf on another. If the principal approves this deal, then an agency relationship is formed.
Agency by Estoppel
This is an agency formed when a principal creates an appearance of an agency. When an agent acts reasonably under the belief that an agency relationship exists between him and the principal, then the principal cannot deny that such a relationship exists.
Agency by Operation of Law
This mainly occurs in emergencies or family relationships. A court may find an agency relationship where an individual acts on behalf of a spouse or an employee acts on behalf of the employer (beyond his or her employment agreement) to prevent significant loss.
Duties of Agents and Principals
The five duties that an agent owes to the principal include notification, obedience, performance, loyalty, and accounting.
The obligations of a principal to an agent include safe working conditions, compensation, cooperation, reimbursement, and indemnification.
Scope of Agent’s Authority
An agent has either an express or implied authority beyond which he or she cannot act on behalf of the principal. Also, an agent’s authority can be apparent.
Express authority is usually written or oral author that is clear, direct as definite as seen in the power of attorney or in the equal dignity rule.
Implied authority comes into play when it is necessary for an agent to express authority to achieve that aim of the agency. An agent’s position or customs can also imply authority.
In apparent authority, the principal makes a third party to believe that an agent has authority when in actual sense the agent has no such authority.
In emergencies, the agent has the power to act with the aim of protecting the principal. Also, a principal can accept responsibility for unauthorized actions of an agent through ratification.
Liability for Contracts
The liability for contacts is dependent on the classification of the principal and the authority of the agent.
When an agent’s actions are within his or her authority, the principal is liable for these actions regardless of his classification.
A disclosed or partially disclosed principal has liability for a contract formed by an agent. When the principal is disclosed, the agents the agent is liable to the failure of the principal to perform.
An undisclosed principal should act as if his identity was disclosed. He is also bound to compensate an agent who pays a third party due to the non-performance of the principal.
A partially disclosed or disclosed principal is liable for a contract made by an agent without authorization.
In case the third party is aware that the agent is unauthorized to contract him, then the agent has no liability.
Electronic agents are bound by the same principles governing human agents.
Liability for Torts and Crimes
A principal has liability for harm resulting from his or her negligence even if he or she acts through an agent.
When a principle authorizes an agent to commit a tort, he or she is liable for the resultant damages.
A principal is also liable for losses resulting from the agent’s misrepresentation within the scope of the agency.
The respondent superior doctrine places liability on the principal for harm caused by the agent. However, this liability id dependent on whether the tort was done within the scope of agency.
When an agent commits an intentional, then the principal is not liable for the resultant losses.
Except for hazardous activities, the principle is not liable for the harm caused by an independent contractor neither does he has liability for an agent’s crimes.
Termination of an Agency
Agency law stipulates that an agency can be terminated by the parties or by the law. After termination, the agent no longer has actual authority to act on behalf of the principal.
A court of law can cancel a termination that is done wrongfully.
The principal has a duty to inform third parties of a termination of agency.
Incidences such as death, insanity, and impossibility terminate a relationship of agency automatically.
