C HAPTER 19 – A GENCY Copyright © 2011 by Jeffrey Pittman

T YPES OF E MPLOYMENT R ELATIONSHIPS Employers hire individuals (or other firms) to allow the employer to accomplish its mission The primary hiring relationships utilized by an employer include Principal/agent Employer/employee Employer/independent contractor 2 Jeffrey Pittman - Legal Environment of Business

T YPES OF E MPLOYMENT R ELATIONSHIPS An individual may fit into more than one hiring category For example, an employer could hire one individual as an agent, an employee, and an independent contractor 3 Jeffrey Pittman - Legal Environment of Business

A N A GENT Agent – A person authorized by another (the principal) to represent and act for the principal; one authorized to transact business for a principal 4 Jeffrey Pittman - Legal Environment of Business

A N E MPLOYEE Employee – A person in the service of an employer, where the employer has the power to control and direct the employee in the details of how the work is to be done An employee does not represent an employer 5 Jeffrey Pittman - Legal Environment of Business

A N I NDEPENDENT C ONTRACTOR Independent Contractor – A person who contracts to do a piece of work according to the independent contractor’s own methods, subject to the employer’s control only as to the end product or final result of the work An independent contractor does not represent an employer 6 Jeffrey Pittman - Legal Environment of Business

A GENCY F ORMATION The principal/agent relationship can be formed by: Agreement (contract) Ratification (silence by principal after learning all material facts) Estoppel (principal leads third person to believe another person is the principal’s agent) Operation of Law 7 Jeffrey Pittman - Legal Environment of Business

E MPLOYEE & I NDEPENDENT C ONTRACTOR F ORMATION Generally, the employer/employee and the employer/independent contractor relationships is formed by Agreement (contract) 8 Jeffrey Pittman - Legal Environment of Business

E MPLOYER L IABILITY FOR C ONTRACTS The employer is liable for contracts entered into by a gents, if the agents have actual or apparent authority, or if the employer ratifies the contract Actual authority includes express authority (exact wording when agent hired) and implied authority (inferred from express authority) 9 Jeffrey Pittman - Legal Environment of Business

E MPLOYER L IABILITY FOR C ONTRACTS Apparent authority is present where actual authority is lacking, but the principal has misled third parties into believing that actual authority exists 10 Jeffrey Pittman - Legal Environment of Business

E MPLOYER L IABILITY FOR C ONTRACTS The employer is not liable for contracts entered into by employees or independent contractors, unless the employer ratifies the contracts 11 Jeffrey Pittman - Legal Environment of Business

D UTIES OF A GENTS TO P RINCIPALS An agent is a fiduciary for the principal and is obligated under the following duties to the principal Performance of duties in the contract Loyalty Obedience Accounting Notification 12 Jeffrey Pittman - Legal Environment of Business

D UTIES OF P RINCIPALS TO A GENTS The principal is obligated under the following contractual duties to the agent Duty of compensation Duty of reimbursement and indemnification Duty of cooperation Duty to provide safe working conditions 13 Jeffrey Pittman - Legal Environment of Business

E MPLOYER L IABILITY FOR T ORTS Under the doctrine of respondeat superior, an employer is liable for the torts of agents or employees where the torts are committed within the scope of employment An employer is generally not liable for the torts of independent contractors 14 Jeffrey Pittman - Legal Environment of Business

“S COPE OF THE J OB ” A simplified approach to determining if an agent or employee has committed a tort within the scope of the job is to ask: How much potential control did the employer have over the situation, and How closely connected was the tort to the job duties? 15 Jeffrey Pittman - Legal Environment of Business

C RITERIA FOR D ETERMINING W HETHER S OMEONE I S AN I NDEPENDENT C ONTRACTOR The most important criterion for determining an independent contractor versus an employee is the extent of employer control over details of the work – the more control, the more likely the individual is an employee 16 Jeffrey Pittman - Legal Environment of Business

C RITERIA FOR D ETERMINING W HETHER S OMEONE I S AN I NDEPENDENT C ONTRACTOR Other determining factors include: Type of job (some jobs are usually done by either an employee or an independent contractor) Who supplies equipment or tools (employers usually furnish tools for employees but not independent contractors) 17 Jeffrey Pittman - Legal Environment of Business

C RITERIA FOR D ETERMINING W HETHER S OMEONE I S AN I NDEPENDENT C ONTRACTOR Other determining factors include: Amount of skill required to perform job (higher skill jobs may require independent contractors) Length of employment (employees usually are longer term hires than independent contractors) Method of payment (employees are usually hourly or salary; independent contractors are often paid by the job) 18 Jeffrey Pittman - Legal Environment of Business

S COPE OF A UTHORITY Ermoian v. Desert Hospital illustrates the doctrine of respondeat superior as applied to employees versus independent contractors, and the question agency by estoppel 19 Jeffrey Pittman - Legal Environment of Business

E RMOIAN V. D ESERT H OSPITAL 20 Jeffrey Pittman - Legal Environment of Business

E NDING THE E MPLOYMENT R ELATIONSHIP (C HAPTER 20) Employment at will (EAW) EAW is a doctrine which provides that a contract of employment for an indefinite term is terminable at the will of either party Under EAW, an at ‑ will employee may be discharged for good cause, no cause, or even a morally wrong cause 21 Jeffrey Pittman - Legal Environment of Business

E NDING THE E MPLOYMENT R ELATIONSHIP (C HAPTER 21) Exceptions to employment at will Federal civil rights laws, for example, protections against discharge based on age, race, gender, disability, religion, national origin, or color State laws that protect against discharge that breaches a contractual promise of employment, or discharge that violates public policy 22 Jeffrey Pittman - Legal Environment of Business