What is the difference between an employee and an independent contractor? What is the difference between an employee and an independent contractor? How do agency relationships arise? How do agency relationships arise? What duties do agents and principals owe to each other?  What duties do agents and principals owe to each other?  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2

When is a principal liable for the agent’s actions with respect to third parties? When is the agent liable? When is a principal liable for the agent’s actions with respect to third parties? When is the agent liable? What are some of the ways in which an agency relationship can be terminated? What are some of the ways in which an agency relationship can be terminated? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3

Agency = Principal and Agent. Agency = Principal and Agent. Agency is the most common and most important legal relationship. Agency is the most common and most important legal relationship. Understanding agency is crucial to understanding the legal environment of business. Understanding agency is crucial to understanding the legal environment of business. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4

Principals use agents to be able to conduct multiple business operations simultaneously in various locations. 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. The principal has the right to control the agent in matters entrusted to the agent. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5

Agency is a “fiduciary” relationship based on trust and confidence. Agency is a “fiduciary” relationship based on trust and confidence. Employer-Employee Relationships. Employer-Employee Relationships. Employer -Independent Contractor Relationships. Employer -Independent Contractor Relationships. – Employers have ‘no control’ over the details of their work performance.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6

YesNo Is there a great degree of skill required? YesNo Is the worker paid at the end of the job? NoYes Has the worker been employed a long time? NoYes Does Employer provide the tools? NoYes Is the work usually done under Employer’s supervision? YesNo Is the worker engaged in an occupation or business distinct from Employer? NoYes Does the Employer exercise a great degree of control over the details of the work? I.C. E’ee E’ee A “Yes” Tends to Show Employee Status © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7

CASE Lopez v. El Palmar Taxi, Inc. (2009). What were the various factors in the court’s decision? CASE Lopez v. El Palmar Taxi, Inc. (2009). What were the various factors in the court’s decision? Criteria Used by the IRS. Criteria Used by the IRS. Employee Status and “Works for Hire”: any copyrighted work created during scope of employment is owned by employer. Employee Status and “Works for Hire”: any copyrighted work created during scope of employment is owned by employer. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8

Generally, agency relationships : Generally, agency relationships : – Are consensual. – Require no consideration. – Require principal to have contractual capacity (agent does not). – Can be created for any legal purpose. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9

Agency by Agreement.  Agency by Agreement.  Agency by Ratification.  Agency by Ratification.  Agency by Estoppel.  Agency by Estoppel.  Agency by Operation of Law.  Agency by Operation of Law.  – Necessaries for family. – Emergency. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10

Agency by Agreement. Agency by Agreement. – Formed through express consent (oral or written) or implied by conduct. Laurel Creek Health Care Center v. Bishop – CASE 28.2 Laurel Creek Health Care Center v. Bishop (2010). When was agency created between Bishop and his wife? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11

Agency by Ratification. Agency by Ratification. – Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 12

Agency by Estoppel. 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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 13

Agency by Operation of Law. Agency by Operation of Law. – Based on social duty is formed in certain situations when the Agent is unable to contact the Principal. – Necessaries. – Emergencies. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14

Agent’s Duties to the Principal: Agent’s Duties to the Principal: – Performance: implied condition to use reasonable diligence and skill. If agent fails, possible breach of contract. Gratuitous Agent: only liable for torts. – Notification: to principal of all matters concerning subject matter of agency. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 15

Agent’s Duties to Principal (cont’d): Agent’s Duties to Principal (cont’d): – Loyalty: fundamental duty as fiduciary (no conflict of interest). – Obedience. – Accounting. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 16

Principal’s Duties to the Agent. Principal’s Duties to the Agent. – Compensation (Express or Implied). – Reimbursement and Indemnification. – Cooperation. – Safe Working Conditions. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 17

Principal is liable for acts entered into by Agent when she gives Agent either actual or apparent 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. CASE © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 18

Actual Authority (Express): Actual Authority (Express): – Can be oral or written. – Equal Dignity Rule: if law requires written contract, agent’s authority must be in writing, or contract voidable. Exceptions: – Executive Officer acting for Corporation. – Agent acts in Principal’s presence. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 19

Actual Authority (Express) (cont’d): Actual Authority (Express) (cont’d): – Power of Attorney (POA) gives agent express authority. POA is a written document and usually notarized. Special POA: specified acts only. General POA: all business for principal. Terminates on principal’s death or incapacity. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20

Actual Authority (Implied). Actual Authority (Implied). – Agent has implied power to do what is reasonably necessary to carry out express authority. Inferred or conferred by custom, or agent’s position Test is whether agent reasonably believed she had authority to do the act. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 21

Apparent Authority. Apparent Authority. – Arises based on what principal causes a THIRD party (not agent) to believe. – Agent has apparent authority when principal, by either word or act, causes 3rd party to reasonably believe that Agent has authority to act for Principal.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 22

Apparent Authority (cont’d). Apparent Authority (cont’d). – Apparent authority usually comes into existence through a principal’s pattern of conduct over a period of time. Azur v. Chase Bank, USA – CASE 28.3 Azur v. Chase Bank, USA (2010). What were Azur’s ‘negligent omissions’? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 23

Apparent Authority (cont’d). Apparent Authority (cont’d). – If 3rd party changes legal position by relying on principal’s representations, principal is estopped (prevented) from denying agent had authority to contract. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 24

Ratification. Ratification. – Occurs when principal accepts responsibility for an agent’s unauthorized act (express or implied). – Requirements: 1. Agent must act on behalf of Principal. 2. Principal must affirm entire deal.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 25

Ratification (cont’d). Ratification (cont’d). – Requirements (cont’d). 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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 26

Liability for Contracts. Liability for Contracts. – Principals are classified as: Disclosed: identity known to 3 rd party. Partially Disclosed: 3 rd party knows he is dealing with an agent, but doesn’t know principal’s identity. Undisclosed: 3 rd party doesn’t know he is dealing with an agent, and the principal’s identity is totally unknown. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 27

Liability for Contracts (cont’d). Liability for Contracts (cont’d). – Authorized Acts. Disclosed or Partially Disclosed Principal: liable to 3 rd party if agent acts within scope of authority. – Agent has no liability to 3 rd party for disclosed principal’s non-performance. Although agent may be liable if principal is partially disclosed. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 28

Liability for Contracts (cont’d). Liability for Contracts (cont’d). – Authorized Acts. 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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 29

Liability for Contracts (cont’d). Liability for Contracts (cont’d). – Unauthorized Acts. Unauthorized acts are outside the agent’s express, implied, or apparent authority. If agent has no authority, principal is not liable, but agent is personally liable. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 30

Liability for Contracts (cont’d). Liability for Contracts (cont’d). – Liability for E-Agents. An “e-agent” is a semi-autonomous computer program capable of executing specific tasks on behalf of a principal. E-commerce uses e-agents to create contracts every day. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 31

Liability for Torts and Crimes. Liability for Torts and Crimes. – Agent is liable to 3 rd party for his own torts. – Principal may be liable for agent’s torts if they result from: Principal’s Tortious Conduct. Principal’s Authorization of Agent’s Tortious Conduct.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 32

Liability for Torts and Crimes (cont’d). Liability for Torts and Crimes (cont’d). – Principal may be liable for agent’s torts if they result from (cont’d): Liability for Agent’s Misrepresentation. – Apparent Implied Authority. – I nnocent Misrepresentation. Liability for Agent’s Negligence.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 33

Liability for Torts and Crimes (cont’d). Liability for Torts and Crimes (cont’d). Liability for Agent’s Negligence. – Respondeat Superior: employer is vicariously liable for employee’s negligent torts committed within the agent’s “course and scope of employment.” » Determining the Scope of Employment.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 34

Employer NOT Liable No Did the act involved a serious crime? NoYes Did Employer have reason to know Employee would do the act? NoYes Did Employer furnish instrumentality (tools)? NoYes Did act advance Employer’s interests? ?? The Time place and purpose of act (factually based) NoYes Was Employee’s act authorized by Employer? Employer Liable Factors (p ) NoYes Was act commonly performed by Employees? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 35

Liability for Torts and Crimes (cont’d). Liability for Torts and Crimes (cont’d). Liability for Agent’s Negligence. – Distinction Between a “Detour” and a “Frolic ”: if detour, principal is liable; if frolic, principal is not liable. – Employee Travel Time: to or from meals is outside scope of employment. – Notice of Dangerous Conditions. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 36

Liability for Torts and Crimes (cont’d). Liability for Torts and Crimes (cont’d). Liability for Agent’s Intentional Torts. – Principal is liable for intentional torts committed within the scope of employment. – Employer is also liable for employee’s acts which employer knew or should have known the employee had a propensity to commit. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 37

Liability for Torts and Crimes (cont’d). Liability for Torts and Crimes (cont’d). Liability for Independent Contractor’s Torts. General Rule: Employer is not liable for acts of independent contractors because employer has no right to control. – Must determine whether worker is employee or independent contractor. – Exceptions: Strict liability for unusually hazardous activities, transportation of highly volatile chemicals, or use of poisonous gases. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 38

Liability for Torts and Crimes (cont’d). Liability for Torts and Crimes (cont’d). Liability for Agent’s Crimes. – Agent is liable for her own crimes. – Principal is not liable, even if the crime was committed within the scope of employment, unless: » Principal participated in the crime. » In some states, principals may be liable for agent violation of regulations. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 39

Worker P Generally Not Liable (unless strict liability) Outside CSE-P Not Liable Within CSE -P Liable “ Scope of Employment” p Independent Contractor Employee Determining Employee Status p.598 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 40

Agency can be terminated by: Agency can be terminated by: – An Act of the Parties;  – By Operation of Law.  Once agency terminated Agent has no actual authority to bind the Principal, but may have apparent authority to bind Principal. Once agency terminated Agent has no actual authority to bind the Principal, but may have apparent authority to bind Principal. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 41

Termination by Act of the Parties. 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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 42

Termination by Operation of Law. Termination by Operation of Law. – Death or Insanity of either Principal or Agent: automatic. – Impossibility (subject matter lost or destroyed). – Changed Circumstances. – Bankruptcy. – War. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 43