Meiners_LE12e_PPT_Ch14-class.pptx

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AGENCY AND THE
EMPLOYMENT RELATIONSHIP
Chapter 14
Meiners, Ringleb & Edwards
The Legal Environment of Business, 12th Edition
1

AGENCY RELATIONSHIPS
 Agency is created when a person or company (agent)
agrees to act for or in place of another person or
company (principal)
1. The PRINCIPAL creates authority in an agent
2. The agent receives authority & carries out the
principal’s instructions
3. Third parties make a contract or are involved in a
tort with the agent
 Result: The principal is bound by the agent’s acts with a
third party
2

CLASSIFICATION OF AGENTS
 Agents are classified on the basis of the authority
provided
 Universal agents: Do all acts that can be legally
delegated, i.e. General Power of Attorney
 General agents: Execute all transactions in connection
with a business, i.e. managers
 Special agents: Execute a specific transaction or series
of transactions, i.e. a real estate agent (SPOA)
 Agency coupled with an interest: Agent has paid for the
right to have authority for a business
 Gratuitous agent: No payment is made to the agent,
i.e. a favor or a volunteer
 Subagents: Agent delegates authority to other agents
3

CREATING AN AGENCY
 Agreement of the Parties
 May be oral or written
 The legal document called a power of attorney establishes
agency and creates an attorney-in-fact- Is this an attorney? NO
 Implied or Express Ratification by the Principal
 A PRINCIPAL accepts responsibility for acts of an agent going
beyond his/her authority
 Agency by Estoppel
 ACTIONS OF THE PRINCIPAL lead others to believe an agency
exists – the principal is estopped from denying the agency’s
existence
 Agency by Operation of Law
 The agent acts beyond the principal’s authority
 Necessity or emergencies create agency existence
 The agent does acts and binds the principal by operation of law
4

ACTS FOR THE PRINCIPAL
Actual Authority
o Principal sends signals to
the agent to do
something with a third
party
o Given by the principal to
agent
o Express Authority: Oral
or written instructions
create the authority
o Implied Authority:
Principal’s conduct or
trade customs create
authority
Apparent Authority
o Principal sends signals
to the third party that
what the agent does
binds the principal
o There is the appearance
of authority that a third
party could reasonably
conclude
5

CASE
COVE MANAGEMENT V. AFLAC, INC.
 Galgano signed an “Associates Agreement” with AFLAC in 2004. Authorized
him to solicit applications for AFLAC insurance policies. Agreement stated
Galgano was an independent contractor. Without authority to bind AFLAC
for his “debts, faults or actions.” Also stated that Galgano may not enter into
contracts or incur debt on behalf of AFLAC. Another agreement, signed in
2005: Stated Galgano did not have authority to “rent any office space” or
obligate AFLAC without “specific written authorization”.
 In 2009: Galgano leased office space from Cove Management. Lease listed
the tenant as AFLC and listed Galgano as guarantor for office to be used for
“insurance services”
 Galgano signed as lessee and guarantor. Later he defaulted on lease
payment.
 Cove sued AFLAC for losses. Cove noted that office was clearly listed as an
AFLAC office and engaged in business for AFLAC.
 Cove asserted it had right to presume that Galgano had authority as an
agent to bind AFLAC to lease
 District court dismissed the suit; Cove appealed.
(Continued)
6

 Determination of Galgano’s authority will define him as either independent
contractor or an agent of AFLAC. Authority may be either actual or apparent.
 Cove argued that AFLAC clothed Galgano with apparent authority, created
liability in AFLAC as lessee under lease. Apparent authority defined: “such
authority as the PRINCIPAL KNOWINGLY PERMITS THE AGENT TO ASSUME
. . . OR HOLDS HIS AGENT OUT AS POSSESSING . . . .” The other party has
“reasonably and detrimentally relied on agent’s authority.”
 Most evidence came into existence AFTER signing of the lease.
 Court cannot consider: (1) When office was set up, the parking signed had the
AFLAC symbol and duck.(2) That there were AFLAC’s stylized blue materials –
in and out of office. (3) AFLAC was listed on the director of the building.
 Cove did not make any effort to determine if Galgano was independent
contractor or agent of AFLAC. Cove relied exclusively on statement and
representations of Galgano that he had authority to bind AFLAC to the lease on
premises.
 HELD: Affirmed.
 Galgano was not acting under apparent authority.
CASE
COVE MANAGEMENT V. AFLAC, INC.
7

What should Cove
Management have
done to avoid this
situation?
8

Anyone can walk into any office with good-looking
business cards and stationery, claiming to represent
any company. Hence, especially in commercial
dealings, the seller (or landlord) should know to check
out the authenticity of the person purporting to have
authority to contract on behalf of their real or
purported principal.
9

Did Galgano breach
a duty he owed to
AFLAC?
10

Galgano breached his contract with
AFLAC and breached his duty as their
agent. His power was to obtain
insurance contracts, not much more. So
he is liable on the debt owed to Cove,
but is likely insolvent, which is why
AFLAC was brought into the matter
anyway.
11

PRINCIPAL’S DUTIES TO AN AGENT
 Cooperation – with the agent in fulfilling the agency
purpose
 Compensation – for services rendered
 Unless agent agreed to work for free
 Reasonable value- “customary rate”
 Reimbursement – of ”reasonable” expenses
 No reimbursement for agents “misconduct”
 Working Conditions – as required by law and meet legal
obligations
 Indemnify (pay back) – for legal liabilities incurred by
the agent
12

AGENT’S DUTIES TO THE PRINCIPAL
 Loyalty – place the principal’s interest above the agent’s
 Can’t compete with principle without permission.
 Massachusetts Court: Held CEO would forfeit all compensation
paid to him during his disloyalty to the company
 Obedience and Performance – to perform in compliance
with the principal’s instructions.
 Reasonable Care & Skill – to perform as is ”reasonable
under the circumstances” (including emergencies).
 Account – for the funds and property of the principal
(avoid mixing personal funds with the principal’s).
 Notify – as to all facts of the agency purpose.
13

CASE
BEARDEN V. WARDLEY CORPORATION
 Bearden listed some rental property for sale with real estate agent, Gritton
who worked for Wardley Corp. (real estate firm). After listing property
Gritton told Bearden he wanted to buy the property for $89,000. Bearden
agreed. Contract called for Gritton to pay Bearden $400/mo., followed by
balloon payment after five years. Bearden would keep title until balloon
payment was made.
 Unknown to Bearden, Gritton gave warranty deed with other documents for
Bearden to sign. (Where was Bearden’s attorney??) She signed; he had
signature improperly notarized; recorded the deed and title was transferred
to Gritton.
 Gritton doesn’t keep up on payments.
 Bearden hires a lawyer; lawyer discovers Gritton’s fraud and that Gritton
had also borrowed money against the property and it was in foreclosure for
lack of payments to lender. Bearden paid $60,000 to keep property from
being lost.
 Sued Gritton and Wardley for breach of contract, fraud, & breach of
fiduciary duty.
(Continued)
14

 Jury awarded $75,000 damages + $25,000 punitive damages +
$50,000 attorney fees, costs, etc. against Gritton & Wardley.
Wardley and Gritton appealed.
 HELD: Affirmed.
 Listing contract was with Wardley, with “fiduciary duties to seller”
clause in it. Wardley’s internal policy prohibited agents to purchase
properties they listed.
 Gritton was employed by Wardley: Knew of listing agreement;
Knew Gritton had purchased the property never questioned Gritton
about violating internal policy re: purchase of listed property; Never
asked Gritton to stop representing Bearden; Never informed
Bearden of Gritton’s internal policy violations.
 Wardley breached its duty of care to Bearden and is liable.
CASE
BEARDEN V. WARDLEY CORPORATION
15

There was no evidence that
Wardley participated in
Gritton’s fraud, so why
should it be liable?
16

Gritton was authorized by Wardley to
sign clients. His action, of having a
client become a client of Wardley,
means that Wardley assumed the
responsibility of being Bearden’s agent
and had to meet the standards of care
expected of such. While Wardley did not
approve of, or even know of Gritton’s
actions, they occurred in part because
of poor internal controls by Wardley.
17

Suppose Gritton had told
Wardley he wanted to buy
the property he had listed.
What should Gritton have
done?
18

By allowing Gritton to buy the property,
he was assuming multiple roles in a
transaction that created conflicts of
interest. Wardley should have required
Gritton to turn over the role of sales
agent to another person at Wardley to
serve as Bearden’s agent in dealing with
Gritton.
19

CYBER LAW
“COMPUTER ABUSE BY EMPLOYEES”
 Citrin worked for a real estate development company to help identify
properties that the company may buy.
 He decided to go into business for himself – compete with employer.
 To cover his tracks, he installed a program to scrub his company computer
clean of all information.
 Some of the files would show he was collecting information for himself;
others were company files he developed.
 His computer had the only copy – valuable info. was destroyed.
 Company sued him for violating the Computer Fraud and Abuse Act – that
holds it illegal to intentionally damage a protected computer.
 Federal Appeals Court held Citrin breached his duty of loyalty.
 WHEN HE BREACHED HIS DUTY BY PLANNING HIS OWN GAIN, HE
NO LONGER HAD AN AGENCY RELATIONSHIP THAT GAVE HIM
ACCESS TO COMPANY FILES.
 He then was liable for destroying files by accessing a computer he had no
right to use.
20

LIABILITY FOR CONTRACTS
1. Disclosed principal: Identity of principal is known by the third party
at time of making of contract with agent.
2. Principal is liable to a third party for the contract of the agent if the
agent has actual authority.
3. If there is apparent authority, the principal is contractually liable to
a third party.
 However, the principal may sue the agent for losses if agent
has breached a duty.
4. Undisclosed principal: Identity of principal is unknown to third party.
5. An AGENT IS LIABLE to a third party if there is an undisclosed
principal.
 Agent may be indemnified by principal if agent acted within
scope of his authority.
21

CASE-UNDISCLOSED PRINCIPAL
YIM V. J’S FASHION ACCESSORIES, INC.
 Benjamin Yim did business under trade name Ho Tae.
Ordered goods from J’s Fashion. Invoices were sent to
Ho Tae.
 Account not paid. Fashion sued Yim. He denied liability,
saying he acted as an agent for a corporation-principal,
Hosung Enterprise, Inc.
 Hosung did business under name Ho Tae.
 Fashion said that at no time did Yim disclose existence of
corporation entity with whom they were dealing.
 Fashion thought they were always dealing with Yim with
trade name Ho Tae.
 Trial court entered summary judgment against Yim.
 He appealed, saying he was only an agent for Hosung
Enterprises.
(Continued)
22

 HELD: Affirmed.
 Agent who makes a contract without giving identity of
principal becomes personally liable.
 There is a duty to disclose the principal’s identity.
 Agent must be specific in disclosure.
 Use of a trade name is not necessarily a disclosure of
principal’s identity.
 At no point did Yim indicate he was acting other than an
individual doing business as Ho Tae.
CASE
YIM V. J’S FASHION ACCESSORIES, INC.
23

TERMINATING AN AGENCY
 Either party may terminate (unilateral termination)
 Agent says, “I quit!”
 Principal says, “You’re fired!”
 Specific date set for agency to end
 Purpose of agency is fulfilled
 Notice of termination must be made to 3rd parties to end
an agent’s apparent authority
 Termination by operation of law
 Principal or agent dies
 Subject matter of the agreement is lost or destroyed
24

THE ESSENTIAL EMPLOYMENT RELATIONSHIP
 Principal-Agent
 Agent acts on behalf of the principal; Agent has a degree of
personal discretion; Principal is usually liable;
 Master-Servant or Employer-Employee
 Master-servant is old term still often used; Now the term
employer-employee is used more; Servant’s conduct is
controlled by employer; The servant can also be an agent
(distinction is sometimes blurred); Employer is usually liabl
 When an employee is under direct control of an employer
 Employer-Independent Contractor (I/C)
 Not an employment relationship; Employer has no control over
the details of the I/C’s performance; Some contractors are not
agents; However, sometimes they can be agents (attorneys,
auctioneers); Usually employer is not liable for the I/C’s torts
25

CASE
FRANCE V. SOUTHERN EQUIPMENT CO.
 Hensley did business under trade name Royalty Builders.
Hired 16-year-old Robert France to do roofing work.
 Southern Equipment needed a new metal roof on a building.
Accepted bid from Quality Metal Roof. Quality hired Royalty
to work and Quality supplied materials.
 While working on roof, France fell and suffered head injuries.
He sued Southern (and others) for exposing him to an
inherently dangerous job of roofing.
 Court granted summary judgment for Southern.
 France appealed. Affirmed.
 Royalty Builders was an independent contractor. Southern
had no control over the work done by Royalty Builders.
Southern Equipment could not be held vicariously liable as
Royalty Builder’s (thereby France’s) employer.
26

EMPLOYMENT-AT-WILL
 Employers: Can hire & fire who you want
 Employees: May work-at-will or quit when they want
 Employees may sue for wrongful discharge under employment
contract, BUT must establish contract had limits to employer’s
rights to discharge Contract is danger form employer!
 Can be contractual limits to at-will
 There may be a general public policy against dismissal
 Exceptions:
 Refusing to violate laws
 Important public duty (jury duty)
 Public right (filing for workers’ compensation)
 “Whistle Blowing”
 Breach of employment contract through express contract;
implied contract; or implied covenant of good faith and fair
dealing
27

CASE
GUZ V. BECHTEL NATIONAL, INC.
 Guz worked for Bechtel (BNI) 1971-1993 with a good employment record
under employment at will. Termination would be for unsatisfactory
performance or due to a layoff.
 Budget for Guz’s division was cut; he and others were terminated. The
company was doing well. Guz’s duties were transferred to other employees.
He applied for other positions at BNI but was rejected.
 He sued, alleged breach of implied contract to be terminated only for good
cause and breach of implied covenant of good faith & fair dealing.
 Trial court dismissed suit, saying he was an at-will employee. Appeals court
reversed, holding that his longevity, raises, etc. warranted a retrial. Is this
the law??
 HELD: Reversed in favor of BNI.
 Employment relationship is contractual and parties may define for
themselves causes for termination. Here, there is no evidence that BNI had
additional terms to employment security and BNI had the right to reorganize
and terminate employees as they wished.
 Successful service, in and of itself, does not create a contractual guarantee
for employment security.
28

Is there an incentive for employers to make it very
clear to employees that they are strictly at will and
there is no assurances of continued employment?
There is an employment contract in all cases. One is
offered employment and provides labor in exchange
for pay. That is consideration by the employer. There
is no need for an employer to specify other terms,
such as the details of dismissal procedures.
29

Is there an employment contract? Guz had to follow
the requirements of his employer; what consideration
did the employer give?
There is an employment contract in all cases. One is
offered employment and provides labor in exchange
for pay. That is consideration by the employer. There
is no need for an employer to specify other terms,
such as the details of dismissal procedures.
30

EMPLOYMENT HANDBOOKS
 Explain company policies, benefits and procedures
 Discuss grounds for discipline and dismissal
 May limit rights of employers to dismiss employees
under Employment-At-Will Doctrine
 May be interpreted as creating express or implied
contract between employer and employee
 Some employers place bold disclaimer in front of
handbook saying it is not a contract – have
employees sign
31

EMPLOYMENT HANDBOOKS PROBLEMS
 Boiler plate language
 Not following procedures
 Creating probationary
period when indicate that
permanent status when
probation ends
 Failure to update
 Not mentioning at will or
right to change terms
 Listing firing offenses as
only ones 32

SOCIAL MEDIA
 Companies adjusting to new
technologies/innovations
 Improper actions can bring
lawsuits or bad image
 Section 230 of Communications
Decency Act (CDA) provides
immunity for content posted/
submitted by 3rd parties if
company is merely a publisher
 This will not help content posted
by company employees
 Even if employee is not
tweeting in official capacity
 Employee still within “scope of
employment”
 Reasonable person could expect
that tweeter was authorized by the
company
 To minimize liability, companies
restrict unofficial company social
media endeavors:
 Limit who can post official social
media; Limit want can be posted
 Have means for addressing
infringement & other claims
 Companies may restrict links to
outside sites (i.e. You Tube)
 Editing offensive content is
important
 Problems with sending e-mails that
could create sexual harassment
 Companies may want to restrict
employees’ non-work blogs
 Under employment-at-will firms can
impose restrictions.
 Fire those who break the rules.
33

PRINCIPAL’S LIABILITY
o If the PRINCIPAL directs the agent to do tortious acts,
then the principal is liable.
o Principal may give actual authority or instructs to do a
certain act.
o Principal ratifies agents conduct.
 Vicarious Liability
 “Liability for unauthorized acts of the agent”
 Was the agent acting “within the scope of his/her employment”?
 Courts use the doctrine of respondeat superior.
 Rare for an employer to be liable for acts committed by an
independent contractor.
 Employers may be liable for torts of employees due to negligent hiring
or supervision.
34

CASE
ARMSTRONG V. FOOD LION, INC.
 Armstrong went to Food Lion store with his mother, Tillie, to buy food.
 Three men in Food Lion uniforms approached Ronnie. One, Brown,
had been in a fight with Ronnie 2 years before. He attacked Ronnie
with a box cutter. Another employee, Cameron, also attacked Ronnie.
 When Tillie came to help Ronnie, Cameron punched her and knocked
her down. Another shopper helped Tillie and called for assistance.
 Armstrong sued Food Lion for numerous torts.
 Trial held for Food Lion; appeals court affirmed. Armstrong appealed.
 HELD: Affirmed. Respondeat superior does not apply here.
 Acts of the employees were for an independent purpose than service
to their employer at the store.
 Brown and Cameron were not furthering Food Lion’s business in any
manner when they attacked the Armstrong. 35

NEGLIGENT HIRING
 Negligent Hiring: Intentional torts committed by an
employment who is not acting in the scope of
employment
 Obligations to check background of an employee
 Since no longer that costly, duty arises by employee to do
background checks
 Obligation to check independent contractor for doubtful
history. i.e.
 Child molester: Should not be in routine contact with children
 Bad driving record: Should not be permitted to drive a company
truck 36

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