AGENCYAGENCY

The Agency RelationshipThe Agency Relationship

Creation of AgencyCreation of Agency

An Agreement of two parties that An Agreement of two parties that on party (the agent) will act for on party (the agent) will act for the benefit of the other (the the benefit of the other (the principal) under the principal’s principal) under the principal’s direction.direction.

Creation of AgencyCreation of Agency

Consideration is not necessary.Consideration is not necessary. An agency contract may be oral unless An agency contract may be oral unless

state law provides otherwise.state law provides otherwise.– Statute of FraudsStatute of Frauds

Contracts which cannot be performed within Contracts which cannot be performed within one year must be in writingone year must be in writing

– Equal Dignity RuleEqual Dignity Rule Requires agent’s authority to be in writing if Requires agent’s authority to be in writing if

agent is entering into a contract which must be agent is entering into a contract which must be in writingin writing

Creation of AgencyCreation of Agency

Agency through ratification by Agency through ratification by principalprincipal– Occurs whenOccurs when

agent represents that he has authority he really agent represents that he has authority he really does not have, and principal accepts the results does not have, and principal accepts the results of the agent’s act.of the agent’s act.

– Conditions necessary for effective ratification:Conditions necessary for effective ratification: Principal must have full knowledge of the Principal must have full knowledge of the

agent’s action.agent’s action. Existence of principal must be clear to third Existence of principal must be clear to third

party at time of agent’s act.party at time of agent’s act.

Creation of AgencyCreation of Agency

Agency by estoppel, (apparent Agency by estoppel, (apparent agency)agency)– Actions of principal lead third Actions of principal lead third

person to believe that a certain person to believe that a certain person is her agent.person is her agent.

– Third party relies on principal’s Third party relies on principal’s conduct.conduct.

Employee or Independent Employee or Independent ContractorContractor

Determines liability to pay and Determines liability to pay and withholdwithhold

Federal income tax, social security andFederal income tax, social security and

Medicare taxes, and FederalMedicare taxes, and Federal

unemployment tax, as well asunemployment tax, as well as

Medical Benefits, Retirement, etc.Medical Benefits, Retirement, etc.Above paid for employee but not for Above paid for employee but not for

Independent ContractorIndependent Contractor

Employee or Independent Employee or Independent ContractorContractor

Facts to consider in deciding whether Facts to consider in deciding whether aa

worker is an independent contractor worker is an independent contractor oror

an employee. an employee. Behavioral ControlBehavioral Control Financial ControlFinancial Control Type of Relationship Type of Relationship

Employee or Independent Employee or Independent ContractorContractor

Behavioral ControlBehavioral Control1.when, where, and how to work 1.when, where, and how to work 2.what tools or equipment to use 2.what tools or equipment to use 3.what workers to hire or to assist with 3.what workers to hire or to assist with

the workthe work4.where to purchase supplies and services 4.where to purchase supplies and services 5.what work must be performed by a 5.what work must be performed by a

specifiedspecified individual individual 6.what order or sequence to follow6.what order or sequence to follow

Employee or Independent Employee or Independent ContractorContractor

Financial ControlFinancial ControlThe extent to which the worker has expenses which are not reimbursedich are not reimbursed

The extent of the worker’s investment

The extent to which the worker makes services available to the relevant market

How the business pays the worker

The extent to which the worker can realize a profit or loss

Employee or Independent Employee or Independent ContractorContractor

Type of RelationshipType of Relationship Written contracts describing the relationship

the parties intended to create

Whether the worker is provided with employee-type benefits

The permanency of the relationship

How integral the services are to the principal activity

Agents Duties to Agents Duties to PrincipalPrincipal

–Duty of loyalty Duty of loyalty (Fiduciary (Fiduciary Duty)Duty)

–Duty of obedienceDuty of obedience–Duty of accountingDuty of accounting–Duty of performanceDuty of performance–Duty of NotificationDuty of Notification

Duty of Loyalty / Duty of Loyalty / Fiduciary DutyFiduciary Duty Fiduciary duty is one of utmost Fiduciary duty is one of utmost

loyalty and good faith. Requires:loyalty and good faith. Requires:a. Agent must act solely in the a. Agent must act solely in the interest of his principal.interest of his principal.b. Cannot compete with principal b. Cannot compete with principal or act on behalf of a competitor.or act on behalf of a competitor.c. May not use of disclose c. May not use of disclose confidential informationconfidential information

Agents Duties to Agents Duties to PrincipalPrincipal Duty to AccountDuty to Account : Agent must : Agent must

maintain and provide true and maintain and provide true and complete accounting of money and complete accounting of money and property received or expended on property received or expended on behalf of the principal.behalf of the principal.

Duty of ObedienceDuty of Obedience: Agent must act : Agent must act only as authorized and directed by the only as authorized and directed by the principal and obey reasonable principal and obey reasonable instructions of the principal.instructions of the principal.

Agents Duties to Agents Duties to PrincipalPrincipal Duty of Due DiligenceDuty of Due Diligence: Agent must : Agent must

act with reasonable care and skill in act with reasonable care and skill in performing agency responsibilities.performing agency responsibilities.

Duty to InformDuty to Inform: Agent must provide : Agent must provide principal with information relevant to principal with information relevant to the affairs entrusted to agent.the affairs entrusted to agent.

(Notice to agent is notice to principal)(Notice to agent is notice to principal)

Duties of Principal to Duties of Principal to AgentAgent Principal’s duties to agentPrincipal’s duties to agent

– Duty of compensationDuty of compensation– Duty of reimbursement and Duty of reimbursement and

indemnificationindemnification– Duty of cooperationDuty of cooperation– Duty to provide safe Duty to provide safe

working conditionsworking conditions

Termination of the Termination of the Principal-Agent Principal-Agent RelationshipRelationship Termination by agreementTermination by agreement

– Either party may decide to terminate the agency.Either party may decide to terminate the agency.(However, party may not have right to terminate)(However, party may not have right to terminate)

– Notice should be given to third parties.Notice should be given to third parties.Actual notice to those who dealt with the agent.Actual notice to those who dealt with the agent.Constructive notice by newspaper to others.Constructive notice by newspaper to others.

Termination by law:Termination by law: (Terminates actual authority)(Terminates actual authority)Death of one of the parties. Death of one of the parties. Incapacity of one of the parties. Incapacity of one of the parties. Bankruptcy of the principal. Bankruptcy of the principal. Outbreak of war.Outbreak of war.Intervening IllegalityIntervening Illegality

Destruction of subject matterDestruction of subject matter

TerminationTermination

Exception:Exception: Agency coupled with an interest Agency coupled with an interest

may not be terminated by the may not be terminated by the principal principal

NoticeNotice

To terminate apparent authority thirdTo terminate apparent authority third

party needs to be aware that agencyparty needs to be aware that agency

relationship has terminated.relationship has terminated.

Generally accomplished by notice.Generally accomplished by notice.

Actual Actual notice to those who have dealt notice to those who have dealt with agent.with agent.

ConstructiveConstructive notice to all others notice to all others

NoticeNotice

Apparent authority is terminated and Apparent authority is terminated and nono

notice is required if agency notice is required if agency terminatesterminates

as a result of:as a result of:

Death of principalDeath of principal

Incapacity of principalIncapacity of principal

Bankruptcy of principalBankruptcy of principal