McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 10Agency andEmploymentRelationships

10-2

Employee Agents

In order to be classified as an employee agent, the employee must have some source of authority to represent the employer.

The non-agent employee relationship is sometimes referred to as the master/servant relationship in order to distinguish it from an employer/employee agent relationship.

10-3

Independent contractor agent

Not considered an employee and has no legal protections of employees such as minimum wage and overtime laws.

An equally important factor is that the principal generally has no liability for actions and omissions of an independent contractor agent.

10-4

LIABILITY OF THE PRINCIPAL FOR ACTS OF THE AGENT For agency purposes, legal liability can arise

either through :

a contract obligation vicarious liability in tort

10-5

Contract Liability to Third Parties

An authorized agent who enters into a contract with a third party binds the principal to perform certain obligations and the third party may legally enforce the contract against the principal.

10-6

Tort Liability to Third Parties

In some cases, a principal may be held liable for an agent’s tort, even though the principal has not engaged in any wrongful conduct.

This is particularly true when the agent is an employee.

10-7

Intentional Torts

Generally, intentional torts by an agent (such as committing an assault in the workplace) are thought of to be outside the scope of employment and, therefore, employers are not liable for such conduct.

10-8

Negligent Hiring Doctrine

A majority of states recognize a tort-based theory of liability for employers for negligent or intentional torts of employees when the employer had reason to know that the employee may cause harm within his scope of employment.

10-9

Agent’s Duties to the Principal

Fiduciary duty consists of five subduties: loyalty, obedience, care, disclosure, accounting.

10-10

Duties and Obligations of the Principal to the Agent When an agent acts on behalf of its principal,

the agent may incur expenses, make payments, suffer an injury, or cause damages to third parties.

In such cases, the principal has a duty to reimburse and indemnify its agents.

10-11

EMPLOYMENT RELATIONSHIPS At-will doctrine permits employers to

terminate an employee without advance notice and without just cause, subject to certain exceptions: (1) an express contract (2) an implied contract (3) specific statute or public policy

10-12

learning outcomes checklist

10 - 1 Recognize, define, and give examples of an agency relationship.

10 - 2 Classify agents as either employees or independent contractors by applying the direction and control tests.

10-13

learning outcomes checklist

10 - 3 Explain the process for creating an agency relationship and the impact of that relationship on the liability of the principal.

10 - 4 List the sources of an agent’s authority to bind the principal in contract and give examples of each source.

10-14

learning outcomes checklist

10 - 5 Apply the doctrine of respondeat superior and identify its impact and limits.

10 - 6 Define the duties that collectively comprise a fiduciary obligation owed by the agent to the principal.

10 - 7 Articulate the duties owed by a principal to the agent and to third parties.

10-15

learning outcomes checklist

10 - 8 The two primary methods used to terminate agency relationships.

10 - 9 Recognize the dangers of the principal failing to notify third parties of an agent’s termination.

10- 10 Explain the employment-at-will doctrine, and its primary exceptions.