AGENCY

Introduction

Agency One person acts for the benefit of and under the

direction of another

Agent Person acting for the benefit of another

Principal Person directing another to act on his behalf

TYPES OF RELATIONSHIPS

Principal/agent

Employer/employee

Master/servant

Employer/independent contractor

How do you determine if a worker is an employee or an independent contractor?

Common-law agency test Who has the right to control the manner in which

the work is performed? IRS test

20 factors to determine whether someone is an employee or an independent contractor

Derived from results of court judgments

IRS 20 FACTOR ANALYSIS

1.     Instructions

2.     Training

3.     Integration

4.     Services rendered personally.

5.     Hiring, supervising, and paying

assistants.

6.     Continuing relationships

7.     Set hours of work

IRS 20 FACTOR ANALYSIS

8.    Full time required

9.    Doing work on the employee’s premises

10.   Order or sequenced set.

11.   Oral or written reports

12.   Furnishing tools and materials

13.   Payment by hour, week, or month.

14. Payment of business or traveling expenses

IRS 20 FACTOR ANALYSIS

15.     Significant investment

16.     Realization of profit or loss

17.     Working for more than one firm at a time

18.     Making services available to the general public.

19.     Right to discharge

20.     Right to terminate

U.S. Supreme Court six-factor test

Whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work;

Whether, and to what extent, the organization supervises the individual’s work;

Whether the individual reports to someone higher in the organization;

Whether and to what extent the individual is able to influence the organization;

Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and

Whether the individual shares in the profits, losses, and liabilities of the organization.

See John Weary v. William S. Cochran, 377 F.3d 522, 2004 U.S. App. Lexis 15589 (2004).

LIABILITY TO EACH OTHER

Duties of Agents to Principals Duty of Loyalty

Fiduciary Dual Agency Confidential Information

Duty to Obey Instructions Duty to Exercise Care and Skill

Ordinary care and skill common for kind of work

Duty to Communicate Information

Duties of Agents to Principals

Duty to Account for Funds and Property Property

Return to principal or account for inability to do so An Accounting

Periodically give principal accurate record of receipts and expenditures

Commingling Keep principal’s property separate from own

Embezzlement If agent takes property with intent to deprive principal of it,

agent is guilty of the crime of embezzlement

Duties of Principals to Agents

Duty to Compensate Contingent Compensation Procuring Cause Duration of Employment Real Estate Commissions Insurance Commissions

Duty to Reimburse and Indemnify Duty to Keep Accounts

Enforcement of Liabilities between Principals and Agents

Breach of Duty by Agent Deduct damages from agent’s compensation Bring a lawsuit Pay no compensation Terminate agency

Breach of Duty by Principal Attach lien on principal’s property in agent’s possession Bring a lawsuit Terminate agency

LIABILITY TO THIRD PARTIES

CONTRACT LIABILITY

The Agent’s Authority to Bind the Principal on Contracts

Actual Authority Express Authority

Example: Power of Attorney Implied Authority

Test - Justifiable belief of the agent Apparent Authority

Test - Justifiable belief of a third party Apparent Agent Duty of Third Persons to Determine Agent’s

Authority

The Agent’s Authority to Bind the Principal on Contracts

Ratification Nature of Ratification

One may become liable through ratification for an unauthorized act that was done by an agent

Requirements for Ratification Agent must have acted on behalf of the principal Entire act must be ratified

Effect of Ratification Agent released from liability Principal is bound as if agent had been fully

authorized

Contract Liability of the Agent Introduction Unauthorized Actions

Agent is liable to third party

Nonexistent or Incompetent Principal Agent is liable to third party

Agreements by the Agent to Assume Liability Joint liability between principal and agent

Contract Liability of the Agent Disclosed Principal

Rights and Liabilities of Agent Rights and Liabilities of Principal

Undisclosed Principal Rights and Liabilities of Agent Rights and Liabilities of Principal

Partially Disclosed Principal Rights and Liabilities of Agent Rights and Liabilities of Principal

TORT LIABILITY

Employers may be vicariously liable for the actions of employees based on one of several theories:

1. negligent entrustment

2. failure to properly supervise

3. respondeat superior

Respondeat superior is a strict liability theory.

The primary defense is that the employee was not acting within “the scope of employment.”

An employee’s conduct is within the scope of his/her employment if it meets each of the following four tests:

1.  It was of the kind that the employee was employed to perform.

2.  It occurred substantially within the authorized time period. 

 

3.  It occurred substantially within the location authorized by the employer.

4.  It was motivated at least in part by the purpose of serving the employer.

See Rappaport v. International Playtex Corp., 352 N.Y.S. 2d

241

Exception to Respondeat Superior: Fellow-servant rule