Chapter 18 Management Of Employee Conduct: Agency

Its Legal, Ethical &Global Environment 6th Ed.

Its Legal, Ethical &Global Environment 6th Ed.

B U S I N E S SB U S I N E S S

MARIANNE M. JENNINGS

Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved.

Chapter 18Management Of Employee

Conduct: Agency

Chapter 18Management Of Employee

Conduct: Agency

2 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved.

Names and Roles: Agency Terminology Names and Roles:

Agency Terminology Nature of Agency

Agency relationship is one in which one party agrees to act on behalf of another.• Examples: sales clerks, real estate agents,

sports agentsAgent

• Party who acts for anotherPrincipal

• The party for whom the agent acts


Master/ServantRelationship in which the master/principal

exercises a great deal of control over the servant/ agent. Most common form is employer/employee relationship

Factors that control whether this type of relationship exists

• Level of supervision• Level of control• Regularity of hours and pay• Length of employment


Agency Terminology


Independent contractorHired to perform a task but is not directly

supervised• Example: Lawyer

Agency LawRestatement of Agency

• Common law followed by most courts


Agency Terminology


Three Parts to Agency LawCreating the agency relationshipRelationship between principal and agentRelationships of agent and principal to

third parties


Agency Terminology


Creation of the Agency Relationship


Creating the Agency Relationship Created when the principal hires someone

Express Authority AgencyCreated by principal stating or writing that

agency exists and the authority thereofRequires oral or written agreement - must be in

writing if required by statute of frauds• Example: Agency contract is longer than one year


The WritingIf the agent’s contracts must be in

writing, the authority must be in writing

Requirement of CapacityPrincipal must have capacity

• Age and mental capacity




Requirement of CapacityUnincorporated associations do not have

capacity• Have no legal existence• Members will be liable since there is no principal

When the capacity of agent becomes an issue • Not an issue when it concerns authority to enter

contracts• Is an issue when it concerns potential liability to

third parties




Implied AuthorityThe extension of express authority by custom

Apparent AuthorityArises from the way agents present themselves

to third partiesAlso called agency by estoppel or ostensible

authority• Examples: Failure to notify of an agent’s

retirement, allowing bank to use your name for another’s loan




Case 18.1 Streetman v. Benchmark Bank (1995) What did the Streetmans say that Watts

promised them?Would Watts have the authority to make

that promise?




Agency by RatificationPrincipal reviews contract and decides to honor it

even though agent had no authority to enter into it.Fiduciary Relationship

Agent acts in the principal’s best interests• Loyalty, trust, care, obedience

Loyalty• Agent can’t represent both sides• Can’t make a profit at principal’s expense




The Principal-Agent Relationship


Case 18.2 Silva v. Bisbee (1981)What did agent Bisbee fail to disclose?Was agent Bisbee representing both sides

in a transaction?Why is Midkiff also liable?


Case 18.3 Coady v. Harpo, Inc. (1999)What did Ms. Coady agree to at the time

of employment?Is there a difference between a

confidentiality agreement and covenant not to compete?

Was the Oprah covenant enforceable?




ObedienceFollows principal’s instructions Need not do anything illegal

Duty of careGive time and effortFollow through

Principal’s Duties and RightsDuty to pay -- Except gratuitous agencyDuty to reimburse




Liability of Principals for Agents’ Conduct


The Relationship With Third PartiesContract liability and issues of disclosure

• Principal has full liability for authorized acts of agent and those done with apparent authority

• Disclosed principal—principal is fully liable; agent is not unless the agent had no authority

• Partially disclosed principal—agent indicates there is a principal but does not tell who it is; third party can hold either liable

• Undisclosed principal—agent does not disclose there is a principal; agent stands alone unless principal comes forward


The Relationship With Third PartiesLiability of principals for torts

• Must have master-servant relationship, not independent contractor

• Liable for torts of servants in scope of employment

• Scope = doing master’s work

• Doctrine of respondeat superior-let the master answer

• Not liable for torts committed while on frolic




Case 18.4 Faverty v. McDonald’s Restaurant of Oregon, Inc. (1995)Why would a restaurant association have an

interest in the outcome of the case?

Case 18.5 Lange v. National Biscuit Co. (1973)What test does the court give for determining

scope of employment?




Principles are generally not liable for the torts of Independent Contractors.

Exceptions:Inherently dangerous activitiesNegligent hiring of independent contractorPrincipal provided specifications for project or

Job

Principles are generally not liable for the torts of Independent Contractors.

Exceptions:Inherently dangerous activitiesNegligent hiring of independent contractorPrincipal provided specifications for project or

Job




Termination of theAgency RelationshipTermination of the

Agency RelationshipEnding an Agency Relationship

Definite duration of timeAgent quits/is firedPrincipal dies/is incapacitatedNeed to give public or constructive notice

(trade publication)Also give actual notice (letters)Without notice, agent will have lingering

apparent authority


Termination of Agents Under Employment at Will

Termination of Agents Under Employment at WillMeaning of Employment at Will

Has no definite ending dateUsually there is no formal written

contractUsed to be they could be fired at any

time• Courts now afford some protection



Termination of Agents Under Employment at WillThe Do’s and Don’ts of Firing Employees

Do• Conduct regular reviews of employees, using

objective, uniform measures of performance.

Don't• Make oral promises of job security to employees

who might later be laid off.

• Danger: Breach of contract suit


Termination of Agents Under Employment at

Will


WillThe Do’s and Don’ts of Firing Employees

Do• Give clear, business-related reasons for any

dismissal, backed by written documentation when possible

Don't• Put pressure on an employee to resign in order to

avoid getting fired

• Danger: Coercion suit




Do• Seek legal waivers from older workers who agree to

leave under an early-retirement plan, and make sure they understand the waiver terms in advance

Don't• Make derogatory remarks about any dismissed

worker, even if asked for a reference by a prospective employer

• Danger: Defamation suit




Do• Follow any written company guidelines for

termination, or be prepared to show in court why they're not binding in any particular instance

Don't• Offer a fired employee a face-saving reason for the

dismissal that's unrelated to poor performance

• Danger: Wrongful discharge suit



Termination of Agents Under Employment at WillThe Implied Contract

In some states personnel manuals will be a contract if employees rely on its procedures



Termination of Agents Under Employment at WillCase 18.6 Guz v. Bechtel (2000)

Is Guz correct that implied contract rights override legitimate business reasons?

What does Guz say is the relationship between good performance and the employer’s right to terminate employees at will?

Case 18.6 Guz v. Bechtel (2000) Is Guz correct that implied contract

rights override legitimate business reasons?

What does Guz say is the relationship between good performance and the employer’s right to terminate employees at will?



Termination of Agents Under Employment at WillThe Public Policy Protection—Whistle-

BlowersWhistle Blower Protection Act of 1978False Claims Act

Protection for Whistle-Blowers—The Anti-retaliation StatutesPassed in many states and by federal agencies

• Prohibit firing, demotion, reprimands, and pay cuts of

employees who report conduct of their employers



Will


WillProtection for Whistle-Blowers—The Anti-

retaliation StatutesFederal level—Energy Reorganization Act

affords protection for employees involved in nuclear work

Whistle-Blowing for Both Employers and Employees

Many companies have created a peer review process for termination and other actions against employees



Termination of Agents Under Employment at WillCase 18.7 Gardner v. Loomis

Armored, Inc. (1996)Does this case create an affirmative legal

duty for helping those in danger?Can an employee in Washington be fired

for assisting a citizen who is a crime victim?

Case 18.7 Gardner v. Loomis Armored, Inc. (1996)Does this case create an affirmative legal

duty for helping those in danger?Can an employee in Washington be fired

for assisting a citizen who is a crime victim?


Agency Relationships in International Law

Agency Relationships in International Law

Pitfalls of Complex Global OrganizationsComplex interrelationships often evade

the law • Example: BCCI and its complex structure

Disclosure of interrelationships becomes important for conflicts, compliance

Documents

Chapter 18 Management Of Employee Conduct: Agency