what is the difference between an employee and an independent contractor? what is the difference...

• What is the difference between an What is the difference between an employee and an independent employee and an independent contractor?contractor?• How do agency relationships arise?How do agency relationships arise?• What duties do agents and principals What duties do agents and principals

owe to each other? owe to each other?

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2

• When is a principal liable for the When is a principal liable for the agent’s actions with respect to third agent’s actions with respect to third parties? When is the agent liable?parties? When is the agent liable?• What are some of the ways in which What are some of the ways in which

an agency relationship can be an agency relationship can be terminated?terminated?


• Agency = Principal and Agent.Agency = Principal and Agent.• Agency is the most common and Agency is the most common and

most important legal relationship.most important legal relationship.• Understanding agency is crucial to Understanding agency is crucial to

understanding the legal environment understanding the legal environment of business.of business.


• Principals use agents to be able to Principals use agents to be able to conduct multiple business operations conduct multiple business operations simultaneously in various locations. simultaneously in various locations. • The principal has the right to control The principal has the right to control

the agent in matters entrusted to the the agent in matters entrusted to the agent.agent.


• Agency is a “fiduciary” relationship Agency is a “fiduciary” relationship

based on trust and confidence.based on trust and confidence. • Employer-EmployeeEmployer-Employee Relationships. Relationships. • Employer -Independent Contractor Employer -Independent Contractor

Relationships.Relationships.–Employers have ‘no control’ over the

details of their work performance.


YesYesNoNoIs there a great degree of skill required?Is there a great degree of skill required?

YesYesNoNoIs the worker paid at the end of the job?Is the worker paid at the end of the job?

NoNoYesYesHas the worker been employed a long time?Has the worker been employed a long time?

NoNoYesYesDoes Employer provide the tools?Does Employer provide the tools?

NoNoYesYesIs the work usually done under Employer’s supervision?Is the work usually done under Employer’s supervision?

YesYesNoNoIs the worker engaged in an occupation or business distinct from Is the worker engaged in an occupation or business distinct from Employer?Employer?

NoNoYesYesDoes the Employer exercise a great degree of control over the Does the Employer exercise a great degree of control over the details of the work?details of the work?

I.C. E’eeE’eeA “Yes” Tends to Show Employee Status


• CASE 28. 1 CASE 28. 1 Lopez v. El Palmar Taxi, Inc. Lopez v. El Palmar Taxi, Inc. (2009). (2009). What were the various factors What were the various factors in the court’s decision?in the court’s decision?

• Criteria Used by the IRS.Criteria Used by the IRS.• Employee Status and “Works for Hire”: Employee Status and “Works for Hire”:

any copyrighted work created during scope any copyrighted work created during scope of employment is owned by employer.of employment is owned by employer.


• Generally, agency relationships :Generally, agency relationships :–Are consensual.–Require no consideration.–Require principal to have contractual

capacity (agent does not).–Can be created for any legal purpose.


• Agency by Agreement. Agency by Agreement. • Agency by Ratification. Agency by Ratification. • Agency by Estoppel. Agency by Estoppel. • Agency by Operation of Law. Agency by Operation of Law. –Necessaries for family.–Emergency.


• Agency by AgreementAgency by Agreement..–Formed through express consent (oral

or written) or implied by conduct.–CASE 28.2 Laurel Creek Health Care Laurel Creek Health Care

Center v. Bishop Center v. Bishop (2010). When was agency created between Bishop and his wife?


• Agency by RatificationAgency by Ratification..–Principal either by act or by agreement

ratifies conduct of a person who is not in fact an agent.


• Agency by EstoppelAgency by Estoppel..–Principal causes a third person to

believe that another person is the Principal’s Agent, and the third person acts to her detriment in reasonable reliance on that belief.


• Agency by Operation of Law.Agency by Operation of Law.–Based on social duty is formed in

certain situations when the Agent is unable to contact the Principal.–Necessaries.–Emergencies.


• Agent’s Duties to the Principal:Agent’s Duties to the Principal:–Performance: implied condition to use

reasonable diligence and skill. If agent fails, possible breach of contract. Gratuitous Agent: only liable for torts.–Notification: to principal of all matters

concerning subject matter of agency.


• Agent’s Duties to Principal Agent’s Duties to Principal (cont’d):(cont’d):–Loyalty: fundamental duty as fiduciary

(no conflict of interest). –Obedience. –Accounting.


• Principal’s Duties to the AgentPrincipal’s Duties to the Agent..–Compensation (Express or Implied).–Reimbursement and Indemnification.–Cooperation.–Safe Working Conditions.


• Principal is liable for acts entered Principal is liable for acts entered into by Agent when she gives Agent into by Agent when she gives Agent either actual or apparent authority:either actual or apparent authority:–Actual Authority: express or implied.–Apparent Authority: estoppel,

emergency and ratification.• CASE


• Actual Authority (Express):Actual Authority (Express):–Can be oral or written.–Equal Dignity Rule: if law requires written

contract, agent’s authority must be in writing, or contract voidable. • Exceptions:–Executive Officer acting for Corporation.–Agent acts in Principal’s presence.


• Actual Authority (Express) Actual Authority (Express) (cont’d): (cont’d):–Power of Attorney (POA) gives agent

express authority.• POA is a written document and usually

notarized.• Special POA: specified acts only.• General POA: all business for principal.• Terminates on principal’s death or

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• Actual Authority (Implied).Actual Authority (Implied).–Agent has implied power to do what is

reasonably necessary to carry out express authority. • Inferred or conferred by custom, or

agent’s position• Test is whether agent reasonably

believed she had authority to do the act.


• Apparent Authority.Apparent Authority.–Arises based on what principal causes

a THIRD party (not agent) to believe. –Agent has apparent authority when

principal, by either word or act, causes 3rd party to reasonably believe that Agent has authority to act for Principal.


• Apparent AuthorityApparent Authority (cont’d). (cont’d).–Apparent authority usually comes into

existence through a principal’s pattern of conduct over a period of time.–CASE 28.3 Azur v. Chase Bank, USA Azur v. Chase Bank, USA

(2010). What were Azur’s ‘negligent omissions’?


• Apparent AuthorityApparent Authority (cont’d). (cont’d).–If 3rd party changes legal position by

relying on principal’s representations, principal is estopped (prevented) from denying agent had authority to contract.


• Ratification.Ratification.–Occurs when principal accepts

responsibility for an agent’s unauthorized act (express or implied).–Requirements:

1. Agent must act on behalf of 1. Agent must act on behalf of Principal.Principal.

2. Principal must affirm entire deal. 2. Principal must affirm entire deal.


• RatificationRatification (cont’d). (cont’d).–Requirements (cont’d).

3. Principal must affirm before 3rd party withdraws from transaction.

4. Principal and 3rd party must have legal capacity to contract when Agent made the deal.

5. Principals must know all the material facts involved in the transaction.


• Liability for Contracts.Liability for Contracts.–Principals are classified as:• Disclosed: identity known to 3rd party.• Partially Disclosed: 3rd party knows he is

dealing with an agent, but doesn’t know principal’s identity. • Undisclosed: 3rd party doesn’t know he is

dealing with an agent, and the principal’s identity is totally unknown.


• Liability for ContractsLiability for Contracts (cont’d). (cont’d).–Authorized Acts.• Disclosed or Partially Disclosed Principal:

liable to 3rd party if agent acts within scope of authority.–Agent has no liability to 3rd party for disclosed

principal’s non-performance. Although agent may be liable if principal is partially disclosed.


• Liability for ContractsLiability for Contracts (cont’d). (cont’d).–Authorized Acts.• Undisclosed Principal: no liability unless:–Principal expressly excluded.–Contract is a negotiable instrument.–Agent’s performance is personal.–3rd party would have contracted if he

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• Liability for ContractsLiability for Contracts (cont’d). (cont’d).–Unauthorized Acts.• Unauthorized acts are outside the agent’s

express, implied, or apparent authority.• If agent has no authority, principal is not

liable, but agent is personally liable.


• Liability for ContractsLiability for Contracts (cont’d). (cont’d).–Liability for E-Agents.• An “e-agent” is a semi-autonomous

computer program capable of executing specific tasks on behalf of a principal.• E-commerce uses e-agents to create

contracts every day.


• Liability for Torts and Crimes.Liability for Torts and Crimes.–Agent is liable to 3rd party for his own

torts. –Principal may be liable for agent’s torts

if they result from:• Principal’s Tortious Conduct.• Principal’s Authorization of Agent’s

Tortious Conduct.


• Liability for Torts and CrimesLiability for Torts and Crimes (cont’d). (cont’d).–Principal may be liable for agent’s torts if

they result from (cont’d):• Liability for Agent’s Misrepresentation.–Apparent Implied Authority.– Innocent Misrepresentation.

• Liability for Agent’s Negligence.


• Liability for Torts and CrimesLiability for Torts and Crimes (cont’d). (cont’d).• Liability for Agent’s Negligence.–Respondeat Superior: employer is

vicariously liable for employee’s negligent torts committed within the agent’s “course and scope of employment.”»Determining the Scope of Employment.


Employer NOT Liable

NoNoDid the act involved a serious crime?

NoYesDid Employer have reason to know Employee would do the act?

NoYesDid Employer furnish instrumentality (tools)?

NoYesDid act advance Employer’s interests?

??The Time place and purpose of act (factually based)

NoYesWas Employee’s act authorized by Employer?

Employer LiableFactors (p. 612-613)Factors (p. 612-613)

NoYesWas act commonly performed by Employees?


• Liability for Torts and CrimesLiability for Torts and Crimes (cont’d). (cont’d).• Liability for Agent’s Negligence.–Distinction Between a “Detour” and a

“Frolic”: if detour, principal is liable; if frolic, principal is not liable.

–Employee Travel Time: to or from meals is outside scope of employment.

–Notice of Dangerous Conditions.


• Liability for Torts and CrimesLiability for Torts and Crimes (cont’d). (cont’d).• Liability for Agent’s Intentional Torts.–Principal is liable for intentional torts

committed within the scope of employment.–Employer is also liable for employee’s acts

which employer knew or should have known the employee had a propensity to commit.


• Liability for Torts and CrimesLiability for Torts and Crimes (cont’d). (cont’d).• Liability for Independent Contractor’s

Torts. General Rule: Employer is not liable for acts of independent contractors because employer has no right to control. –Must determine whether worker is employee or

independent contractor.–Exceptions: Strict liability for unusually hazardous

activities, transportation of highly volatile chemicals, or use of poisonous gases.


• Liability for Torts and CrimesLiability for Torts and Crimes (cont’d). (cont’d).• Liability for Agent’s Crimes. –Agent is liable for her own crimes. –Principal is not liable, even if the crime was

committed within the scope of employment, unless:»Principal participated in the crime.» In some states, principals may be liable for

agent violation of regulations.


Worker Outside CSE-P Not Liable

Within CSE -P Liable

“Scope of Employment” p. 612-613


• Agency can be terminated by:Agency can be terminated by:–An Act of the Parties; –By Operation of Law.

• Once agency terminated Agent has Once agency terminated Agent has no actual authority to bind the no actual authority to bind the Principal, but may have apparent Principal, but may have apparent authority to bind Principal.authority to bind Principal.


• Termination by Act of the Parties.Termination by Act of the Parties.–Lapse of Time.–Purpose Achieved.–Occurrence of a Specific Event.–Mutual Agreement.–Termination by One Party.–Notice of Termination.


• Termination by Operation of Law.Termination by Operation of Law.–Death or Insanity of either Principal or

Agent: automatic.–Impossibility (subject matter lost or

destroyed).–Changed Circumstances.–Bankruptcy.–War.


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