Chapter 18 Management Of Employee Conduct: Agency MARIANNE M. JENNINGS B U S I N E S S Its Legal, Ethical & Global Environment 6th Ed. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 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 agents Agent • Party who acts for another Principal • The party for whom the agent acts 2 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Names and Roles: Agency Terminology Master/Servant Relationship 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 3 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Names and Roles: Agency Terminology Independent contractor Hired to perform a task but is not directly supervised • Example: Lawyer Agency Law Restatement of Agency • Common law followed by most courts 4 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Names and Roles: Agency Terminology Three Parts to Agency Law Creating the agency relationship Relationship between principal and agent Relationships of agent and principal to third parties 5 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Creation of the Agency Relationship Creating the Agency Relationship Created when the principal hires someone Express Authority Agency Created by principal stating or writing that agency exists and the authority thereof Requires oral or written agreement - must be in writing if required by statute of frauds • Example: Agency contract is longer than one year 6 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Creation of the Agency Relationship The Writing If the agent’s contracts must be in writing, the authority must be in writing Requirement of Capacity Principal must have capacity • Age and mental capacity 7 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Creation of the Agency Relationship Requirement of Capacity Unincorporated 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 8 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Creation of the Agency Relationship Implied Authority The extension of express authority by custom Apparent Authority Arises from the way agents present themselves to third parties Also 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 9 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Creation of the Agency Relationship 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? 10 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Creation of the Agency Relationship Agency by Ratification Principal 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 11 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 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? 12 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. The Principal-Agent Relationship 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? 13 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. The Principal-Agent Relationship Obedience Follows principal’s instructions Need not do anything illegal Duty of care Give time and effort Follow through Principal’s Duties and Rights Duty to pay -- Except gratuitous agency Duty to reimburse 14 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Liability of Principals for Agents’ Conduct The Relationship With Third Parties Contract 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 15 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Liability of Principals for Agents’ Conduct The Relationship With Third Parties Liability 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 16 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Liability of Principals for Agents’ Conduct Faverty v. McDonald’s Restaurant of Oregon, Inc. (1995) Case 18.4 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? 17 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Liability of Principals for Agents’ Conduct Principles are generally not liable for the torts of Independent Contractors. Exceptions: Inherently dangerous activities Negligent hiring of independent contractor Principal provided specifications for project or Job 18 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Termination of the Agency Relationship Ending an Agency Relationship Definite duration of time Agent quits/is fired Principal dies/is incapacitated Need to give public or constructive notice (trade publication) Also give actual notice (letters) Without notice, agent will have lingering apparent authority 19 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Termination of Agents Under Employment at Will Meaning of Employment at Will Has no definite ending date Usually there is no formal written contract Used to be they could be fired at any time • Courts now afford some protection 20 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Termination of Agents Under Employment at Will The 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 21 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Termination of Agents Under Employment at Will The 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 22 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Termination of Agents Under Employment at Will The Do’s and Don’ts of Firing Employees 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 23 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Termination of Agents Under Employment at Will The Do’s and Don’ts of Firing Employees 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 24 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Termination of Agents Under Employment at Will The Implied Contract In some states personnel manuals will be a contract if employees rely on its procedures 25 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Termination of Agents Under Employment 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? 26 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Termination of Agents Under Employment at Will The Public Policy Protection—Whistle- Blowers Whistle Blower Protection Act of 1978 False Claims Act Protection for Whistle-Blowers—The Anti- retaliation Statutes Passed in many states and by federal agencies • Prohibit firing, demotion, reprimands, and pay cuts of employees who report conduct of their employers 27 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Termination of Agents Under Employment at Will Protection for Whistle-Blowers—The Anti- retaliation Statutes Federal 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 28 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Termination of Agents Under Employment at Will 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? 29 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Agency Relationships in International Law Pitfalls of Complex Global Organizations Complex interrelationships often evade the law • Example: BCCI and its complex structure Disclosure of interrelationships becomes important for conflicts, compliance 30 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved.