PowerPoint Slides to Accompany
ESSENTIALS OF BUSINESS AND
ONLINE COMMERCE LAW
1st Edition
by Henry R. Cheeseman
Chapter 19
Agency and Employment
Slides developed by
Les Wiletzky
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved
Agency (1 of 2)

Agency relationships are formed by the
mutual consent of a principal and an agent

Agency is the fiduciary relationship “which
results from the manifestation of consent by
one person to another that the other shall act
in his behalf and subject to his control, and
consent by the other so to act.”
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19 - 2
Agency (2 of 2)

Agency Law – The large body of common
law that governs agency

A mixture of contract law and tort law

Principal – The party who employs another
person to act on his or her behalf

Agent – The party who agrees to act on
behalf of another
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19 - 3
Principal-Agent Relationship (1 of 2)
Principal
Principal’s
obligation to
perform the
contract
Agency
Contract
Agent
Contract with third
party on behalf of
principal
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Third Party
19 - 4
Principal-Agent Relationship (2 of 2)

An employer hires an employee and gives
that employee authority to act and enter into
contracts on his or her behalf

The extent of this authority is governed by
any express agreement between the parties
and implied from the circumstances of the
agency
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19 - 5
Express Agency

An agency that occurs when a principal and
an agent expressly agree to enter into an
agency agreement with each other



Exclusive agency contract
Power of attorney
Express agency contracts can be either oral
or written unless the Statute of Frauds
stipulates that they must be written
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19 - 6
Implied Agency



An agency that occurs when a principal and
an agent do not expressly create an agency
The agency is implied from the conduct of the
parties
The extent of the agent’s authority is
determined from the particular facts and
circumstances of the particular situation

Incidental authority
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19 - 7
Apparent Agency



Agency that arises when a principal creates
the appearance of an agency that in actuality
does not exist
When an apparent agency is established, the
principal is estopped from denying the agency
relationship
It is the principal’s actions (not the agent’s)
that create an apparent agency
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19 - 8
Agency by Ratification
An agency that occurs when:
1. A person misrepresents himself or herself as
another’s agent when in fact he or she is not,
and
2. The purported principal ratifies (accepts) the
unauthorized act
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19 - 9
Summary: Formation of Agency
Relationships (1 of 2)
Type of
Agency
Definition
Express
Authority is expressly given Principal and third party are
to the agent by the principal. bound to the contract.
Implied
Authority is implied from the Principal and third party acts
conduct of the parties,
are bound to the contract.
custom and usage of trade,
or act incidental to carrying
out the agent’s duties.
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Enforcement of the Contract
19 - 10
Summary: Formation of Agency
Relationships (2 of 2)
Type of
Agency
Definition
Apparent
Authority created when the Principal and third party are
principal leads a third party bound to the contract.
into believing that the agent
has authority.
By Ratification
Acts of the agent committed Principal and third party are not
outside the scope of his
bound to the contract unless
authority.
the principal ratifies the
contract.
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Enforcement of the Contract
19 - 11
Duty of Compensation

A duty that a principal owes to pay an agreedupon amount to the agent either upon
completion of the agency or at some other
mutually agreeable time

If there is no agreement as to the amount of
compensation, the law implies a promise that
the principal will pay the agent the customary
fee paid in the industry
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19 - 12
Duty of Performance (1 of 2)
An agent’s duty to a principal that includes:
1. Performing the lawful duties expressed in the
contract, and
2. Meeting the standards of reasonable care,
skill, and diligence implicit in all contracts
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19 - 13
Duty of Performance (2 of 2)

An agent who does not perform his or her
express duties or fails to use the standard
degree of care, skill, or diligence is liable to
the principal for breach of contract

An agent who has negligently (or
intentionally) failed to perform properly is also
liable in tort
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19 - 14
Duty of Accountability

A duty that an agent owes to maintain an
accurate accounting of all transactions
undertaken on the principal’s behalf

This duty also requires the agent to:


Maintain a separate account for the principal,
and
Use the principal’s property in an authorized
manner
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19 - 15
Termination of Agency by Acts of the
Parties
1.
2.
3.
4.
An agency may be terminated by the
following acts of the parties:
Mutual agreement
Lapse of time
Purpose achieved
Occurrence of a specified event
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19 - 16
Termination of Agency by Operation of
Law






An agency is terminated by operation of law,
including:
Death of the principal or agent
Insanity of the principal or agent
Bankruptcy of the principal
Impossibility of performance
Changed circumstances
War between the principal’s and agent’s
countries
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19 - 17
Wrongful Termination of an Agency or
Employment Contract

The termination of an agency contract in
violation of the terms of the agency contract

The nonbreaching party may recover
damages from the breaching party

The distinction between the power and the
right to terminate an agency is critical
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19 - 18
Agency: Contract Liability (1 of 2)

A principal who authorizes an agent to enter
into a contract with a third party is liable on
the contract

The third party can enforce the contract and
recover damages if the principal fails to
perform it
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19 - 19
Agency: Contract Liability (2 of 2)

The agent can also be held liable on the
contract in certain circumstances

Liability depends on whether the agency is
classified as:



Fully disclosed
Partially disclosed
Undisclosed
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19 - 20
Fully Disclosed Agency

An agency that results if the third party
entering into the contract knows:


That the agent is acting as an agent for a
principal, and
The actual identity of the principal

The principal is liable to the third party

The agent is not liable
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19 - 21
Partially Disclosed Agency

An agency that occurs if:



The agent discloses his or her agency status
but does not reveal the principal’s identity, and
The third party does not know the principal’s
identity from another source
Both the principal and the agent are liable to
the third party if the principal fails to perform
the contract
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19 - 22
Undisclosed Agency

An agency that occurs when the third party is
unaware of either:



The existence of an agency, or
The principal’s identity
Both the principal and the agent are liable to
the third party if the principal fails to perform
the contract
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19 - 23
Tort Liability to Third Parties



The principal and the agent are each
personally liable for their own tortious conduct
The principal is liable for the tortious conduct
of an agent who is acting within the scope of
his or her authority
The agent only is liable for the tortious
conduct of the principal if he or she directly or
indirectly participates in or aids and abets the
principal’s conduct
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19 - 24
Summary: Tort Liability of Principals and
Agents to Third Parties (1 of 2)
Agent’s Conduct
Agent
Liable
Principal Liable
Negligence
Yes
The principal is liable under the doctrine of
respondeat superior if the agent’s negligent act
was committed within his scope of employment.
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19 - 25
Summary: Tort Liability of Principals and
Agents to Third Parties (2 of 2)
Agent’s Conduct
Agent
Liable
Principal Liable
Intentional Tort
Yes
Motivation Test: The principal is liable if the
agent’s motivation in committing the intentional
tort was to promote the principal’s business.
Yes
Work-Related Test: The principal is liable if the
agent committed the intentional tort within
work-related time and space.
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19 - 26
Independent Contractor

Principals employ persons or businesses who
are not employees to perform certain tasks on
their behalf


These persons and businesses are called
independent contractors
The crucial factor in determining whether a
person is an employee or an independent
contractor is the degree of control that the
principal has over that person
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19 - 27
Liability for Independent Contractor’s
Contracts



A principal can authorize an independent
contractor to enter into contracts
Principals are bound by the authorized
contracts of their independent contractors
If an independent contractor enters into a
contract with a third party on behalf of the
principal without express or implied authority
from the principal to do so, the principal is not
liable on the contract
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19 - 28
Liability for Independent
Contractor’s Torts



A principal is generally not liable for the
tortious conduct of independent contractors it
hires
Independent contractors are personally liable
for their own torts
The rationale behind this rule is that principals
do not control the means by which the results
are accomplished
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19 - 29
Exceptions: Where a Principal is Liable for
the Torts of an Independent Contractor

There are several situations where the law
imposes liability on a principal for the tortious
conduct of an independent contractor he or
she has hired:


Inherently dangerous activities
Negligence in the selection of an independent
contractor
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19 - 30
The right of workers to form,
join, and assist labor unions is
a statutorily protected right in
the United States.
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19 - 31
Federal Labor Union Statutes


Norris-LaGuardia Act (1933)
National Labor Relations Act (NLRA) (1935)


Labor-Management Relations Act (1947)


Also known as the Taft-Hartley Act
Labor-Management Reporting and Disclosure
Act (1959)


Also known as the Wagner Act
Also known as the Landrum-Griffin Act
Railway Labor Act (1926 as amended 1934)
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19 - 32
National Labor Relations Board (NLRB)

Administrative agency created by the National
Labor Relations (Wagner) Act:




Oversees union elections
Prevents employers and unions from engaging
in illegal and unfair labor practices
Enforces and interprets certain federal labor
laws
NLRB decisions are enforceable in court
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19 - 33
Organizing a Union


Section 7 of the NLRA – gives employees the
right to join together to form a union
Appropriate Bargaining Unit – the group that
the union is seeking to represent:


Must be defined before the union can petition
for an election
Managers and professional employees may not
belong to unions formed by employees whom
they manage
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19 - 34
Union Elections (1 of 2)

30 percent of the employees in the bargaining
unit must indicate interest in joining or forming
a union

NLRB is petitioned, investigates and sets
election date:



Contested election
Consent election
Decertification election
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19 - 35
Union Elections (2 of 2)

If a simple majority of the employees of the
appropriate bargaining unit vote to join a
union,


the union is certified as the bargaining agent of
all the employees,
even those who did not vote for the union
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19 - 36
Illegal Interference with an Election


Section 8(a) of the NLRA – makes it an unfair
labor practice for an employer to interfere
with, coerce, or restrain employees from
exercising their statutory right to form and join
a union
Section 8(b) of the NLRA – prohibits unions
from engaging in unfair labor practices that
interfere with a union election
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19 - 37
Collective Bargaining

The act of negotiating contract terms between
an employer and the members of a union

Collective Bargaining Agreement – the
resulting contract from a collective bargaining
procedure

The employer and the union must bargain
with each other in good faith
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19 - 38
Subjects of Collective Bargaining
(1 of 2)

Compulsory Subjects




Wages
Hours
Other terms and conditions of employment
Illegal Subjects


Closed shops
Discrimination
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19 - 39
Subjects of Collective Bargaining
(2 of 2)

Permissive Subjects




Size and composition of the supervisory force
Location of plants
Corporate reorganizations
Any other subjects that are not compulsory or
illegal
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19 - 40
Strikes

The NLRA gives union management the right
to recommend that the union call a strike if a
collective bargaining agreement cannot be
reached

A majority vote of the union’s members must
agree to the action before there can be a
strike
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19 - 41
Picketing (1 of 2)

The actions of strikers walking in front of the
employer’s premises carrying signs
announcing their strike

The right to picket is implied from the NLRA

An employer may seek an injunction against
unlawful picketing
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19 - 42
Picketing (2 of 2)
Picketing is lawful unless it:
1. It is accompanied by violence
2. Obstructs customers from entering the employer’s
place of business
3. Prevents non-striking employees from entering the
employer’s premises
4. Prevents pickups and deliveries at the employer’s
place of business
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19 - 43
Secondary Boycott Picketing



A type of picketing where unions try to bring
pressure against an employer by picketing his
or her suppliers or customers
Such picketing is lawful only if it is product
picketing
It is illegal if it is directed against the neutral
employer instead of the struck employer’s
product
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19 - 44
Illegal Strikes

Several types of strikes have been held to be
illegal

They are not protected by federal labor law

Illegal strikers may be discharged by the
employer with no rights to reinstatement
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19 - 45
Illegal strikes are:

Violent Strikes

Wildcat Strikes

Sit-Down Strikes

Strikes during the 60day Cooling-Off Period

Partial or Intermittent
Strikes

Strikes in Violation of a
No-Strike Clause
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19 - 46
Crossover Worker


Individual members of a union do not have to
honor the strike
They may:
1. Choose not to strike, or
2. Return to work after joining the strikers for a
time
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19 - 47
Replacement Workers

Workers who are hired to take the place of
striking workers

They can be hired on either a temporary or
permanent basis

If replacement workers are given permanent
status, they do not have to be dismissed when
the strike is over
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19 - 48
Employer Lockout

An act of an employer to prevent employees
from entering the work premises when the
employer reasonably anticipates a strike
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19 - 49
Workers’ Compensation Acts (1 of 4)
Acts that compensate workers and
their families if workers are injured
in connection with their jobs.
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19 - 50
Workers’ Compensation Acts (2 of 4)

Depending on the state, employers are
required either:



To pay for workers’ compensation insurance, or
To self-insure by making payments into a
contingency fund
Workers’ compensation benefits vary by state
and are paid according to preset limits
established by statute or regulation
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19 - 51
Workers’ Compensation Acts (3 of 4)

Employment-Related Injury


To recover under workers’ compensation, the
worker’s injuries must have been employmentrelated
Many workers’ compensation acts include
stress as a compensable work-related injury
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19 - 52
Workers’ Compensation Acts (4 of 4)

Exclusive Remedy



Workers’ compensation is an exclusive remedy
Workers cannot sue their employers in court for
damages
An exception occurs when an employer
intentionally injures an employee
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19 - 53
Occupational Safety and Health Act
(1 of 3)




Enacted in 1970 to promote safety in the
workplace
Established the Occupational Safety and
Health Administration (OSHA)
Generally, all private employers are within the
scope of the act
Federal, state, and local governments are
exempt
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19 - 54
Occupational Safety and Health Act
(2 of 3)



The act imposes record keeping and
reporting requirements on employers
Employers are required to post notices in the
workplace informing employees of their rights
under this act
OSHA is empowered to administer the act
and adopt rules and regulations to interpret
and enforce it
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19 - 55
Occupational Safety and Health Act
(3 of 3)

OSHA is empowered to inspect places of
employment for health hazards and safety
violations

If a violation is found, OSHA can issue a
written citation

Requires the employer to abate or correct the
situation
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19 - 56
Types of OSHA Standards

Specific Duty Standard
Addresses a safety problem
of a specific duty nature


e.g., requirement for a
safety guard on a particular
type of equipment
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General Duty Standard
A duty that an employer has
to provide a work
environment “free from
recognized hazards that are
causing or are likely to
cause death or serious
physical harm to his
employees.”
19 - 57
Fair Labor Standards Act (FLSA) of 1938
(and subsequent amendments)

Federal act enacted to protect workers



Prohibits child labor
Establishes minimum wage requirements
Establishes overtime pay requirements
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19 - 58
FLSA: Child Labor

The FLSA forbids the use of oppressive child
labor

It is unlawful to ship goods produced by
businesses that use oppressive child labor

The Department of Labor defines the
standards for lawful child labor
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19 - 59
FLSA: Minimum Wage and Overtime Pay

Managerial, administrative, and professional
employees are exempt from the FLSA’s wage
and hour provisions

Employers are required to pay covered (nonexempt) workers at least the minimum wage
for their regular work hours

Overtime pay is also mandated
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19 - 60
Minimum Wage




Set by Congress and can be changed
Currently, it is set at $5.15 per hour
Employers are permitted to pay less than
minimum wage to students and apprentices
An employer may reduce minimum wages by
an amount equal to the reasonable cost of
food and lodging provided to employees
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19 - 61
Overtime Pay

An employer cannot require nonexempt
employees to work more than 40 hours per
week unless they are paid one-and-a half
times their regular pay for each hour worked
in excess of 40 hours

Each week is treated separately
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19 - 62
Family and Medical Act (1993)

A federal statute that guarantees covered
workers unpaid time off from work for:




Birth or adoption of a child
Serious health problems of the worker
Serious health problems of a spouse, child, or
parent
The act applies to companies with 50 or more
workers as well as federal, state, and local
governments
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19 - 63
Plant Closing Act



Worker Adjustment and Retraining
Notification (WARN) Act (1988)
Covers employers with 100 or more
employees
Requires employers to give their employees
60 days’ notice before engaging in certain
plant closings or layoffs
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19 - 64