Agency and the
Employment Relationship
Chapter 14
Definition of an
Agency Relationship
• Agency is created when a person or
company (agent) agrees to act for or in place
of another person or company (principal)
• 1. The principal creates authority in an agent
• 2. The agent receives authority & carries out
the principal’s instructions
• 3. Third parties make a contract or are
involved in a tort with the agent
• Result: The principal is bound by the agent’s
acts with a third party
Classification of Agents
• Universal agents : Do all acts that can be legally
delegated, i.e. General Power of Attorney
• General agents: Execute all transactions in connection
with a business, i.e. managers
• Special agents: Execute a specific transaction or series
of transactions, i.e. a real estate agent
• Agency coupled with an interest: Agent has paid for the
right to have authority for a business
• Gratuitous agent: No payment is made to the agent, i.e. a
favor or a volunteer
• Subagents: Agent delegates authority to other agents
Creating An Agency
• Agreement of the Parties
– May be oral or written
– The legal document
called a power of
attorney establishes
agency and creates an
attorney-in-fact
• Implied or Express
Ratification by the
Principal
– A principal accepts
responsibility for acts
of an agent going
beyond his/her
authority
• Agency by Estoppel
– Actions of the principal lead
others to believe an agency
exists – the principal is
estopped from denying the
agency’s existence
• Agency by Operation of Law
– The agent acts beyond the
principal’s authority
– Necessity or emergencies
create agency existence
– The agent may do the acts and
bind the principal by operation
of law
Agent’s Authority to Act for the Principal
• Actual Authority:
• Apparent Authority:
– Principal sends
– Principal sends signals to
signals to the agent to
the third party that what
do something with a
the agent does binds the
third party
principal
– Express Authority:
– There is the appearance of
Oral or written
authority that a third party
instructions create the
could reasonably
authority
conclude
– Implied Authority:
Principal’s conduct or
trade customs create
authority
Town Center Shopping Center, LLC v.
Premier Mortgage Funding
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Town Center (TC) owns shopping center in Kansas. TC leased space to
Empire Lending for 2-year term. (Lease #1)
Space could not be sublet without permission of TC.
Bayer, branch manager for Premier, leased the premises from Empire.
Lease could end on 5 days’ notice. (Lease #2) TC was unaware of Lease #2.
Bayer’s employment contract stated she couldn’t enter into a lease without
permission of company president. President of Premier approved Lease #2
and signed it.
Premier’s central office told Bayer the lease needed to be directly between
Premier and TC, not with Empire.
Bayer then signed a lease on behalf of Premier with TC (Lease #3), but did
not send it to the company president.
Sent signed Lease #3 to TC with a letter from Premier stating that Premier
has branch office in good standing in the TC property.
Lease #3 that Bayer signed was for 3-year term, not one that could be
cancelled on 5 days’ notice.
One year later, Premier gave TC five days’ notice of intent to vacate and left.
Town Center Shopping Center, LLC v.
Premier Mortgage Funding
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TC sued for breach.
District court held for TC; awarded $13,493 damages allowed under Lease #3.
Premier appealed, contending Bayer had no authority to sign the lease with TC
– that she only had authority for the first sublease (Lease #2) with Empire.
Both parties admit Bayer did not have actual authority to bind Premier to Lease
#3.
ISSUE: Whether acts and words of Premier induced Town Center to enter into
Lease #3?
ISSUE: Did Bayer have apparent authority that would bind Premier to Lease
#3?
HELD: Affirmed. Town Center wins.
Letter between Premier & TC seemed to give Bayer limitless authority to
conduct business on behalf of Premier as Premier’s agent.
Bayer’s title was “manager.” This word, not alone, but coupled with the
surrounding circumstances, provided a basis to induce TC to sign the lease.
Evidence indicates that Town Center believed Bayer had apparent authority to
act on behalf of Premier.
Principal’s Duties To Agent
• Cooperation – with the agent in
fulfilling the agency purpose
• Compensation – for services
rendered
• Reimbursement – of
”reasonable” expenses
• Safe Working Conditions – as
required by law and meet legal
obligations
• Indemnify (pay back) – for legal
liabilities incurred by the agent
Fiduciary Duties of Agents
(Fiduciary is a position of trust & honesty)
• Loyalty – to place the principal’s interest above the
agent’s interests. Can’t compete with principle without
permission.
• Obedience and Performance – to perform in compliance
with the principal’s instructions.
• Reasonable Care & Skill – to perform as is ”reasonable
under the circumstances” (including emergencies).
• Account – for the funds and property of the principal
(avoid mixing personal funds with the principal’s)
• Notify – as to all facts related to the agency purpose.
Bearden v. Wardley Corporation
• Bearden listed property for sale with real estate agent,
Gritton, who worked for Wardley (real estate firm). After
listing property Gritton told Bearden he wanted to buy the
property for $89,000. Bearden agreed.
• Contract called for Gritton to pay Bearden $400/mo.,
followed by balloon payment after five years. Bearden
would keep title until balloon payment was made.
• Unknown to Bearden, Gritton gave her warranty deed and
other documents to sign. She signed; he had signature
improperly notarized; recorded the deed and title was
transferred to Gritton.
• Gritton doesn’t make payments; Bearden hires a lawyer;
lawyer discovers Gritton’s fraud and that Gritton borrowed
money against the property; it was in foreclosure for lack
of payments to lender.
• Bearden paid $60,000 to keep property from being lost.
Sued Wardley for breach, fraud, & breach of fiduciary duty.
Bearden v. Wardley Corporation
• Jury awarded $75,000 damages +$25,000 punitive
damages + $50,000 attorney fees, costs, etc. against
Gritton & Wardley. Wardley was stuck with most of the
judgment and appealed.
• HELD: Affirmed. Listing contract was with Wardley, with
“fiduciary duties to seller” clause in it.
• Wardley’s internal policy prohibited agents to purchase
properties they listed.
• Gritton was employed by Wardley; it knew of listing
agreement; knew Gritton had purchased the property;
never questioned Gritton about violating internal policy
about purchase of listed property; never asked Gritton to
stop representing Bearden; and never informed Bearden
of Gritton’s internal policy violations.
• Wardley breached duty of care to Bearden and is liable.
Liability for Contracts if Principals
are Disclosed or Partially
Disclosed
• 1. A disclosed or partially disclosed principal is
liable to a third party for the contract of the agent if
the agent has actual authority.
• 2. If there is apparent authority, the principal is
contractually liable to a third party. However, the
principal may sue the agent for losses if agent has
breached a duty.
• 3. An agent is liable to a third party if there is an
undisclosed principal. Agent may be indemnified by
principal if agent acted within scope of his authority.
Yim v. J’s Fashion
Accessories, Inc.
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Benjamin Yim did business under trade name Ho Tae.
Ordered goods from J’s Fashion. Invoices were sent to Ho Tae.
Account not paid. J’s Fashion sued Yim.
He denied liability, saying he acted as an agent for a corporationprincipal, Hosung Enterprise, Inc.
Hosung did business under name Ho Tae.
Fashion said that at no time did Yim disclose existence of
corporation entity with whom they were dealing.
Fashion thought they were always dealing with Yim with trade name
Ho Tae.
Trial court entered summary judgment against Yim.
He appealed, saying he was only an agent for Hosung Enterprises.
Yim v. J’s Fashion
Accessories
• HELD: Affirmed.
• Agent who makes a contract without giving identity
of principal becomes personally liable.
• There is a duty to disclose the principal’s identity
• Agent must be specific in disclosure.
• Use of a trade name is not necessarily a disclosure
of principal’s identity.
• At no point did Yim indicate he was acting other than
an individual doing business as Ho Tae.
Termination of Agency
• Termination by operation of
• Either party may
law
terminate (unilateral
– Principal or agent dies
termination)
– Agent says, “I quit!”
– Principal says,
“You’re fired!”
• Notice of
termination must be
made to 3rd parties
to end an agent’s
apparent authority
– Subject matter of agreement
is lost or destroyed
– Economic conditions render
the subject matter
unreasonable to work on
– Bankruptcy of either the
principal or the agent will
terminate the agency if it
makes the agent unable to
perform necessary duties
Essential Employment Relationship
• Principal-Agent
– Agent acts on behalf of the principal
– Agent has a degree of personal discretion
– Principal is usually liable
• Master-Servant or Employer-Employee
– Master-servant is old term still often used
– Now the term employer-employee is used more
– Servant’s conduct is controlled by employer
– The servant can also be an agent (distinction may blur)
– Employer is usually liable
• Employer-Independent Contractor (I/C)
– Not an employment relationship
– Employer has no control over the details of the I/C’s performance
– The contractor is usually not an agent
– However, sometimes they can be agents (attorneys, auctioneers)
– Usually employer is not liable for the I/C’s torts
France v. Southern Equipment Co.
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Hensley did business under trade name Royalty Builders.
Hired 16-year-old Robert France to do roofing work.
Southern Equipment needed a new metal roof on a building.
Accepted bid form Quality Metal Roof.
Quality hired Royalty to work and supply materials.
While working on roof, France fell and suffered head injuries.
He sued Southern (and others) for exposing him to an inherently
dangerous job of roofing.
Court granted summary judgment for Southern.
France appealed.
Affirmed.
Royalty Builders was an independent contractor.
Southern had no control over the work done by Royalty Builders.
Southern Equipment could not be held vicariously liable as
Royalty Builder’s (thereby France’s) employer.
Employment-At-Will
• Free Market Concept
• Employers: Can hire & fire who you want
• Employees: May work-at-will or quit when they want
– Employees may sue for wrongful discharge under
employment contract, BUT
– Must establish contract had limits to employer’s rights
to discharge
• Can be contractual limits to at-will
• Exceptions:
– Refusing to violate laws
– Important public duty (jury duty)
– Public right (filing for workers’ compensation)
– “Whistle Blowing”
– Breach of employment contract through express
contract; implied contract; or implied covenant of
good faith and fair dealing
Guz v. Bechtel National, Inc.
• Guz worked for Bechtel (BNI) 1971-1993 with a good
employment record under policy of employment at will.
Termination would be for unsatisfactory performance or
due to a layoff. Budget for Guz’s division was cut and he
and other employees were terminated. The company was
doing well financially.
• Guz’s duties were transferred to other employees. He
applied for other positions at BNI but was rejected. He
then filed suit, alleged breach of implied contract to be
terminated only for good cause and breach of implied
covenant of good faith & fair dealing.
• Trial court dismissed the suit, saying he was an at-will
employee. Guz appealed.
Guz v. Bechtel National, Inc.
• Appeals court reversed, holding that his longevity,
raises, etc. warranted a retrial. BNI appealed.
• HELD: Reversed in favor of BNI by California Supreme
Court.
• Employment relationship is contractual and parties
may define for themselves causes for termination.
• Here, there is no evidence that BNI had additional
terms to employment security and BNI had the right to
reorganize and terminate employees as they wished.
• Successful service, in and of itself, does not create a
contractual guarantee for employment security.
Employment Handbooks and
Manuals
• Explain company policies, benefits and
procedures
• Discuss grounds for discipline and
dismissal
• May limit rights of employers to dismiss
employees under Employment-At-Will
Doctrine
• May be interpreted as creating express
or implied contract between employer
and employee
– Some (smart) employers place bold
disclaimer in front of handbook saying
handbook can be changed any time –
have employees sign
Social Media
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Companies adjusting to new technologies/innovations
Improper actions can bring lawsuits or bad image
Section 230 of Communications Decency Act (CKA) provides immunity for
content posted/submitted by 3rd parties, if company is merely a publisher
This will not help content posted by company employees
– Even if employee is not tweeting/posting in official capacity
– Employee still within “scope of employment”
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Reasonable person could expect that tweeter was authorized by the company
To minimize liability, companies restrict social media
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Limit who can post official social media
Limit want can be posted
Have means for addressing infringement & other claims
Companies may restrict links to outside sites (i.e. You Tube)
Editing offensive content is important
Problems with sending e-mails that could create sexual harassment
Companies may want to restrict employees’ non-work blogs
Under employment-at-will firms can impose restrictions. Fire rule breakers.
Principal’s Liability
For Torts
• Liability of Principal
– If principal directs the agent to do tort, the principal is liable
– Principal may gives actual authority/instructs to do a certain act
– Principal ratifies agents conduct
• Vicarious Liability: Liability for unauthorized acts of the agent
– Was the agent acting “within the scope of his/her employment”?
– Courts use doctrine of respondeat superior
– Rare for an employer to be liable for acts committed by an
independent contractor
• Commuting? Usually not liable for normal commutes
• Deviations Rule: When the agent departs from his employment to the
point that he is no longer within the scope of his employment, principal
is no longer liable. Jurisdictions differ on the deviations rule.
Negligent Hiring or Supervision
Principal’s Liability
• Negligent Hiring: Intentional torts committed
by an employment who is not acting in the
scope of employment
• Obligations to check background of an
employee
– Since no longer that costly, duty arises by
employee to do background checks
• Obligation to check independent contractor
for doubtful history. i.e.
– Child molester: should not be in contact with
children
– Bad driving record: should not be permitted to
drive a company truck
Armstrong v. Food Lion
• Ronnie Armstrong went to Food Lion store in
Winnsboro, SC with his mother, Tillie, to buy groceries.
• Men in Food Lion uniforms approached Ronnie.
• One, Brown, had been in a fight with Ronnie 2 years
before.
• He attacked Ronnie with a box cutter.
• Another employee, Cameron, also attacked Ronnie.
• When Tillie came to help Ronnie, Cameron punched her
and knocked her down.
• Another shopper, Loner, helped Tillie and called for
assistance.
• Armstrong sued Food Lion for numerous torts.
Armstrong v. Food Lion
• Trial held for Food Lion.
• Appeals court affirmed.
• Armstrong appealed to S.C. Supreme Court.
• Held: Affirmed. Respondeat superior does not apply
in this instance.
• Acts of the employees were for an independent
purpose than service to their employer at the store.
• Brown and Cameron were not furthering Food Lion’s
business in any manner when they attacked the
Armstrong.
Agent’s Liability
• Crimes: Agents liable for own crimes; principals are
NOT liable for their agents’ crimes
– Principal may be liable for conspiracy
• Unauthorized Deviations: Agents are liable
• Torts/Contracts: Agent must indemnify the principal for
wrongful acts resulting in injury to the principal
– Q: Did the agent breach a duty?
– A: If yes, then the agent will be liable
• Employers often try to define the independent
contractor relationship
– Sometimes a ploy to avoid state and federal taxes,
social security, workman’s compensation, etc.