CHAPTER 19 – AGENCY
Copyright © 2011 by Jeffrey Pittman
TYPES OF EMPLOYMENT RELATIONSHIPS
Employers hire individuals (or other firms) to
allow the employer to accomplish its mission
 The primary hiring relationships utilized by an
employer include

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Principal/agent
 Employer/employee
 Employer/independent contractor

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TYPES OF EMPLOYMENT
RELATIONSHIPS

An individual may fit into more than one hiring
category
For example, an employer could hire one individual
as an agent, an employee, and an independent
contractor
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
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AN AGENT

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Agent – A person authorized by another (the
principal) to represent and act for the principal;
one authorized to transact business for a
principal
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AN EMPLOYEE
Employee – A person in the service of an
employer, where the employer has the power to
control and direct the employee in the details of
how the work is to be done
 An employee does not represent an employer

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AN INDEPENDENT CONTRACTOR
Independent Contractor – A person who contracts
to do a piece of work according to the
independent contractor’s own methods, subject to
the employer’s control only as to the end product
or final result of the work
 An independent contractor does not represent an
employer

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AGENCY FORMATION

The principal/agent relationship can be formed
by:
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Agreement (contract)
 Ratification (silence by principal after learning all
material facts)
 Estoppel (principal leads third person to believe
another person is the principal’s agent)
 Operation of Law

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EMPLOYEE & INDEPENDENT CONTRACTOR
FORMATION


Agreement (contract)
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Generally, the employer/employee and the
employer/independent contractor relationships is
formed by
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EMPLOYER LIABILITY FOR CONTRACTS
The employer is liable for contracts entered into
by agents, if the agents have actual or apparent
authority, or if the employer ratifies the contract
 Actual authority includes express authority
(exact wording when agent hired) and implied
authority (inferred from express authority)

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EMPLOYER LIABILITY FOR CONTRACTS

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Apparent authority is present where actual
authority is lacking, but the principal has misled
third parties into believing that actual authority
exists
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EMPLOYER LIABILITY FOR CONTRACTS

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The employer is not liable for contracts entered
into by employees or independent contractors,
unless the employer ratifies the contracts
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DUTIES OF AGENTS TO PRINCIPALS






Performance of duties in the contract
Loyalty
Obedience
Accounting
Notification
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An agent is a fiduciary for the principal and is
obligated under the following duties to the
principal
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DUTIES OF PRINCIPALS TO AGENTS

The principal is obligated under the following
contractual duties to the agent
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Duty of compensation
 Duty of reimbursement and indemnification
 Duty of cooperation
 Duty to provide safe working conditions

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EMPLOYER LIABILITY FOR TORTS
Under the doctrine of respondeat superior, an
employer is liable for the torts of agents or
employees where the torts are committed within
the scope of employment
 An employer is generally not liable for the torts
of independent contractors

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“SCOPE OF THE JOB”

How much potential control did the employer have
over the situation, and
 How closely connected was the tort to the job duties?

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A simplified approach to determining if an agent
or employee has committed a tort within the
scope of the job is to ask:
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CRITERIA FOR DETERMINING WHETHER SOMEONE IS
AN INDEPENDENT CONTRACTOR

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The most important criterion for determining an
independent contractor versus an employee is the
extent of employer control over details of the
work – the more control, the more likely the
individual is an employee
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CRITERIA FOR DETERMINING WHETHER SOMEONE IS
AN INDEPENDENT CONTRACTOR

Other determining factors include:
Type of job (some jobs are usually done by either an
employee or an independent contractor)
 Who supplies equipment or tools (employers usually
furnish tools for employees but not independent
contractors)

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CRITERIA FOR DETERMINING WHETHER SOMEONE IS
AN INDEPENDENT CONTRACTOR

Other determining factors include:


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
Amount of skill required to perform job (higher skill jobs
may require independent contractors)
Length of employment (employees usually are longer
term hires than independent contractors)
Method of payment (employees are usually hourly or
salary; independent contractors are often paid by the
job)
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SCOPE OF AUTHORITY

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Ermoian v. Desert Hospital illustrates the
doctrine of respondeat superior as applied to
employees versus independent contractors, and
the question agency by estoppel
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ERMOIAN V. DESERT HOSPITAL
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ENDING THE EMPLOYMENT RELATIONSHIP
(CHAPTER 20)
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Employment at will (EAW)
 EAW is a doctrine which provides that a contract
of employment for an indefinite term is
terminable at the will of either party
 Under EAW, an at-will employee may be
discharged for good cause, no cause, or even a
morally wrong cause
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ENDING THE EMPLOYMENT RELATIONSHIP
(CHAPTER 21)
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Exceptions to employment at will
 Federal civil rights laws, for example, protections
against discharge based on age, race, gender,
disability, religion, national origin, or color
 State laws that protect against discharge that
breaches a contractual promise of employment, or
discharge that violates public policy
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