Business Law test 4

What is an agency?

A relationship where an agent acts on behalf of a principal with authority.

Who is the agent?

The person/company who acts for the principal.

Who is the principal?

The person/company who gives authority to the agent.

What must the agent do for the principal?

Act in the principal’s best interest and follow their control.

When can an agent bind a principal to a contract?

When acting within their granted authority.

Who is liable for the agent’s actions?

The principal.

What are two benefits of using agents?

Resources and expertise.

What is the principal-agent relationship?

A relationship where the agent acts on behalf of the principal in dealings with third parties.

What is an agency contract?

The agreement between the principal and agent that gives the agent authority.

Who does the agent make contracts with?

Third parties, on behalf of the principal.

Who is responsible for performing the contract?

The principal.

What is the role of the third party?

They enter into a contract with the agent (acting for the principal).

What is a universal agent?

Someone authorized to do all acts for the principal.

What is a general agent?

Someone authorized to handle all transactions for a business or part of it.

What is a special agent?

Someone authorized for specific tasks, usually for a limited time.

What is a subagent?

Someone hired by an agent to help, owing duties to both agent and principal.

What is a power of attorney?

Legal authority given to an agent (can be general or limited).

How is an agency created by agreement?

Through oral or written agreement between principal and agent.

What is agency by ratification?

When the principal approves an agent’s actions after the fact.

What is agency by estoppel?

When the principal’s actions make others believe someone has authority to act.

What is agency by operation of law?

An agency created automatically by legal circumstances.

What determines an agent’s ability to act for a principal?

The scope of authority granted.

What is actual authority?

Authority the agent truly has from the principal.

What is express authority?

Authority given clearly (written or spoken).

What is implied authority?

Authority assumed to carry out assigned duties.

What is apparent authority?

When others believe the agent has authority based on the principal’s actions.

What duties do both principal and agent owe each other?

Good faith and sharing information.

What are the main duties of a principal?

Cooperate, compensate, reimburse, and indemnify.

What is indemnification?

Covering the agent for losses while acting for the principal.

What is the most important duty of an agent?

Loyalty to the principal.

What does “obedience and performance” mean for an agent?

Following instructions and completing tasks properly.

What is “reasonable care” for an agent?

Acting with competence and diligence.

What is “accounting” in agency law?

Keeping and reporting accurate records of transactions.

What is the duty of notification?

Informing the principal of important information.

Can agents enter contracts for principals?

Yes, on behalf of the principal.

What is a disclosed principal?

A principal whose identity is known to the third party.

Who is liable with a disclosed principal?

The principal (not the agent).

What is an undisclosed principal?

A principal whose identity is unknown to the third party.

Who is liable with an undisclosed principal?

Both the principal and the agent.

When must a principal indemnify an agent?

When the agent acted with proper authority.

How can an agency be terminated by agreement?

Both parties agree to end it.

When does an agency end due to purpose?

When the agency’s purpose is completed.

What happens to an agency if the principal or agent dies?

The agency is terminated.

What happens if the subject matter of the agency is destroyed?

The agency is terminated.

What is the difference between an independent contractor and an employee?

Contractors are not controlled; employees are under employer control.

When are employers liable for torts?

When employees commit them within the scope of employment.

Are employers liable for independent contractors’ torts?

No.

What is a key factor in determining employee status?

The level of control by the employer.

Name one legal obligation employers have to employees.

Pay taxes, provide benefits, follow safety laws, or pay minimum wage.

What did the 2024 DOL rule change focus on?

Stricter classification of workers as independent contractors.

What is the most important factor in worker classification?

Degree of control over the work.

Why does profit or loss matter in classification?

It shows if the worker operates like a business.

Why do investments matter in classification?

More personal investment suggests independent contractor status.

What does permanency of the relationship indicate?

Long-term = employee; short-term = contractor.

Why does “integral part of the business” matter?

If the work is core to the business, the worker is likely an employee.

How do skill and initiative affect classification?

More independence and initiative suggest contractor status.

What is employment at will?

Either party can end employment at any time for any reason.

Can an employer fire an employee without cause?

Yes.

Can an employee quit at any time?

Yes.

What types of reasons can an employee be fired for under at-will employment?

Good cause, no cause, or even morally wrong cause.

When can at-will employment be limited?

When there is a contract or violation of public policy.

What is a contractual exception to at-will employment?

When employment terms limit firing (express or implied contract).

What is the public policy exception?

Employers cannot fire employees for reasons that violate public policy.

Give an example of wrongful termination under public policy.

Refusing to do something illegal.

Name another example of protected employee actions.

Jury duty, military service, filing workers’ comp, or whistleblowing.

What can employees do if wrongfully fired?

Sue for wrongful or retaliatory discharge.

Why do companies restrict employee social media use?

To minimize liability (like defamation or infringement).

What can companies control regarding social media?

Who can post and what can be posted.

Why might companies limit links to others’ content?

To avoid legal liability.

What type of liability is most associated with social media policies?

Defamation and infringement.

When are employers liable for employee torts?

When the tort occurs within the scope of employment.

What happens if an employee acts outside the scope of employment?

The employee is personally liable (not the employer).

What is vicarious liability?

Employers are liable for employee actions within the scope of employment.

Does it matter if the employee’s act was intentional or negligent?

No, employer can still be liable if within scope.

What is one key factor in determining “scope of employment”?

Whether the act was related to the job.

What is negligent hiring?

When an employer is liable for hiring someone unfit for the job.

Are principals usually liable for independent contractors’ torts?

No

When can a principal be liable for an agent’s torts?

When the principal is at fault.

What is one way a principal can be liable for an agent’s actions?

Giving faulty instructions.

What is negligent hiring?

Hiring an unfit or dangerous agent.

How can lack of supervision create liability?

If the principal fails to properly supervise the agent.

What is a key principle of legal business conduct?

Treat people fairly and with respect.

What type of policies should businesses have?

Reasonable and consistently applied policies and procedures.

Why is consistency in policies important?

To ensure fairness and avoid legal issues.

What is an exculpatory clause?

An agreement where employees waive the right to sue the employer.

What is a non-compete clause?

Limits working for competitors after leaving a job.

What is an anti-raiding covenant?

Prevents employees from recruiting coworkers after leaving.

Why might these contract terms be limited?

They can violate public policy if unreasonable.

What did the FTC propose in 2024 about non-competes?

A rule to ban non-compete clauses in employment agreements.

Why does the FTC oppose non-compete clauses?

They limit job mobility, lower wages, and reduce innovation.

What happened to the FTC non-compete rule in 2025?

It was vacated (blocked/dropped).

What are the main workplace effects of substance abuse?

Safety, productivity, and higher costs.

Can employers ban drugs/alcohol in the workplace?

Yes.

When is drug testing limited for union workers?

When not approved through collective bargaining.

What does OSHA require employers to provide?

A workplace free from recognized hazards.

What can OSHA do if safety rules are violated?

Issue citations and fines.

What is the purpose of OSHA?

To protect worker health and safety.

What is workers’ compensation?

Insurance that provides benefits for work-related injuries regardless of fault.

What must employers do for workers’ comp?

Pay insurance premiums for employee injury/death coverage.

What protection do employers get from workers’ comp?

Immunity from most employee lawsuits.