Agency Law: Key Concepts, Duties, and Liability in Business Relationships

Agency

A relationship where one party (agent) acts on behalf of another (principal)

Principal

The person who authorizes an agent to act for them

Agent

A person who agrees to act on behalf of a principal

Employee

A worker whose employer controls how work is done

Independent Contractor

A worker paid by an employer but not controlled in how work is performed

Key Factor for Employee Status

Degree of control the employer has over the worker

Agency by Agreement

Agency formed by express or implied agreement between principal and agent

Agency by Ratification

Principal approves an act done by another that was originally unauthorized

Agency by Estoppel

Agency created when a third party is led to believe an agency exists

Agency by Operation of Law

Agency created by courts in situations like emergencies or family relationships

Duties of Agent

Responsibilities that an agent must fulfill in their role

Performance

Agent must act with reasonable care and skill

Notification

Agent must inform principal of important information

Loyalty

Agent must act in the principal's best interest

Obedience

Agent must follow lawful instructions of the principal

Accounting

Agent must keep records of money/property handled

Duties of Principal

Responsibilities that a principal must fulfill in their role

Compensation

Principal must pay the agent for services

Reimbursement

Principal must repay agent for expenses

Indemnification

Principal must cover agent's losses from authorized acts

Cooperation

Principal must assist the agent in completing duties

Safe Working Conditions

Principal must provide safe work environment

Express Authority

Authority directly given by the principal (spoken or written)

Equal Dignity Rule

If contract must be in writing, agent's authority must also be in writing

Power of Attorney

Legal document giving someone authority to act for another

Implied Authority

Authority based on position or necessary to carry out duties

Apparent Authority

Authority that appears to exist because of the principal's actions

Liability (Contracts)

Legal responsibility related to contracts made by agents

Authorized Acts

Principal is liable for contracts made within agent's authority

Unauthorized Acts

Principal is NOT liable unless they ratify the act

Ratification Requirements

Principal must know all facts and accept the entire act before third party withdraws

Liability (Torts)

Legal responsibility related to torts committed by agents

Respondeat Superior

Employer is liable for employee's actions within scope of employment

Detour

Minor deviation from job (employer still liable)

Frolic

Major deviation (employer NOT liable)

Independent Contractor Rule

Employer usually NOT liable for contractor's torts

Intentional Torts

Employer usually not liable unless related to job

Crimes

Principal not liable unless they participated

Termination

Ending of an agency relationship

Termination by Act of Parties

Agency ends by agreement or decision of parties

Wrongful Termination

Ending agency in violation of contract

Termination by Operation of Law

Ends due to death, insanity, bankruptcy, etc.