Marianne M. Jennings
BUSINESS
Its Legal, Ethical, and
Global Environment
10th Ed.
Chapter 17
Management of Employee
Conduct: Agency
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Terminology
• Nature of Agency: Agency Relationship is
One in Which One Party Agrees to Act on
Behalf of Another
– Examples: sales clerks, real estate agents,
sports agents
• Principal: The Party for Whom the Agent
Acts
• Agent: Party Who Acts for Another
17-1
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Terminology
• Master/Servant
– Relationship in which the master/principal exercises a
great deal of control over the servant/ agent. Most
common form is employer/employee relationship
– Factors that control whether this type of relationship
exists
• Level of supervision
• Level of control
• Nature of agent’s work
• Regularity of hours and pay
• Length of employment
17-2
© 2015 Cengage Learning. All Rights Reserved.
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Terminology
• Independent Contractor
– Hired to perform a task but is not
directly supervised
– Example: Lawyer
• Agency Law: Restatement of Agency
– Common law followed by most courts
17-3
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May not be scanned, copied or duplicated, or posted
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Terminology
• Three Parts to Agency Law
– Creating the agency relationship
– Relationship between principal and
agent
– Relationships of agent and principal to
third parties
17-4
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Agency Creation
• Creating the Agency Relationship: When
the Principal Hires Someone
• Express Authority Agency
– Created by principal stating or writing that
agency exists and the authority thereof
– Requires oral or written agreement - must be in
writing if required by statute of frauds
• Example: Agency contract is longer than one year
17-5
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May not be scanned, copied or duplicated, or posted
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Agency Creation
• Principal Must Have Legal Capacity
– Age and mental capacity
• Capacity: Unincorporated Associations Do Not
Have Capacity
– Have no legal existence
– Members will be liable since there is no principal
• The Capacity of Agent Becomes an Issue When
it Concerns
– Authority to enter contracts
– Potential liability to third parties
17-6
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Signing As An Agent
_____________________
(Your Group Name)
_____________________
By: (Your Name)
_____________________
(Your Title)
The Phoenix Association of Managers
By: Marianne Jennings
Treasurer
17-7
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Agency Creation
• Implied Authority: The Extension of
Express Authority By Custom
• Apparent Authority
– Arises from the way agents present themselves
to third parties
– Also called agency by estoppel or ostensible
authority
• Examples: Failure to notify of an agent’s
retirement, allowing bank to use your name for
another’s loan
17-8
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Apparent Authority
• Case 17.1 Cove Management v.
AFLAC, Inc. (2013)
– What was the apparent authority
Galgano had?
– What representations were made to
Cove Management?
– Is this apparent or actual authority?
17-9
© 2015 Cengage Learning. All Rights Reserved.
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Agency Creation
• Agency by Ratification
– Principal reviews contract and decides to
honor it even though agent had no
authority to enter into it
17-10
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Principal-Agent Relationship
• Agent’s Responsibilities
– Agent acts in the principal’s best
interests
• Loyalty, trust, care, obedience
– Loyalty
• Agent can’t represent both sides
• Can’t make a profit at principal’s expense
17-11
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Fiduciary Duties
• Case 17.2 Lucini Italia Co. v.
Grappolini (2003)
– How was the agent playing both ends of
the deal here?
– What should the U.S. principal have
done to catch the problem earlier?
– Comment on the ethics of the agent
17-12
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Duty of Loyalty
• Post-Employment Agreements
• Covenants Not to Compete
• Must Be Necessary (Purpose for
Restricting Employee’s PostTermination Work)
• Must Be Reasonable in Time and
Geographic Scope
• Must Be Voluntary
17-13
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Noncompete Agreements
• Not Given Time to Negotiate
• Non-compete Terms are Not Part of
Original Agreement
• No Consideration to Support Terms
• No Right to Discuss With Their Own
Counsel
• California Issues – Loathe to Enforce
17-14
© 2015 Cengage Learning. All Rights Reserved.
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Rights and Duties
• Agent: Obedience
– Follows principal’s instructions
– Need not do anything illegal
• Agent: Duty of Care
– Give time and effort
– Follow through
• Principal: Duties and Rights
– Duty to pay – Except gratuitous agency
– Duty to reimburse
17-15
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Principal’s Liability
• Principal’s Liability to Third Parties
– Contract liability and issues of
disclosure
• Principal has full liability for authorized
acts of agent and those done with apparent
authority
• Disclosed principal—principal is fully
liable; agent is not unless the agent had no
authority
17-16
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Principal’s Liability
• Contract Liability and Issues of
Disclosure
– Partially disclosed principal—agent
indicates there is a principal but does not
tell who it is; third party can hold either
liable
– Undisclosed principal—agent does not
disclose there is a principal; agent stands
alone unless principal comes forward
17-17
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Contract Liability of Disclosed
Principal
17-18
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May not be scanned, copied or duplicated, or posted
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Contract Liability of Undisclosed or
Partially Disclosed Principal
17-19
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Principal’s Liability
• Liability of Principals for Torts
– Must have master-servant relationship,
not independent contractor
– Liable for torts of servants in scope of
employment
• Scope = doing master’s work
• Doctrine of respondeat superior-let the
master answer
• Not liable for torts committed while on frolic
17-20
© 2015 Cengage Learning. All Rights Reserved.
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Scope of Employment
• Case 17.3 Faverty v. McDonald’s
Restaurant of Oregon, Inc. (1995)
– Why would a restaurant association have
an interest in the outcome of the case?
• Case 17.4 Lange v. National
Biscuit Co. (1973)
– What test does the court give for
determining scope of employment?
17-21
© 2015 Cengage Learning. All Rights Reserved.
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Non-Scope Issues
• Liability if There was Negligent Hiring
– Failure to screen
– Failure to do background check
• Liability if There was Negligent Retention
– Failure to take action when employee engages
in dangerous behaviors or takes risk
– Knowledge + inaction = Liability
17-22
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Principal’s Liability
• Principles are Generally Not Liable for
the Torts of Independent Contractors
• Exceptions
– Inherently dangerous activities
– Negligent hiring of independent
contractor
– Principal provided specifications for
project or job
17-23
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Agency Termination
• Due To
– Definite duration of time
– Agent quits/is fired
– Principal dies/is incapacitated
– Need to give public or constructive notice
(trade publication)
– Actual notice (letters)
– Without notice, agent will have lingering
apparent authority
17-24
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Termination of At-Will
• Has No Definite Ending Date
• Usually There is No Formal Written
Contract
• Used to be They Could be Fired at
Any Time
17-25
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May not be scanned, copied or duplicated, or posted
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Termination of At-Will
• The Do’s and Don’ts of Firing At-Will
Employees
– Do:
• Conduct regular reviews of employees, using
objective, uniform measures of performance
– Don't:
• Make oral promises of job security to employees
who might later be laid off
• Danger: Breach of contract suit
17-26
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Termination of At-Will
• The Do’s and Don’ts of Firing At-Will
Employees
– Do:
• Give clear, business-related reasons for any
dismissal, backed by written documentation when
possible
– Don't:
• Put pressure on an employee to resign in order to
avoid getting fired
• Danger: Coercion suit
17-27
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Termination of At-Will
• Do:
– Seek legal waivers from older workers who
agree to leave under an early-retirement plan,
and make sure they understand the waiver
terms in advance
• Don't:
– Make derogatory remarks about any dismissed
worker, even if asked for a reference by a
prospective employer
• Danger: Defamation suit
17-28
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Termination of At-Will
• Do:
– Follow any written company guidelines for
termination, or be prepared to show in court
why they're not binding in any particular
instance
• Don't:
– Offer a fired employee a face-saving reason
for the dismissal that's unrelated to poor
performance
• Danger: Wrongful discharge suit
17-29
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Termination of At-Will
• The Implied Contract
– In some states personnel manuals will be a
contract if employees rely on its procedures
• Case 17.5 Dillon v. Champion Jogbra,
Inc. (2002)
– Were there representations about her
continuing employment?
– What should the company have done
differently?
17-30
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Public Policy
• The Public Policy Protection—
Whistleblowers
– Whistle Blower Protection Act of 1978
– False Claims Act
• Protection for Whistleblowers—The AntiRetaliation Statutes
– Passed in many states and by federal agencies
• Prohibit firing, demotion, reprimands, and pay cuts
of employees who report conduct of their employers
17-31
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Public Policy
• Case 17.6 Tides v. The Boeing
Company (2011)
– Does this case create an affirmative legal
duty for helping those in danger?
– Can an employee in Washington be fired
for assisting a citizen who is a crime
victim?
17-32
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Public Policy
• Protection for Whistleblowers—The AntiRetaliation Statutes
– Federal level—Energy Reorganization Act
affords protection for employees involved in
nuclear work
– Whistleblowing for both employers and
employees
– Many companies have created a peer review
process for termination and other actions
against employees
17-33
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Whistleblowing Tips
Encourage whistleblowing. Publicize your hot line for disclosing illegal activity and
encourage employees to come forward. Eliminate employee fears by directing the
investigation of complaints to someone outside a reporting employee's chain of command.
Be certain that all complaints are investigated and that investigations are done promptly.
Whenever possible, publicize the investigation and its outcome to encourage other
employees to come forward.
For the employee, the following suggestions should be followed:
1. Consult family and close friends for perspective and support.
2. Work within your system and through its chain of command before going public. Go
through the various layers of management, even to the board of directors.
3. Voice/write your concerns; don't make accusations.
4. Maintain records of your internal contacts and their objections.
5. Find other employees who also know about this potentially volatile situation.
6. Keep a record of your information and carefully document your complaints. Eliminate
speculation, personal opinion, and anger. Be objective.
7. Maintain copies of records.
8. Find support groups in your community (and nationwide, if necessary).
17-34
© 2015 Cengage Learning. All Rights Reserved.
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International Law
• Pitfalls of Complex Global
Organizations
– Complex interrelationships often evade
the law
• Example: BCCI and its complex structure
– Disclosure of interrelationships becomes
important for conflicts, compliance
17-35
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.