AGENCY
Introduction
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Agency
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Agent
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One person acts for the benefit of and under the
direction of another
Person acting for the benefit of another
Principal
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Person directing another to act on his behalf
TYPES OF RELATIONSHIPS
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Principal/agent
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Employer/employee
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Master/servant
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Employer/independent
contractor
How do you determine if a worker is an
employee or an independent contractor?
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Common-law agency test
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Who has the right to control the manner in which
the work is performed?
IRS test
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20 factors to determine whether someone is an
employee or an independent contractor
Derived from results of court judgments
IRS 20 FACTOR ANALYSIS
1.
2.
3.
4.
5.
6.
7.
Instructions
Training
Integration
Services rendered personally.
Hiring, supervising, and paying
assistants.
Continuing relationships
Set hours of work
IRS 20 FACTOR ANALYSIS
8.
9.
10.
11.
12.
13.
Full time required
Doing work on the employee’s premises
Order or sequenced set.
Oral or written reports
Furnishing tools and materials
Payment by hour, week, or month.
14. Payment of business or traveling expenses
IRS 20 FACTOR ANALYSIS
15. Significant investment
16. Realization of profit or loss
17. Working for more than one firm at a time
18. Making services available to the general
public.
19. Right to discharge
20. Right to terminate
U.S. Supreme Court six-factor test
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Whether the organization can hire or fire the
individual or set the rules and regulations of the
individual’s work;
Whether, and to what extent, the organization
supervises the individual’s work;
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Whether the individual reports to someone higher in
the organization;
Whether and to what extent the individual is able to
influence the organization;
Whether the parties intended that the individual be
an employee, as expressed in written agreements
or contracts; and
Whether the individual shares in the profits, losses,
and liabilities of the organization.

See John Weary v. William S. Cochran,
377 F.3d 522, 2004 U.S. App. Lexis 15589
(2004).
LIABILITY TO
EACH OTHER
Duties of Agents to Principals
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Duty of Loyalty
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Duty to Obey Instructions
Duty to Exercise Care and Skill
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Fiduciary
Dual Agency
Confidential Information
Ordinary care and skill common for kind of work
Duty to Communicate Information
Duties of Agents to Principals
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Duty to Account for Funds and Property
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Property
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An Accounting
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Periodically give principal accurate record of receipts and
expenditures
Commingling
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Return to principal or account for inability to do so
Keep principal’s property separate from own
Embezzlement
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If agent takes property with intent to deprive principal of it,
agent is guilty of the crime of embezzlement
Duties of Principals to Agents
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Duty to Compensate
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Contingent Compensation
Procuring Cause
Duration of Employment
Real Estate Commissions
Insurance Commissions
Duty to Reimburse and Indemnify
Duty to Keep Accounts
Enforcement of Liabilities between
Principals and Agents
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Breach of Duty by Agent
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Deduct damages from agent’s compensation
Bring a lawsuit
Pay no compensation
Terminate agency
Breach of Duty by Principal
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Attach lien on principal’s property in agent’s possession
Bring a lawsuit
Terminate agency
LIABILITY TO
THIRD PARTIES
CONTRACT
LIABILITY
The Agent’s Authority to Bind the
Principal on Contracts
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Actual Authority
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Express Authority
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Implied Authority
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Example: Power of Attorney
Test - Justifiable belief of the agent
Apparent Authority
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Test - Justifiable belief of a third party
Apparent Agent
Duty of Third Persons to Determine Agent’s
Authority
The Agent’s Authority to Bind the
Principal on Contracts
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Ratification
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Nature of Ratification
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Requirements for Ratification
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One may become liable through ratification for an
unauthorized act that was done by an agent
Agent must have acted on behalf of the principal
Entire act must be ratified
Effect of Ratification
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Agent released from liability
Principal is bound as if agent had been fully
authorized
Contract Liability of the Agent
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Introduction
Unauthorized Actions
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Nonexistent or Incompetent Principal
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Agent is liable to third party
Agent is liable to third party
Agreements by the Agent to Assume Liability
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Joint liability between principal and agent
Contract Liability of the Agent
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Disclosed Principal
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Undisclosed Principal
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Rights and Liabilities of Agent
Rights and Liabilities of Principal
Rights and Liabilities of Agent
Rights and Liabilities of Principal
Partially Disclosed Principal
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Rights and Liabilities of Agent
Rights and Liabilities of Principal
TORT LIABILITY
Employers may be vicariously liable for the actions
of employees based on one of several theories:
1.
negligent entrustment
2.
failure to properly supervise
3.
respondeat superior
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Respondeat superior is a strict liability
theory.
The primary defense is that the employee
was not acting within “the scope of
employment.”
An employee’s conduct is within
the scope of his/her employment if it meets
each of the following four tests:
1. It was of the kind that the employee was employed to
perform.
2. It occurred substantially within the authorized time period.
3. It occurred substantially within the location authorized by
the employer.
4. It was motivated at least in part by the purpose of serving
the employer.
See Rappaport v. International
Playtex Corp., 352 N.Y.S. 2d
241
Exception to Respondeat Superior:
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Fellow-servant rule