MILLER
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 Agency
= Principal and Agent.
 Agency is the most common and
most important legal relationship.
 Understanding agency is crucial to
understanding the legal
environment of business.
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 Principals
use agents to be able to
conduct multiple business
operations simultaneously in
various locations.
 The principal has the right to
control the agent in matters
entrusted to the agent.
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 Agency
is a “fiduciary” relationship
based on trust and confidence.
 Employer-Employer Relationships.
 Employees are agents.
 Employment law applies to
employers-employees. 
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 Employer-Independent
Contract
Relationships.
 Employers do not have “control”
over details of IC’s work
performance.
 Agency may – or may not – be
involved depending on facts. 
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A “Yes” Tends to Show Employee Status
E’ee
I.C.
Does the Employer exercise a great degree of control
over the details of the work?
Yes
No
Is the worker engaged in an occupation or business
distinct from Employer?
No
Yes
Is the work usually done under Employer’s supervision?
Yes
No
Does Employer provide the tools?
Yes
No
Has the worker been employed a long time?
Yes
No
Is the worker paid at the end of the job?
No
Yes
Is there a great degree of skill required?
No
Yes
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 Determination
of Employee
Status.
 Disputes Involving Tort Liability.
 CASE 25.1
COKER V. PERSHAD (2013).
 Criteria Used by the IRS. 
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 Determination
of Employee
Status.
 Employee Status and “Works for Hire”:
any copyrighted work created during
scope of employment is owned by
employer.
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 Generally,
agency relationships :
 Are consensual.
 Require no consideration.
 Require principal to have contractual
capacity (agent does not).
 Can be created for any legal
purpose.
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 Agency
by Agreement.
 Formed through express consent
(oral or written) or implied by
conduct.
 CASE 25.2 LAUREL CREEK HEALTH CARE
CENTER V. BISHOP (2010).
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 Agency
by Ratification.
 Principal either by act or by
agreement ratifies conduct of a
person who is not in fact an agent.
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 Agency
by Estoppel.
 Principal causes a third person to
believe that another person is the
Principal’s Agent, and the third
person acts to her detriment in
reasonable reliance on that belief.
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 Agency
by Operation of Law.
 Agency based on social duty is
formed in certain situations when
the Agent is unable to contact the
Principal.
• Necessaries.
• Emergencies.
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 Agent’s
Duties to the Principal:
 Performance: implied condition to
use reasonable diligence and skill.
If agent fails, possible breach of
contract.
• Standard of Care.  Gratuitous
Agent: only liable for torts.
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 Agent’s
Duties to the Principal:
 Performance:
• Gratuitous Agent: only liable for
torts.
 Notification:
to principal of all
matters concerning subject matter
of agency.
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 Agent’s
Duties to the Principal:
 Loyalty: fundamental duty as
fiduciary (no conflict of interest).
• Actions must benefit the principal.
• CASE 25.3 TASER INTERNATIONAL, INC.
V. WARD (2010).
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 Agent’s
Duties to the Principal:
 Obedience.
• Agent has duty to follow all lawful
and clearly stated instructions.
 Accounting.
• Agent must not intermingle
principal’s funds with his own.
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 Principal’s
Duties to Agent.
 Compensation (Express or Implied).
 Reimbursement and
Indemnification.
 Cooperation.
 Safe Working Conditions.
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 Agent’s
Rights and Remedies:
 Right to be compensated,
reimbursed, and indemnified and to
work in a safe environment.
 Torts and Contract Remedies.
 Demand for an Accounting.
 No Right to Specific Performance.
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 Principal’s
Rights and Remedies:
 Remedies for breach of fiduciary
duty, and agent’s torts.
 Constructive Trust: anything that
agent obtains during her
employment or agency belongs to
the principal. 
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 Principal’s
Rights and Remedies:
 Avoidance: principal has right to
avoid contract if agent does not do
as told.
 Indemnification: principal can sue
agent.
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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