CHP14

Chapter 14

Meiners, Ringleb and Edwards

The Legal Environment of Business, 13th Edition

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AGENCY AND THE EMPLOYMENT RELATIONSHIP

Agency Relationships • Agency is created when a person or company (an agent) agrees to act

for or in place of another person or company (the principal)

• 1. The principal creates authority in an agent • 2. The agent receives authority & carries out the principal’s instructions • 3. Third parties make contracts or are involved in torts with the agent

• Result: The principal is generally bound by the agent’s acts with a third party.

Classification of Agents

Different agents have different kinds of authority. Universal agents: Do all acts that can be legally delegated, i.e. General

Power of Attorney General agents: Execute all transactions in connection with a business,

i.e. top level managers Special agents: Execute a specific transaction or series of transactions,

i.e. a real estate agent Agency coupled with an interest: Agent has paid for the right to have

authority for a business Gratuitous agent: No payment is made to the agent, i.e. a favor or a

volunteer Subagents: Agent delegates authority to other agents

Creating An Agency

By Agreement of the Parties  May be oral or written

 Legal document called a power of attorney establishes agency and creates an attorney-in-fact.

Implied or Express Ratification by the Principal  A principal accepts responsibility for

acts of an agent going beyond his/her authority (ratification).

• Agency by Estoppel • Actions of the principal lead others to

believe an agency exists – the principal is estopped from denying the agency’s existence.

• Agency by Operation of Law • The agent acts beyond the authority

granted. • Necessity or emergencies create

agency existence. • The agent may do acts and bind the

principal by operation of law.

AGENT ACTS FOR THE PRINCIPAL

Actual Authority

• Principal sends signals to the agent to do something with a third party.

• Express Authority: Oral or written instructions create the authority.

• Implied Authority: Principal’s conduct or trade customs create authority.

Apparent Authority

 Principal sends signals to the third party that what the agent does binds the principal.

 There is appearance of authority that a third party could reasonably conclude.

Cove Management v. AFLAC, Inc.

Galgano signed “Associates Agreement” with AFLAC. Authorized him to solicit applications for AFLAC insurance. Agreement stated Galgano was an independent contractor. Said Galgano may not enter into contracts or incur debt on behalf of AFLAC. Galgano did not have authority to “rent any office space” or obligate AFLAC without “specific written authorization”. Galgano leased office space from Cove Management. Lease listed the

tenant as AFLC and listed Galgano as guarantor for office to be used for “insurance services.” Galgano signed the lease but later defaulted on payments. Cove sued AFLAC for losses. Cove noted the office was an AFLAC office

and engaged in business for AFLAC and it had the right to presume Galgano had authority as an agent to bind AFLAC. District court dismissed the suit; Cove appealed.

Cove Management v. AFLAC, Inc.

• Affirmed. Galgano was not acting under apparent authority. • Cove argued that AFLAC clothed Galgano with apparent authority, and

created liability in AFLAC as lessee under lease. • Apparent authority: “Such authority as the principal knowingly permits

the agent to assume . . . or holds his agent out as possessing . . . .” The other party has “reasonably and detrimentally relied on agent’s authority.”

• Court cannot consider: • (1) When office was set up, the parking signed had the AFLAC symbol and duck. • (2) That there were AFLAC’s stylized blue materials – in and out of office. • (3) AFLAC was listed on the director of the building.

• Cove made no effort to determine if Galgano was independent contractor or agent of AFLAC.

• Cove relied exclusively on statement and representations of Galgano that he had authority to bind AFLAC to the lease on premises.

PRINCIPAL’S DUTIES TO AGENT

• Cooperation – with the agent to fulfill the agency purpose

• Compensation – for services rendered • Unless agent agreed to work for free

• Reimbursement – of “reasonable” expenses • No reimbursement for agents misconduct

• Working Conditions – as required by law and to meet legal obligations

• Indemnify (pay back) – for legal liabilities incurred by the agent

AGENT’S DUTIES TO THE PRINCIPAL

• Loyalty – Place the principal’s interest above the agent’s interests. • Can not compete with principle without permission. • Massachusetts Court: Held CEO would forfeit all compensation paid to him during his

disloyalty to the company

• Obedience and Performance – To perform in compliance with the principal’s instructions.

• Reasonable Care & Skill – To perform as is “reasonable under the circumstances” (including emergencies).

• Account – For the funds and property of the principal (avoid mixing personal funds with the principal’s).

• Notify/Inform – As to all facts of the agency purpose.

Bearden v. Wardley Corporation

• Bearden listed property for sale with real estate agent, Gritton who worked for Wardley Corp. Gritton told Bearden he wanted to buy the property for $89,000. Bearden agreed. Contract called for Gritton to pay Bearden $400/mo., followed by balloon payment after five years.

• Bearden would keep title until balloon payment was made. Unknown to Bearden, Gritton gave her the deed with other documents to sign. He had signature notarized, recorded the deed, and transferred title to himself.

• Gritton did not keep up on payments. Bearden hired a lawyer. He discovered the fraud and that Gritton had borrowed money against the property and it was in foreclosure for lack of payments to lender.

• Bearden paid $60,000 to keep property from being lost. • Sued Gritton and Wardley for breach of contract, fraud, and breach of

fiduciary duty.

Bearden v. Wardley Corporation

• Jury awarded $75,000 damages +$25,000 punitive damages + $50,000 attorney fees and costs against Gritton & Wardley.

• Wardley was stuck with the judgment and appealed. • Affirmed. Listing contract with Wardley had “fiduciary duties to seller”

clause in it.

• Wardley’s internal policy prohibited agents from purchasing properties they listed.

• Knew Gritton purchased the property but never questioned Gritton about violating internal policy re: purchase of listed property. Never asked Gritton to stop representing Bearden

• Never informed Bearden of Gritton’s internal policy violations.

• Wardley breached its duty of care to Bearden and is liable.

Liability for Contracts

1. Disclosed principal: Identity of principal is known by the third party at time of making of contract with agent.

2. Principal is liable to a third party for a contract of the agent if the agent has actual authority.

3. If there is apparent authority, the principal is contractually liable to a third party. However, the principal may sue the agent for losses if agent has breached a duty.

4. Undisclosed principal: Identity of principal is unknown to third party, which can be fine. Agent does the work and will be indemnified by principal if agent acts within scope of authority.

Yim v. J’s Fashion Accessories, Inc.

• Benjamin Yim did business under trade name Ho Tae. • Ordered goods from J’s Fashion. Invoices were sent to Ho Tae. • Account not paid. Fashion sued Yim, as Fashion presumed Ho Tae was

merely his trade name. • He denied liability, saying he acted as an agent for a principal, Hosung

Enterprise, Inc. • Hosung did business under name Ho Tae. • Fashion said that at no time did Yim disclose existence of a corporation

entity. • Fashion thought they were always dealing with Yim with trade name Ho Tae. • Trial court entered summary judgment against Yim. • He appealed, saying he was only an agent for Hosung Enterprises.

Yim’s v. J’s Fashion Accessories

• HELD: Affirmed. • Agent who makes a contract without giving identity of the principal

becomes personally liable when the agent believes the principal is willing to be responsible for the contract.

• There is a duty to disclose the principal’s identity. • Agent must be specific in disclosure.

• Use of a trade name is not necessarily a disclosure of principal’s identity. At no point did Yim indicate he was acting other than an individual doing business as Ho Tae, so Fashion could presume he was personally liable.

Terminating an Agency

1. Either party may terminate (unilateral termination) • Agent says, “I quit” • Or principal says, “You’re fired.”

2. Specific date set for agency to end

3. Purpose of agency is fulfilled. Notice of termination must be made to 3rd parties to end an agent’s apparent authority.

4. Termination by operation of law • Principal or agent dies • Subject matter of the agreement is lost or destroyed

The Essential Employment Relationship Principal-Agent

 Agent acts on behalf of the principal; agent has a degree of personal discretion; principal is usually liable for contracts made.

Master-Servant or Employer-Employee  Master-servant is old term still used, but employer-employee is used more.

Employee’s conduct is controlled by employer. The employee can also be an agent (distinction is sometimes blurred). Employer is usually liable for contracts made by employee; may be responsible for some torts.

Employer-Independent Contractor (I/C)  Not an employment relationship. Employer does not control the details of the I/C’s

performance. Contractors usually not agents, but can be (attorneys, auctioneers). Employer is not liable for the I/C’s torts.

France v. Southern Equipment Co. • Hensley did business under trade name Royalty Builders. Hired 16-year-

old Robert France to do roofing work. • Southern Equipment needed a new roof on a building. • Accepted bid form Quality Metal Roof. Quality hired Royalty to do work;

Quality supplied materials. • While working on roof, France fell and suffered head injuries. He sued

Southern (and others) for exposing him to an inherently dangerous job of roofing.

• Court granted summary judgment for Southern. • France appealed. Affirmed. • Royalty Builders was an independent contractor. Southern had no

control over the work done by Royalty. • Southern could not be held vicariously liable as Royalty Builder’s

(thereby France’s) employer.

Employment-at-Will Employers: Can hire and fire who you want Employees: May work-at-will or quit when they want

Employees may sue for wrongful discharge under employment contract, but must establish why limits to employer’s rights to discharge Can be contractual limits to at-will: express contract; implied

contract; or implied covenant of good faith and fair dealing Public Policy Exceptions Regarding Dismissal:

Refusing to violate laws Important public duty (jury duty) Public right (filing for workers’ compensation) “Whistle Blowing”

Guz v. Bechtel National, Inc. Guz worked for Bechtel (BNI) 1971-1993 with a good employment record under

employment at will. Company said terminations would be for unsatisfactory performance or due to a layoff. Budget for Guz’s division was cut; he and others were terminated. The company

was doing well. Guz’s duties were transferred to other employees. He applied for other positions at BNI but was rejected. He sued, alleged breach of implied contract to be terminated only for good cause

and breach of implied covenant of good faith & fair dealing. Trial court dismissed suit, saying he was at-will employee. Appeals court reversed,

holding that his longevity, raises, etc. warranted a retrial. Appeal. California high court reversed in favor of BNI. Employment relationship is contractual and parties may define for themselves

causes for termination. Here, there is no evidence that BNI had additional terms to employment security and BNI had the right to reorganize and terminate employees as they wished. Successful service, in and of itself, does not create a contractual guarantee for

employment security.

Employment Handbooks

Explain company policies, benefits and procedures

Discuss grounds for discipline and dismissal

May limit rights of employers to dismiss employees under Employment-At-Will Doctrine May be interpreted as creating express or implied

contract between employer and employee Some employers place bold disclaimer in front of

handbook saying it is not a contract – have employees sign

SOCIAL MEDIA RULES IN THE WORKPLACE

Policies making clear that organization has the right to access e-mails that come to company computers or accounts Software scans e-mails for red flag words – sex, guarantee, social

security number, etc. Policies reduces:

 Lost work time  Litigation from harassment from e-mails with sexual content  Loss of information that should be secure

Maryland: First state to ban employers from requesting access to social media account Some employers ask for voluntary access to social media but do not

insist. Remember: Everything once posted, even if removed, can be

retrieved later.

Principal’s Liability oIf the principal directs the agent to do tortious acts, then the

principal is liable (rare). oPrincipal may give actual authority or instructs employee or agent

to do a certain act. Thereby the principal may ratify agent’s conduct.

• Vicarious Liability imposed “Liability for unauthorized acts of the agent”

Was the agent acting “within the scope of his/her employment”? Courts use the doctrine of respondeat superior. Employers may be liable for torts of employees due to

negligent hiring or supervision.

NEGLIGENT HIRING

Negligent Hiring: Liability may be imposed for intentional torts committed by an employment who is not acting in the scope of employment

Obligations to check background of an employee  May conflict with EEO rules. Restrict check to relevant issues.

 In some instances, can also be an obligation to check independent contractor for doubtful history. i.e.  Child molester: Should not be in routine contact with children  Bad driving record: Should not be permitted to drive a company

truck

Anderson v. Mandalay Corporation • Anderson was in Las Vegas, staying at Mandalay Bay Resort and Casino.

• She went to diner – drank a lot. She went to her room at 2 a.m.

• Gonzalez, hotel employee, had passkey. Went in her room and assaulted her. Security tracked him down. He pleaded guilty to sexual assault.

• Anderson sued Mandalay for negligent hiring --Vicarious liability for employee’s intentional tort

• While working at Mandalay, Gonzalez had been suspended for a month for threatening a female supervisor. Said such thinks like “I know where you live” & “I will be waiting for you in

the parking garage.”

• At trial, showed 5 previous sexual assaults at Mandalay by employees who entered into guest rooms unauthorized – about one a month.

• District Court held for hotel. Assault not foreseeable. Anderson appealed.

Anderson v. Mandalay Corporation

• Reversed and remanded. Employers are vicariously liable for employees’ intentional torts. If employee’s act is “reasonably foreseeable” given the nature and of scope of employment

• Reasonably foreseeable: Person of ordinary intelligence could anticipate conduct of probable injury to plaintiff.

• Mandalay suspended Gonzalez 31 days for threats toward female supervisor.

• When suspension ended, restored his keycard access with minimal supervision. Mandalay. Reasonable jury could conclude it was foreseeable that he would sexually assault a Mandalay guest.

• Mandalay contended Gonzalez’s act was not “within the scope of his employment.” Obviously not, but sexual assault not unforeseeable.

• Juries can determine whether facts show if employee’s tortious conduct was “reasonably foreseeable.”