Explain and analyze the duties owed by each party in an agent/principal relationship. What steps should an organization take to limit apparent authority that it does not intent to bestow on an agent?

Reflect on the assigned readings for the week. Identify what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding.

Also, provide a graduate-level response to each of the following questions:

  1. Explain and analyze the duties owed by each party in an agent/principal relationship.
  2. What steps should an organization take to limit apparent authority that it does not intent to bestow on an agent?

SHORT ESSAY:

Question I – Brandon installs sheds and storage buildings for Shedmax, LLC.  Brandon must be at work each day by 8:00 a.m. and is off at 5:00 p.m. and is paid at a rate of $12/hour.  Brandon uses tools provided by Shedmax to do his work.  However, when Brandon is completing the installation process, he is often working alone.  Is Brandon an employee of Shedmax or an independent contractor?  Give a reasoning for your answer.

Question II – Flowers by Frida is a florist that operates in one county in Kentucky.  Frida hires Frederick as an employee and presents a non-compete agreement, which states Frederick shall never open his own florist in Kentucky or in any state that boarders Kentucky.  Is this non-compete agreement reasonable?  Why or why not?

Chapter 16 Management of Employee Conduct: Agency Law

Its Legal, Ethical, and Global Environment

Marianne M. Jennings

Business

11th Ed.

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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

Terminology

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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

Terminology

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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

Terminology

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Three Parts to Agency Law

Creating the agency relationship

Relationship between principal and agent

Relationships of agent and principal to third parties

Terminology

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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

Agency Creation

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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

Agency Creation

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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

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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

Agency Creation

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Case 16.1 Thomas v. Weatherguard Construction Company, Inc. (2015)

What were the trappings of apparent authority?

What were the signals that something was amiss?

Who has liability?

Apparent Authority

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Agency by Ratification

Principal reviews contract and decides to honor it even though agent had no authority to enter into it

Agency Creation

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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

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Case 16.2 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

Fiduciary Duties

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Duty of Loyalty

Post-Employment Agreements

Covenants Not to Compete

Must Be Necessary (Purpose for Restricting Employee’s Post-Termination Work)

Must Be Reasonable in Time and Geographic Scope

Must Be Voluntary

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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

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Noncompete Agreements

Case 16.3 Garon Foods, Inc. v. Monteith (2013)

Describe the length of employment

Explain what Sarah did after she left her job

What is the judge’s solution?

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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

Rights and Duties

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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

Principal’s Liability

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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

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Contract Liability of Disclosed Principal

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Contract Liability of Undisclosed or Partially Disclosed Principal

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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

Principal’s Liability

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Faverty v. McDonald’s Restaurant of Oregon, Inc. (1995)

Why would a restaurant association have an interest in the outcome of the case?

Case 16.4 Lange v. National Biscuit Co. (1973)

What test does the court give for determining scope of employment?

Scope of Employment

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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

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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

Principal’s Liability

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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

Agency Termination

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Has No Definite Ending Date

Usually There is No Formal Written Contract

Used to be They Could be Fired at Any Time

Termination of At-Will

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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

Termination of At-Will

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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

Termination of At-Will

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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

Termination of At-Will

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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

Termination of At-Will

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The Implied Contract

In some states personnel manuals will be a contract if employees rely on its procedures

Case 16.5 Dillon v. Champion Jogbra, Inc. (2002)

Were there representations about her continuing employment?

What should the company have done differently?

Termination of At-Will

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The Public Policy Protection − Whistleblowers

Whistle Blower Protection Act of 1978

False Claims Act

Protection for Whistleblowers − The Anti-Retaliation Statutes

Passed in many states and by federal agencies

Prohibit firing, demotion, reprimands, and pay cuts of employees who report conduct of their employers

Public Policy

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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:

Consult family and close friends for perspective and support.

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).

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Case 16.6 Hadley v. Duke Energy Progress (2016)

What were Hadley’s concerns?

Does he qualify for protection as a whistleblower?

Public Policy

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Protection for Whistleblowers − The Anti-Retaliation 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

Public Policy

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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

International Law

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