2. ©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. A GENCY AND THE E MPLOYMENT R ELATIONSHIP Chapter 14 Meiners, Ringleb & Edwards The Legal Environment of Business, 12 th Edition

3. ©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. A GENCY R ELATIONSHIPS Agency is created when a person or company (agent) agrees to act for or in place of another person or company (principal) 1. The principal creates authority in an agent 2. The agent receives authority & carries out the principal’s instructions 3. Third parties make a contract or are involved in a tort with the agent Result: The principal is bound by the agent’s acts with a third party

4. ©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. C LASSIFICATION OF A GENTS Agents are classified on the basis of the authority provided 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. 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

5. ©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. C REATING AN A GENCY Agreement of the Parties May be oral or written The 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 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 principal’s authority Necessity or emergencies create agency existence The agent may do the acts and bind the principal by operation of law

6. ©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. A CTS FOR THE P RINCIPAL Actual Authority o Principal sends signals to the agent to do something with a third party o Express Authority: Oral or written instructions create the authority o Implied Authority: Principal’s conduct or trade customs create authority Apparent Authority o Principal sends signals to the third party that what the agent does binds the principal o There is the appearance of authority that a third party could reasonably conclude

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. C ASE C ASE C OVE M ANAGEMENT V. AFLAC, I NC. Galgano signed an “Associates Agreement” with AFLAC in 2004. Authorized him to solicit applications for AFLAC insurance policies. Agreement stated Galgano was an independent contractor. Without authority to bind AFLAC for his “debts, faults or actions.” Also stated that Galgano may not enter into contracts or incur debt on behalf of AFLAC. Another agreement, signed in 2005: Stated Galgano did not have authority to “rent any office space” or obligate AFLAC without “specific written authorization”. In 2009: 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 as lessee and guarantor. Later he defaulted on lease payment. Cove sued AFLAC for losses. Cove noted that office was clearly listed as an AFLAC office and engaged in business for AFLAC. Cove asserted it had right to presume that Galgano had authority as an agent to bind AFLAC to lease District court dismissed the suit; Cove appealed. (Continued)

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. Determination of Galgano’s authority will define him as either independent contractor or an agent of AFLAC. Authority may be either actual or apparent. Cove argued that AFLAC clothed Galgano with apparent authority, created liability in AFLAC as lessee under lease. Apparent authority defined: “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.” Most evidence came into existence AFTER signing of the lease. 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 did not make any 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. HELD: Affirmed. Galgano was not acting under apparent authority. C ASE C ASE C OVE M ANAGEMENT V. AFLAC, I NC.

9. ©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. P RINCIPAL ’ S D UTIES TO AN A GENT Cooperation – with the agent in fulfilling 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 meet legal obligations Indemnify (pay back) – for legal liabilities incurred by the agent See Exhibit 14.2

10. ©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. A GENT ’ S D UTIES TO THE P RINCIPAL Loyalty – place the principal’s interest above the agent’s Can’t 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 – as to all facts of the agency purpose.

11. ©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. C ASE C ASE B EARDEN V. W ARDLEY C ORPORATION Bearden listed some rental property for sale with real estate agent, Gritton who worked for Wardley Corp. (real estate firm). After listing property 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 warranty deed with other documents for Bearden to sign. She signed; he had signature improperly notarized; recorded the deed and title was transferred to Gritton. Gritton doesn’t keep up on payments. Bearden hires a lawyer; lawyer discovers Gritton’s fraud and that Gritton had also 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, & breach of fiduciary duty. (Continued)

12. ©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. Jury awarded $75,000 damages + $25,000 punitive damages + $50,000 attorney fees, costs, etc. against Gritton & Wardley. Wardley and appealed. HELD: Affirmed. Listing contract was with Wardley, with “fiduciary duties to seller” clause in it. Wardley’s internal policy prohibited agents to purchase properties they listed. Gritton was employed by Wardley: Knew of listing agreement; Knew Gritton had purchased the property 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. C ASE C ASE B EARDEN V. W ARDLEY C ORPORATION

13. ©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. C YBER L AW C YBER L AW “COMPUTER ABUSE BY EMPLOYEES” Citrin worked for a real estate development company to help identify properties that the company may buy. He decided to go into business for himself – compete with employer. To cover his tracks, he installed a program to scrub his company computer clean of all information. Some of the files would show he was collecting information for himself; others were company files he developed. His computer had the only copy – valuable info. was destroyed. Company sued him for violating the Computer Fraud and Abuse Act – that holds it illegal to intentionally damage a protected computer. Federal Appeals Court held Citrin breached his duty of loyalty. When he breached his duty by planning his own gain, he no longer had an agency relationship that gave him access to company files. He then was liable for destroying files by accessing a computer he had no right to use.

14. ©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. L IABILITY FOR C ONTRACTS 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 the 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. 5. An agent is liable to a third party if there is an undisclosed principal. Agent may be indemnified by principal if agent acted within scope of his authority.

15. ©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. C ASE C ASE Y IM V. J’ S F ASHION A CCESSORIES, I NC. 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. He denied liability, saying he acted as an agent for a corporation-principal, Hosung Enterprise, Inc. Hosung did business under name Ho Tae. Fashion said that at no time did Yim disclose existence of corporation entity with whom they were dealing. 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. (Continued)

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. HELD: Affirmed. Agent who makes a contract without giving identity of principal becomes personally liable. 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. C ASE C ASE Y IM V. J’ S F ASHION A CCESSORIES, I NC.

17. ©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. T ERMINATING AN A GENCY Either party may terminate (unilateral termination) Agent says, “I quit!” Principal says, “You’re fired!” Specific date set for agency to end Purpose of agency is fulfilled Notice of termination must be made to 3rd parties to end an agent’s apparent authority Termination by operation of law Principal or agent dies Subject matter of the agreement is lost or destroyed

18. ©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. T HE E SSENTIAL E MPLOYMENT R ELATIONSHIP Principal-Agent Agent acts on behalf of the principal; Agent has a degree of personal discretion; Principal is usually liable; Master-Servant or Employer-Employee Master-servant is old term still often used; Now the term employer-employee is used more; Servant’s conduct is controlled by employer; The servant can also be an agent (distinction is sometimes blurred); Employer is usually liable Employer-Independent Contractor (I/C) Not an employment relationship; Employer has no control over the details of the I/C’s performance; Some contractors are not agents; However, sometimes they can be agents (attorneys, auctioneers); Usually employer is not liable for the I/C’s torts

19. ©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. C ASE C ASE F RANCE V. S OUTHERN E QUIPMENT C O. Hensley did business under trade name Royalty Builders. Hired 16-year-old Robert France to do roofing work. Southern Equipment needed a new metal roof on a building. Accepted bid form Quality Metal Roof. Quality hired Royalty to work and 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 Builders. Southern Equipment could not be held vicariously liable as Royalty Builder’s (thereby France’s) employer.

20. ©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. E MPLOYMENT - AT -W ILL Employers: Can hire & 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 contract had limits to employer’s rights to discharge Can be contractual limits to at-will There may be a general public policy against dismissal Exceptions: Refusing to violate laws Important public duty (jury duty) Public right (filing for workers’ compensation) “Whistle Blowing” Breach of employment contract through express contract; implied contract; or implied covenant of good faith and fair dealing

21. ©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. C ASE C ASE G UZ V. B ECHTEL N ATIONAL, I NC. Guz worked for Bechtel (BNI) 1971-1993 with a good employment record under employment at will. Termination 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 an at-will employee. Appeals court reversed, holding that his longevity, raises, etc. warranted a retrial. HELD: 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.

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. E MPLOYMENT H ANDBOOKS 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

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. S OCIAL M EDIA S OCIAL M EDIA Companies adjusting to new technologies/innovations Improper actions can bring lawsuits or bad image Section 230 of Communications Decency Act (CDA) provides immunity for content posted/ submitted by 3rd parties if company is merely a publisher This will not help content posted by company employees Even if employee is not tweeting in official capacity Employee still within “scope of employment” Reasonable person could expect that tweeter was authorized by the company To minimize liability, companies restrict unofficial company social media endeavors: Limit who can post official social media; Limit want can be posted Have means for addressing infringement & other claims Companies may restrict links to outside sites (i.e. You Tube) Editing offensive content is important Problems with sending e-mails that could create sexual harassment Companies may want to restrict employees’ non-work blogs Under employment-at-will firms can impose restrictions. Fire those who break the rules.

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. P RINCIPAL ’ S L IABILITY o If the principal directs the agent to do tortious acts, then the principal is liable. o Principal may give actual authority or instructs to do a certain act. o Principal ratifies agents conduct. Vicarious Liability “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. Rare for an employer to be liable for acts committed by an independent contractor. Employers may be liable for torts of employees due to negligent hiring or supervision.

25. ©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. C ASE C ASE A RMSTRONG V. F OOD L ION, I NC. Armstrong went to Food Lion store with his mother, Tillie, to buy food. Three men in Food Lion uniforms approached Ronnie. One, Brown, had been in a fight with Ronnie 2 years before. He attacked Ronnie with a box cutter. Another employee, Cameron, also attacked Ronnie. When Tillie came to help Ronnie, Cameron punched her and knocked her down. Another shopper helped Tillie and called for assistance. Armstrong sued Food Lion for numerous torts. Trial held for Food Lion; appeals court affirmed. Armstrong appealed. HELD: Affirmed. Respondeat superior does not apply here. Acts of the employees were for an independent purpose than service to their employer at the store. Brown and Cameron were not furthering Food Lion’s business in any manner when they attacked the Armstrong.

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. N EGLIGENT H IRING Negligent Hiring: Intentional torts committed by an employment who is not acting in the scope of employment Obligations to check background of an employee Since no longer that costly, duty arises by employee to do background checks 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