Chapter 16 Employment Relationships

Introduction 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.

Introduction 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.

Agency Relationships Agency is a “fiduciary” relationship based on trust and confidence. Distinguish Employee vs. Independent Contractor Relationships. Employer Employee Independent Contractor

Employee vs. Independent Contractor Relationship Factors Courts Consider: 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? Is the work usually done under Employer’s supervision? Does Employer provide the tools? Has the worker been employed a long time? Is the worker paid at the end of the job? Is there a great degree of skill required?

Employer Liability Determining whether the worker is an employee or an independent contract affects liability of Principal/Employer. Tax Liability: Employer liable if employee. Contract Liability: Employer not necessarily liable. Tort Liability: Employer liable for torts of employee within scope of employment.

Agency Formation Consensual Agreement. No consideration required. Principal needs contractual capacity, Agent does not. For any legal purpose.

Types of Agencies Agency by Agreement. Agency by Ratification. Agency by Estoppel. Agency by Operation of Law. Necessaries for family. Emergency.

Agency By Agreement Formed through express consent (oral or written) or implied by conduct. Case 16.1 Acordia of Virginia Insurance Agency, Inc. v. Genito Glenn, L.P. (2002).

Agency by Ratification Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent.

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.

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.

Agent’s Duties to the Principal Performance: reasonable diligence and skill (special skills). Notification to P. Loyalty (no conflict of interest). Obedience. Accounting.

Principal’s Duties to the Agent Compensation (Express or Implied). Reimbursement and Indemnification. Cooperation. Provide safe working conditions.

Agent’s Authority Actual Authority: Can be Express or Implied.  Oral or written. “Equal Dignity Rule”: if law requires written contract, Agent’s authority must be in writing. Failure to comply with the rule renders contract voidable. Exceptions: Officer acting for Corporation. Agent acts in Principal’s presence.

Implied Authority Inferred or conferred by custom, Agent’s position or what is reasonably necessary to carry out express authority. What the Agent reasonably thinks the Principal means.

Apparent Authority Principal, by either word or act, causes 3rd party to reasonably believe that Agent has authority to act for Principal. If 3rd party changes legal position by relying on Principal’s representations, Principal is estopped from denying Agent had authority to contract.

Ratification 1. Agent must act on behalf of Principal. 2. Principal must affirm entire deal. 3. Principal must affirm before 3rd party withdraws from transaction. 4.Principal and 3rd party must have legal capacity to contract when Agent made the deal. 5. Principals must know all the material facts involved in the transaction.

Liability for Contracts Principal’s liability for Agent’s contract depends on whether Agent’s actions were authorized or unauthorized.

Liability for Contracts Principals are classified as: Disclosed: identity known to 3rd P. Partially Disclosed: 3rd P knows he is dealing with Agent, but doesn’t know Principal’s identity. Undisclosed: 3rd party does not know he is dealing with an Agent, and Principal’s identity is totally unknown.

Liability for Authorized Acts Disclosed or partially disclosed Principal is liable to 3rd party if Agent acts within scope of authority. Agent has no liability to 3rd P for disclosed Principal’s non-performance. (Agent may be liable if Principal is partially disclosed). Case 16.2 McBride v. Taxman Corp. (2002).

Liability for Authorized Acts If undisclosed Principal, no liability unless: Principal expressly excluded. Contract is a negotiable instrument. Agent’s performance is personal. 3rd party would have contracted if he knew the Principal’s identity.

Unauthorized Acts Unauthorized acts outside of Agent’s express, implied or apparent authority. If Agent has no authority, Principal is not liable, but Agent is liable.

Liability for Torts and Crimes Agent is liable to 3rd party for his own torts. Principal may be liable for Agent’s torts if they result from: Principal’s own tort. Principal’s authorization of tort. Agent’s unauthorized but fraudulent conduct made within scope of agency.

Respondeat Superior Applies only to Employer-Employee relationships. Principal/Employer is vicariously liable for Agent/Employee’s negligent torts. committed within the Agent’s “course and scope of employment.”

“Course and Scope of Employment” Factors (p. 523) For Principal to Be Liable, Agent’s Act must have occurred within the Course and Scope of Employment. Employer Liable Employer NOT Liable Was Employee’s act authorized by Employer? Yes No The Time place and purpose of act (factually based) ? Was act commonly performed by Employees? Did act advance Employer’s interests? Did Employer furnish instrumentality (tools)? Did Employer have reason to know Employee would do the act? Did the act involve a serious crime?

Liability for Employee’s Intentional Torts Principal liable for intentional torts committed with the scope of employment. Employee is a tortfeasor as well. Employer is liable for Employee’s acts which Employer knew or should have known the Employee had a propensity to commit.

Liability for Independent Contractor’s Torts First determine whether worker is employee or independent contractor. General rule: Employer is not liable for acts of independent contractors because Employer no right to control. Exception: hazardous activities. Independent Contractor is liable for her own torts.

Liability for Agent’s Crimes General Rule: Agent is liable, Principal is not, unless: Principal authorized or participated in crime. Some jurisdictions hold Principal liable for violating statutes.

Wage-Hour Laws Davis-Bacon Act -- the prevailing wage act. Walsh-Healey Act -- beginning of minimum wages. Fair Labor Standards Act (FLSA): Extension of wage and hour regulation to workers in interstate commerce. Child Labor: FLSA prohibits oppressive child labor practices.

Labor Unions Norris-LaGuardia Act. National Labor Relations Act. Protects peaceful strikes by limiting the injunction powers of federal courts. National Labor Relations Act. Establishes the right of workers to strike and engage in collective bargaining.

Labor Unions Labor Management Relations Act. Prohibits certain unfair union practices such as closed shops. Labor-Management Reporting and Disclosure Act. Regulates the internal operations of unions and outlaws hot-cargo agreements.

Worker Health and Safety The Occupational Safety and Health Act. (OSHA). The fundamental federal law aimed toward safety in the workplace. Enforcement is by OSHA, NIOSH, and the OSHRC.

Workers’ Compensation These laws reduce employer liability to employees for workplace injuries, and provide a measure of assurance that workplace injuries will be compensated, regardless of the solvency of the employer, by: Requiring that injured employees make a claim against the employer’s workers’ compensation insurance policy, instead of suing the employer. Requiring most employers to carry workers’ compensation insurance.

Income Security The primary income security laws are Social Security and Welfare. Case 16.3 U.S. v. Cleveland Indians Baseball, Co. (2001). Private Pension Plans. Employee Retirement Income Security Act (ERISA) gives employee a vested right to receive pension benefits at a future date when she stops working. Unemployment Compensation.

COBRA COBRA prohibits the discontinuance of insurance benefits of workers who have voluntarily or involuntarily been separated from work, unless the involuntary separation was on the basis of gross misconduct. Employers must comply if they have more than 20 employees.

FMLA The FMLA requires employers with over 50 employees to provide unpaid leave to employees who need to care for a spouse, child, or parent suffering with a serious medical condition. The employee cannot be terminated for taking leave under the policy, and has the right to restoration to the same or a similar position upon return to work. Case 16.4 Nevada Dept. of Human Resources v. Hibbs (2003).

Employee Privacy Rights Electronic Monitoring in the Workplace. Electronic Communications Privacy Act allows employers to monitor electronic communications in the workplace. But it prohibits intentional interception of personal communications ECPA does permit employers to monitor employee electronic communications in the course of business.

Employee Privacy Rights Privacy Expectations and Email systems Courts generally hold for employers. Other Types of Monitoring Lie Detector Tests. Prohibited, except under the ongoing investigation exception. Drug Testing. Most government employees are subject to testing and the rights of private employees vary from state to state. AIDS Testing. Some state statutes restrict AIDS testing.

Employee Privacy Rights Other Types of Monitoring. Electronic Performance Surveillance.Most limitations can be avoided if the employer informs employees that surveillance will occur. Screening Procedures. Application question must have some reasonable connection to the job sought.