chapter 18 management of employee conduct: agency

Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning

Chapter 18Management of Employee

Conduct: Agency

Its Legal, Ethical, and Global Environment

MARIANNE M. JENNINGS

7th Ed.

2 Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning

• 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.• Agent: Party who acts for another.• Principal: The party for whom the

agent acts.

TerminologyTerminology


• 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.• Regularity of hours and pay.• Length of employment.



• 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.



• Three Parts to Agency Law:– Creating the agency relationship.– Relationship between principal and

agent.– Relationships of agent and principal to

third parties.



• 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 CreationAgency Creation


• The Writing.– If the agent’s contracts must be in

writing, the authority must be in writing.• 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.



• 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.



• Case 18.1 Montoya v. Grease Monkey Holding Corp. (1995).– What was the apparent authority

Sensenig had?– What representations were made to

Montoya?– Is this apparent or actual authority?

Apparent AuthorityApparent Authority


• Agency by Ratification.– Principal reviews contract and decides to

honor it even though agent had no authority to enter into it.

• Fiduciary Relationship.– 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.



• Case 18.2 Silva v. Bisbee (1981).– What did agent Bisbee fail to disclose?– Was agent Bisbee representing both

sides in a transaction?– Why is Midkiff also liable?

Fiduciary DutiesFiduciary Duties


• Case 18.3 Coady v. Harpo, Inc. (1999).– What did Ms. Coady agree to at the time

of employment?– Is there a difference between a

confidentiality agreement and covenant not to compete?

– Was the Oprah covenant enforceable?

Loyalty: CovenantsLoyalty: Covenants


• 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 DutiesRights and Duties


• 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 LiabilityPrincipal’s Liability


Principal’s LiabilityPrincipal’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


• 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.



• Case 18.4 Faverty v. McDonald’s Restaurant of Oregon, Inc. (1995)– Why would a restaurant association have

an interest in the outcome of the case?• Case 18.5 Lange v. National

Biscuit Co. (1973)– What test does the court give for

determining scope of employment?

Scope of EmploymentScope of Employment


Negligent HiringNegligent Hiring• Case 18.6 Doe v. Norwich Roman

Catholic Diocesan Corp. (2003).– Does respondeat superior apply here?– Why is negligent hiring an issue in this

case? – What must the plaintiff prove to recover

against the church?


• 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.



• 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 TerminationAgency Termination


• 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-WillTermination of At-Will


• 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.



• 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.



• 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.



• 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.



• The Implied Contract– In some states personnel manuals will be

a contract if employees rely on its procedures.

• Case 18.7 Dillon v. Champion Jogbra, Inc. (2002).



• The Public Policy Protection—Whistle-Blowers:– Whistle Blower Protection Act of 1978.– False Claims Act.

• Protection for Whistle-Blowers—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 PolicyPublic Policy


• Protection for Whistle-Blowers—The Anti-retaliation Statutes.– Federal level—Energy Reorganization Act

affords protection for employees involved in nuclear work.

– Whistle-Blowing for Both Employers and Employees.

– Many companies have created a peer review process for termination and other actions against employees.



• Case 18.8 Gardner v. Loomis Armored, Inc. (1996).– Does this case create an affirmative

legal duty for helping those in danger?– Can an employee in Washington be fired

for assisting a citizen who is a crime victim?



• 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 LawInternational Law

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