net Agency and Employment UNIT Law 6 Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Copyright 2019 Cengage Learning.
All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience.
Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Tai Lieu Chat Luong www.net 28 CHAPTER Agency Law Lauren Brenner had a great idea for a new kind of fitness studio in New York. Called Pure Power Boot Camp, Brenner’s gym was modeled on a U. Marine training facility, with an indoor obstacle course, camouflage colors, and a rubber floor designed to look like dirt.
Brenner’s special insight was that people would be more likely to stick to an exercise regime if they worked out together in a small group. So she limited classes to 16 people (called “recruits”) who went through the training program together (a “tour of duty”). Brenner also hired retired Marines as “drill instructors.” Ruben Belliard, a retired Marine, was Pure Power’s head drill instructor. On his recommen- The two men went to war dation, Brenner also hired Alexander Fell.
But, as against her. Brenner began plans to franchise her concept, the two men went to war against her. They decided to start their own copycat gym, which was to be called Warrior Fitness Boot Camp. While still employed by Brenner, Belliard and Fell rented a gym space nearby.
Belliard stole copies of Pure Power’s confidential customer list, business plan, and operations manuals. The two men sent marketing emails about Warrior to Pure Power’s clients and even invited them to a cocktail party to announce Warrior Fitness’s launch. Then one day at Pure Power, Fell openly defied Brenner’s instruc- tions, screaming at her that he dared her to fire him. She had little choice but to do so.
Belliard then convinced her to fire another drill inspector. Two weeks later, Belliard quit without giving notice, intentionally leaving Brenner with only one drill instructor. Two months later, Fell and Belliard opened Warrior Fitness. Copyright 2019 Cengage Learning.
All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Copyright 2019 Cengage Learning. All Rights Reserved.
May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.net Chapter 28 Agency Law 695 Thus far, this book has primarily dealt with issues of individual responsibility: What happens if you knock someone down or you sign an agreement? But most businesses need more than one worker.
Certainly Lauren Brenner could not operate her business by herself. That is where agency law comes in. It is concerned with your responsibility for the actions of others and their obligations to you. What happens if your agent assaults someone or signs a contract in your name? Or tries to leave with all of your clients? Hiring other people presents a significant trade-off: If you do everything yourself, you have control over the result.
But the size and scope of your business (and your life) will be severely limited. Once you bring in other people, both your risks and your rewards can increase immensely. The Pure Power case highlights a common agency issue: If your employees decide to leave, what obligation do they owe you in that period before they actually walk out the door? The court’s opinion is later in the chapter. 28-1 THE AGENCY RELATIONSHIP Principals have substantial liability for the actions of their agents.1 Therefore, disputes about whether an agency relationship exists are not mere legal quibbles but important issues with potentially profound financial consequences.
28-1a Creating an Agency Relationship Let’s begin with two important definitions: • Principal: A person who has someone else acting for him Principal In an agency relationship, the • Agent: A person who acts for someone else person for whom an agent is acting In an agency relationship, someone (the agent) agrees to perform a task for, and under the control of, someone else (the principal). To create an agency relationship, there must be: Agent In an agency relationship, the • A principal and person who is acting on behalf of a principal • An agent, • Who mutually consent that the agent will act on behalf of the principal and • Be subject to the principal’s control • Thereby creating a fiduciary relationship. Consent To establish consent, the principal must ask the agent to do something, and the agent must agree. In the most straightforward example, you ask a neighbor to walk your dog, and she agrees.
Matters were more complicated one night when Steven James sped down a highway and crashed into a car that had stalled on the roadway, thereby killing the driver. In a misguided attempt to help his client, James’s lawyer took him to the local hospital for a blood test. Unfortunately, the test confirmed that James had indeed been drunk at the time of the accident. 1The word principal is always used when referring to a person.
It is not to be confused with the word principle, which refers to a fundamental idea. Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
WCN 02-200-203 Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.net 696 Unit 6 Agency and Employment Law The attorney knew that if this evidence was admitted at trial, his client would soon be receiving free room and board from the Massachusetts Department of Corrections. So at trial, the lawyer argued that the blood test was protected by the client-attorney privilege because the hospital had been his agent and therefore a member of the defense team. The court disagreed, however, holding that the hospital employees were not agents for the lawyer because they had not consented to act in that role.
The court upheld James’s conviction of murder in the first degree by reason of extreme atrocity or cruelty.2 Control Principals are liable for an agent’s acts because they exercise control over that person. If prin- cipals direct their agents to commit an act, it seems fair to hold the principal liable when that act causes harm. How would you apply that rule to the following situation? William Stanford was an employee of the Agency for International Development. While on his way home to Pakistan to spend the holidays with his family, his plane was hijacked and taken to Iran, where he was killed.
Stanford had originally purchased a ticket on North- west Airlines but had traded it for a seat on Kuwait Airways (KA). The airlines had an agree- ment permitting passengers to exchange tickets from one to the other. Stanford’s widow sued Northwest on the theory that KA was Northwest’s agent. The court found, however, that no agency relationship existed because Northwest had no control over KA.3 Northwest did not tell KA how to fly planes or handle terrorists; therefore, it should not be liable when KA made fatal errors.
Not only must an agent and principal consent to an agency relationship, but the principal also must have control over the agent. Fiduciary Relationship Fiduciary relationship A fiduciary relationship is one of trust: The beneficiary places special confidence in the The trustee must act in the best fiduciary who, in turn, is obligated to act in good faith and candor, doing what is best for the interests of the beneficiary. beneficiary, rather than acting in his own best interest. Agents have a fiduciary duty to their principals.
All three elements—consent, control, and a fiduciary duty—are necessary to create an agency relationship. In some relationships, for example, there might be a fiduciary duty but no control. A trustee of a trust must act for the benefit of the beneficiaries, but the benefi- ciaries have no right to control the trustee. Therefore, that trustee is not an agent of the beneficiaries.
Consent is present in every contractual relationship, but that does not necessarily mean that the two parties are agent and principal. If Horace sells his car to Lily, they both expect to benefit under the contract, but neither has a fiduciary duty to the other and neither controls the other, so there is no agency relationship. Elements Not Required for an Agency Relationship Consent, control, and a fiduciary relationship are necessary to establish an agency relation- ship. The following elements are not required for an agency relationship: • Written agreement.
In most cases, an agency agreement does not have to be in writ- Equal dignities rule ing. An oral understanding is valid, except in one circumstance—the equal dignities If an agent is empowered to rule. According to this rule, if an agent is empowered to enter into a contract that enter into a contract that must must be in writing, then the appointment of the agent must also be written. For be in writing, then the appoint- example, under the Statute of Frauds, a contract for the sale of land is unenforceable ment of the agent must also be unless in writing, so the agency agreement to sell land must also be in writing.
Kuwait Airways Corp. Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
WCN 02-200-203 Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.net Chapter 28 Agency Law 697 • Formal agreement. The principal and agent need not agree formally that they have an agency relationship. They do not even have to utter the word agent.
So long as they act like an agent and a principal, the law will treat them as such. An agency relationship need not meet all the standards of contract law. For example, a contract is not valid without consideration, but an agency agree- ment is valid even if the agent is not paid. 28-1b Duties of Agents to Principals As we have seen, agents owe a fiduciary duty to their principals.
There are four elements to this duty. Duty of Loyalty An agent has a fiduciary duty to act loyally for the principal’s benefit in all matters connected with the agency relationship.4 The agent has an obligation to put the principal first, to strive to accomplish the principal’s goals. The following case reveals the outcome of the opening scenario. Pure Power Boot Camp, Inc.
Warrior Fitness Boot Camp, LLC 813 F. 2d 489 United States District Court for the Southern District of New York, 2011 Facts: Based on the facts in the opening scenario, Brenner for the employer, he or she may not do so at the employer’s filed suit against Belliard and Fell, alleging that they had expense, and may not use the employer’s resources, time, violated their duty of loyalty to her company.