Determine if the contracts with the businesses will be governed by common law or the Uniform Commercial Code (UCC), and explain why.

  •  Review the assignment instructions for the Final Paper in Week Five. Submit an outline for your Final Paper that includes the following:
  • Develop an introduction with a thesis statement for the Final Paper.
  • Create an outline of the major headings with a two- to three-sentence description of what you will discuss under each heading.
  • Provide a references page for the sources used in the Final Paper (the Final Paper has a minimum requirement of five scholarly sources).
  • State the complete bibliographic citation for the scholarly source following APA guidelines
  • The outline must be two to three pages in length (excluding title and reference pages) and formatted according to APA style 

You are the manager of Acme Fireworks, a fireworks retailer who sells fireworks, puts on ground display fireworks, and large aerial display fireworks. The company started in the owner’s garage two years ago and now has 15 employees that you manage. The company started as a sole proprietorship, and the owner has never changed the entity. The owner has informed you that the company has received inquiries from several large businesses wondering if the company could create several fireworks displays on a regular basis. The owner told the inquirers that the company could fill such display orders, and a price per display was agreed upon. It was discussed that most of the cost for a fireworks display is for skilled labor, insurance, and the actual service of setting off the fireworks. No other details were discussed. The owner is anticipating that new employees will need to be hired, but he is worried that if the large orders for fireworks displays do not continue, the company will not have the funds to pay the new employees. The owner is now considering changing the business entity, but he does not know what entity to form or how to form it.

The owner has asked you to do the following:

  • Determine if the contracts with the businesses will be governed by common law or the Uniform Commercial Code (UCC), and explain why.
  • Analyze whether the owner formed a contract with the businesses, and apply the five essential elements of an enforceable contract.
  • Explain the potential personal liability to Acme Fireworks if a spectator is injured by a stray firework from a fireworks display.
  • Discuss the different employment types and relationships relevant to agency law, and analyze the advantages and disadvantages of each type specific to Acme Fireworks.
  • Explain why Acme Fireworks should not operate as a sole proprietorship. Recommend a new business entity, and provide rationale to support your recommendation.

For each task, be sure to analyze the relevant law, apply the facts to the law, and make a conclusion.

Rogers, S. (2012). Essentials of Business Law [Electronic version]. Retrieved from https://content.ashford.edu/

  • Chapter 12: Agency and Employment Law 

Recommended Resources 

Article

Muhl, C. J. (2001). The employment-at-will doctrine: Three major exceptions (Links to an external site.)Links to an external site.. Monthly Labor Review, 124(1), 3-11. Retrieved from http://www.bls.gov/opub/mlr/2001/01/art1full.pdf

  • This article details the history, current status, and three exceptions to employment-at-will.

Interactive Exercise

Rogers, S. (2012). Essentials of Business Law [Electronic version]. Retrieved from https://content.ashford.edu/

243

Chapter Overview

12.1 Agency • Types of Agencies • Formation of the Agency • Agent’s Duties • Principal’s Duties • The Principal’s Liability for the Agent’s Contracts • The Agent’s Liability on the Contract • Tort Liability and Agency

12.2 Termination of Agency • Voluntary Termination • Termination by Operation of Law • Irrevocable Agencies • Notice to Third Parties Upon Termination of

an Agency

12.3 Employment and Labor Law • Labor Law • Employment Discrimination

12.4 Chapter Summary • Focus on Ethics • Case Study: Weingart v. Directoire Restaurant, Inc. • Case Study: Christopher v. SmithKline Beecham Corp.

Critical Thinking Questions • Hypothetical Case Problems • Key Terms

12 Learning Objectives

After studying this chapter, you will be able to:

1. Describe how agencies are created and terminated.

2. Discuss the rights and duties of principals and agents.

3. Explain the liability of principals and agents to third parties.

4. Describe some ways in which employment is regulated by the government.

Agency and Employment Law

Scott Anderson/Associated Press

rog80328_12_c12_243-266.indd 243 9/20/16 11:03 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

244

CHAPTER 12Section 12.1 Agency

Today’s businesses are primarily made up of a series of legal relationships. Compa-nies hire employees and independent contractors to do their work. Although the law gives the parties some freedom to structure their own relationships through bargaining collectively or individually, both the common law and government regula- tions also impose some restrictions.

Although it sometimes may seem that government is taking on a big role in regulation of business relationships, in fact the United States has fewer laws protecting workers than any other industrialized nation. Most of these countries, including Canada, Japan, and the Eurozone, prevent an employer from terminating employees without due cause, and require more in terms of benefits.

The rules of agency law come from the common law, and potentially apply to any situa- tion where one person is acting for another, even if it is as informal as picking up a carton of milk from the grocery store for your roommate, or as complex as the president of a mul- tinational corporation making a million-dollar deal. Employment and labor law, on the other hand, are statutory regulations the government has enacted to govern some aspects of employer-employee relations. In this chapter we shall examine all of these areas of law.

12.1 Agency

An agency is a relationship where one party, the agent, agrees to act on behalf of another, the principal. Agencies are crucial to modern business relationships, since it is almost impossible for the owner of a business to conduct all transac- tions without help. Without agency law, corporations could not exist at all. Corporations can only function through their agents, since a corporation is an entity with no physical body. If ABC Inc. is going to make a deal to sell their products to Walmart, agents for both companies will have to make the contract for their companies.

Agencies do not have to be contracts, although they frequently are. If you agree to pick up that carton of milk for your roommate, you have formed an agency relationship even though you are not employed by your roommate, and have no contract with your room- mate (because your roommate is not giving you consideration; you are doing this favor out of the goodness of your heart). But regardless of whether there is a contract or employment situation, the parties in an agency relationship auto- matically have certain rights and duties, and liability automatically attaches in certain situations, regardless of what the parties themselves agreed to.

FedEx is the principal and the man with the boxes is the agent.

Mark Lennihan/Associated Press

rog80328_12_c12_243-266.indd 244 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

245

CHAPTER 12Section 12.1 Agency

Types of Agencies An agency can be either gratuitous, meaning the agent is doing the principal’s task for free, or compensated, as in most employment agencies.

Example 12.1. Petra asks her roommate Angel to drop off Petra’s dry clean- ing on her way to work. Angel is simply doing this as a favor, not for any compensation, which makes her a gratuitous agent. Petra is the principal, and the dry cleaner is the third party. Angel is obligating Petra to pay the dry cleaner’s bill when she leaves the clothes at the store. Angel has made a contract on behalf of her principal, in other words.

Example 12.2. Pretty Flower Shoppe hires Andrew to drive the delivery van, at a salary of $15 per hour. Andrew, halfway through his daily deliv- ery route, notices that the “check engine” light has gone on. He discovers the van is down a quart of oil, and stops at a BP station to buy oil and put it in the van. Pretty Flower is the principal, Andrew is the compensated agent, and the gas station is the third party.

Issues of contract liability are generally no different between compensated and gratuitous agents, but a principal has less tort liability for a gratuitous agent. For example, if both Angel and Andrew accidentally run over a pedestrian while doing their tasks for their principals, Petra will not be liable but Pretty probably will be.

Compensated agents also come in two types: employees (or servants, in the older common law terminology) and independent contractors. Although the principal’s contract liability is again basically the same, the tort issues are different. Principals are generally liable for the torts of servants that are committed within the scope of the relationship, but not for those of independent contractors.

What determines whether an agent is an employee or an independent contractor? Courts will look at a number of factors, the most important of which is degree to which the princi- pal had the right to control how the agent did the work. The more control, the more likely the agent is an employee. Other factors include whether the principal supplies the tools and place of work, whether the agent works only for the principal or is in a distinct busi- ness of his own, whether the agent is paid by time, rather than the job, and whether the work is part of the regular business of the principal.

Example 12.3. Pretty Flower Shoppe has Andrew to drive the delivery van, which is owned by Pretty. Andrew is paid an hourly wage, and works hours set by Pretty. Andrew is given the delivery addresses each day by Pretty. Andrew is an employee. If Andrew runs over Teresa, a pedestrian, while delivering flowers for Pretty, Pretty will likely be liable.

Example 12.4. Pretty Flower Shoppe pays $15 for UPS to deliver a large envelope containing financial information to Pretty’s accountant. Pretty does not tell UPS what route to use, or supply any tools to them. UPS is an independent contractor. If the UPS driver runs over Teresa while on the way to deliver Pretty’s package, Pretty is not liable.

rog80328_12_c12_243-266.indd 245 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

246

CHAPTER 12Section 12.1 Agency

We shall examine the tort liability issue in more detail later. There are other rea- sons why it may be significant whether an agent is an employee or independent contractor: for example, employers may have to deduct payroll taxes for their employees, while they do not do so for their independent contractors. Note that what the parties call themselves is not terribly significant to a court. In other words, a principal may label an agent an independent contractor, but if that agent otherwise has the characteristics of an employee, a court will likely impose an employer’s liability on the principal.

Formation of the Agency There are no particular formalities to forming an agency; it does not usually

have to be in writing, for example. However, under the equal dignities rule, if an agent’s task for the principal must be in writing under the Statute of Frauds, the agent’s authority to act must also be in writing.

Example 12.5. Pamela is selling her house, and she cannot be at the clos- ing to sign off on the title. She appoints Adam as her agent to do it for her. Adam will need written authority from Pamela, since transfers of real estate must be in writing.

What is necessary is that the principal and agent both consent. Also, both parties need a certain degree of capacity (or mental competency). The principal must have contractual capacity (discussed in Chapter Five), and the agent must have enough capacity to carry out the task. If you hire an agent to act as your attorney, obviously that person needs con- tractual capacity, but if you hire an agent to carry your groceries for you, a lesser degree would suffice.

An agency must also have a legal purpose. The head of a drug cartel’s arrangements with his dealers are not agencies.

Agent’s Duties Agency is a fiduciary relationship—a relationship based on trust, in which the agent owes the principal a duty to act with absolute good faith and honesty. In addition to the good faith and honesty demanded of fiduciaries, an agent owes his principal the duties of loyalty, obedience, performance, notification, and accounting. Each of these is briefly defined below.

People such as plumbers or carpenters are often independent contractors rather than employees. They have their own businesses and are hired to do a specific project.

Zoonar/Thinkstock

rog80328_12_c12_243-266.indd 246 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

247

CHAPTER 12Section 12.1 Agency

Agent’s Duty of Loyalty The agent owes his principal an absolute duty of loyalty. This means that in carrying out his duties as agent, the agent must put the interest of his principal above his own or those of third parties. This applies whether the agent is an employee or an independent contrac- tor. The duty of loyalty extends to, among other things, keeping confidential any sensitive information the agent learns through the agency relationship, as well as refraining from using the agency relationship for his own advantage or that of third parties—whether or not such use injures the principal. If the agent breaches the duty of loyalty, the principal can sue him for actual damages, as well as recover any profits that he has made through the abuse of the agency relationship. In addition, the agent’s authority will terminate.

Example 12.6. Phoebe hires Roseanne to act as her agent in buying a house at an auction and authorizes her to bid up to $200,000 on the property. While at the auction, Roseanne is surprised to find that no one bids more than $20,000 on the property and, finding it to be a bargain at that price, buys it for $20,500 for herself. She has violated the duty of loyalty to her principal in bidding on the house herself and can be sued by Phoebe for damages.

Obedience The agent must follow the reasonable, legal instructions of the principal to the letter. If she fails to do so, she is in breach of the agency agreement and can be sued for damages. When the principal’s instructions are vague or subject to more than one reasonable interpreta- tion, the agent discharges her duty of obedience by acting in good faith in a manner that is reasonable under the circumstances.

If in the last example Roseanne refuses to bid more than $50,000 for the house on Phoebe’s behalf, despite her specific instructions to buy it for up to $200,000, she would be guilty of violating her duty of obedience and could be sued for damages by Phoebe.

Performance An agent must use reasonable diligence and skill in performing his duties under an agency agreement. If the agent is a skilled professional, such as an attorney, physician, or accountant, then he must demonstrate the basic competence and skill for a practitioner in his profession. If the agent is acting pursuant to a valid agency contract (e.g., if he is being paid for his services), he can be sued for breach of contract if he fails to act as promised. Even if the agent is acting gratuitously, he is still subject to liability in tort for failure to exercise reasonable care in carrying out his duties under the agency (e.g., negligence or malpractice).

Notification Under an agency agreement, the principal is held to have putative (implied) knowledge of all that the agent knows concerning the agency; whatever knowledge the agent has that is relevant to the agency is held to also be known by the principal, whether or not she is actu- ally aware of it. Therefore, the agent has the duty to give timely notification to her prin- cipal about any matter concerning the agency that she learns in carrying out her duties.

rog80328_12_c12_243-266.indd 247 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

248

CHAPTER 12Section 12.1 Agency

In the last example, if Roseanne finds that the house is infested with termites prior to the bidding but still bids $200,000 on the house without first informing Phoebe of the termite infestation, she will be liable to Phoebe for breaching her duty of notification. (She will also be guilty of negligence in carrying out her duties.)

Agent’s Duty to Render an Accounting If there is no specific agreement to the contrary, agents have the duty to keep records of all transactions concerning the agency and to make them available to the principal upon request. All income and expenses resulting from the agency agreement for property in the agent’s control must be reported—even illegal transactions. If, for example, an agent is given a bonus or cash incentive for entering into a contract with a third party on the prin- cipal’s behalf, he must make an accounting to the principal of such a gift; it legally belongs to the principal. If the agent fails to account for such proceeds and to turn them over to the principal, he is guilty of breaching both his duty to account and his duty of loyalty.

Principal’s Duties Although the agency relationship primarily benefits the principal whom the agent serves, principals also owe certain duties to the agents who serve them. These include the duties of cooperation, compensation, indemnification, and reimbursement.

Cooperation A principal must assist the agent in the performance of her duties and must refrain from doing anything that impedes the agent from successfully carrying out her duties under the agency. The duty of coop- eration requires a principal to make available to his agent any information she needs in order to successfully carry out her duties under the agency. The duty prevents the princi- pal from directly or indirectly impeding the agent from faith- fully executing the assigned duties.

Example 12.7. Peter, owner of a luxury car dealership, sees that Anna, one of his sales staff, is showing a $200,000 sports car to a local bil- lionaire. Not wanting to pay Anna her 10 percent commission, Peter hur- ries down to the sales floor and insists that Anna take her lunch break. Peter then sells the car to the billionaire himself. Peter is breaching his duty to Anna, who was acting properly in trying to sell the car.

If this salesman’s supervisor were to come in and try to take this sale for himself and deprive the salesman of his commission, he would be breaching his duty of cooperation with the salesman.

michaeljung/iStock/Thinkstock

rog80328_12_c12_243-266.indd 248 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

249

CHAPTER 12Section 12.1 Agency

Example 12.8. Big Oil Inc. hires Aliya as an agent to negotiate drilling leases in Alaska. Aliya is to be paid partly on commission for each success- ful lease she obtains. In order to obtain the leases, Big Oil must first prepare certain environmental impact assessments. Aliya negotiates five separate leases, but because of Big Oil’s not completing the impact assessments in time, the deals fall through. Aliya has a case against Big Oil for breaching the principal’s duty of cooperation.

Compensation Unless the agent has made it clear that he is willing to undertake the duties of the agency gratuitously (free of charge), the agent is entitled to be compensated for his services, and the principal is obligated to compensate him. Usually, the compensation is agreed upon as part of the agency agreement. If no compensation is specified, and if it is not clear from the circumstances that the agent has agreed to render performance gratuitously, the agent is entitled to receive the reasonable value of his services.

Example 12.9. Larry asks Cathy, an attorney, to write the XYZ Department Store credit department to demand that they adjust an error in his account. Cathy (Larry’s agent for purposes of writing the letter) drafts the letter and bills Larry $100 for her services. Larry refuses to pay, claiming that he believed Cathy would not charge him for the service, and that no fee was specified at the time he asked her to draft the letter. Cathy would be entitled to the payment of a reasonable fee for her services, since no fee was specified; assuming $100 is the reasonable value of the service performed by Cathy in the locality where she practices law, Larry is under a duty to pay the fee. (Larry’s only defense is to prove that Cathy agreed to draft the letter gratuitously).

Duty of Indemnification The principal has the duty to indemnify, or compensate the agent for any losses suffered as a result of authorized legal acts that the agent performs under the agency agreement.

Example 12.10. Harry, the president of ZYX Corporation, is personally sued for breach of a contract he had entered into on behalf of his company. If he loses, he is entitled to indemnification from ZYX for any judgment he is forced to pay the plaintiff.

Example 12.11. Rhianna is an independent insurance agent who sells poli- cies on behalf of different companies. She sells a car insurance policy for Acme Insurance Inc. to Melissa. When Melissa’s car is damaged and Acme doesn’t pay, Melissa sues Rhianna. Acme must indemnify Rhianna for any legal costs.

Reimbursement The principal must reimburse the agent for any expenses incurred as a result of carrying out legal authorized acts under the agency agreement. (The agent must, of course, prop- erly document and account for all expenses to the principal.)

rog80328_12_c12_243-266.indd 249 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

250

CHAPTER 12Section 12.1 Agency

Example 12.12. In the earlier example, if ZYX does not provide Harry with counsel at its expense, he is also entitled to be reimbursed by ZYX for the cost of his legal defense.

The Principal’s Liability for the Agent’s Contracts When an agent acts within the scope of the authority vested in him by his principal, he binds the principal just as if the principal herself had undertaken the action. There are two types of authority that an agent can possess in acting on behalf of a principal: actual authority and apparent authority. If the agent acts pursuant to either actual or apparent authority, the principal will be bound by his actions. Additionally, even if an agent acts without authority, the principal will be bound if she ratifies the contract. We shall now examine these concepts in more detail.

Actual Authority Actual authority can be either express or implied. An agent acts with actual express author- ity when he performs in accordance with the instructions given to him by his principal. Express authority can be oral or written, as long as it specifically spells out what the agent is authorized to do. Actual authority can also be implied in one of two ways: it can be conferred by custom for the specific type of agency undertaken or it can be inferred as being reasonably necessary to carry out the agent’s express authority. For example, a life insurance salesperson will have the express authority to issue life insurance contracts for the principal company, as well as the implied authority to collect deposits from clients upon the signing of a life insurance contract, even if the authority to collect funds is not expressly mentioned in the agency contract (e.g., life insurance agents traditionally collect funds from new clients, so the authority is implied from the custom of the trade).

Apparent Authority Apparent authority will bind the principal to the agent’s contract on the principal’s behalf when the principal has (1) held out (or indicated in some way) that the agent was able to act on the principal’s behalf, and (2) the third party has reasonably relied on this.

Example 12.13. Peter hires Angela as his office manager. He tells her that although she can place small orders for office supplies (under $100), he will personally have to authorize any purchase over that amount. Despite this, Angela, who is tired of the old office printer that constantly malfunctions, calls up on Peter’s behalf Office Supply, with whom she regularly does business, and orders a $200 printer. Because Office Supply did not know about Peter’s instructions to Angela, and because by making her manager and having her order from Office Supply in the past, Peter has held her out as being able to contract on his behalf, so Peter will be liable to Office Sup- ply. Of course, Angela has breached her duty of obedience and may owe damages to Peter.

Ratification Even if the agent lacked authority to make a contract, the principal may still be liable if he ratifies the transaction after the fact. To ratify, a principal must first know all the material facts, and he must also ratify the entire transaction.

rog80328_12_c12_243-266.indd 250 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

251

CHAPTER 12Section 12.1 Agency

Example 12.14. Peter has been considering buying a used car. His friend Jill sees that Tom is selling his car for $3,000, which is a great deal. She contracts on Peter’s behalf to buy the car from Tom, with the car to be delivered next week. Jill had no authority to act for Peter, but when she tells Peter about the contract, he is thrilled and immediately ratifies. Peter is now bound to the contract as though he had made it himself in the first place.

Note that if Peter had been agreeable to the price but wanted the car immediately, he could not ratify just the first part of the contract. He would have to make his own contract with Tom for immediate delivery.

Ratification can be either express or implied. For example, if Jill has told Peter all about the contract above, and Tom now delivers the car to Peter’s house and hands Peter the keys, Peter is ratifying without expressly saying so, because he is taking the benefits of the contract.

However, at the time the agent made the contract, he must have indicated he was acting on behalf of the principal. In other words, the principal must have been disclosed to the third party. If the third party believes he is dealing only with the agent (because the third party is not aware the agent is in fact acting for someone else), the principal cannot ratify.

Example 12.15. Jason, without authority, tells Tiffany, “On behalf of Patri- cia, I offer to buy your bicycle for $200.” Tiffany accepts. Patricia could ratify, because she was disclosed to Tiffany when Jason made the contract. But if Jason simply said, “I know someone who would like that bike. She’ll buy it from you for $200,” Patricia could not ratify, since Tiffany did not know who Jason purported to represent.

The Agent’s Liability on the Contract When an agent acts with authority in making a contract, or if the principal has ratified an unauthorized contract, the agent has no liability to the third party, as long as the third party knows the agent is acting for the principal. This is because the third party can hold the principal liable, and indeed, was always planning on doing so. But what if the prin- cipal is unknown to the third party? What if the third party either thinks he is dealing with the agent (e.g. he doesn’t know a principal exists) or knows the agent is represent- ing someone, but doesn’t know who it is? In either of those cases, the agent is potentially liable to the third party.

Disclosed Principal A principal is disclosed when the third party is aware that the agent is acting as an agent for a named principal. When the third party contracts with an agent acting for a fully dis- closed principal, the agent is not a party to the contract and has no liability under it. If the principal breaches the contract, the third party must sue the principal directly and cannot sue the agent.

rog80328_12_c12_243-266.indd 251 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

252

CHAPTER 12Section 12.1 Agency

Example 12.16. The purchasing agent for ACME Computer Company places an order to buy 100 processing chips from a supplier. The supplier knows that the goods are being purchased for ACME by the agent, ACME’s purchasing manager. If ACME wrongfully refuses delivery of the goods, the supplier can sue ACME for breach of contract but cannot sue the agent personally, since ACME was a fully disclosed principal at the time that the contract was entered into.

Undisclosed and Partially Disclosed Principals An agent is acting for an undisclosed principal if the third party knows of neither the existence nor the identity of the principal. An agent acts for a partially disclosed principal if the third party knows the agent is representing someone, but doesn’t know who it is. Generally these two types of principals are treated in similar fashion, and the third party, once he learns of the principal, can elect to hold either (but not both) the principal or the agent to the contract.

Example 12.17. Mary Millionaire wants to buy an old farmhouse and ten acres of land to use as a vacation home. She thinks that if the owner, Fred Farmer, knows she is the potential buyer he will hike up the price. Mary authorizes Adam to act as her agent in the matter. Adam goes to Fred and makes a contract to buy the property for $65,000, not telling Fred that it is actually Mary buying the property. If neither Mary nor Adam shows up at the closing, Fred can sue Adam for breach. Of course, because Adam was acting properly as an agent, he could seek indemnification in turn from Mary—but Adam will have to pay Fred’s judgment regardless of what happens with Mary!

Of course, because Adam had authority, Fred could alternatively choose to sue Mary (who is what we refer to in the law as the deep pocket) on the contract.

Tort Liability and Agency Principals are generally liable for the torts of their employees/servants that are commit- ted within the scope of employment. The law uses several tests to determine whether an agent was within the scope, including:

• Was the agent’s conduct of the same general type authorized by the employer? • Was the agent on a detour (minor deviation, in which case the employer is still

liable, or a frolic (major deviation, in which case the employer is not liable)? • Was the agent motivated to serve the employer?

Keep in mind that the agent himself is also liable for his tort. When a tort is within the scope of the agency, the third party can hold both the principal and the agent liable,

rog80328_12_c12_243-266.indd 252 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

253

CHAPTER 12Section 12.2 Termination of Agency

although he cannot recover more than his total damages. This type of liability is known as joint and several, which means the third party can recover the whole amount or any percentage thereof from either party.

Example 12.18. Petra hires Arturio to be her chauffeur. Arturio negligently runs over Teresa while taking Petra home from the theater one night. Both Petra and Arturio are liable to Teresa. Teresa obtains a judgment for $100,000. She can collect the entire amount from Petra, or $30,000 from Arturio and $70,000 from Petra, or $50,000 from each of them, etc.

Example 12.19. While driving Petra to the mall, Arturio sees his hated ex- wife in the crosswalk, and deliberately runs her down. This intentional tort is outside the scope of the agency, and Petra is not liable. Arturio was not motivated to serve her, and his conduct was a major deviation from what he was hired to do.

Example 12.20. While on his way to get cigarettes for Petra, Arturio decides to stop for a few minutes to talk to his friend, who lives right next to the convenience store. After buying the cigarettes and chatting with his friend for a few minutes, Arturio backs out of the friend’s driveway and negli- gently runs over Tiffany. Since this was a minor detour from what Arturio was authorized to do, Petra will also be liable to Tiffany.

12.2 Termination of Agency

An agency can be terminated either voluntarily or by operation of law. Once an agency terminates, the agent’s actual authority to bind the principal ends. The agent, however, will still retain apparent authority with respect to third parties with whom he has conducted business on the principal’s behalf until such third parties are notified that the agency has ended.

Voluntary Termination An agency may end voluntarily under the following situations:

Act of Either Party Since an agency relationship is consensual in nature, it can be terminated by either the agent or the principal at any time. In other words, the principal can fire the agent and the agent can quit. This is true even if there is a contract in effect for a certain period of time. In that case, however, the terminating party may owe damages for breach of contract; under such a time-specific contract, there is the power to terminate, but there is no right to terminate.

rog80328_12_c12_243-266.indd 253 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

254

CHAPTER 12Section 12.2 Termination of Agency

In the Media: Fired Because of Facebook

According to Facebook’s company website, there were 1.65 billion monthly active account users, as of March 2016. The Pew Research Center reported in August 2015 that 72% of adult internet users use Facebook. While it’s not known how many of those Americans are employed, those who are need to be careful about what they put on Facebook and other social media outlets, because some postings can be job killers. Even though an at will employee can be fired without cause, distasteful uses of social media—particularly those online comments that are employer-unfriendly—can still be the root of a termination decision. Here are some examples. While looking at them, consider whether you think that the fired employees were fairly treated.

Example 12.21. Peter and Angelica have a written contract that Angelica will be Peter’s purchasing agent for three years. At the end of the first year, Peter fires Angelica without any good reason. The agency has termi- nated, but Angelica can sue Peter for damages since two years remained on her contract.

If both parties agree to terminate the agency, the agency contract is rescinded and neither party will be able to sue the other for its breach.

Lapse of Time Suppose in the above example Peter didn’t fire Angelica. At the end of the three-year term, the agency will terminate by lapse of time. If Angelica continues to work for Peter, they will have an agency-at-will; in other words, an open-ended arrangement that either could terminate without liability.

Termination by the Occurrence of a Stated Event If the parties agree that the agency will terminate upon the happening of a given event, the agency automatically terminates when the stated event comes to pass.

Example 12.22. Peter hires Anne as his campaign manager for his presi- dential campaign for 2016. Anne’s agency will terminate on the day of the election.

Achievement of the Agency Objective When an agency is created to achieve a particular purpose, it automatically terminates when that purpose is achieved.

Example 12.23. Juan enlists Pedro as his agent for purposes of selling his home. Pedro’s authority under the agency ends as soon as the house is sold, and the agency is thereby terminated.

rog80328_12_c12_243-266.indd 254 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

255

CHAPTER 12Section 12.2 Termination of Agency

In the Media: Fired Because of Facebook (continued)

• A public school teacher in Atlanta, Georgia, was forced to resign after it was discovered that her Face- book account showed pictures of her on her Euro- pean vacation smiling while holding a beer and a glass of wine in each hand. In another post, she announced she was going to play “Crazy Bitch Bingo . . . with my bitches.” After someone anonymously made her private postings public, her principal threatened her with a firing, but gave her the option to resign. The teacher then sued to get her job back, unsuccessfully.

• A waitress in North Carolina was fired after posting unflattering comments on her Facebook page—and mentioning her restaurant’s name—about a couple who she said sat at their table for three hours, keeping her over her shift and also leaving her a crummy tip.

• A cheerleader from the New England Patriots was fired after a photo of her appeared on Face- book that showed her at a party, holding a Sharpie pen and smiling over a passed-out partygoer whose body and face were covered in derogatory comments, phallic symbols, and swastikas.

• A little league football coach was fired after he posted a derogatory comment about Asians on his Facebook account after eating at a Chinese buffet. He commented that Asians couldn’t be smarter than Americans because “those fishheads still eat with chopsticks.”

• After seeing a news story on a student who drowned on a school outing, a New York City fifth-grade teacher updated her Facebook status to say, “After today, I am thinking the beach sounds like a wonderful idea for my 5th graders! I HATE THEIR GUTS! They are the devils (sic) spawn!” The teacher was fired, but won her job back after suing. There, the court concluded that the punishment was too harsh. Interestingly, the court also stated that while the teacher should have known that an online posting was likely to become more public than simply say- ing the same thing to a friend over the phone, “her expectation that only her friends, all of whom are adults, would see the postings is not only apparent, but reasonable.”

• And of course, who could forget (as hard as one might try) the underwear-clad photos of then–U.S. Congressman Anthony Weiner, the married Democrat from New York City. In 2011, he accidentally made public a Twitter picture intended for a female fan, and his erro- neous tweet and other sext-messages and photos left him in need of a new career.

Social media, such as Facebook, have introduced an entirely new dynamic to the employer-employee relationship, and, in doing so, are also redefining how we conceive of the notion of public versus pri- vate. Workers as well as businesses need to be mindful of how such changes can affect their images and thus their livelihoods.

Sources: http://www.businessinsider.com/facebook-fired-2011-5?op=1 http://blog.internetcases.com/2012/02/09/facebook-privacy-employment-termination-contextual-integrity/ http://latimesblogs.latimes.com/gossip/2011/04/glee-spoiler-extra-fired-nicole-crowther-prom.html http://www.salon.com/2011/06/01/weinergate_timeline/ http://www.pewinternet.org/2015/08/19/mobile-messaging-and-social-media-2015/2015-08-19_social-media-update_07/

The prevalence and importance of social media forces employees to be mindful of the comments they post about employers.

L.G. Patterson/Associated Press

rog80328_12_c12_243-266.indd 255 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.http://www.businessinsider.com/facebook-fired-2011-5?op=1http://blog.internetcases.com/2012/02/09/facebook-privacy-employment-termination-contextual-integrity/http://latimesblogs.latimes.com/gossip/2011/04/glee-spoiler-extra-fired-nicole-crowther-prom.htmlhttp://www.salon.com/2011/06/01/weinergate_timeline/http://www.pewinternet.org/2015/08/19/mobile-messaging-and-social-media-2015/2015-08-19_social-media-update_07/%20

256

CHAPTER 12Section 12.2 Termination of Agency

Termination by Operation of Law Agency will automatically terminate by operation of law under any of the following circumstances:

Death or Loss of Capacity If either the principal or agent dies or is adjudged to be mentally incompetent, the agency automatically ends. Any acts that the agent takes on the principal’s behalf after the princi- pal’s death or insanity do not bind the principal or his estate. This can leave the agent in a precarious position, since she may be personally liable on contracts.

Example 12.24. Mr. Rich hires Miranda as his agent to acquire rare works of art for his collection. While Miranda is trekking by yak across the Himala- yas to a remote monastery in search of an illuminated manuscript, Mr. Rich dies. Miranda, who has no way of knowing her principal is dead, contracts with the monks to buy the manuscript for $10 million. Miranda is liable on the contract.

Some states have enacted legislation to protect innocent agents under such circumstances.

Bankruptcy As a general rule, the bankruptcy of the principal automatically terminates the agency. The bankruptcy of the agent, however, does not generally terminate the agency, nor does the mere insolvency of the principal unless it results in bankruptcy.

Impossibility of Performance The loss or destruction of the subject mat- ter of the agency automatically terminates the agency. The same is true if legislation makes the underlying transaction under an agency agreement illegal, or if the agent’s and principal’s respective coun- tries go to war.

Example 12.25. ABC Co. autho- rizes Raul Realtor to act as its agent to sell one of ABC’s fac- tories. The factory burns down after being struck by lightning. The agency automatically ends upon the theft or destruction of the underlying subject matter not caused by the principal.

Example 12.26. Slippery Oil, a U.S. company, procures the services of an Iraqi firm to act as its agent in entering into long-term oil exporting con- tracts in Iraq. A short time thereafter, war breaks out in the Persian Gulf yet again, making it impossible for the agent to procure oil exploration

War can terminate an agency. If a U.S. company had employed agents in Iraq, the agencies would have terminated when the U.S. declared war or invaded the country.

Bruce Adams/Associated Press

rog80328_12_c12_243-266.indd 256 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

257

CHAPTER 12Section 12.2 Termination of Agency

contracts. The agency is automatically suspended until hostilities end and commercial activity can once again resume.

Impracticability of Performance Whenever circumstances change in such a way that the agent can reasonably infer the principal would no longer wish her to pursue the subject matter of the agency, the agency automatically terminates.

Example 12.27. Lenny authorizes Deidre to act as his agent in purchasing a specific tract of land that he intends to later subdivide and sell as 100 building lots. While negotiating the land purchase, Deidre learns that the state has just approved the building of a coal-fueled power plant in an adjoining tract of land. The agency automatically terminates since Dierdre should realize the new power plant will make the land unappealing as a future housing development, even though such a development could still conceivably take place.

Irrevocable Agencies There are some agencies that do not terminate; the most common example is an agency coupled with an interest. This exists where the agent has a legal interest independent of the agency relationship, which is in some way being served by the agency.

Example 12.28. Tim owes Cara $10,000, due by August 1. As security for the loan, he has given her the written authority to sell his car in the event the loan is not paid in timely fashion. By August 15, Tim still has not paid. Tim dies on August 16. On August 17, Cara sells his car to Michael for $15,000.

Here, Cara as agent had a security interest in Tim’s car, and the agency is the means of executing that interest, so the agency did not terminate with Tim’s death. Cara still has authority to sell the car, and take the money owed to her (plus any costs associated with selling the car), although she must account to Tim’s estate for any profit beyond that.

Notice to Third Parties Upon Termination of an Agency When an agency terminates by operation of law, there is no duty by part of the principal to notify third parties that the agency has terminated. Whenever an agency is voluntarily terminated by either or both parties, however, the principal has a duty to personally notify every third party with whom the agent had past dealings on the principal’s behalf that the agency has terminated, and to give constructive notice (for example, publishing a notice in a trade journal or the legal section of the local newspaper) to those who may not have dealt with the agent but knew the agency existed. Failure to give notice means the principal runs the risk of being bound by contracts the former agent makes with lingering apparent authority.

Example 12.29. Angela is Peter’s office manager, and routinely orders sup- plies for Peter’s business. If Peter fires Angela, he must tell any suppli- ers with whom Angela has dealt. If he does not, and the suppliers do not otherwise learn Angela has been terminated, Peter will be liable if Angela places orders with the suppliers.

rog80328_12_c12_243-266.indd 257 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

258

CHAPTER 12Section 12.3 Employment and Labor Law

12.3 Employment and Labor Law

In addition to the common law–based law of agency, in many circumstances the employ-ment relationship is also governed by statute. Keep in mind that any state will have its own body of employment law. For example, although federal civil rights law does not expressly forbid discrimination based on sexual orientation, some state employment laws do. However, much of the most important legislation in this area is federal.

Labor Law For much of the industrial era, employees had very little bargaining power and thus had to work for low wages under unhealthy and dangerous conditions. There was very little job protection; you could be fired for no reason at any time. Employers had little incentive to treat their labor force well, since there was an oversupply of people desperate for jobs. This became especially apparent during the Great Depression of the 1930s, and Congress eventually responded with a series of laws designed to protect employees. Among them were federal laws protecting the right to unionize and collectively bargain with employ- ers (since employees have strength in numbers that no one individual may possess). The National Labor Relations Board (NLRB) was formed in 1934 and given authority to over- see elections for labor unions and investigate unfair labor practices. The Fair Labor Stan- dards Act of 1938 regulates minimum wage hours worked, overtime, employee breaks, and child labor, among other things. The Social Security Act of 1935 created a system for unemployment insurance. The Occupational Safety and Health Act of 1970 (OSHA) was passed by Congress to ensure employees a safe work environment. The act establishes health and safety standards and puts in place a mechanism for enforcement of the act.

Employment Discrimination The U.S. Constitution protects government employees against discrimination, primarily through provisions for equal protection and due process. However, the Constitution does not apply to private sector employers, and so it is mainly through specific statutes that non-government workers are protected from various types of discrimination.

A collection of federal laws prevent discrimination in employment based on race, sex, pregnancy, religion, national origin, disability (which can include mental, physical, and HIV status), age, military service, genetics, or citizenship (although proper visa status and documentation may be required). We will examine some of the most important laws here.

Title VII of the 1964 Civil Rights Act is the single most important legislation protecting work- ers from illegal discrimination on the job. It makes it illegal for an employer to discriminate based on an individual’s race, color, religion, sex, or national origin in any term or condi- tion of employment. This has been interpreted by the courts to cover interviewing, hiring, promotion, firing, and creating a hostile work environment for employees. However, the Act only applies to employers large enough to potentially affect interstate commerce who employ at least an average of 15 persons for a minimum of 20 weeks during the year.

Title VII has been interpreted by the courts to cover both facial discrimination by an employer and what is known as disparate impact, where an employer’s policy is facially neutral but disproportionately impacts a particular protected category.

rog80328_12_c12_243-266.indd 258 9/20/16 11:04 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.http://www.dol.gov/oasam/programs/history/flsa1938.htmhttp://www.dol.gov/oasam/programs/history/flsa1938.htmhttp://www.ourdocuments.gov/doc.php?flash=true&doc=68http://www.dol.gov/compliance/guide/osha.htmwww.archives.gov/education/lessons/civil-rights-act/

259

CHAPTER 12Section 12.3 Employment and Labor Law

Example 12.30. ABC Inc. advertises for job applicants who are “men with a plumber’s license.” This is facially discriminatory against women, and would violate the Act.

Example 12.31. Northeastern Air lists as a qualification for the job of pilot that applicants must be at least 5’7″ in height. Since it can be shown that this will exclude many more women than men, this could be disparate impact discrimination. However, if the employer can show that a pilot needs to be this tall to safely operate their planes, the requirement would be allowed.

Not all forms of discrimination are prohibited by the Act. Discrimination is permissible if it is pursuant to a bona fide occupational qualification (BFOQ) reasonably necessary for the operation of the business enterprise. Thus, the Catholic Church may choose to ordain only male Catholics for the priesthood, since being both male and Catholic are deemed necessary qualifications for being a Catholic priest. Likewise, a motion picture producer who wishes to make a film about the life of Dr. Mar- tin Luther King may recruit only black males who speak American-accented English for the role. On the other hand, an airline may not hire only female flight attendants merely because it can show its business customers prefer female attendants.

Example 12.32. Hooters restau- rant made a practice of hiring only attractive young women with certain physical attributes as wait staff. When sued for sex discrimination, the company argued that having waitresses, rather than waiters, was part of their brand. But since either men or women could serve food, which was the actual job, it was ruled that sex was not a BFOQ. Hoot- ers then decided that their wait staff were as much entertainment as wait- resses, and thus they could restrict hiring to only attractive young women. Ironically, when Hooters was sued by a number of waitresses for sexual harassment partly as a result of being made to wear revealing, too-small, uniforms, Hooters argued (unsuccessfully) that it was a family restaurant with a wholesome atmosphere.

The Age Discrimination in Employment Act of 1986 (ADEA) protects men and women over the age of 40 against discrimination because of their age in hiring or promotion. The law also prohibits mandatory retirement with some exceptions.

The Bona Fide Occupational Qualification (BFOQ) allows employers to take characteristics such as age, gender and ethnicity into account, such as when hiring an actor for a specific part. A 50-year-old African American man might not be believable in the part for which this young woman is auditioning!

Stockbyte/Thinkstock

rog80328_12_c12_243-266.indd 259 9/20/16 11:05 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.http://www.eeoc.gov/laws/statutes/adea.cfm

260

CHAPTER 12Section 12.3 Employment and Labor Law

Example 12.33. Atomic Laboratory needed to reduce its workforce, and laid off 31 employees. Management was instructed to rate employees according to how flexible or retrainable they were. All but one of those laid off were over the age of 40. Atomic claimed the lay-offs were for reasons other than age, but if employees sue for an ADEA violation, the employer will have the burden to prove that age was not the reason.

The Americans with Disabilities Act of 1990 (ADA) forbids discrimination in hiring, firing, or promotion against qualified individuals with physical or mental disabilities, and requires employers to make reasonable accommodations for disabled employees. Disability is defined as physical or mental impairment of a permanent nature that substantially limits one or more major life functions.

Example 12.34. Sarah applies for a position as office manager at a bank. She shows up to the interview in a wheelchair having recently broken both legs skiing. Even though she is highly qualified for the position, she is not offered the job and she suspects it is because she was in a wheelchair. Sarah does not have an ADA claim, because her impairment was temporary.

Claims relating to equal pay can be brought under several different laws, including Title VII and the Equal Pay Act of 1963 (in cases involving gender discrimination). The Lily Ledbetter Fair Pay Act of 2009 clarified that a discriminatory practice occurs each time unequal compensation is paid, which is important because it starts a new statute of limi- tations time period for suing. The law was in response to the Supreme Court’s ruling in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007), where a majority of the court denied Ms. Ledbetter the right to sue on grounds that the 180-day statutory period for filing a claim began when the employer made the discriminatory decision, and that she had filed her case after the time had run. The Ledbetter law is important for plain- tiffs, because potential plaintiffs may not have access to their employers’ compensation records, and thus may not realize immediately that they are being discriminated against.

In addition to the federal statutes, state legislatures have also enacted employment dis- crimination legislation. For example, some prohibit the same types of discrimination cov- ered in Title VII for employers not covered by the federal law, such as those with fewer than 15 employees. However, statutes differ considerably in the scope of their discrimina- tion laws. Wisconsin was the first to cover discrimination based on sexual orientation, and at last count 21 other states and the District of Columbia had followed its lead. In other words, in more than half the states, employees who are discriminated against because of being gay or lesbian or bisexual have no legal protection. However, the Equal Employ- ment Opportunity Commission (EEOC) has taken the position that Title VII prohibits employment discrimination on the basis of sexual orientation. By executive order, federal employees, including employees of federal contractors and subcontractors, are protected from employment discrimination on the basis of sexual orientation.

rog80328_12_c12_243-266.indd 260 9/20/16 11:05 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.http://www.ada.gov/pubs/ada.htmhttp://www.eeoc.gov/laws/statutes/epa.cfmhttp://www.govtrack.us/congress/bills/111/s181http://www.govtrack.us/congress/bills/111/s181http://www.law.cornell.edu/supct/html/05-1074.ZS.html

261

Section 12.4 Chapter Summary CHAPTER 12

12.4 Chapter Summary

Agency relationships are unavoidable in the business world, and the law provides a set of rules that detail both the duties and rights of the parties involved. Whether the agency is a very informal favor being done between friends or a complex employment situation matters little to the law! Generally, agency protects the third party, or person doing business with the principal through the agent, more than either principal or agent. Thus we see situations where the agent has perhaps acted improperly with regard to disobeying the principal’s directions, but if the agent had the appearance of legitimate authority, the principal will still be liable. It will then be up to the principal to seek a remedy against the agent. In tort law, even though the principal has not breached a duty to cause injury to a third party, the principal can still be held liable for the agent’s tort.

In addition, many statutes have been enacted that may affect the employment relation- ship. Many federal laws protect against discrimination; others help govern the relation- ship between employers and unions, and try to provide safe working conditions and minimum compensation for employees. The law attempts to strike a complex balance between helping employers—and the economy in general—maintain competitiveness and protecting employees, who have little bargaining power on their own and who previ- ously had been ruthlessly exploited.

Focus on Ethics

The ADA requires employers to make reasonable accommoda- tions for disabled employees. What’s reasonable all depends on the individual situation. Clearly, employers may be put to some expense; equally clearly, they cannot be bankrupted by the accommodation. It is up to the employer to show undue hardship to avoid liability. Consider some examples:

• A law firm is required to hire a reader for a blind attorney. • A company is required to remodel bathrooms for a

paraplegic, but another employer is not required to lower the sink in the office kitchen.

• An alcoholic employee had to be given time off for treatment.

• A company is required to provide a large-button tele- phone for an employee with poor eyesight.

• A company had to waive its “no pets” policy for a hearing-impaired employee with a service dog.

Questions for Discussion

1. How easy is it to define what is “reasonable”? 2. What is the balance the ADA attempts to strike between employees and employers? Do you

think it represents the correct ethical compromise? Why or why not? 3. Suppose that in the case of the service dog, it turns out another employee in the office

has allergies that cause her to break out in hives when the dog is present. If you were the employer, what would you do?

The Americans with Disabilities Act, or ADA, protects workers such as this vision-impaired man, by requiring employers to make reasonable accommodations. Thus even though his employer might have a “no pets at work” policy, an exception would likely be made for the guide dog.

Image Source/SuperStock

rog80328_12_c12_243-266.indd 261 9/20/16 11:05 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

262

Section 12.4 Chapter Summary CHAPTER 12

Case Study: Weingart v. Directoire Restaurant, Inc.

333 N.Y.S.2d 806 (N.Y. 1972).

Facts: Buster Douglas wore a uniform and stood outside the defendant restaurant, Directoire, in mid- town Manhattan, parking cars for its patrons and those of several other businesses on the same block. He was in fact not employed by the defendant in any capacity, although employees of the Directoire were aware that Douglas had been parking cars for its patrons. On the day in question, Mr. Weingart, a patron of Directoire, gave the keys to his Cadillac to Douglas along with $1 and requested that he park the car. Douglas gave Mr. Weingart a claim check and drove the car away. Unfortunately, when Mr. Weingart wished to retrieve his car, it could not be found. Mr. Weingart sued the defendant restaurant, alleging that it was liable as a principal for Douglas’s acts.

At the time of the incident, the restaurant had only been open for nine days, but the plaintiff had already dined there on at least one other occasion.

Issue: Was Douglas acting as an agent for the Directoire Restaurant?

Discussion: Plaintiff was justified in assuming that Douglas represented the restaurant in providing his services and that the restaurant had placed him there for the convenience of its customers. A restau- rateur knows that this is the impression created by allowing a uniformed attendant to so act. Facility in parking is often a critical consideration for a motorist in selecting a restaurant in midtown Manhattan, and the Directoire was keenly aware of this fact as evidenced by its testimony that the management was looking into various other possibilities for solving customers’ parking problems.

There was no suitable disclaimer posted outside the restaurant that it had no parking facilities or that entrusting one’s car to any person was at the driver’s risk. It is doubtful that any prudent driver would entrust his car to a strange person on the street, if he thought that the individual had no authorization from the restaurant or club or had no connection with it, but was merely an independent operator with questionable financial responsibility.

The fact that Douglas received no compensation directly from defendant is not material. Each party derived a benefit from the arrangement—Douglas being willing to work for gratuities from customers and the defendant, at no cost to itself, presenting the appearance of providing the convenience of free parking and doorman services to its patrons. In any case, whatever private arrangements existed between the restaurant and Douglas were never disclosed to the customers.

Even if such person did perform these services for several restaurants, it does not automatically follow that he is a freelance entrepreneur, since a shared employee working for other small or moderately sized restaurants in the area would seem a reasonable arrangement, in no way negating the authority of the attendant to act as doorman and receive cars for any one of these places individually.

Holding: The defendant restaurant may be held liable for the bailment created by Douglas.

Questions for Discussion

1. In this case, who was the principal? The agent? The third party? 2. Note that clearly Douglas had never been hired by the defendant. What kind of authority does

the court indicate Douglas had? 3. How did the restaurant hold Douglas out to the public as being its agent? 4. Did Mr. Weingart reasonably rely on the appearance that Douglas worked for the Directoire?

Why or why not? (continued)

rog80328_12_c12_243-266.indd 262 9/20/16 11:05 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.http://www.leagle.com/xmlResult.aspx?xmldoc=197248970Misc2d419_1376.xml&docbase=CSLWAR1-1950-1985

263

Section 12.4 Chapter Summary CHAPTER 12

Case Study: Weingart v. Directoire Restaurant, Inc. (continued)

5. The type of contract created by Douglas was found to be a bailment, which you learned about in the chapter on property. How was the bailment created here?

6. Why does the law make a “principal” liable for someone it in fact didn’t employ? Who has the law decided to protect in these situations?

Case Study: Christopher v. SmithKline Beecham Corp.

132 S.Ct. 2156 (2012)

Facts: Michael Christopher began working for SmithKline Beecham Corporation in 2003 as a phar- maceutical sales representative. But because federal law strictly regulates who can sell prescription drugs, Christopher (like others like him in that industry) didn’t actually make sales contracts. His major objective was to obtain a nonbinding commitment from doctors to prescribe the company’s products. He spent about 40 hours each week calling on physicians, and an additional 10 to 20 hours per week attending events. Christopher was paid a salary and incentive payments based on the sales of drugs in his territory, but he was not paid overtime wages when he worked more than 40 hours per week. After being denied overtime in 2008, Christopher sued SmithKline Beecham for violating the overtime pay requirement of the Fair Labor Standards Act (FLSA), which is overseen by the Department of Labor. The trial court ruled for his employer, based on the FLSA’s “outside salesman” exemption, and the appellate court affirmed. Christopher appealed to the U.S. Supreme Court, arguing that, since he did not sell the products but only promoted them, the “outside salesman” exemption did not apply to him.

Issue: Does the outside salesman exemption from federal overtime pay requirement, as defined by the Department of Labor (DOL), include pharmaceutical sales representatives who don’t officially sell products, but obtain nonbinding commitments from doctors?

Discussion: The U.S. Supreme Court noted that the FLSA does not define the term “outside salesman.” That was delegated to the DOL by the FLSA. Under the DOL’s general regulation, an outside salesman is “any employee whose primary duty is making any sale, exchange, contract to sell . . . or other disposi- tion.” In the current case, the DOL actually argued that under its interpretation of its regulation, “an employee does not make a ‘sale’ for purposes of the ‘outside salesman’ exemption unless he actually transfers title to the property at issue.” So to the DOL, pharmaceutical sales representatives should be paid overtime. But the court concluded, however, that such an interpretation contradicts the FLSA’s history and its definition of “sale” as also including a “consignment for sale,” which does not involve the transfer of title. Thus, Christopher was an exempt outside salesman because obtaining a nonbind- ing commitment from physicians to prescribe his employer’s drugs was the maximum he could do to ensure the ultimate disposition of his employer’s products.

Holding: The Court affirmed the decision of the appellate court. (continued)

rog80328_12_c12_243-266.indd 263 9/20/16 11:05 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.http://www.leagle.com/xmlResult.aspx?xmldoc=197248970Misc2d419_1376.xml&docbase=CSLWAR1-1950-1985http://www.supremecourt.gov/opinions/11pdf/11-204.pdf

264

Section 12.4 Chapter Summary CHAPTER 12

Critical Thinking Questions

1. At some point in your life, you have undoubtedly been an agent, a principal, or both. Think of a situation and describe it in agency terms.

2. In the above example, imagine that as an agent you made a contract, or caused injury to someone. Analyze the situations in legal terms. Would you have made your principal liable for your acts?

3. Interview three acquaintances about their employment. Do they have a contract that protects their job security, or can they be fired at any time? Are they aware that without a contract or union representation they could in many cases be fired for no reason?

Hypothetical Case Problems

Case 1. Elena, the purchasing agent for Bigco Inc., contacts five different suppliers to obtain price quotes for office supplies she needs to order. The price for the identical office supplies ranges from a high of $855 to a low of $500, includ- ing shipping and handling charges. As purchasing agent, Elena has complete autonomy on selecting suppliers and on placing orders up to $5,000; before placing orders in excess of $5,000, she must get signed authorization from the company’s comptroller.

A. If Elena purchases the supplies from the most expensive supplier because she is angry at her employer for turning down her recent request for a raise, what duty of an agent has she breached? What are Bigco’s remedies?

B. Elena purchases a $20,000 computer system from Alpha Inc., a dealer she has never ordered from, but who knows Elena is the purchasing agent for Bigco. If Bigco refuses to accept the system when it arrives, what

Case Study: Christopher v. SmithKline Beecham Corp. (continued)

Questions for Discussion

1. What does the FLSA require for the compensation of overtime work? Does this requirement apply to all workers?

2. If the Department of Labor argued that pharmaceutical sales representatives deserve overtime pay, why didn’t the Supreme Court simply follow what the Department of Labor said?

3. As a pharmaceutical sales representative, Christopher did not make any sales (there were no transfers of title). Why did the Court conclude that he was exempt from the overtime compen- sation provision of the FLSA?

4. Do you agree with the decision of the Court? Alternatively, do you think that all employees should be compensated for their overtime work? Do you think that public servants, such as policeman, should be compensated for overtime work?

rog80328_12_c12_243-266.indd 264 9/20/16 11:05 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.http://www.supremecourt.gov/opinions/11pdf/11-204.pdf

265

Section 12.4 Chapter Summary CHAPTER 12

actual authority The authorization, either express or implied, that an agent reason- ably believes the principal has given for the agent to act on principal’s behalf.

agent A person who acts on behalf of another.

apparent authority Authority created when a principal holds out an agent as being able to represent the principal, and a third party reasonably relies on it and makes a contract, binding the principal.

disclosed principal A principal whose existence and identity are known to the third party.

argument will Alpha make for Bigco’s liability? What will be Bigco’s defense? How do you think the case would be resolved by a court? Explain fully.

Case 2. Brandon is a traveling salesperson for Best Publishing Co. His job is to drive around to bookstores and persuade them to stock Best publications. One day, while on his way to his next appointment in Beauville, Brandon accidentally rear-ends Emily.

A. Has Brandon committed a tort? What will Emily have to prove to hold Best liable?

B. Assume Brandon uses his own car, sets his own hours, decides without direction from Best what bookstores to visit, and is paid according to how many books he places in bookstores. What kind of agent is Brandon? How does this affect Best’s liability?

C. Assume Brandon takes directions from Best on most aspects of his job. While stopping to get gas, Brandon gets into a fistfight with the station attendant, who make a negative comment about Brandon’s favorite base- ball team. Brandon injures the attendant. If the attendant sues Best, what will Best argue to avoid liability?

Case 3. Jennifer applies for a job as a cocktail waitress at Farrah’s Casino. Jennifer is 38 years old and about 30 pounds overweight. The manager of the casino tells her she’s “too old and too fat—our customers want to be served by sexy chicks.”

A. Would Jennifer have a good claim for discrimination under the ADA? Explain.

B. Would Jennifer have a good claim for discrimination under the ADEA? Explain.

C. Suppose Michael applies for the same job, and is told, “You’re a good- looking guy, but most of our customers are straight men who want to be served by sexy chicks.” What kind of discrimination claim might Michael make? Could the employer argue sex appeal is a BFOQ for the job? What if Michael applied to be a stripper?

Key Terms

rog80328_12_c12_243-266.indd 265 9/20/16 11:05 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

266

Section 12.4 Chapter Summary CHAPTER 12

fiduciary A relationship where one owes another a very high standard of loyalty and care, including the duty to look out for the other’s best interest and the duty to give notice of anything the other might reasonably wish to know.

gratuitous In agency, when the agent is not being paid or compensated by the principal.

indemnification The principal’s duty to pay the agent back for properly incurring legal expense on the principal’s behalf.

joint and several liability A liability that occurs when more than one party is liable to the plaintiff, and the plaintiff has the right to collect any percentage of the judgement in any amount from any defendant.

partially disclosed principal A principal whose existence but not identity is known to the third party. Generally treated the same as an undisclosed principal.

principal A person who is represented by another person, called the agent, and is bound by authorized actions of the agent.

ratification An after-the-fact authorization by the principal of an agent’s contract with a third party.

reimbursement A principal’s paying the agent back for expenses the agent reason- ably incurred in discharging the principal’s task.

undisclosed principal A principal whose existence and identity are both unknown to the third party. Undisclosed and par- tially disclosed principals cannot ratify contracts, and agents acting on their behalf can often be held personally liable on the contracts by the third party.

rog80328_12_c12_243-266.indd 266 9/20/16 11:05 AM

© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

  • Section 2.2: Applying the Law: False Imprisonment

“Get 15% discount on your first 3 orders with us”
Use the following coupon
FIRST15

Order Now