Business Law Chapter 31 Notes
Chapter 31: Agency Formation and Duties
• Agency – a relationship between two parties in which one party (the agent) agrees to represent or act for the other party (the principal)
Section 1: Agency Relationships
• The Restatement (Second) or Agency (an authoritative summary of the law of agency) defines agencies as fiduciary relationships
• Fiduciary – (adj) involving trust and confidence
• Agency relationships commonly exist between employers and employees
• Agency relationships can also exist between employers and independent contractors
Employer-Employee Relationships
• Normally, all employees who deal with third parties are considered to be agents
• Employment laws apply only to employer-employee relationships, not to independent contractors
• Agency law overlaps considerably with employment law but has a broader reach because agency relationships can exist outside employer-employee relationships
Employer-Independent Contractor Relationships
• Independent contractor – one who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer
• The relationship between a principal and an independent contractor may or may not involve and agency relationship
Determining Employee Status
• A court’s decision on whether a worker is an employee or an independent contractor can have a significant effect on the rights and liabilities of the parties o ex. For tax purposes or protection under certain employment laws
Criteria Used by the Courts
• Courts consider the following questions:
1. How much control does the employer exercise over the details of work?
- Most important factor weighed by the courts
- Considerable control = employee status
2. Is the worker engaged in an occupation or business distinct from that of the employer?
- Indicates independent-contractor status
3. Is the work usually done under the employer’s direction or by a specialist without
• Agency – a relationship between two parties in which one party (the agent) agrees to represent or act for the other party (the principal)
Section 1: Agency Relationships
• The Restatement (Second) or Agency (an authoritative summary of the law of agency) defines agencies as fiduciary relationships
• Fiduciary – (adj) involving trust and confidence
• Agency relationships commonly exist between employers and employees
• Agency relationships can also exist between employers and independent contractors
Employer-Employee Relationships
• Normally, all employees who deal with third parties are considered to be agents
• Employment laws apply only to employer-employee relationships, not to independent contractors
• Agency law overlaps considerably with employment law but has a broader reach because agency relationships can exist outside employer-employee relationships
Employer-Independent Contractor Relationships
• Independent contractor – one who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer
• The relationship between a principal and an independent contractor may or may not involve and agency relationship
Determining Employee Status
• A court’s decision on whether a worker is an employee or an independent contractor can have a significant effect on the rights and liabilities of the parties o ex. For tax purposes or protection under certain employment laws
Criteria Used by the Courts
• Courts consider the following questions:
1. How much control does the employer exercise over the details of work?
- Most important factor weighed by the courts
- Considerable control = employee status
2. Is the worker engaged in an occupation or business distinct from that of the employer?
- Indicates independent-contractor status
3. Is the work usually done under the employer’s direction or by a specialist without