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Business And Its Legal Environment (Management 246


Business And Its Legal Environment (Management 246) Professor Charles H. Smith Agency and Employment Law (Chapters the first 19, 20 and the first 21) – PowerPoint PPT presentation

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Title: Business And Its Legal Environment (Management 246

Business And Its Legal Environment (Management
  • Professor Charles H. Smith
  • Agency and Employment Law (Chapters the first
    19, 20 and the first 21)
  • Spring 2010

Introduction to the Law of Agency
  • Agency law involves situations where person or
    business may be liable for misdeed committed by
    another person or business.
  • Generic agency relationship is principal-agent
    more specific labels are employer-employee and
    employer-independent contractor.
  • An agency relationship is often simply called an
  • Agent is someone who acts on behalf of a
    business entity or another person (the
    principal) the agent is the principals
    fiduciary see page 478 for detailed
    definitions of agency and fiduciary.

Determining Whether an Agency Exists
  • Agency by agreement most common way to create
    an agency can be in writing or oral, though
    writing may be required by statute of frauds.
  • Example employment contract, contract between
    building owner and plumber for installation of
    plumbing in building.
  • Agency by ratification principals subsequent
    approval of action or acceptance of benefits due
    to action by person claimed to be the principals
  • Example person signs contract on behalf of
    principal without principals knowledge, but
    principal performs as stated in contract.
  • Agency by estoppel principals act/statement
    creates appearance of an agency (objective
    reasonable person standard) agents
    act/statement cannot create agency.
  • Example principal refers to person as her
    agent or his representative despite no agency.

Determining the Limits on an Agents Authority
  • Even if it is clear that agency exists, there are
    usually limits on an agents authority.
  • Actual authority (most common)
  • Express written or oral instructions by
    principal to agent.
  • Implied usually shown by custom and practice of
    the particular agency.
  • Apparent authority
  • Agents appearance of authority can be based on
    principals act/statement (objective reasonable
    person standard) agents act/statement cannot
    be the basis of apparent authority.

Agents Duties to the Principal
  • Care (aka business judgment rule or due
    diligence) agent required to use best efforts
    and act appropriately under the circumstances
    focus on effort, not success.
  • Loyalty agent cannot (1) compete with principal
    or (2) use confidential information learned
    during agency for personal profit.
  • Obedience agent must (1) obey principals
    instructions and (2) obey laws applicable to
  • Accounting agent required to account to
    principal re all funds spent and received on
    principals behalf.
  • Notification principal charged with all
    knowledge gained by agent during agency.

Principals Duties to the Agent
  • Compensation principal must compensate agent
    per contract.
  • Reimbursement principal required to reimburse
    agent for money spent by agent on principals
    behalf usually per contract.
  • Indemnification if agent sued for act done
    during agency, principal must pay for (1) agents
    defense (e.g., lawyer, costs) and (2) settlement
    or judgment against agent.
  • Cooperation principal required to provide agent
    with what agent needs to work per agency (e.g.,
  • Provide safe working conditions usually covered
    by safety statutes/rules (e.g., building code,
    safety regulations for specific workplace such as
    construction site).

Liability of Principal and/or Agent to Plaintiff
  • Contracts was agency disclosed to the other
    party to the contract?
  • How to disclose the agency?
  • If so principal, not agent, will be
    liable/responsible to perform contract.
  • If not agent, not principal, will be
    liable/responsible to perform contract.
  • Torts agent always liable principal may also
    be liable if
  • Negligence agent within course and scope of
    agency (respondeat superior) ask if there is a
    substantial departure from job duties (very
    broad definition).
  • Fraud (1) agent has principals actual or
    apparent authority and (2) agent in course and
    scope of agency.

Employee vs. Independent Contractor
  • Important issue since different rights and
    responsibilities come into play when a worker is
    classified as an employee or independent
  • Some reasons why classifying a worker as an
    employee or independent contractor is important
  • Employers responsibility for withholding taxes
    from workers paycheck.
  • Employers obligation to comply with certain
    statutes (e.g., legal requirement to carry
    workers compensation insurance).
  • Workers right to collect workers compensation
    or unemployment benefits.
  • Classification of worker not done in vacuum many
    cases, statutes and other guidelines used (see
    next slide).

Employee vs. Independent Contractor cont.
  • Three factors in IRS Publication 15A
  • Behavioral control.
  • Financial control.
  • Type of relationship.
  • See http// for
    details and examples (pages 6-9 only).
  • If you are unsure about the details of the law,
    rely on these basic rules
  • More control exercised by employer over worker,
    more likely worker is employee.
  • Less control exercised by employer over worker,
    more likely worker is independent contractor.

At-Will Employment Rule
  • Employment is generally at-will
  • Employer or employee may end employment
    relationship at any time for any legal reason
    e.g., incompetence, economics or even a silly
  • Termination usually based on statement(s) and/or
    act(s) by one or both parties.
  • Constructive termination employer makes
    conditions so intolerable that reasonable person
    would quit e.g., sexual harassment case.
  • Employment may be terminated due to operation of
    law e.g., completion of work or time stated in
  • Two-week notice required by law or just a good

Exceptions to At-Will Employment Rule
  • An exception to the at-will employment rule can
    support a wrongful termination lawsuit examples
  • Termination in violation of public policy when
    employee fired in retaliation for
  • Refusing to do illegal act.
  • Being a whistle-blower.
  • Based on contract law
  • Employment contract specifies reasons for
    termination, such as good cause or some other
    limited circumstances.
  • Employer promises permanent or lifetime job.
  • Process or reasons for termination set forth in
    union agreement or employee handbook.
  • Discrimination/sexual harassment (discussed in
    later slides).

Workers Compensation
  • Applies to employees only, not independent
  • Intended to provide injured employee with
    streamlined procedures and prompt remedy.
  • Employees injury must
  • Be the result of an accident no matter who caused
  • Occur in course and scope of employment (broadly
  • If both are present, then workers compensation
    is employees exclusive remedy against employer.

Workers Compensation cont.
  • Damages in workers compensation normally limited
    to special damages only (no general damages
    available) so injured employee may seek ways to
    get matter out of workers compensation and into
    court such as
  • Intentional tort by employer or co-employee.
  • Third party (not employer or co-employee could
    be customer, vendor or complete stranger) at
    fault for on-the-job accidental injury two legal
    proceedings for same incident.

Employees Privacy Rights
  • Threshold issue what is the employees
    reasonable expectation of privacy?
  • Drug testing generally not allowed but there
    are some limited exceptions, such as
  • Public safety job.
  • Pre-employment.
  • Employment or union contract.

Employees Privacy Rights cont.
  • Pre-employment screening
  • Job application and interview employer needs to
    gather information in order to make good hiring
  • However, inquiry must be relevant to the job
    may be OK for one job but not another.
  • Careful innocent questions can be cover for
  • Internet/e-mail use at the office
  • Generally, no privacy rights.
  • After all, who owns the computer and who provides
    the internet and e-mail access?

Title VII Federal Employment Discrimination Law
  • Title VII federal law passed by Congress as
    part of Civil Rights Act of 1964 remedy for
    people traditionally underrepresented or not
    represented in the workplace.
  • Prohibits discrimination in employment on the
    basis of race, color, religion, national origin
    and gender.
  • We will not be covering other types of
    discrimination, such as discrimination based on
    age, disability or sexual orientation, that are
    covered by other federal or state laws.
  • Two types of employment discrimination
  • Disparate treatment obvious discrimination.
  • Disparate impact hidden discrimination.

Three-Step Analysis re Employment Discrimination
Under Title VII
  • First, plaintiff (person who was fired or not
    hired or promoted) must prove all four elements
    of prima facie case.
  • Second, defendant (employer) must present defense
    based on valid legal reason.
  • Third, plaintiff must show defense not valid
    legal reason but instead is pretext for

Plaintiffs Prima Facie Case
  • Plaintiff is member of protected class e.g.,
    woman, person of color or non-European descent.
  • Plaintiff applied and qualified for position.
  • Plaintiff is fired or application rejected not
    hired or promoted.
  • Employer continues to seek applications or hires
    person who is member of unprotected class e.g.,
    WASP man.
  • If evidence re all four, employer must defend
    if all four not proved, employer wins.

Employers Defense
  • Employer must defend by presenting a valid legal
    reason for firing or not hiring/promoting
    plaintiff defenses include
  • At-will employment rule.
  • Good cause.
  • Bona fide occupational qualification (BFOQ).
  • Bona fide seniority system.
  • Business necessity.
  • After-acquired evidence.
  • Need to be consistent in application!

Plaintiffs Rebuttal/Response
  • Plaintiff must rebut/respond to employers valid
    legal reason defense by showing that the reason
    is not valid and, in fact, is a pretext for

Sexual Harassment
  • Sexual harassment in the workplace involves sex
    but is really about the employers power
    trip/abuse of authority can be man harassing
    woman, woman harassing man or same-sex
  • Two types of sexual harassment
  • Quid pro quo typically shown by request by
    employer/supervisor for sex in exchange for
    employees getting or keeping job, promotion,
  • Hostile environment usual situation is
    workplace atmosphere of comments, conduct,
    decorations, etc. of sexual nature.

Sexual Harassment cont.
  • Can be difficult to prove since sometimes no
    other witnesses credibility contest.
  • Big defense is consent since unwelcome conduct
    is required
  • Also hard to prove, especially when plaintiff
    does not object and may actually participate in
    or approve of subject misconduct.
  • Consenting adults defense.
  • Can provocative clothing (or lack thereof) be
  • Can plaintiff ever truly give consent due to
    superior position of employer? Consent may
    be given just to get or keep job, be a team
    player, etc.

Benefits, Political Correctness and Affirmative
  • What benefits flow from laws re employment
  • Have laws re employment discrimination made the
    workplace too politically correct?
  • Affirmative action compensating for past sins
    or an unfair advantage for people who have been
    traditionally not represented or underrepresented
    in the workplace at the expense of WASP men?