Agency Law Flashcards
The Creation of Agency Law
Based on mutual consent between the agent and the principal.
When determining whether a relationship is one of agency, courts will look to facts of the relationship, not just what the parties call it or whether there’s an agreement. In particular, courts will look for the existence of mutual consent and control.
Franchise, Outsourcing, Parent-Subsidiary
Franchise: while there are extensive contracts that deny an agency relationship, it has all the hallmarks of agency - control of product, quality, dress code, etc.
- However, if agency is found in all cases of franchise, it would hurt economic productivity created by this type of business relationship.
Inward-looking consequences: Agent’s duties to the principal
Agency law is the default rule in an agency relationship - cost efficiency
1) Duty of care: the duty to work hard and make intelligent decisions - note that this is more like a norm than a legally enforceable duty
2) Duty of loyalty: the duty to act solely for the benefit of the principal in all matters connected with the agency
- put principal’s interest first
- duty not to compete, duty to act in good faith, confidentiality, duty not to take valuable business opportunities, duty not to misappropriate property, duty not to act for another principal in CI
- Food Lion
- Ebay v Craigslist
- Scope of the duty: whistleblower protection for employees who bring health and safety concerns forward - need to use internal corporate procedure first before disclose it to the public
3) Duty of full disclosure of economically significant info - without being asked
Food Lion v ABC
Facts: 2 employees of ABC went undercover at FL, used fake resume, took video of unsavory food handling. FL sued for breach of DoL, trespass, fraud, and unfair trade practice
Decision: Reporters were in CI/positional conflict - fiduciary duty to both companies but cannot fulfill both. There was a tort/breach of DoL and trespass.
Ratio: There must be an intent to act adversely to the second employer for the benefit of the first. Trespass b/c consent was based on fraud
Ebay v Craigslist
Facts: E invested in C, an individual was on the board for both companies
Is there violation of DoL?
- Are the interest of the two companies aligned?
- If no, the first step to sanitize a CI situation is full disclosure
CI situation is not per se illegal. It depends on how it’s managed
Non-compete agreements
Necessary: an agent’s fiduciary duty of loyalty to principal ends the day the agency relationship ends.
Reasonable NCA will be upheld by law: sensible time and geographical limits, does not prevent the former employee from using his/her skills
Stoneham v P&G
Facts: S was an employee of P, signed NCA and confidentiality agreement; later joined Alberto; P argued that S used the same method for its marketing research and operation [trade secret]
Ruled for P: The NCA and confidentiality agreement were voluntary and reasonable [only prevent work in hair care, not every business]
External Consequences: General
Principals could be held liable for actions of agents.
- Control: P is able to select and control A, and terminate agency relationship
- Benefit: P benefit from actions of A
- Consent
External Consequences: Contracts
Where A has the authority to act on P’s behalf, P will be required to fulfill K.
Actual authority: manifestation from P to A that the P consents to A taking actions on P’s behalf.
- Examine communication from P to A - written k only required in certain cases
- Express: conveyed orally or in writing
- Implied: the power to do things necessary to fulfill duties under agency relationship
- Here “control” refers to P’s control over A’s expectations
Apparent authority: When 3rd party reasonably believes, based on manifestations by the purported principal, that A is authorized to act on P’s behalf. - e.g. business card, title, communication from P
- Manifestation must be from P to 3rd party
- reasonable belief: both objective and subjective
- objective: nature of business, industry practice, prior dealing
- subjective: 3rd party’s beliefs of A and the transaction - Here “control” refers to P’s control over 3rd party’s expectations; as P “benefit” from 3rd party’s reliance on apparent authority, it “greases the wheels of commerce”; “consent” holds P accountable for information they intentionally brought to 3rd party.
- The law places obligation on the firm as they are the least cost preventor here - monitoring function
External consequences: Torts
Respondeat Superior: P will be liable for the damage done by A within the agency relationship.
- This means employer is responsible for torts committed by an employee in the course of employment
- Agency cost for monitoring
- Based on “control” of P on how work is done by A
- Fact specific analysis - level of control - how close is the relationship between P and A
Independent Contractors: P&G v Unilever
- Look at: whose tools were used, method of payment, reporting relationship
- Est. ethical code and provide to all employees and contractors
- Also consider the reputation of the company
Benefits of agency law and fiduciary duty
Agency law provides “default terms” of a standard-form contract between P and A,
- Reduce transaction cost
- Opportunism: information asymmetry
- Negotiation cost
- Info cost
- Pose risks: unauthorized K and tort liability
Law of fiduciary duty approximates the bargain between parties
Benefits of organizing business in the firm format instead of independent practices
Reduce transaction cost and capture economic efficiency
- the issue with hiring agent is agency cost of monitoring, training, recruitment
