Why are agency relationships necessary? For one, they afford a high level of flexibility in business dealings. Imagine for a moment that you own an online tech company. It would be very difficult for you to manage every single aspect of business operations by yourself. Agency relationships make it possible for you to delegate key tasks to others who are capable of carrying them out. For example, your human resource management team can oversee sourcing, recruitment, hiring, and other human resource functions. Because of their unique job skills, human resource team members are better equipped to handle staffing matters than you are.
As with any business relationship, you must be careful about designating who is and is not an agent of your business. Remember, the agency relationship is considered an employer-employee relationship. Therefore, you can incur financial and legal liability for the actions of your agents. As a general rule, you are not liable for the actions of independent contractors, because they are not your employees and you do not control or oversee the details of their job duties. As part of your business practices, you must clearly establish the type of employment relationship you have with the individuals you hire.
Upon successful completion of the course material, you will be able to:
- Explain the principal-agent relationship.
- Categorize the rights, duties, and liabilities of the principal and the agent in an agency relationship.
Resources
- Textbook: The Legal Environment of Business
- Media: Agency Transactions
Background Information
INSTRUCTIONS
Because a disclosed agent (one who is known to act on behalf of a principal) may legally bind his/her principal to an agreement, it is important that the principal notify third parties once an agency relationship has ended. Principals must also carefully monitor agents to ensure they do not exceed the scope of their agency authority. Principals can be held liable for agent misconduct under the doctrine of respondeat superior.
Instructions
- Review the rubric to make sure you understand the criteria for earning your grade.
- In your textbook, The Legal Environment of Business, read Chapter 14, “Agency and the Employment Relationship.”
- Review the media “Agency Transactions.”
- Through Internet research, review the 20-Factor Test that courts and the Internal Revenue Service (IRS) use to determine whether an individual is an employee or an independent contractor. Research the characteristics that determine if a person involved in selling or marketing for an entity is an employee or an independent contractor.
- Make up a hypothetical scenario involving the question of whether an individual is an employee or an independent contractor.