Business Law Chapter 31 Notes

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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 oex. 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 supervision? -Under employer’s direction = employee status
4.Does the employer supply the tools at the place of work?
-Indicates employee status
5.For how long is the person employed?
-Long period of time = employee status
6.What is the method of payment – by time or at the completion of the job? -Payment by time period = employee status
7.What degree of skill is required of the worker?
-Great degree of skill = independent contractor hired for specialized job

Criteria Used by the IRS
The IRS has established its own criteria for determining whether a worker is an independent contractor or an employee •IRS examiners are encouraged to look closely at just one factor – the degree of control the business exercises over the worker •The IRS tends to scrutinize closely a firm’s classification of a worker as an independent contractor rather than an employee because employers can avoid certain tax liabilities by hiring independent contractors instead of employees

Employee Status and “Works for Hire”
Any copyrighted work created by an employee within the scope of his or her employment at the request of the employer is a “work for hire” and the employer owns the copyright •When an employer hires an independent contractor to do the work, however, the independent contractor normally owns the copyright oIn this situation, an employer can own the copyright only if the parties agree in writing that the work is a “work for hire” and the work falls into one of nine specific categories

Section 2: Formation of the Agency Relationship
Agency relationships are normally consensual and do not need to be in writing oThere are two main exceptions to this. An agency agreement must be in writing: 1.Whenever agency authority empowers the agent to enter into a contract that the Statute of Frauds requires to be in writing (equal dignity rule) 2.Whenever an agent is given power of attorney

A person must have contractual capacity to be a principal oSome...
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