Employment law describes a considerably broad range of legal issues associated with employees, employers, and safety conditions in the workplace. Some employment laws may apply to a case involving employment discrimination, while others can be used to provide guidance when drafting company policies and/or employee handbooks.

The overall purpose of employment law is to protect all of those who are part of the workforce, including:

  • Establishing protection for employees in workplace disputes;
  • Ensuring that businesses do not discriminate against prospective job candidates or current employees in the interviewing, hiring, promoting, or terminating process;
  • Granting specific rights to those who are self-employed or who are considered to be independent contractors; and
  • Ensuring that volunteers and interns do not suffer from sexual harassment, discrimination in the workplace, or retaliation in the workplace.

Additionally, employment laws can vary widely by jurisdiction. As such, the rights that one state may protect may not be available as a protection under the laws of another state. Some issues may be governed by both state and federal employment laws, such as pregnancy leave.

One issue that may be governed by both state and federal employment statutes would be determining the difference between an employee and independent contractor. The most important factor to consider when determining whether a worker is an employee or independent contractor is how much control the individual has over their work.

An example of this would be how if the worker has a say over the work that they do and the methods they use to complete the work, that worker is more likely to be classified as an independent contractor and not an employee.

Alternatively, if an employer has total control over which tasks a worker performs and the process they use to perform it, they will likely be deemed to be an employee and not an independent contractor.

An employer must comply with specific federal regulations for employees, such as withholding income taxes from employee paychecks. Additionally, they must ensure that the employee is paid at a rate that at least meets minimum wage standards and also complies with the wage and hour laws.

However, an employer will not need to provide employee benefits or withhold income taxes from the paychecks for an independent contractor, because the independent contractor will be responsible for overseeing these matters themselves. Additionally, while employers can be held liable for the actions of their employees, they generally cannot be held liable for the actions of an independent contractor.

What Is An Agency Relationship?

Agents are people who agree to represent other people, who are referred to as the principal, and agency relationships are generally formed by agreements between the two parties. Agents can only act on behalf of the principal for specific issues, depending upon the agreement.

Agents act similarly to employees, except that the agent works with the principal by representing them in specific situations and transactions. Additionally, an agent is granted different types of power and authority to act on behalf of another individual or group of individuals in business settings. The principal has the right to control the agent’s conduct completely as it is associated with the duties that are provided to the agent by the principal.

There are several duties that agents have towards principals, and failure to perform these duties may result in a breach of contract or in tort liability. These duties include, but may not be limited to:

  • Loyalty: Agents must only act for the benefit of the principal, and as such cannot act for their personal gain. Additionally, any information associated with the agency relationship must be kept confidential;
  • Performance: An agent is required to perform for the principal in an acceptable manner. What this means is that the agent should perform their duties with reasonable skill and responsibility;
  • Notification: Also referred to as the duty to inform, agents are required to inform principals of all matters associated with the subject matter of the agency relationship. An example of this would be how if a painter hires an agent to sell their paintings, and the agent learns that a buyer will not be able to pay, the agent must inform the principal of this fact; and
  • Obedience: Agents are required to act as the principal instructs, and should not act without the permission of the principal. Exceptions include:
    • If the principal asks the agent to violate the law, and the agent can refuse to do so without breaching this duty; and
    • An agent can deviate from the instructions provided by the principal during emergency situations.

The principal also has duties towards their agent, and failure to perform those duties may result in a breach of contract or tort liability. The principal’s duties are similar to those of an employer, including:

  • Compensation: Because principals hire agents, agents expect to be paid in a reasonable manner; the specific circumstances and arrangement between the parties will determine what constitutes reasonable. Additionally, the principal must pay out-of-pocket expenses that an agent incurs while performing duties for the principal;
  • Cooperation: Principals must allow agents to perform their duties, and as such are required to cooperate with and assist agents; and
  • Safe Working Conditions: An example of this would be how principals should warn agents regarding unsafe situations when performing certain duties.

How Is An Agency Relationship Formed?

To reiterate, an agency relationship is formed between two parties when one party, the agent, agrees to represent the other party, the principal. A principal-agent relationship is fiduciary in nature, meaning that it is based on trust. Generally speaking, all employees who deal with third parties are considered to be agents; as such, an agency relationship is governed by employment law.

Although an agent is essentially an employee, the defining difference is that an agent and principal make an agreement that the agent will represent the principal in specific transactions or situations. An example of this would be how an NBA player hires an agent, and an agreement between the two may only give the agent power and authority to negotiate contracts.

An agency relationship is formed when two parties agree that one party will represent the other party in specific circumstances. There are four general ways in which an agency relationship is formed:

  • By Agreement: Both sides agree on specific conditions, and this agreement can be formed by either an express contract or by a simple conversation and handshake;
  • By Ratification: One party can agree to be an agent through a third party, as long as the principal is then notified and approves of the agreement. In these circumstances, an agency relationship is formed;
  • By Estoppel: There may be circumstances in which a party’s actions represent to a third party that another person is their agent, when in fact the person is not. If the third party reasonably believes that this is true, a court will prevent them from denying that the agency exists. Estoppel is also known as detrimental reliance; or
  • By Operation of Law: Courts may step in and consider a person to be an agent, even if there was no agency agreement. However, courts generally only do this in order to prevent a party from suffering injustice.

How Is An Agency Relationship Terminated?

An agency relationship is terminated according to the termination date of the agency relationship, according to the agency contract that was initially formed when entering in the principal-agency relationship. As such, either a principal or agent may be liable for damages if they terminate the contract in violation of the contract agreement.

Additionally, a principal agency can be terminated in the following ways:

  • Death of either the principal or the agent;
  • Mental impairment by either party;
  • Bankruptcy of the principal; and
  • Operation of law.

Do I Need An Attorney For Help With Agency Formations?

You should consult with a contract attorney if you are planning to enter into an agency relationship, in order to learn more about your rights and duties under your specific state’s employment laws.

Additionally, an experienced contract attorney will also be able to represent you in court, as needed.