An agent is an individual who has agreed to represent another individual. The individual who is being presented is referred to as the principal.
An agency relationship is usually formed through an agreement between the principal and the agent. An agent is only permitted to act on the principal’s behalf for certain issues.
What the agent is permitted to do will depend upon the agreement made between the parties.
Contracts are agreements made between two parties that create mutual legal obligations. Contracts may be in an oral form or in a written form.
It is important to note that there are certain types of contracts that are required to be in writing in order to be valid, for example, those that involve significant amounts of money, such as over $500.
Courts will not enforce contracts that fall under the Statute of Frauds unless they are in writing, including:
The majority of contracts are governed by the statues of the states in which they are formed. Contracts are important parts of most people’s everyday lives, including agency relationships, as noted above.
Because of this, it may be helpful to know the basics of the rules governing contracts so an individual can help ensure theirs will be valid.
There are several elements that a contract must have in order to be valid, including:
A contract must have a legal purpose. Contracts cannot be entered into for criminal activities, for example, hiring a hitman.
There must be a meeting of the minds, or mutual agreement between the parties. For example, when the contract is signed, it shows that the parties agreed to the terms.
One party must make an offer to the other party to consider for acceptance. There may be some offers that do not have expiration periods.
Acceptance typically means agreeing to the terms of the offer. If there are any changes made to the terms when they are accepted, it would be considered a counteroffer. It is important to note that state laws may differ on this issue, so it is important to consider the jurisdiction.
Consideration is when the parties agree to provide something of value in exchange for a benefit. Consideration simply must be something of value and may include:
The parties to a contract have to be legally competent. Individuals who are minors or who are mentally impaired cannot enter into a valid contract.
In addition, the parties must be of sound mind when entering into the contract and not under the influence of drugs or alcohol. The parties to the contract must enter into on their own will.
A contract will be void if there is a mistake, duress or fraud by one or more of the parties.
The scope of the authority of an agent will depend on the agreement entered into between the agent and the principal, as noted above. In general, there are two ways to determine the scope of the agent’s authority, implied or expressed.
The authority of the agency may be implied by customs. This is determined by the express duties of other agents who are in the same position.
The authority of an agency may also be expressly determined. If the agreement between the parties specifies the agent’s duties, that agent is not permitted to represent the principal beyond those duties.
Yes, there may be certain situations in which the agent’s authority is created although they are not an agent, including:
An agent may have apparent authority if the principal, whether accidentally or purposefully, caused a third party to believe that the other individual is an agent. In that situation, the principal will be bound by the actions of the agent even if that party was not actually their agent.
This may be referred to as “agency by estoppel.” The third party in this situation must have reasonably believed that the individual was an agent.
An agent may have emergency powers and act beyond their authority even if the principal did not give them permission in an emergency situation. For example, an agent may use company funds in order to provide medical attention to an employee who is injured.
Ratification may occur when the principal authorizes the agent to act beyond their authority. As long as the principal is aware of this stretch of authority and ratifies the actions ahead of time, the agent will have the authority to act.
If an agent acted outside of the scope of their authority, a principal will not be held liable for any resulting losses or injuries. There is one exception to this rule, if the principal ratified an agreement.
If the agent acted outside of the scope of their authority, they may be held liable for any breach of contract consequences or injuries.
In general, yes, promises requiring an agent to reimburse a former employer for lost business due to transferring clients may be enforceable. In contrast to a covenant not to compete, a promise to reimburse for lost business does not prohibit an agent from seeking other employment.
The majority of courts, therefore, find that the lack of a free trade restriction makes it acceptable to enforce reimbursement promises. There are, however, a few exceptions.
Although different courts vary regarding how to regulate reimbursement promises, there are two main exceptions that generally apply. The first is that the agreement must be a part of the initial employment contract.
In other words, the agent is required to make a reimbursement promise before they begin working for their former employer. The reasoning behind this exception is to ensure that the reimbursement promise is made voluntarily instead of as a forced condition of the agent’s continued employment.
The second exception is that a reimbursement must be related to the subsequent employment. For example, suppose that B works for Agency C selling representation services to star athletes.
Also suppose that B decides to transfer clients to their own agency that also provides marketing services. Although a reimbursement promise can be used to recover for the lost client’s representation services, it cannot be used to recover the additional marketing services since those had nothing to do with B’s previous employment under C.
There are several other factors that may have bearing on the enforcement of a reimbursement promise, including:
If you have an agency that is seeking to include a reimbursement provision in your employment contracts, it is in your best interests to consult with a contract attorney.
Your attorney can help you determine whether a reimbursement provision is necessary for your business as well as help to draft a provision that will be enforceable in most states.
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