Principal agency laws, or principal-agent laws, deal with situations where one party authorizes another to perform tasks on their behalf. In such situations, the person or party granting the authority is called the principal, while the agent is the party that is performing the conduct.

An example of this is where an employer authorizes a worker to perform a delivery on their behalf. Here, the employer is the principal, while the worker who actually makes the delivery is called the agent. In such situations, the agency is authorized to do certain tasks on behalf of the principal.

What Is the Purpose of a Principal-Agent Relationship?

The purpose of a principal-agent relationship is basically to allow certain tasks to be performed in a more efficient way. Rather than having to approve each little step that the agent does along the way, the principal will usually grant general authority for the agent to act on their behalf. For instance, they may grant them authority to "make deliveries, along with all tasks required to complete the delivery". This gives the agent some freedom in terms of completing the task.

In many cases, an agreement or contract will be formed between the principal and the agent. This outlines the scope of the agent’s duties, as well as the limits of the principal-agent relationship. This is helpful in terms of defining liability for certain actions or violations.

How Does Liability Work in a Principal Agent-Relationship?

One of the main questions in this area of law is which party to sue or hold liable for a violation. For instance, if a delivery is not fulfilled, who should be held liable? The agent, or the principal who authorized the agent to make the delivery. This will depend on the facts, but generally speaking, the principal may be held liable for the agent’s conduct if:

  • The agent was acting in their scope of authority as instructed by the principal.
  • The agent was specifically authorized to perform the conduct on the principal’s behalf.

On the other hand, deviations from the original plan and scope of authority may result in the agent being held liable. For instance, if the agent disobeyed the principal’s instructions and instead used the delivery car for personal reasons, they can be held liable for losses caused by their own decision. Damages awards can result from principal-agent violations. In many cases, the plaintiff will choose to sue the principal, since they are usually the party that has greater responsibility and greater resources.

Do I Need a Lawyer for Help with Principal Agency Laws?

Agency laws can often get quite involved and complex. You may wish to hire an employment lawyer if you need help forming, reviewing, or analyzing a principal agency agreement. Your attorney can help you with the documents, and can explain how your rights may be affected by the agreement. Also, your lawyer can represent you during court hearings in the event that a lawsuit is filed.