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Termination of an Agency Relationship

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What Is an Agency Relationship?

An agency relationship is formed between two parties when one party (the agent) agrees to represent another party (the principal). A principal-agent relationship is fiduciary, meaning it is based on trust. Normally, all employees who deal with third parties are considered agents. As such, an agency relationship is governed by employment law.

How Can an Agency Relationship be Terminated?

There are many ways to terminate an agency relationship. Once the relationship is terminated, the agent no longer has authority to act for the principal. The principal is required to inform third parties (that dealt with the agent) that the agency relationship has been terminated. Ways to terminate an agency relationship include:

  • Lapse of time: If the parties agree to set a time period for the agency relationship, the agency relationship terminates when the time period passes. For example, you hire a person to be your agent for one year. After one year passes, the agency relationship automatically terminates unless you extend it.
  • Purpose achieved: Some agents are hired to achieve a certain purpose. Once that purpose is achieved, the agency relationship is automatically terminated (but you can extend it). A prime example is when professional sports players hire an agent to only negotiate contracts.
  • Mutual agreement: Both parties can agree to terminate the relationship. If both parties agree to part ways, the reason for the termination does not matter.
  • Certain events: An agency relationship will automatically terminate upon the occurrence of certain events. Such events include death, insanity, or bankruptcy of either the principal or agent. A court of law will usually step in and terminate the agency relationship if one of the parties refuses to do so. Both parties may also specify particular events that can cause termination.

Are There Penalties for Wrongful Termination of an Agency Relationship?

Laws that govern agency relationships are based on both contract and employment law. If an agency is wrongfully terminated, one party can sue the other for:

  • Breach of contact: Many agency relationships are created by a contract. Wrongfully terminating the agency relationship is a breach of the contract.
  • Employment law: An agent is basically an employee of the principal. A wrongfully terminated agent can bring a wrongful termination claim against the principal.

Seeking Legal Help

Termination of an agency relationship can be quite complex. Since both contract and employment law are involved in agency law, you should consult an experienced employment attorney to advise you on the best way to terminate an agency relationship without encountering legal pitfalls.

Photo of page author Peter Clarke

, LegalMatch Content Manager

Last Modified: 01-15-2018 01:00 AM PST

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