Agency Law Terminology and the Three Ways an Agency Relationship is Created

In the scenario presented, the small business owner’s friends may be considered agents of the business. An agency relationship exists when one person (the principal) authorizes another person (the agent) to act on their behalf. The agent’s actions are legally binding on the principal, provided that the agent was acting within the scope of their authority.

There are three ways an agency relationship can be created:

1. Express Agreement: An express agency is created when the principal and agent explicitly agree to the agency relationship. This agreement can be written or oral.
2. Ratification: Ratification occurs when the principal accepts the benefits of an agent’s actions, even if the agent did not have prior authorization. For example, if an agent purchases supplies for the business without authorization, but the principal pays for the supplies, the principal has ratified the agent’s actions.
3. Estoppel: Estoppel occurs when the principal’s actions lead a third party to reasonably believe that the agent has authority to act on behalf of the principal. For instance, if a business owner allows an individual to wear their company uniform and deal with vendors and customers, a third party may assume that the individual is an authorized agent of the business.

Application of Agency Law to the Scenario

In the scenario, the small business owner’s friends may be considered agents of the business due to their involvement in dealing with vendors and customers. If Leo, one of the friends, ordered way too much from a vendor, the business owner could be held liable for Leo’s actions if the following conditions are met:

• Leo was acting within the scope of his authority when he placed the order. This means that he was authorized to order supplies for the business and that the order was not unreasonable in terms of quantity or cost.
• The vendor reasonably believed that Leo was authorized to act on behalf of the business. This could be due to Leo’s wearing a company uniform, his involvement in other business activities, or the lack of any indication to the contrary.

If these conditions are met, the business owner could be held liable for the cost of the excessive order. However, if Leo was acting outside the scope of his authority, or if the vendor knew or should have known that Leo was not authorized to place such a large order, the business owner may not be liable.

Scope of Employment and Legal Liability

The concept of “scope of employment” is crucial in determining whether an employer can be held liable for an employee’s actions. An employee is generally considered to be acting within the scope of employment if their actions are:

• Authorized by the employer, either expressly or impliedly;
• Reasonable in light of the employee’s duties; and
• In furtherance of the employer’s business.

In the scenario with Leo, whether his actions were within the scope of employment would depend on the specific facts and circumstances. If Leo was specifically authorized to order supplies, or if he had a history of placing orders without prior authorization, his actions may be considered within the scope of employment. However, if Leo was not authorized to order supplies and his actions were clearly unreasonable, the business owner may not be liable for his actions.

Employee-at-Will and Termination

If Leo is considered an employee-at-will, the business owner can generally fire him for any reason or no reason at all. However, there are some exceptions to the employment-at-will doctrine:

• Public Policy Exceptions: An employer cannot fire an employee for violating a public policy, such as reporting illegal activity or refusing to participate in illegal activities.
• Implied Contract Exceptions: An employer may be bound by an implied contract with an employee, such as an agreement to terminate only for cause.
• Discrimination: An employer cannot fire an employee for reasons of discrimination based on race, religion, gender, or other protected characteristics.

Recent Wrongful Termination Lawsuit in Georgia

In 2022, a Georgia court ruled in favor of an employee who was fired after she complained about her supervisor’s sexual harassment. The court found that the employee had been wrongfully terminated in violation of the Employment-at-Will doctrine.

Conclusion

Agency law and employment law are complex areas of legal practice, and it is important for small business owners to understand the potential liabilities associated with hiring friends and family to work for their businesses. Consulting with an attorney can help ensure that business owners are taking the necessary steps to protect themselves from legal liability.