877
Unit Seven
Focus on Ethics:
Agency and Employment
See Separate Lecture Outline System
INTRODUCTION
Foremost in the area of agency is the nature of duty. Significantly, most of the duties of principal and agent are
negotiable—they can be extended or abridged. Legal rules generally come into play when a contract is silent or ambiguous.
Allowing parties to negotiate their duties seems ethically fair, so long as the parties understand their rights and make informed
decisions.
ADDITIONAL RESOURCES—
VIDEO SUPPLEMENTS
878 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
The following video supplements relate to topics discussed in this feature—
Business Law Digital Video Library
The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or
individual review. Clips on topics covered in this chapter include the following.
• Legal Conflicts in Business
Agency and Respondeat Superior: Delivery Detour—Third party liability flows through the agent to the principal.
When the agent has acted outside the principal’s authority, the imputed liability is not so clear.
• Real World Legal
issues involving immigration, the visa process, and discrimination based on national origin.
FOCUS OUTLINE
I. The Agent’s Duty to the Principal
The principal–agent relationship is fiduciary, so, for example, an agent owes to a principal duties of loyalty, obedience,
disclosure, accounting, and performance. An agent should refrain from representing two principals in the same
transaction, making a secret profit from the agency, or failing to disclose the agent’s interest in property that a
principal is buying.
A. DOES AN AGENT ALSO HAVE A DUTY TO SOCIETY?
For instance, if a principal is marketing an unsafe product, should an agent expose the practice?
B. DOES AN AGENT’S BREACH OF LOYALTY TERMINATE THE AGENT’S AUTHORITY?
For example, an agent may have the authority to access a principal’ s customer list. If, however, the agent
accesses the list only to use it in the employ of a different principal, has this purpose—which is illegal and
unethical—made the access unauthorized? If so, legal sanctions may be more severe.
II. The Principal’s Duty to the Agent
UNIT SEVEN: FOCUS ON ETHICS—AGENCY AND EMPLOYMENT 879
III. Respondeat Superior
Why should innocent employers be required to assume responsibility for the tortious actions of their agent-
employees? Arguably, when one of two innocent parties (employer v. party injured by an employee) must bear a loss,
the employer who is in the best position to prevent that loss (by controlling the employee) should bear the burden.
880 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
IV. Immigration Reform
Unauthorized workers make up a small, but significant, percentage of the U.S. workforce, particularly in the
construction trade. Enforcement action against the workers and their employers leads to the deportation of many
immigrant workers and prison terms for some managers. Consequences also include family separations, and business
disruptions and other economic effects. Many U.S. citizens believe that reforming the immigration laws, especially with
respect to employment, is a “moral imperative.” Some believe that it is unethical to target unauthorized workers—who
are often impoverished and exploited—instead of those who take advantage of them.
V. Problems with I-9 Verification
Form I-9 specifies the documents that an employer can accept to verify a job applicant’s employment eligibility and
VI. Discrimination against Transgender Persons
Most courts have held that federal employment discrimination laws do not protect transgender persons. Some states
ban discrimination based on gender identity, and at least one court has extended Title VII protection against gender
discrimination to transsexuals.
TEACHING SUGGESTIONS
1. In discussing the material on principals’ liability for agents and employees’ torts, it may be helpful to mention
arguments that courts reject on public policy grounds. For example, it has been argued that whenever an agent or
employee commits a tort, the agent or employee is acting beyond the
rejected, that an employer is not liable, because the employee was given safety instructions and was warned to take
2. Corporate responsibility for officers and employees’ crimes could be discussed with the material in this Focus on
Ethics. Generally, when a corporate employee’s crime is beyond the scope of his or her employment and does not
inure to the benefit of the corporation, the corporation is not criminally liable. What is the ethical basis for holding an
employer liable for an agent’s unintentional tort while ordinarily exempting the employer from liability for the agent’s
crime?
3. Be clear about the differences between two important concepts of authority: an agent’s implied authority and the
agent’s apparent authority. Implied authority is derived from express authority. Apparent authority can result from as
little as the title or position that a principal gives an agent. What is the ethical basis for the concept of apparent
authority?
4. Johnson & Johnson, Inc., the world’s leading health-care products maker, was a pioneer in providing good pay,
shorter hours, and clean workplaces. Originally, the company’s credo stated that “[w]e are responsible to our
employees . . . . They must have a sense of security in their jobs. Compensation must be fair and adequate, and
UNIT SEVEN: FOCUS ON ETHICS—AGENCY AND EMPLOYMENT 881
working conditions clean, orderly and safe. . . . There must be equal opportunity for employment . . . . [The] actions
[of management] must be just and ethical.” Later, this credo was amended to add that “[w]e must be mindful of ways
to help our employees fulfill their family responsibilities.” The company provides on-site child-care, unpaid personal
leave of up to a year, pretax salary set-aside for dependent care, and supports alternative work options. Ask the class
to discuss the extent to which they believe ethical considerations guide the conduct of other employers toward their
employees. Is it possible to implement such policies as the Johnson & Johnson credo and maintain profits? In more
persons should be treated fairly. Laws prohibiting discrimination may conflict with other societal goals, particularly
when the trait of a protected class represents an arguably bona fide occupational requirement. For example, should
women be hired as fire fighters if they cannot fight fires with the same strength and agility as men? Would the tradeoff
Cyberlaw Link
What ethical standards apply to agency law in cyberspace? Should an employer be permitted to invade the privacy
of his or her employees in the interest of their safety by monitoring their use of the Internet? How far should an
employer be allowed to go in invading employee privacy rights in this context in the interests of worker safety and
efficiency?
ADDITIONAL QUESTIONS
1. Give examples of expectations concerning ethical conduct that have evolved into rules that, if breached, can cause an
agent to be held liable. It is expected that an agent refrain from representing two principals in the same transaction, making a
2. What is the argument behind asserting that an agent owes a duty to the public? Some scholars argue that in the name
3. What are some ethical conflicts arising from duties of principals to agents? If a principal’s duty to cooperate with the
4. What has been said to be the most important factor in a court’s construing a relationship as employer-employee when
the parties contracted to create an employer–independent contractor relationship? Employer control has been said to be the
most important factor. In other words, it is not what parties call their relationship but what they do. The parties’ perception of
their relationship may be equally as important. What is an ethical trade-off involved in this judicial interpretation? Social and
5. What are the prevailing rationales for the doctrine of respondeat superior? The prevailing rationale for the doctrine
of respondeat superior is that an employer is more likely to have the “deep pocket” that can pay for relief to an injured party.
Another rationale for the doctrine is that employers who might be held liable will take greater precautions to deter their
employees’ wrongful acts. How do these rationales weaken in the area of professional sports? Professional athletes are among
6. What is the dilemma facing potential whistleblowers? When forced to choose between “blowing the whistle” and
ignoring employers’ unethical, unsafe, or illegal activities, an employee may compromise his or her ethical standards in ignoring
the activities, but may be disciplined or discharged on blowing the whistle. What is the problem a whistleblower poses to a
court? In a whistleblower’s suit for wrongful discharge, unless there is a contract or statute covering the discharge, the
7. What are ethical questions involved in implying employment contracts (which arguably bolster employment security
but undercut the employment-at-will doctrine)? Courts increasingly make exceptions to the employment-at-will doctrine by
finding that an employer’s oral promises or written statements in an employment manual constitute an implied contract. From
the point of view of an employer who had no intention of making such a commitment, the ethical question is whether it is fair
8. How does the Americans with Disabilities Act (ADA) differ from other antidiscrimination laws? The ADA differs from
9. To what extent should an employer be liable for the safety of his or her workers? Companies are required by law to
protect the safety of workers in the workplace. Employers may also be held liable when their employees are injured outside the
workplace if the employees are performing work-related tasks, such as driving delivery trucks. Questions arise as to whether
the employer’s liability should extend further—for example, if a tired worker falls asleep at the wheel on the way home from
work and causes an accident. Should the employer be liable for any injuries sustained as a result of that accident?
10. Should a court intervene when an employer makes an unethical, but lawful, decision? Given the large number of at-
will employees and the traditional deference of the courts to employers in the conduct of employment relationships, the courts
ACTIVITIES AND RESEARCH ASSIGNMENTS
1. There are a number of subject areas within the topic of agency law that lend themselves to research assignments.
Some students may find cases involving issues of liability in the arena of professional sports to be interesting, partly because of
the fame of some of the parties involved. For a similar reason, there may be cases involving undisclosed principals that prove
interesting. Why would a principal prefer not to be known? What are circumstances under which a principal would find this
agency desirable? Perhaps more intriguing in those cases would be answers to the following question: given the liability of the
agent in that agency, why would he or she agree not to disclose the identity of the principal? Have students share with the class
2. Johnson & Johnson is mentioned in one of the Teaching Suggestions above. Have students research other companies
as places to work. Is there any correlation among an employer’s attempt to recognize ethical obligations and social
responsibilities, employees’ efforts on behalf of the company, and the bottom line?
3. The enforceability of arbitration clauses in employment contracts is an ongoing issue. Some cases favor employees
AGENCY AND EMPLOYMENT—
ANSWERS TO DISCUSSION QUESTIONS
1. How much obedience and loyalty does an agent-employee owe to an employer? What if the employer engages in
an activity—or requests that the employee engage in an activity—that violates the employee’s ethical standards but
does not necessarily violate any public policy or law? In such a situation, does an employee’s duty to abide by her or his
own ethical standards override the employee’s duty of loyalty to the employer? The answer to this question is yes—an
But the duty of loyalty has limits. An employee is not expected to violate his or her own personal ethical standards
2. When an agent acts in violation of his or her ethical or legal duty to the principal, should that action terminate the
agent’s authority to act on behalf of the principal? Why or why not? Most courts have ruled that an agent’s authority
continues, even when there is a breach of loyalty. In one case, for example, employees of Lockheed Martin Corporation
copied confidential information and trade secrets from Lockheed’s computer network. Lockheed had authorized the
employees to access the files. When the employees resigned and went to work for a competitor taking the trade
It could be argued however, that when an agent acts in violation of his or her ethical or legal duty to the principal,
3. If an agent-employee injures a third party during the course of employment, under the doctrine of respondeat
superior, the employer may be held liable for the employee’s action even though the employer did not authorize the
action and was not even aware of it. Is it fair to hold the employer liable in this situation? Would it be more equitable if
the employee alone was held liable for his or her tortious (legally wrongful) actions to third parties, even when the
actions were committed within the scope of employment? An employer should be required to assume responsibility
Another reason in support of the doctrine of respondeat superior in this situation is that an employer is assumed
4. How should immigration law be reformed? Does the United States have any ethical duties to undocumented
(illegal) aliens who come here to work? How can the law be fair and balance the rights of immigrants, their families, the
companies that employ them, and U.S. citizens? Unauthorized workers make up a small, but significant, percentage of
UNIT SEVEN: FOCUS ON ETHICS—AGENCY AND EMPLOYMENT 885
reforming the immigration laws, especially with respect to employment, is a “moral imperative.”
Some believe that it is unethical to target unauthorized workers—who are often impoverished and exploited—
instead of those who take advantage of them. Toward this end, any reform of the immigration laws would focus on
those who entice non-citizens to immigrate illegally and those who use their status as economic leverage, particularly
their landlords and employers.
Others believe that it is the workers themselves who should be the target of changes in the law. There is a
perception that competition for jobs and the pay for those positions are impacted by those who are willing to work for
less, and that among their numbers are illegal immigrants. Along this line of belief, if the immigrants were punished
more harshly, their ranks would be less likely to swell.
Still others advocate that the law should be reformed to allow for the employment of non-citizens without
necessarily increasing the numbers of those who become U.S. citizens or permanent legal residents. This alternative
might narrow the range of activities that break the law, reduce the opportunities to those who exploit disadvantaged
5. Should the law prohibit discrimination against transgender persons? Why or why not? Some states have laws that
specifically ban discrimination based on gender identity, and there are those who advocate that federal law—Title VII
of the Civil Rights Act of 1964—should protect transgender persons from discrimination. The reasons for this position
The legal reasoning could track the opinion of the court discussed in the text. Others might argue, however, that social
order needs well-defined roles for its citizens and gender identification is an important component of those definitions.