Ready to Hire? Determine Relationship First.  

Creating a business is not for the faint of heart. There are many moving parts to take into account and hiring employees is a big one. Prior to hiring, you need to decide what type of relationship this employee or employees will have with the company. Here are a few to consider:

  1. Importance of Agency to Business Law: The Corporation has its own legal identity. However, it cannot act for itself. Therefore, it must act through agents, whether they are employees, officers or directors. All corporate rights and liabilities are determined through the actions of agents.


  1. Creation of the Agency Relationship: Generally, an agency relationship is a consensual, fiduciary relationship between persons in which one person, the principal, consents to allow another person, the agent, to act on his behalf. Most importantly, the agent is subject to the principal’s control. The principal is the one who gives power to the agent, and is the person for whom the action is taken. The agent is the person who acts on behalf of the principal. When acting for the principal, the agent must act subject to the principal’s instructions. Finally, in every agency transaction, the agent deals with a third party on behalf of the principal. An agency relationship has its source in some action by the principal. There must be some action by the principal that gives actual or apparent authority to the agent to act for it and gives the principal the right to control.


  1. Fiduciary Duties of the Agent: Every agency relationship creates certain fiduciary duties for the agent, including care, loyalty, obedience, and communication. The duty of care means the agent must exercise care while performing her actions for her principal. Second, the agent must be loyal to the principal. Additionally, while acting in his capacity as an agent, he must not also take advantage of opportunities for self-gain, which are available because of his position. Third, the agent is bound to act within the bounds of the authority given him by the principal; he must follow the directions of the principal. Lastly, the agent must communicate all information with the principal.


  1. Differences between Agents and Independent Contractors: Agency relationships are similar to other types of legal relationships, but there are vital differences to be aware of. When an independent contractor is hired, there is no agency relationship. The independent contractor is hired to do a particular service, but is not controlled by his client, the principal, in the performance of that service. Ultimately, an agency relationship does not exist if the independent contractor controls the day-to-day operations of the job.

In some cases, such as brokers, attorneys, and collection agencies, the person acting is considered both an independent contractor and an agent because they continue to owe the principal duties of loyalty and obedience. They merely are not physically controlled in how the job is to be performed.

Do you have questions about the status of your employees? Do you need help in finding employees? Contact us today and see how we can assist.  We can help you to manage your independent contractor agreements too.


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