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In law school, law students who take coursework on business law or corporate law are introduced rather early to the concept of agency. Agency describes the situations and circumstances under which one person may act on behalf of another and bind the other person to obligations or make the other person responsible for the damages caused by the first individual. Although agency is a concept with a long history, it is just as applicable today to business owners as it was in previous generations.

The Agency Relationship

In general, an agency relationship forms when one person (the principal) authorizes another person (the agent) verbally or in writing to conduct certain business or make certain decisions on behalf of the principal. In most agency cases, both the principal and the agent will explicitly agree to the limits of the agent’s power. For example, when you hire a new employee you will generally speak with the new employee about his or her job duties or provide him or her with a written job description. The new employee is your agent, and the job description sets forth the limits of the agent’s actual ability to act on your behalf. A cashier, for instance, has the ability to act as your agent in collecting cash or other forms of payment for merchandise from customers.

An agent who has authority from his or her principal to perform certain tasks generally does not need any further permission from the principal to carry out those tasks. For example, your cashier does not need to ask you permission to collect a customer’s money each time someone comes to the checkout stand with merchandise.

When Agency is Not So Clear

If agents simply stayed within the realm of the authority granted to them by their principals, life would be simple for business owners. Sadly, this is not the case. Agents can cause big headaches for their principals when they act beyond the scope of their authority – or without any authority at all. Consider:

  • The cashier in the above example is approached by a customer who wants a markdown on a particular item. You did not give the cashier any authority to markdown items, but the cashier proceeds to do so anyway. Once the money has exchanged hands, you are unlikely to successfully obtain the difference between the actual price and the markdown price from the customer by any means.
  • You fire the cashier but he or she shows up at your place of business the next day in uniform and announces to the customers that “everything must go for one dollar!” Customers grab up as much merchandise as they can and head for the register. Here again, because the cashier appears to have your authority (he or she still has his or her work uniform), you may be bound by the cashier’s actions.

There are other ways in which employees/agents can cause problems for your business. The Ohio business lawyers at the Law Office of John C. Grundy can help you understand the ways in which employees and agents can put your business at risk and what you can do about it. Contact us today by calling (330) 637-9030 or contact us online.