Relationships between Principal and Agent

Summary

An agent acts on behalf of another. The law recognizes several types of agents, including (1) the general agent, one who possesses the authority to carry out a broad range of transactions in the name of and on behalf of the principal; (2) the special agent, one with authority to act only in a specifically designated instance or set of transactions; (3) the agent whose agency is coupled with an interest, one who has a property interest in addition to the authority to act as an agent; (4) the subagent, one appointed by an agent with authority to do so; and (5) the servant ("employee" in modern English), one whose physical conduct is subject to the control of the principal.

A servant should be distinguished from an independent contractor whose work is not subject to the principal's control. The difference is important for taxation, workers' compensation, and liability insurance.

The agency relationship is usually created by contract and sometimes governed by the Statute of Frauds, but some agencies are created by operation of law.

An agent owes his principal the highest duty of loyalty, that of a fiduciary. The agent must avoid self-dealing, preserve confidential information, perform with skill and care, conduct his personal life so as not to bring disrepute on the business for which he acts as agent, keep and render accounts, and give appropriate information to the principal.

Although the principal is not the agent's fiduciary, the principal does have certain obligations toward the agent – for example, to refrain from interfering with the agent's work and to indemnify. The employer's common-law tort liability toward his employees has been replaced by the workers' compensation system, under which the employee gives up the right to sue for damages in return for prompt payment of medical and job-loss expenses. Injuries must have been work related and the injured person must have been an employee. Courts today allow awards for psychological trauma in the absence of physical injury.