BUS 225 Module 6 Agency and Employment Example

When Others Act for Pinecrest: Authority, Liability and the Employee or Contractor Question

Student Name

Business Administration Program, Aspen University

BUS 225: Legal Environment of Business

Instructor Name

Month Day, Year

When Others Act for Pinecrest: Authority, Liability and the Employee or Contractor Question

Pinecrest relies on people who act for it outside the stores. Two incidents in one month tested those relationships. First, its wholesale sales representative, paid a salary and commission, signed a two-year exclusive supply agreement with a ski lodge shop, promising prices below Pinecrest's standard wholesale list, although Pinecrest had told him in writing that only the owners could sign contracts longer than one year. Second, a freelance guide who leads Pinecrest's weekend gear clinics took a group up a trail in worsening weather, and a participant broke her wrist on an icy section. The owners want to know whether they are bound by the contract, whether they are liable for the injury and whether their guides are really contractors.

The Agency Relationship

An agency relationship exists when one person, the principal, agrees that another, the agent, will act on the principal's behalf and subject to the principal's control, and the agent agrees to do so (American Law Institute, 2006). Agents owe principals duties of loyalty, obedience and care, and principals owe agents compensation and cooperation. Employees are agents for many purposes, and some independent contractors are agents for specific tasks. The questions the owners raise turn on two issues: what authority the agent had, and whether the person was an employee or an independent contractor.

The Sales Representative's Contract

A principal is bound by contracts an agent makes with actual authority, which comes from the principal's instructions, or with apparent authority, which arises when the principal's own words or conduct give an outsider good reason to think the agent is authorized (American Law Institute, 2006). The representative had no actual authority to sign a two-year agreement; his written instructions limited him to one year. The question is apparent authority. Pinecrest had given him business cards reading Wholesale Director, sent him to the lodge shop with a price sheet and, the year before, honored a one-year agreement he signed with the same shop. The lodge shop did not know of the internal limit. A court could find that Pinecrest's conduct created a reasonable belief that he could sign supply agreements, making Pinecrest bound. The representative, however, breached his duty of obedience and may owe Pinecrest for losses caused by exceeding his authority.

Liability for the Guide's Conduct

Under respondeat superior, an employer answers for wrongs an employee commits while doing the job, even if the employer itself did nothing wrong. A principal is generally not liable for the physical negligence of an independent contractor, with exceptions such as inherently dangerous work or the principal's own negligence in selecting or supervising the contractor (American Law Institute, 2006). The participant's claim is that the guide was negligent in continuing in poor weather. Whether Pinecrest bears that liability depends first on whether the guide was an employee.

Employee or Independent Contractor?

When a statute uses the word employee without defining it, the Supreme Court applies the common law agency test, which asks about the hiring party's right to control the manner and means of the work, along with factors such as the skill required, who supplies the tools, the duration of the relationship, the method of payment and whether the work is part of the hiring party's regular business (Nationwide Mutual Insurance Co. v. Darden, 1992). For wage and hour law, the Department of Labor's 2024 rule applies a broader economic reality test asking, in substance, whether the worker relies on the business for a living or runs an independent business of his or her own (U.S. Department of Labor, 2024). In 2025 the department announced that it would not apply that rule in its own enforcement, so employers should check current guidance, but the factors it lists remain those courts have long considered.

Applying the Test to the Guides

Pinecrest's guides are paid a flat fee per clinic and set their own routes, but Pinecrest schedules the clinics, advertises them under its name, sells the tickets, supplies the demonstration gear, requires guides to follow its safety checklist and has used the same four guides for three years. The clinics are a regular part of Pinecrest's business. Most of these facts point toward employee status, especially the control over scheduling and safety procedures and the long, exclusive relationship. If the guide was an employee, Pinecrest is liable for her negligence during the clinic. Even if she was a contractor, Pinecrest could be liable for its own negligence if its checklist lacked a weather turnaround rule.

The Two Incidents Compared

The table summarizes the analysis.

Policy Changes

Pinecrest should tell key customers in writing who may sign contracts and for what terms, and revise business cards and titles to match actual authority. It should require owner countersignature on any agreement over one year and review its commission plan so that representatives do not gain from unauthorized discounts. For the guides, it should either reclassify them as part-time employees, with workers' compensation and payroll taxes, or restructure the relationship so they genuinely operate independent businesses. Its general liability insurance should cover clinics, and the safety checklist should include weather turnaround criteria and signed participant acknowledgments.

What the Representative Owed Pinecrest

Agents owe their principals a duty to act within their authority and to follow lawful instructions. By signing a two-year agreement at below-list prices despite a written limit, the representative breached that duty, and he gained a larger commission from the volume. Pinecrest may recover from him the losses the agreement causes, though a claim against a current employee is usually better handled through a frank conversation, a written warning and a changed commission rule.

Conclusion

Agency law holds businesses responsible for what their agents do in their name. Pinecrest is probably bound by the representative's contract because its own conduct gave him apparent authority, and it is probably liable for the guide's negligence because, despite the contractor label, the relationship looks like employment. Aligning titles, written authority and worker classification with reality would reduce both risks.

References

American Law Institute. (2006). Restatement (third) of agency.

Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992).

U.S. Department of Labor. (2024). Employee or independent contractor classification under the Fair Labor Standards Act, 29 C.F.R. Part 795. https://www.ecfr.gov/current/title-29/part-795