Or, the senior managers of a business engage in reporting fraud in order to increase the share price and cash in their stock options, after which the stock price drops, harming shareholders. Examples of Agency CostsĪs an example of agency costs, shareholders may want to increase earnings per share by focusing on cost cutting, while managers are more intent on spending money to increase their perks. For example, when the managers of a company take the business in a direction that is disagreeable to shareholders, the shareholders are more likely to sell off their shares in the business, which reduces the market value of the shares. These differences in viewpoint can lead to substantial additional costs or the loss of value. However, if the employee takes an unauthorized break while running errands in order to hang out with friends in a bar, the employee will normally be found to have deviated so significantly from the employment relationship during that time that any injury he or she causes falls outside of the scope and course of employment.Ĭlaims of vicarious liability often arise in an employment context when an employee is involved in a motor vehicle accident while on the job.Agency costs are the costs associated with the differences between the intentions of an agent and a principal, where the principal does not have complete control over the situation. If an employee is performing work-related errands and stops to go to an ATM or to buy a snack, that minor deviation is not likely to be deemed to fall outside of the scope of employment.
However, an employee might take an action that falls outside of the scope of the employment relationship, and thus relieves the employer of liability until the employee returns to his or her duties. Even if the employee is careless or violates the employer's policies when carrying out work duties, the employee's actions remain within the scope of employment.Īn employee who is acting on behalf of an employer will normally be carrying out those duties within the course of employment. When an employee is acting within the course and scope of employment and negligently causes injury to another person or to property, the employer may be held liable for the employee's negligence under principles of respondeat superior, a Latin phrase meaning "a superior must answer".Īn employer acts within the scope of employment when carrying out the duties that are reasonably associated with the employee's occupation. That is, they had apparent authority to accept your notice, and the company should be bound by their statements even if the person violated internal company procedures by making those statements.īack to top Liability of Employers for the Acts of Employees It is reasonable to assume that a person who accepts your call on behalf of the company and makes statements or gives instructions consistent with your having successfully canceled the lease, has the authority to in fact cancel the lease. Should the matter end up in court, the court is unlikely to accept the company's argument that you had not properly terminated the lease. When you call the company they admit that you placed the call to cancel the lease, but inform you that the person to whom you spoke was not authorized to accept your notice of termination.
Three months later, when the company has still not picked up the computer equipment, you receive an invoice for three months of unpaid lease payments and late fees. When you call the company, you speak to somebody at their office or call center who instructs you that you should keep the equipment in a safe place until the company can pick up the equipment from your premises. Similarly, a principal may be liable for the acts of an agent who is acting in excess of the authority granted by the principal, if it reasonably appears to others that the agent has authority to act.įor example, if you are in the business of leasing computer equipment and you do not want to renew the lease, you would likely call the company which leased the computer to you to inform them that you wished to end the lease. That is, the principal may be liable based upon evidence that person appeared to be an agent. Under the doctrine of apparent authority, a principal may be liable for the acts of a person who is not actually an authorized agent. Back to top Liability Based Upon Apparent Authority of an Agent
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