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Principal-Agent Relationships: Business Law Concept

Introduction

The lawful basis for the implementation of intermediary services through an agency contract is legally fixed. According to the agency agreement, one party – the agent, undertakes, for a fee, to perform, on behalf of the other party – the principal, legal and other actions on its behalf, but at the expense of the principal or on behalf of and at the payment of the principal (Freienfel, 2018). The agency contract’s scope is purely specific and broad, and terms are determined by the principal and the agent. In this case, the principal is GC, and the agent is George Tacy. In a subsequent analysis, the rights and obligations of the parties entered into by the agency agreement will be considered, as well as the advantages and disadvantages of this type of business for George Tacy.

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Rights of GC

Firstly, GC has the legal right to require Tacy to commit or refrain from performing any actions on behalf of the company. Thus, GC can get Tacy to conduct interviews with possible candidates for positions in the IT department, the choice of qualified candidates for recruitment, or further selection. Moreover, GC may require Tacy to refuse particular interviews or not to hire a decided employee without explanation. Simultaneously, GC may hold a demand against Tacy in case of refusing to interview potential employees.

Secondly, GC has the right to choose an agent themselves; if Tacy is not qualified enough, GC can terminate the agreement and change the agent. Moreover, the organization can control Tacy’s actions within the company, that is, despite the complete freedom in hiring employees, Tacy is still subject to a standard hierarchy (Sherman, 2018). Nevertheless, GC does not have the right to demand Tacy to commit illegal acts and corporate policy violations. Regarding payment for agency services, it can be stated that GC has the right to demand compensation from Tacy in case of unjustified waste of funds allocated for interviews or the assessment of candidates’ qualifications. Reimbursement can also be requested if Tacy does not separate the company’s financing from his remuneration and personal funds.

In the event of a contract breach by Tacy, GC may demand compensation by the Civil Law tort. For instance, if Tacy receives a court order for violating corporate ethics or disrupting the law, then GC has the right to require compensation from the state if granted that Tacy’s actions were not committed as directed by the principal (Mayer et al., 2012a). Moreover, payments can be provided if Tacy terminates the contract ahead of schedule.

Specific Duties Tacy Must Perform

According to the agency agreement, Tacy has the duty to select and hire employees in the IT sector, accompanying the entire process of assuming office. Tacy’s primary responsibility is to search for qualified candidates for positions for the development and management of the GC website, internal computer systems, and IT support. Thus, the agent must draw up a scheme by which he will select suitable candidates, conduct group interviews for the initial selection, and manage individual meetings, followed by testing for advanced candidates. Moreover, Tacy should be a supervisor for the probationary period for employees and, in case of professional unsuitability, to fulfill the dismissal in compliance with legal norms. Tacy’s second duty is to enter into various agreements with employees and legalize the interviewing and hiring process. When spending GC’s funds, Tacy must provide detailed reports on his actions.

Two Potential Liabilities

Despite the extensive list of rights of the principal, GC also has several obligations to the agent. First, GC is required to provide Tacy with the necessary information and material goods needed for work. GC is required to give Tacy a database containing details on possible candidates, pay for potential costs in interviews and qualification tests. Moreover, GC must warn Tacy about possible risks at the occupation and must not take actions that violate Tacy’s reputation as a professional agent.

Secondly, GC must comply with all additional requirements prescribed by the agreement, the introduction of which should be made after discussion in negotiations with Tacy. Thirdly, GC is obliged to pay compensation if possible termination of the contract is due to its fault (Freienfels, 2018). Fourth, the Civil Code should not interfere with the Teisi workflow (Mayer et al., 2012b). The company can only supervise the hiring process and evaluate the quality of work, but not conflict with the implementation of specific actions.

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Conclusion

Registering Tacy as an independent contractor is more beneficial for GC since under such an agreement the agent, that is, Tacy remains a self-supporting entrepreneur and can carry out additional projects, and the company pays reduced taxes and avoids social payments for Tacy. Mediation is one of the most favored areas of application for business efforts. Therefore, commercial risks are much less, while the return on invested capital can be significantly higher than in other activities. Thus, registering Tacy as an independent contractor is beneficial for both parties. Therefore, when concluding an agency contract, both the principal and the agent have a wide range of rights and obligations that ensure mutually beneficial cooperation in some instances.

References

Freienfels, W. M. (2018). Agency – Liability of principal for acts of agents. Web.

Mayer, D., Warner, D., Siedel, G. J., & Lieberman, J. K. (2012a). Relationships between principal and agent. In Law for Entrepreneurs (Chapter 20). New York, DC: Saylor Foundation. Web.

Mayer, D., Warner, D., Siedel, G. J., & Lieberman, J. K. (2012b). Liability of principal and agent; termination of agency. In Law for Entrepreneurs (Chapter 21). New York, DC: Saylor Foundation. Web.

Sherman, F. (2018). The definition of principal vs. agent. Web.

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