Course Hero Logo

Introduction to Agencies

Duties of the Principal

The principal owes duties to the agent, but these are not fiduciary in nature. The principal must compensate the agent if compensation was agreed upon. The principal must also indemnify the agent for all claims that come about because of the agency relationship.

The principal has a duty to cooperate with the agent. The principal must refrain from unreasonably interfering with the work of the agent; however, the principal is allowed to interact with the agent and offer better ideas and options to the agent in the spirit of mutual cooperation. The principal must also provide safe working conditions and help to provide an atmosphere that is conducive to productive work and results.

The principal has a duty to reimburse the agent for any expenses that were involved in transactions on behalf of the principal. Indemnification, or release from liability, is part of the duties of the principal, and when there may be losses suffered as a result of principal's decisions or acts, the agent is to be indemnified from those losses. Both the reimbursement, or repayment, and indemnification require that the agent was working within the scope of their duties, responsibilities, and assignments or tasks. The agent is to act on behalf of the principal at all times. Acting independently and outside the scope may subject the agent to legal issues and personal liability.

Principal's Duties to Agents

Duty Explanation
Duty of cooperation Help the agent perform their duties as needed
Duty of compensation Pay agents in accordance with the agency agreement
Duty of reimbursement Reimburse agents for expenses related to the agency relationship (may include supplies and travel expenses)
Duty of indemnification Hold the agent harmless and remove liability if the principal's actions caused harm

The principal's duties to agents include cooperation, compensation, reimbursement, and indemnification.

One of the most important duties of the principal is the duty to compensate. The principal must compensate the agent for their skill, representation, and work within the understanding of the agency agreement and relationship. Typically, there is an agreed-upon compensation for the actions of the agent that is discussed at the onset of the relationship; however, if that is not the case, industry or trade standards must be considered when determining the proper compensation. If there is no point of reference within the industry or trade, then reasonable compensation for the tasks, considering the level of skill required, must be utilized in setting the compensation by the principal to the agent.

Tort claims—claims that a civil wrong caused loss or harm such as civil assault or battery, trespassing, or negligence and other labor-related issues—may occur within or as a result of the agency relationship. It is the responsibility and duty of the principal to investigate those laws and requirements and ensure the agent is fully covered, as required by the law and local governing agencies. Although the principal's duties to the agent are not fiduciary in nature, it is imperative that the principal be aware of their duties to the agent and fulfill the requirements. The principal always has a duty to abide by the contractual agreement with the agent, but sometimes the agreement was verbal only, leaving room for miscommunication. Written agreements are preferred to clarify the agreements, but it is legal for the agent and principal to have only verbal agreements. That fact alone increases the need for the principal to be fully aware of their obligations and promises to the agent.