The agent has entered into an agreement to work on behalf of the principal, subject to the consent and control of the principal. The agency relationship consists of the principal and the agent, and clarity about the expectations from each party is critical to prevent miscommunication, which often results in liability.
The agent has a duty of loyalty to the principal. An agent must act only for the benefit of the principal in connection with the agency relationship and can receive personal benefit only with the full knowledge and consent of the principal. The agent must not divulge sensitive information such as trade secrets without the consent and approval of the principal.
The agent's behavior directly reflects on the principal, so the agent's actions, behaviors, conversations, and other activities may have an impact on the principal. Should there be anything that would harm the agency relationship, the agent must immediately stop serving as an agent to protect the principal's reputation.
Accurate reporting of information is vital to the agency relationship, so the agent has a duty to notify—that is, an obligation to pass along any information they receive in the context of the agency relationship to the principal—as part of the duty of reasonable care. The agent must exercise reasonable care and obey the principal's instructions unless those instructions are illegal or unethical.
A breach of these duties may cause the principal to terminate the agency relationship. A court may award damages to the principal for the actions of the agent.
The agent is not the only party with duties. If the agency relationship includes compensation, then the principal must compensate the agent as agreed upon. The principal must also reimburse the agent for any expenses related to the agency agreement.