Agency Law and the Gig Economy

Inter-office Memo
To:
From:
Date:
Subject: Agency Law and the Gig Economy
Summary Statement
The underlying principles of agency describe the relationship between the agent and his or
her principal. Before explaining the nature of the relationship between the agent and the
principal it is important to understand what it means. Descriptively, a principal-agent
relationship as involving a situation whereby one party is authorized, based on a signed
agreement, to act on behalf of another (Jennings, 2017). The implication is that one party, the
agent, is allowed to transact on behalf of another party, the principal. Thus, it follows that the
agent is individual entrusted to promote the other party’s interests and is therefore considered
a manifestation of the principal’s desire. Based on this understanding, the principal can be
equated to an employer, but one should note that agents are not always employees which
provides rationale for the use of the term “principal” (Jennings, 2017).
Jennings (2017) explained that a business must provide an individual with express authority
to act on its behalf. Thus, an express contract is signed which specifies the extent of an
agent’s authority. A record must exist in order to officiate the agency relationship. While that
is the case, McPeak (2016) addressed the concept of capacity whereby the principal must
show ability to extend authority to an agent. The rationale is that for an agent to have
authority, a principal must exist. One other principle is the implied authority, an extension of
express authority, whereby the agent can perform other tasks not put in record. A fusion of
implied and express authority creates a new form of authority called actual authority
(Jennings, 2017).

Understandably, how an agent appears to a third party may lead to the third party assuming
the he or she has authority to perform tasks which are neither expressed nor implied. In such
a case, the third party believes the agent’s authority to deal with him or her in a particular
manner (Dalley, 2011). One other principle to note is ratification whereby a principal gives
consent to a contract even after knowing that the agent had no property authority to establish
it. In such a case, the agent is considered to have performed in the principal’s best interests.
Background
The emergence of the gig economy has allowed individuals to assume the role of independent
contractors due to the free market system. In such a business environment, an individual can
determine how much he or she works, whether he or she wants to continue a particular kind
of job or not. The decision to terminate or continue a particular business relationship is left to
the independent contractor. Uber is a good example of a company operating in the gig
economy atmosphere as its drivers are independent individuals who share the power to
terminate the relationship whenever they wish. However, due to the impermanence of Uber
drivers, as independent contractors, a question arises about their conduct and whether Uber is
likely to suffer liability or not.
DeMott (2016) discussed the scope of the agency relationship. He noted that apparent
authority disallows limitations imposed on an agent’s authority to undercut the reasonable
beliefs of a third party. As mentioned earlier, the agent is tasked with promoting the
principal’s interests even when no authorization has been given. However, one should
consider that the principal faces the risk of liability when an act, based on apparent authority,
behaves in a manner inconsistent with the third party’s reasonable beliefs. For this reason,
DeMott (2016) explained that when an agent’s customary practice under apparent authority is
illegal, the principal’s restrictions on the agent’s authority do not acquit the principal from
liability.