As a small-business owner, you are faced with rising costs, particularly employm

Question

As a small-business owner, you are faced with rising costs, particularly employment costs, insurance, et cetera. So, you decide to hire some friends and pay them as they work, rather than go through the expense and procedure of bringing in “actual” employees. Your friends wear the business uniform, deal with vendors and customers, and tell friends and family that they work for the business. One friend / employee orders way too much from a vendor. The vendor has dealt with the person numerous times; in fact, the person has been ordering from the vendor for months. Since the person who ordered was not an ”employee,” but a friend you hired, are you liable to pay for the improper order? Discuss the implications of agency that apply in this situation, and describe at least one (1) way the company may be able to cancel or return the order in question. Be sure to support your legal analysis with concepts and definitions from the reading.

Explanation / Answer

As a small-business owner, you are faced with rising costs, particularly employment costs, insurance, et cetera. So, you decide to hire some friends and pay them as they work, rather than go through the expense and procedure of bringing in “actual” employees. Your friends wear the business uniform, deal with vendors and customers, and tell friends and family that they work for the business. One friend / employee orders way too much from a vendor. The vendor has dealt with the person numerous times; in fact, the person has been ordering from the vendor for months.

Since the person who ordered was not an ”employee,” but a friend you hired, are you liable to pay for the improper order?

Yes without a doubt as the business owner, we are liable to pay. Whom we hire and get the work don by is our internal matter and the vendor has nothing to do with it. In fact the purchase order is a legally binding document and does not depend on the relationship (permanent, temp employees or a friend, relative etc) and thus the business owner has to accept the liabilities of over ordering.

Discuss the implications of agency that apply in this situation, and describe at least one (1) way the company may be able to cancel or return the order in question. Be sure to support your legal analysis with concepts and definitions from the reading.

An agency problem as we know arises when an agent acts on behalf of a principal who own the business. Hence in this case the Purchaser is the agent and we as business owner are the principal. Now it is expected out of the purchaser that he purchases an optimal quantity at the right price and well within time. In case he misses out on any of these parameters (quantity, price, time etc), then it could be due to an agency issue where the purchaser has some other interests to act so.

The company can cancel or return the order by discussions with the vendor explaining him the situation, reminding him of the good business provided in the past and assurances of more favorable orders in the future. It might also need a small penalty to be borne for the logistics costs incurred etc but it should be well within th reach of both the parties for an amicable and long term business relationship

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