Entrepreneurship, Second Edition

12.6. Legal and Tax Issues in Hiring Employees

From the beginning of this venture, Dave and Deborah have known that, if they were successful, they would soon have to hire employees for both the software engineering and the marketing and sales functions. Thus, they need to consider some of the issues raised by the presence of employees.

12.6.1. Employees as Agents of the Company

Employees are agents of the company and, as such, are governed by many of the agency rules that already affect the relationships of partners to a partnership and officers to a corporation. Thus, employees have the duty of loyalty to the company and obligations to not compete, to respect confidentiality, and to account for their activities.

Yet Deborah and Dave are probably more interested in the potential of their employees to affect the business's relationships with third parties, such as customers and suppliers. Here, the rules of agency require that a distinction be drawn between obligations based on contractual liability and those resulting from noncontractual relationships such as tort actions. Figure 12.3 provides an overview of these relationships.

Figure 12.3. Power of employees/independent contractors to create contractual and tort liability for principals

Employees are authorized to bind their employers to contracts with third parties if such actions have either been expressly or impliedly authorized. ...