As A Small Business Owner, You're Faced With Rising C 123962

As A Small Business Owner You Are Faced With Rising Costs Particular

As a small-business owner facing rising costs such as employment expenses and insurance, you decide to hire friends and pay them as they work, rather than hiring official employees. These friends wear the business uniform, interact with vendors and customers, and tell others they work for the business. A friend, acting in this capacity, orders a large amount of supplies from a vendor, despite having done so multiple times over several months. Since this person is not a formal employee but a friend hired informally, questions arise regarding liability for the improper order. This scenario highlights key principles of agency law, which determines whether the business can be held responsible for actions taken by individuals acting on its behalf. Understanding the implications of agency is crucial in addressing liability and procedures for canceling or returning the order.

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The situation described illustrates the complexities that small businesses face when informal arrangements are used instead of formal employment contracts. While hiring friends may seem cost-effective in the short term, it introduces legal and operational risks, particularly concerning liability and agency law. Agency law addresses the relationship where one party (the agent) is authorized to act on behalf of another (the principal), creating potentially binding obligations (Guralnik, 1970). In this context, whether the business is liable for the friend's actions depends on the scope of authority granted—actual, apparent, or implied—and how the agency relationship is perceived in the eyes of third parties, such as vendors.

In this scenario, the friend ordering supplies is acting in a manner that appears to be authorized by the business, especially since they wear the business uniform, handle interactions, and have previously ordered from the vendor. This creates an impression of authority known as apparent authority, which can bind the business even if the friend lacked explicit authority. Apparent authority arises when a third party reasonably believes the agent has authority based on the principal's conduct (Farnsworth, 2012). Therefore, if the vendor was led to believe that the friend was an authorized representative, the business could be liable for the improper order.

However, the business owner can mitigate potential liability through specific actions. Firstly, clarifying the nature of the relationship with friends and explicitly stating that they are not authorized agents or employees can help. Secondly, communicating with the vendor to clarify the situation can be beneficial. For example, the business could inform the vendor that the friend was acting without authority and request to cancel or return the order. This process involves contacting the vendor promptly, explaining the informal arrangement, and asserting that the order was made outside any official authority. Since the vendor has dealt with the friend previously, they might be willing to accommodate cancellation or return, especially if the business provides a formal notice and cooperates in rectifying the situation.

Furthermore, the company should implement internal policies to prevent future misunderstandings, such as establishing clear roles and authorization levels for ordering or other contractual limits. Developing written agreements or employee/agent manuals that specify who can make binding decisions can reduce liability risks. In cases where orders are accidentally or improperly placed, companies should act quickly to communicate with vendors, provide proof of the informal arrangement, and request the return or cancellation of the goods. Such proactive steps not only help minimize financial loss but also demonstrate good faith in resolving disputes.

In conclusion, the informal hiring of friends to act as de facto employees introduces potential legal liabilities primarily governed by agency law. Whether the business is liable for the oversized order depends on the perceived authority of the friend and the vendor's reasonable belief in that authority. To mitigate risks, businesses should educate their informal agents about their roles, communicate clearly with vendors, and adopt internal policies that clearly delineate authority boundaries. These measures help protect the business from unintended liabilities while maintaining flexible staffing arrangements that can be advantageous when managed properly.

References

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• Guralnik, D. B. (1970). Webster's New World Dictionary of American English. William Collins & World Publishing.
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