Saturday, June 30, 2018

Agency vs employment vs marriage Part 1 of 2

What is agency relationship? Is agency relationship like a marriage? Or is it like employee and employer relationship? What is the difference?

For reading into agency please go here for a good summary.

This is a tough question to answer. For, there are a few issues listed below:

1. no perfect condition for drawing a margin of who's who in the relationship.
2. a wide range of what is authorized or allowed to do, and what is not.
3. situations when circumstances may seem special.

In a bigger picture, agency relationship happens between employee and employer. In the circumstances when an employee is stationed far away from the center of command, he can even be an independent contractor! So, agency relationship in bigger scale can range from employee of a sundry shop to a contractor who is stationed in remote place of the earth. It can also be a wife who works in a sundry shop where her husband in name is the owner, but she calls all the decisions as if she is the real employer!
  1. Employer–employee relationship: An employer hires an employee to perform some form of physical service. An employee is not an agent unless the principal authorizes him or her to enter into contracts on the principal’s behalf.
  2. Principal–agent relationship: An employer hires an employee and authorizes the employee to enter into contracts on the employer’s behalf.
  3. Principal–independent contractor relationship: A principal employs a person who is not an employee of the principal. The independent contractor has authority to enter into only those contracts authorized by the principal.

All definitions suffer from inadequacies but essentially agency is defined as the relationship which arises where one person known as the agent acts for another known as the principal.

Through the acts of the agent, the principal and a third party may be brought into a contractual relationship. The agent may also have the power to dispose of property of the principal to a third party. 

Generally the agent´s acts have such effect because the principal has authorized the agent to do the acts in question and the agent has agreed. The agent in a sense becomes an extension of the principal and is therefore capable of altering the principal´s legal position either by binding him to a contract or effecting a binding disposal of the principal´s property.

How agency relationship can contrast other types of relationship, for example like employment.

At common law, there are a number of relationships that resemble agency but may not have the distinguishing feature of being able to affect the legal position of another as in agency, e.g. servants/employees, bailees, trustees, etc. 

For example, a servant or employee may be given specific tasks to perform which, though important, do not confer on the servant or employee any authority or power to bind the master vis-à-vis a third party. 

A finance manager of a company may not be authorized to enter into transactions on behalf of the company that he or she works for. The finance manager´s role may simply be to ensure that the accounts of the company are kept up to date. 

On the other hand, there are many employees who would have authority to bind their principals. A good example is the managing director of a company. As the officer of the company charged with the day to day running of the company, managing directors frequently have wide powers to enter into transactions on behalf of their companies.

Hence, it comes to a scenario what I want to discuss. A company fired all their sales staff and appointed outside agency firms to manage their sales. This means the employer-employee relationship between the previous old sales team has changed to a different arrangement of agency appointments.

The new agents under the agency firms are not paid a salary like the old employees. There was also no other sales identifications like company printed name cards, uniform or access name tag. The agents are stand-alone Negotiators or Probationary or Registered Estate Agents.

They work on an appointment basis, for a duration of months, not years. Future appointments are dependent on further negotiation and terms. There is also no PERKESO (SOCSO) or KWSP (EPF) benefits with this arrangement.

These agents get paid with a commission negotiated with the agency appointment. Only when a sale is made that a commission is paid. At times, it is paid by stages of the completion of sale. For example, upon signing of SPA, and followed by first draw down from the bank. The developer would not make commission payment until and unless it gets paid from the purchaser. That simple. If the terms are not attractive to the agency firm, it is okie, the developer will look for the next agency who will come to their terms.

On the part of agency appointment, the agency firm stands as an agent, not an employee. There are advantages of such appointment:

1. Agency firm can enter into a binding sales with customers even at its official address, and sales gallery with agency. Money can be collected and deposited into the Client's Account in the normal agency practice.
2. At the premise of the company, customer can straight away enter into sale with the company without going through the agency. Money can be collected and deposited into the Company's Account in the normal manner.
3. More agencies can indeed increase exposure and sales for the company as "sales centers" can be organized to promote the product of this company, not limiting to the office of this company alone.
4. There is cost advantage as no salary commitment can mean significant saving.

However, the disadvantages are:

1. due to its arrangement as agents who are not employees, they have other commitments to other jobs. This can be conflict of interest.
2. no culture or employee loyalty to the company.
3. no consistent income (as depending of commission), there is insecurity and hence may not be committed.
4. inconsistent in message delivery. The agents are diversified people, each with their own idiosyncrasies.


Legally they are not paid employee, so the where-about of their agents are hard to predict. What they say to the customer is also their own interpretation of the product. Unless a throughout training is being provided, these agents are guerrilla fighters. They fire bullets as and when they think is necessary, not really follow your set of rules.

As they are not paid staff, they can detach from the company anytime they want. Their agency firm may be committed, but not the independent agents/negotiators. They do not hold any position or salary from the agency firm as well. In such case, they are like "Independent Contractors".

It is not in the control of the company on what the agents are supposed to say. They can say things in their own interpretation, by their eagerness to sell the products. As long as there are sales, they claim their commission. No sale, no commission, they are not paid a single sen. Therefore, in their desperation for sale, they can promise anything to the customer. After all, after sales service is not their responsibility. In fact, they are not sure whether they can last that long!

If the company finds it an over promise, the company has to turn down the sale. However, sometimes damages have already been done! In this respect, there are companies who will never outsource their sales team.

In short, agency relationship is very wide in its effect and interpretation. There are a lots of inadequacies to this. Being an independent contractor, the company cannot dictate the method of how the agent carry out their daily activities. There are risks the company may end up with by over promising the clients using their independent contractors.


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