Ostensible Agency

The term “ostensible agency” refers to the relationship that exists between two parties and that leads a person to believe that the first is an agent of the second, or vice versa. For example, ostensible agency would apply to a hospital worker who is employed by an outside contractor.

For all intents and purposes, patients may believe that worker to be a direct employee of the hospital but, in fact, he is an “ostensible agent” who is employed by a third party. This can create confusion in a malpractice action when a patient sues the hospital for the actions of such a worker. To explore this concept, consider the following ostensible agency definition.

Definition of Ostensible Agency

Noun

  1. A relationship that exists between two parties that would lead a person to believe that one party is employed by the other.

Origin

1720-1730       Latin    ostēns(us)

Apparent Authority

Even if an employer hires an independent contractor, the employer can be responsible for the actions of that contractor. This is known as “ostensible agency,” or “apparent authority.” When an employer does something to suggest that the independent contractor actually works for him, or fails to correct this assumption, it can be held liable for the independent contractor’s actions.

When a person is hired as an independent contractor, an agency relationship develops. For example, ostensible agency may exist when a homeowner hires a carpet installer to install carpet in his home. While the homeowner hires Company A, Company A may then hire an outside contractor to actually do the work. This contractor may then show up to install the carpet without specifically informing the homeowner that he is not an employee of Company A. This is known as apparent authority.

Should something go wrong with the installation, causing the homeowner to eventually file a civil lawsuit, it is likely he would sue Company A. Because it is the contractor himself who made the mistake, the company may want to push the responsibility off onto him, but ostensible agency holds that, because nobody told the homeowner the installer wasn’t an employee of the company, it may be held liable anyway.

For example:

Amy and Aaron are remodeling their home, and the visit a discount flooring outlet to purchase hardwood flooring. The company offers free installation if the purchase a certain amount of flooring, so they decide to have the wood installed in three rooms.

On the day of installation, two workers show up in an unmarked work truck, and get to work. When Amy and Aaron get a good look at their floors that evening, they realize there are gaps between planks and mis-cuts, and the installers have left a mess of sawdust, floor glue, and packaging in their laundry room.

When Amy contacts the flooring outlet demanding to have the problems corrected, they refer her to an independent contractor they hired to do the installation. Unfortunately, the contractor refuses to return her calls, so the couple files a civil lawsuit against the flooring outlet. In this case, neither the outlet or the installer advised the couple that the installer wasn’t employed by the outlet.

In this example, ostensible agency makes it likely that the outlet will be held responsible for correcting the problems. It may, alternatively, be ordered to reimburse Amy and Aaron for the cost to have someone else re-do the installation, as well as for any additional flooring that may need to be purchased.

Ostensible Agency in the Medical Field

Ostensible agency in the medical field is a type of vicarious liability. In this case, a healthcare organization – such as a hospital – can be held liable for the negligence of any healthcare provider under its control. In order for this type of ostensible agency to apply, something must have occurred to lead the patient to reasonably believe that the healthcare provider was actually employed by the organization. This belief by the patient may be what determines the organization’s liability, whether or not an actual employment relationship exists.

Ostensible Agency Example in Personal Injury Lawsuit

An example of ostensible agency being challenged in a court of law involved a personal injury case from 1981. Here, John Lynn Stephens was seriously injured when his motorcycle went out of control. Stephens had recently had a new tire put on the bike by L&A Tire Company. Stephens sued L&A Tire Company, among others, for damages related to personal injuries, claiming that a washer had been trapped between the tube and the inside of the tire. As a result, Stephens claimed, a leak was created which led to the rapid deflation of the tire that caused Stephens’ accident.

Stephens based his complaint on theories of negligence, product liability, and warranty. Conoco, Inc. was joined in the action as a co-defendant. Stephens claimed that it was the Conoco sign that he saw displayed at the service station that gave him the confidence to select L&A for his repair service. He believed that he could rely on the services he would receive, considering how well known the Conoco brand was. Conoco filed a motion for summary judgment, claiming that it had no control over how the L&A Service Station operated, and that the employees who performed the mounting of the tire were agents and employees of L&A, not Conoco.

Further, Conoco claimed that the only item it furnished to the owner of the service station was a Conoco sign. It did not distribute or sell Dunlop tires – like the one that Stephens had purchased – to the service station, defective or otherwise. The district court sustained Conoco’s motion and dismissed the case against them, finding that the facts presented by Conoco could not be disputed. Said the Court:

“The existence of actual authority between principal and agent is not a pre-requisite to establishing apparent authority. Apparent authority results from a manifestation by the principal to a third person that another is his agent. The manifestation may be made directly to a third person or to the community by signs or by advertising.”

However:

“Apparent authority exists only to the extent that it is reasonable for the third person dealing with the agent to believe that the agent is authorized.”

The Court held that Stephens’ merely saying that he believed the repair services offered by L&A were authorized by Conoco was not enough to oppose Conoco’s motion for summary judgment and save the case from dismissal.

Court Ruling on Ostensible Agency in a Franchise

In the fast food industry, it is common for ginormous companies to sell franchises. In this case, the parent company furnishes the brand name – complete with universally-recognized logo and advertising slogans – the menu, and required operational standards. The franchise owner takes care of everything else, including hiring employees, training them, and firing them when they don’t live up to standards.

In 2014, three fast food workers in Oakland, California filed a civil lawsuit against their employer, a family-owned company operating eight franchise restaurants, for a host of labor code violations. These workers also named the fast food parent company in their lawsuit.

Eventually, the workers settled their case with the franchisee (the family-owned company), but continued with their lawsuit against the parent company, turning it into a class-action lawsuit on behalf of more than 1,200 employees. In order to be successful in suing the parent company under an ostensible agency theory, the workers must prove:

  1. The workers reasonably believed that the franchisee had the authority to act on the company’s behalf
  2. The workers’ belief was fostered by something the parent company did, or failed to do
  3. The workers didn’t negligently rely on the franchisee’s apparent authority

The judge determined that there was not enough information to support a class action suit, but the individual workers – and the original group of three plaintiffs – could continue in their original claims against the parent company. The parent company asked the court to dismiss all claims against it, claiming that it had no direct control of the workers’ employment, and therefore it could not be held liable for wage and labor code violations of the franchisee.

The court decided that it was possible that the franchisee created the impression that it was acting as an agent of the parent company. If the employees relied on that mistaken understanding, ostensible agency may leave the parent company holding the bag. California law defines an employer as anyone who “directly or indirectly, or through an agency or any other person, employs or exercises control over the wages, hours, or working conditions of any person.”

Ultimately, the federal court granted the parent company a summary judgment, releasing franchisors from wage and employment claims under the ostensible agency theory. Essentially, as franchisors have no actual control over the employees, they cannot be considered joint employers.

Related Legal Terms and Issues

  • Liability – Responsibility for payment of damages, or for other court-imposed penalties in a civil lawsuit.
  • Malpractice – A failure to exercise professional duty in rendering professional services.
  • Negligence – Failure to exercise a degree of care that would be taken by another reasonable person in the same circumstances.
  • Objection – The action of challenging or disagreeing with a statement made in court or at a deposition.
  • Summary Judgment – A final decision on the case, handed down by the judge on the basis of the statements and evidence presented, without a full trial.
  • Sustain – A judge’s agreement that an objection is valid.

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