BULL 3320 FINAL

Private Placement Exemptions

The Securities Act of 1933 provides that an issue of securities that does not involve a public offering is exempt from the registration requirements. There are two different private placement exemptions, one provided by SEC Rule 506(b) and another by SEC Rule 506(c). Rule 506(b) Rule 506(b) allows issuers to raise capital from an unlimited number of accredited investors and no more than 35 unaccredited investors without having to register the offering with the SEC. There is no dollar limit on the securities that can be sold pursuant to this exemption. An accredited investor is defined as follows: Any natural person who has individual net worth or joint net worth with a spouse that exceeds $1 million, to be calculated by excluding the value of the person's primary residence A natural person with income exceeding $200,000 in each of the 2 most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year A charitable organization, a corporation, a partnership, a trust, or an employee benefit plan with assets exceeding $5 million A bank, an insurance company, a registered investment company, a business development company, or a small business investment company Insiders of the issuers, such as directors, executive officers, or general partners of the entity selling the securities A business in which all the equity owners are accredited investors The rationale underlying the private placement exemption is that accredited investors have the sophistication to understand the risk involved with the investment and can also afford to lose their money if the investment fails. The SEC is empowered to review the definition of accredited investor periodically and to make changes to the definition. Accredited investors self-certify their status by signing a statement that they qualify as an accredited investor. The law permits no more than 35 nonaccredited investors to purchase securities pursuant to a Rule 506(b) private placement exemption. These nonaccredited investors are usually friends and family members of the insiders. Nonaccredited investors must be sophisticated investors, however, either through their own experience and education or through representatives (e.g., accountants, lawyers, business managers). General selling efforts, such as general solicitation of or advertising to the public, are not permitted if there are to be any nonaccredited investors. Rule 506(c) Rule 506(c) is a private placement that allows an issuer to raise an unlimited amount of money similar to a Rule 506(b) offering, but to use public solicitation and advertising regarding the offering, including using social media and other digital means. To obtain this right to generally advertise and to use online methods to do so, two requirements must be met. First, only accredited investors can purchase securities; no nonaccredited investors can be sold securities. Receipt of the solicitation or advertisement by a nonaccredited investor does not destroy this exemption if the nonaccredited investor is not allowed to purchase securities in the offering. The definition of accredited investor is the same as Rule 506(b). Second, issuers must exercise reasonable due diligence to verify the accredited investor status of investors claiming to be accredited investors. Self-certification is not permitted. Many emerging businesses use the private placement exemptions to raise capital. In addition, many large established companies use this exemption to sell securities, such as bonds, to a single investor or a very small group of investors, such as pension funds and investment companies.

Agency

a fiduciary relationship that results from the manifestation of consent by one person to act on behalf of another person, with that person's consent. Agency relationships are formed by the mutual consent of a principal and an agent. Section 1(1) of the Restatement (Second) of Agency defines agency as a fiduciary relationship "which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act." The Restatement (Second) of Agency is the reference source for the rules of agency law in this chapter. A party who employs another person to act on his or her behalf is called a principal. A party who agrees to act on behalf of another is called an agent. The principal-agent relationship is commonly referred to as an agency. This relationship is depicted in Exhibit 29.1. Persons Who Can Initiate an Agency Relationship Any person who has the capacity to contract can appoint an agent to act on his or her behalf. Generally, persons who lack contractual capacity, such as insane persons and minors, cannot appoint agents. However, the court can appoint legal guardians or other representatives to handle the affairs of insane persons, minors, and others who lack capacity to contract. With court approval, these representatives can enter into enforceable contracts on behalf of the persons they represent. An agency can be created only to accomplish a lawful purpose. Agency contracts that are created for illegal purposes or are against public policy are void and unenforceable. Example A principal cannot hire an agent to kill another person. Some agency relationships are prohibited by law. Example Unlicensed agents cannot be hired to perform the duties of certain licensed professionals (e.g., doctors, lawyers). Principal-Agent Relationship A principal-agent relationship is formed when an employer hires an employee and gives that employee authority to act and enter contracts on the employer's behalf. The extent of this authority is governed by any express agreement between the parties and implied from the circumstances of the agency. Examples The president of a corporation usually has the authority to enter into major contracts on the corporation's behalf, and a supervisor on the corporation's assembly line may have the authority only to purchase the supplies necessary to keep the line running. Employer-Employee Relationship An employer-employee relationship exists when an employer hires an employee to perform some form of physical service but does not give that person agency authority to enter contracts. Example A welder on General Motors Corporation's automobile assembly line is employed to perform a physical task but is not given authority to enter contracts. Although the employee in an employer-employee relationship may not have contracting authority, the principal is still liable for tortious conduct of its employees committed while acting within the scope of their employment. Independent Contractor 29.2 Describe a principal-independent contractor relationship. Principals often employ outsiders—that is, persons and businesses that are not employees—to perform certain tasks on their behalf. These persons and businesses are called independent contractors. Independent contractors operate their own business or profession. The arrangement creates a principal-independent contractor relationship. Examples Doctors, dentists, consultants, stockbrokers, architects, certified public accountants, real estate brokers, and plumbers are examples of those in professions and trades who commonly act as independent contractors. A principal can authorize an independent contractor to enter into contracts. Principals are bound by the authorized contracts of their independent contractors. For example, if a client authorizes an attorney to settle a case within a certain dollar amount and the attorney does so, the settlement agreement is binding. Formation of an Agency 29.3 Describe how express and implied agencies are created. An agency and the resulting authority of an agent can arise in any of the following four ways: express agency, implied agency, apparent agency, and agency by ratification. These types of agencies are discussed in the paragraphs that follow. Express Agency Express agency is the most common form of agency. In an express agency, the agent has the authority to contract or otherwise act on the principal's behalf, as expressly stated in the agency agreement. Express agency occurs when a principal and an agent expressly agree to enter into an agency agreement with each other. Express agency contracts can be either oral or written unless the Statute of Frauds stipulates that they must be written. Example In most states, a real estate broker's contract to sell real estate must be in writing. If a principal and an agent enter into an exclusive agency contract, the principal cannot employ any agent other than the exclusive agent. If the principal does so, the exclusive agent can recover damages from the principal. If an agency is not an exclusive agency, the principal can employ more than one agent to try to accomplish a stated purpose.

Bankruptcy Trustee

A bankruptcy trustee must be appointed in Chapter 7 (liquidation), Chapter 12 (family farmer or family fisherman), and Chapter 13 (adjustment of debts) bankruptcy cases. A trustee may be appointed in a Chapter 11 (reorganization) case on a showing of fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management. Trustees, who are often lawyers, accountants, or business professionals, are entitled to receive reasonable compensation for their services and reimbursement for expenses. Once appointed, a trustee becomes the legal representative of the debtor's estate and has the power to sell and buy property, invest money, and the like.

strike

A cessation of work by union members in order to obtain economic benefits or to correct an unfair labor practice The NLRA gives union management the right to recommend that a union call a strike if a collective bargaining agreement cannot be reached. In a strike, union members refuse to work. Strikes are permitted by federal labor law. Before there can be a strike, a majority of the union's members must vote in favor of the action. Cooling-Off Period Before a strike, a union must give 60-day notice to the employer that the union intends to strike. It is illegal for a strike to begin during the mandatory 60-day cooling-off period. The 60-day period is designed to give the employer and the union enough time to negotiate a settlement of the union grievances and avoid a strike. Any strike without a proper 60-day notice is illegal, and the employer may dismiss the striking workers.

Registration Statement

A company that is issuing securities to the public must file a written registration statement with the SEC. The general form for registering with the SEC is called Form S-1. The issuer's lawyer normally prepares the S-1 filing registration statement with the help of the issuer's managers, accountants, underwriters, and other professionals. The registration statement is filed electronically with the SEC. A registration statement must contain descriptions of (1) the securities being offered for sale; (2) the registrant's business; (3) the management of the registrant, including compensation, stock options and benefits, and material transactions with the registrant; (4) pending litigation; (5) how the proceeds from the offering will be used; (6) government regulation; (7) the degree of competition in the industry; and (8) any special risk factors. In addition, a registration statement must be accompanied by financial statements certified by certified public accountants. Registration statements usually become effective 20 business days after they are filed unless the SEC requires additional information to be disclosed. A new 20-day period begins each time a registration statement is amended. At the registrant's request, the SEC may accelerate the effective date (i.e., not require the registrant to wait 20 days after the last amendment is filed). The date that the registration becomes effective is called the effective date. The SEC does not pass judgment on the merits of the securities offered. It decides only whether the issuer has met the disclosure requirements.

Due Diligence Defense

A defense that accountants, lawyers, directors, managers, and others can assert, which, if proven, avoids liability under Section 11(a) of the Securities Act of 1933 All defendants except the issuer may assert a due diligence defense against the imposition of Section 11 liability. If this defense is proven, the defendant is not liable. To establish a due diligence defense, the defendant must prove that after reasonable investigation, he or she had reasonable grounds to believe and did believe that, at the time the registration statement became effective, the statements contained therein were true and there was no omission of material facts. Example In the classic case Escott v. BarChris Construction Corporation,5 the company was going to issue a new bond to the public. The company prepared financial statements wherein the company overstated current assets, understated current liabilities, overstated sales, overstated gross profits, overstated the backlog of orders, did not disclose loans to officers, did not disclose customer delinquencies in paying for goods, and lied about the use of the proceeds from the offering. The company gave these financial statements to its auditors, Peat, Marwick, Mitchell & Co. (Peat Marwick), who did not discover the lies. Peat Marwick certified the financial statements that became part of the registration statement filed with the SEC. The bonds were sold to the public. One year later, the company filed for bankruptcy. The bondholders sued Russo, the chief executive officer (CEO) of BarChris; Vitolo and Puglies, the founders of the business and the president and vice president, respectively; Trilling, the controller; and Peat Marwick, the auditors. Each defendant pleaded the due diligence defense. The court rejected each of the party's defenses, finding that the CEO, president, vice president, and controller were all in positions to have either created or discovered the misrepresentations. The court also found that the auditor, Peat Marwick, did not do a proper investigation and had not proven its due diligence defense. The court found that the defendants had violated Section 11 of the Securities Act of 1933 by submitting misrepresentations and omissions of material facts in the registration statement filed with the SEC.

fair use doctrine

A doctrine that permits certain limited use of a copyright by someone other than the copyright holder without the permission of the copyright holder. The following uses are protected under this doctrine: (1) quotation of the copyrighted work for review or criticism or in a scholarly or technical work, (2) use in a parody or satire, (3) brief quotation in a news report, (4) reproduction by a teacher or student of a small part of the work to illustrate a lesson, (5) incidental reproduction of a work in a newsreel or broadcast of an event being reported, and (6) reproduction of a work in a legislative or judicial proceeding. The copyright holder cannot recover for copyright infringement where fair use is found. Examples A student is assigned to write a paper in class about a certain subject. The student conducts research and writes her paper. In her paper, she uses two paragraphs from a copyrighted book and places these paragraphs in quotation marks and properly cites the source and author in a footnote. This is fair use for academic purposes. However, if the student copies and uses three pages from the book, this would not be fair use and would constitute copyright infringement whether she cites the author and the work in a footnote or not. Example A comedy television show that performs parodies and satires on famous celebrities is an example of parody fair use.

Landrum-Griffin Act (Labor Management Reporting and Disclosure Act)

A federal statute enacted in 1959 that regulates internal union affairs and establishes the rights of union members.

Mitigation of Damages

A non breaching party's legal duty to avoid or reduce damages caused by a breach of contract. If a contract has been breached, the law places a duty on the innocent nonbreaching party to make reasonable efforts to mitigate (i.e., avoid or reduce) the resulting damages. The extent of mitigation of damages required depends on the type of contract involved. If an employer breaches an employment contract, the employee owes a duty to mitigate damages by trying to find substitute employment. The employee is only required to accept comparable employment. The courts consider factors such as compensation, rank, status, job description, and geographical location in determining the comparability of jobs. Example Edith is employed by Software Inc., a software company located in the Silicon Valley of California, as a software manager. Her contract is for 3 years at $200,000 per year. If Software Inc. terminates Edith after one year, she is under a duty to mitigate the damages that would be owed to her by Software Inc. If Edith finds a job as a software manager at another software company located in the Silicon Valley for the same salary, she is required to take the job. However, if Edith finds a job at a similar salary as a sales manager in the Silicon Valley, or if she is offered a job as a software manager at the same salary at a software company in Los Angeles, California, or if she is offered a job as a software manager at a company in the Silicon Valley but at a salary of $120,000 per year, she is not required to accept any of these job offers because they are not comparable jobs. If an employee who has been dismissed improperly accepts a job that is not comparable, the employee can sue the prior employer for damages. Example Andrew is employed as a chief financial officer of Financial Company in New York City for a salary of $200,000 per year on a 3-year contract. His employer terminates Andrew with 2 years left on the contract. Andrew accepts employment as a financial analyst at a new employer that pays $150,000 per year. Andrew can sue his prior employer Financial Company and recover $100,000 ($50,000 difference in salary per year for 2 years).

Termination of an Agency by Impossibility of Performance

An agency relationship terminates if a situation arises that makes its fulfillment impossible. The following circumstances can lead to termination of an agency by impossibility of performance: The loss or destruction of the subject matter of the agency Example A principal employs an agent to sell his horse, but the horse dies before it is sold. The agency relationship terminates at the moment the horse dies. The loss of a required qualification Example A principal employs a licensed real estate agent to sell her house but the real estate agent's license is revoked before he can sell the principal's house. The agency relationship terminates when the real estate agent's license is revoked. A change in the law Example A principal employs an agent to trap alligators. If a law is passed that makes trapping alligators illegal, the agency contract terminates when the law becomes effective.

Termination of an Agency by an Unusual Change in Circumstances

An agency terminates when there is an unusual change in circumstances (termination of an agency by an unusual change in circumstances) that would lead the agent to believe that the principal's original instructions should no longer be valid. Example An owner of a farm employs a real estate agent to sell the farm for $1 million. The agent thereafter learns that oil has been discovered on the property, a discovery that makes the land worth $5 million. The agency terminates because of this change in circumstances.

specific performance

A remedy that orders the breaching party to perform the acts promised in the contract. Specific performance is usually awarded in cases in which the subject matter is unique, such as in contracts involving land, heirlooms, and paintings. An award of specific performance orders the breaching party to perform the acts promised in a contract. The courts have the discretion to award this remedy if the subject matter of the contract is unique.7 Specific performance is available to enforce land contracts because every piece of real property is unique. Works of art, antiques, and items of sentimental value, rare coins, stamps, heirlooms, and the like, also fit the requirement for uniqueness. Most other personal property does not. Example On September 1, Won-Suk enters into a contract to purchase a house from Geraldine for $1 million. The closing date is set for November 1. On November 1, Won-Suk brings the money to the closing, but Geraldine does not appear at the closing and thereafter refuses to sell the house to Won-Suk. In this case, because each piece of real estate is considered unique, Won-Suk can bring an action of specific performance against Geraldine and obtain a court judgment ordering Geraldine to sell the house to Won-Suk. Specific performance of personal service contracts is not granted because the courts would find it difficult or impracticable to supervise or monitor performance of such a contract. Example A concert hall contracts with a famous rap artist to hold a series of concerts. Later, the rap artist refuses to perform. Here, the concert hall cannot require the rap artist to perform because it is a personal service contract. The concert hall could, however, sue to recover any payments it has made to the rap artist and recover any damages that it may have suffered because of the breach.

dual agency

A situation that occurs when an agent acts for two or more different principals in the same transaction. This practice is generally prohibited unless all the parties involved in the transaction agree to it.

Termination of an Agency by Operation of Law

Agency contracts can be terminated by operation of law (termination of an agency by operation of law). An agency contract is terminated by operation of law in the following circumstances: The death of either the principal or the agent The insanity of either the principal or the agent The bankruptcy of the principal The outbreak of a war between the principal's country and the agent's country If an agency terminates by operation of law, there is no duty to notify third parties about the termination.

H-1B Foreign Guest Worker Visa

An H-1B Foreign Guest Worker visa, or H-1B visa, is a nonimmigrant visa that allows U.S. employers to employ in the United States foreign nationals who are skilled in specialty occupations. A foreign guest worker under an H-1B visa must have a bachelor's degree or higher and a "specialty occupation," such as engineering, mathematics, computer science, physical sciences, or medicine. A foreign guest worker must be sponsored by a U.S. employer. Employers, not individual applicants, apply for H-1B visas for proposed foreign guest workers. The USCIS determines H-1B eligibility. The number of H-1B visas is limited. H-1B visa holders are permitted to bring their immediate family members (i.e., spouse and unmarried children under age 21) to the United States under the H-4 visa category as dependents. An H4 visa holder is eligible to work in the United States in the same occupations permitted to H-1B visa holders while the H-1B visa holder has an approved, pending, lawful permanent resident application. The duration of the stay for a worker on an H-1B visa is 3 years, which can be extended another 3 years. Additional extensions are also permitted. During this time, an employer may sponsor an H-1B holder for a lawful permanent resident status, which, if issued, permits the foreign national to eventually obtain U.S. citizenship if he or she so desires.

Termination of an Agency

An agency contract can be terminated by an act of the parties, by an unusual change of circumstances, by impossibility of performance, and by operation of law. Termination of an Agency by an Act of the Parties An agency contract is similar to other contracts in that it can be terminated by an act of the parties (termination of an agency by act of the parties). An agency can be terminated by the following acts. The mutual assent of the parties Example A principal hires a lawyer to represent her in a lawsuit until the lawsuit is resolved. If the principal and the lawyer voluntarily agree to terminate the relationship prior to the resolution of the case by trial or settlement, the agency is terminated. If a stated time has lapsed Example If an agency agreement states, "This agency agreement will terminate on August 1, 2028," the agency terminates when that date arrives. If a specified purpose is achieved Example If a homeowner hires a real estate broker to sell the owner's house within 6 months and the house sells after 3 months, the agency terminates on the sale of the house. The occurrence of a stated event Example If a principal employs an agent to take care of her dog until she returns from a trip, the agency terminates when the principal returns from the trip. Notice of Termination The termination of an agency extinguishes an agent's actual authority to act on the principal's behalf. If the principal fails to give the proper notice of termination to a third party, however, the agent still has apparent authority to bind the principal to contracts with these third parties. To avoid this liability, the principal needs to provide the following notices: Shortly his fortune shall be lifted higher; True industry doth kindle honour's fire. William Shakespeare The Life and Death of Lord Cromwell (1602) Direct notice of termination to all persons with whom the agent dealt. The notice may be oral or written unless required to be in writing. Constructive notice of termination to any third party who has knowledge of the agency but with whom the agent has not dealt. Example Notice of the termination of an agency that is printed in a newspaper that serves the vicinity of the parties is constructive notice. Generally, a principal is not obliged to give notice of termination to strangers who have no knowledge of the agency. Constructive notice is valid against strangers who assert claims of apparent agency.

Self-Dealing

Fiduciary duties. Agents are generally prohibited from undisclosed self-dealing with the principal. An agent who engages in undisclosed self-dealing with the principal has violated the duty of loyalty to the principal. If there has been undisclosed dealing by an agent, the principal can rescind the purchase and recover the money paid to the agent. As an alternative, the principal can ratify the purchase. Example A real estate agent who is employed to purchase real estate for a principal cannot secretly sell his or her own property to the principal. However, the deal is lawful if the principal agrees to buy the property after the agent discloses ownership of the property.

Ratification of a contract

An agent who enters into a contract on behalf of another party impliedly warrants that he or she has the authority to do so. This is called the agent's implied warranty of authority. If the agent exceeds the scope of his or her authority, the principal is not liable on the contract. The agent, however, is liable to the third party for breaching the implied warranty of authority. To recover, the third party must show (1) reliance on the agent's representation and (2) ignorance of the agent's lack of status. A principal is bound on the contract only if the principle ratifies the contract—that is, accepts it as his or her own. This is called ratification of a contract. Example Henry hires April, a real estate broker, to find him a house in a specified area for $1 million or less. Henry specifies that the house must be at least 4,000 square feet and must be a two-story house, with 4 bedrooms and 4 bathrooms. Henry, the principal, gives April, the agent, authority to sign a contract on his behalf to purchase such a home. April finds a house she thinks Henry would want to own that is 6,000 square feet and costs $1.5 million. April signs a contract with the seller as the disclosed agent of Henry. Here, April has exceeded her authority, and Henry is not bound to purchase the house. April, on the other hand, is bound to the contract to purchase the house. If, however, Henry likes the $1.5 million house, he can ratify the contract with the seller. If Henry does so, he is bound to the contract with the seller.

No-Strike Clause

An employer and a union can agree in a collective bargaining agreement that the union will not strike during a particular period of time. The employer gives economic benefits to the union and, in exchange, the union agrees that no strike will be called for the set time. It is illegal for a strike to take place in violation of a negotiated no-strike clause, and an employer may dismiss union members who strike in violation of a no-strike clause.

Foreign Commerce Clause

Article I, Section 8, Clause 3 of the U.S. Constitution—the Foreign Commerce Clause—vests Congress with the power "to regulate commerce with foreign nations." The Constitution does not vest exclusive power over foreign affairs in the federal government, but any state or local law that unduly burdens foreign commerce is unconstitutional, in violation of the Foreign Commerce Clause. Example General Motors Corporation and Ford Motor Company, 2 U.S. automobile manufacturers, are headquartered in the state of Michigan. Michigan, in order to reduce the sales of foreign-made automobiles in the state, enacts a state law that imposes a 50 percent tax on foreign-made automobiles sold in the state but does not impose this tax on American-made automobiles sold in the state. This tax violates the Foreign Commerce Clause because it unduly burdens foreign commerce. Example General Motors Corporation and Ford Motor Company, 2 U.S. automobile manufacturers, are headquartered in the state of Michigan. Michigan, in order to protect the Great Lakes and the environment from pollution, enacts a state tax that places a 10 percent tax on all automobile sales made in the state. This tax does not violate the Foreign Commerce Clause because it does not treat foreign commerce any differently than domestic commerce.

Treaty Clause

Article II, Section 2, Clause 2 of the U.S. Constitution—the Treaty Clause—states that the president "shall have power, by and with the advice and consent of the Senate, to make treaties, provided two-thirds of the senators present concur." Under the Treaty Clause, only the federal government can enter into treaties with foreign nations. Under the Supremacy Clause of the Constitution, treaties become part of the "law of the land," and conflicting state or local law is void. The president is the agent of the United States in dealing with foreign countries. Treaties and conventions are the equivalents of legislation at the international level. A treaty is an agreement or a contract between 2 or more nations that is formally signed by an authorized representative and ratified by the supreme power of each nation. Bilateral treaties are between 2 nations; multilateral treaties involve more than 2 nations. Conventions are treaties that are sponsored by international organizations, such as the United Nations. Conventions normally have many signatories. Treaties and conventions address matters such as human rights, foreign aid, navigation, commerce, and the settlement of disputes. Most treaties are registered with and published by the United Nations. Examples The federal government of the United States can enter into a treaty with the country of China whereby the 2 countries agree to reduce trade barriers between them. However, the state of California cannot enter into a treaty with the country of China that reduces trade barriers between California and China.

Competing with the Principal

Fiduciary duties. Agents are prohibited from competing with the principal during the course of an agency unless the principal agrees. The reason for this rule is that an agent cannot meet the duty of loyalty when personal interests conflict with the principal's interests. The principal may recover the profits made by the agent as well as damages caused by the agent's conduct, such as lost sales. An agent is free to compete with the principal when the agency has ended unless the parties have entered into an enforceable covenant-not-to-compete. Example An agent works as a salesperson for a principal who owns an automotive parts business. The agent's job is to sell the principal's automotive parts to auto repair shops and other purchasers. While doing so, the agent also works as a salesperson for a competing seller of automotive parts. This example demonstrates a conflict of interest, and the agent has violated the duty of loyalty.

Nominal Damages

Damages awarded when the nonbreaching party sues the breaching party even though no financial loss has resulted from the breach. Nominal damages are usually $1 or some other small amount. A nonbreaching party can sue a breaching party to a contract for nominal damages even if no financial loss resulted from the breach. Nominal damages are usually awarded in a small amount, such as $1. Cases involving nominal damages are usually brought on principle. Most courts disfavor nominal damages lawsuits because they use valuable court time and resources. Example Mary enters into an employment contract with Microhard Corporation. It is a 3-year contract, and Mary is to be paid $100,000 per year. After Mary works for one year, Microhard Corporation fires Mary. The next day, Mary finds a better position at Microsoft Corporation, in the same city, paying $125,000 per year on a 2-year contract. Mary has suffered no monetary damages but could bring a civil lawsuit against Microhard Corporation because of its breach and recover nominal damages ($1).

Norris-LaGuardia Act

Enacted in 1932, the Norris-LaGuardia Act stipulates that it is legal for employees to organize.1 National Labor Relations Act (NLRA). The National Labor Relations Act (NLRA), also known as the Wagner Act, was enacted in 1935.2 The NLRA establishes the right of employees to form and join labor organizations, to bargain collectively with employers, and to engage in concerted activity to promote these rights. Labor Management Relations Act. In 1947, Congress enacted the Labor Management Relations Act, also known as the Taft-Hartley Act.3 This act (1) expands the activities that labor unions can engage in, (2) gives employers the right to engage in free-speech efforts against unions prior to a union election, and (3) gives the president of the United States the right to seek an injunction (for up to 80 days) against a strike that would create a national emergency. Labor Management Reporting and Disclosure Act. In 1959, Congress enacted the Labor Management Reporting and Disclosure Act, also known as the Landrum-Griffin Act.4 This act regulates internal union affairs and establishes the rights of union members. Railway Labor Act. The Railway Labor Act of 1926, as amended in 1934, covers employees of railroad and airline carriers.5 These federal statutes, rules and regulations adopted pursuant to these statutes, and court decisions interpreting and applying the statutes and rules and regulations are collectively referred to as labor law.

Race discrimination

Example National Corporation has a job opening for its chief executive officer position. The employer receives applications for this position from many persons, including Joe Thomas, who is an African American. Thomas is the best-qualified applicant for the job. If National Corporation does not hire Thomas because of his race, the company has engaged in race discrimination, in violation of Title VII. This would be disparate-treatment discrimination. Example If an employer refuses to hire or promote all persons of a racial class, then the company has engaged in employment discrimination in violation of Title VII. This would be disparate-impact discrimination.

Misuse of Confidential Information

Fiduciary Duty In the course of an agency, the agent often acquires confidential information about the principal's affairs (e.g., business plans, technological innovations, customer lists, trade secrets). The agent is under a legal duty not to disclose or misuse confidential information either during or after the course of the agency. If the agent violates this duty, the principal can recover damages, lost profits, and any remuneration the agent received from another party to obtain the confidential information. The principal can also obtain an injunction ordering a third party to return the confidential information and to not use such information. There is no prohibition against using general information, knowledge, or experience acquired during an agency in later employment. Example An agent works for a principal who owns and operates a bank that specializes in serving wealthy clients. Over many years, the bank has carefully developed a unique and selective list of wealthy individuals that it serves or is courting to serve. The agent quits his job at the bank and is hired by another bank. The agent takes the list of wealthy clients developed by his previous employer and discloses the list to his new employer. This is a violation of the agent's duty of loyalty.

Usurping an Opportunity

Fiduciary duties. Sometimes an agent is offered a business opportunity or another opportunity that is meant for the principal or that the principal is entitled to be informed about and have the opportunity to accept or reject. An agent cannot personally usurp an opportunity that belongs to the principal. A third-party offer to an agent must be conveyed to the principal. The agent cannot appropriate the opportunity for him- or herself unless the principal rejects it after due consideration. If the agent does so, the principal can recover the opportunity from the agent. Example An agent works for a principal that is in the business of real estate development. The principal is looking for vacant land to purchase to develop. A third party who owns and wants to sell his vacant land tells an agent of the principal of the availability of the land. The agent, without informing the principal, purchases the land for personal use. This is a violation of the agent's duty of loyalty.

Organization of the Petroleum Exporting Countries (OPEC)

One of the most well-known economic organizations is the Organization of the Petroleum Exporting Countries (OPEC). OPEC consists of oil-producing and exporting countries from Africa, Asia, the Middle East, and South America. The member nations are the following: Algeria Angola Ecuador Gabon Iran Iraq Kuwait Libya Nigeria Qatar Saudi Arabia United Arab Emirates (UAE) Venezuela OPEC sets quotas on the output of oil production by member nations, which account for more than 40 percent of global oil production and contain more than 70 percent of proven oil reserves. The population of the OPEC countries is more than 450 million.

National Labor Relations Board

The National Labor Relations Act created the National Labor Relations Board (NLRB). The NLRB is an administrative body composed of 5 members appointed by the president and approved by the Senate. The NLRB oversees union elections, prevents employers and unions from engaging in illegal and unfair labor practices, and enforces and interprets certain federal labor laws. The decisions of the NLRB are enforceable in court.

Apparent agency (or agency by estoppel)

arises when a principal creates the appearance of an agency that in actuality does not exist. Where an apparent agency is established, the principal is estopped (stopped) from denying the agency relationship and is bound to contracts entered into by the apparent agent while acting within the scope of the apparent agency. Note that the principal's actions—not the agent's—create an apparent agency. Example Georgia Pacific, Inc., interviews Albert Iorio for a sales representative position. Iorio, accompanied by Jane Franklin, the national sales manager, visits retail stores located in the open sales territory. While visiting one store, Franklin tells the store manager, "I wish I had more sales reps like Albert." Nevertheless, Iorio is not hired. If Iorio later enters into contracts with the store on behalf of Georgia Pacific and Franklin has not controverted the impression of Iorio that she left with the store manager, the company will be bound to the contract.

Liquidated Damages

damages that parties to a contract agree in advance should be paid if the contract is breached. Under certain circumstances, the parties to a contract may agree in advance to the amount of damages payable on a breach of contract. These damages are called liquidated damages. To be lawful, the actual damages must be difficult or impracticable to determine, and the liquidated amount must be reasonable in the circumstances.5 An enforceable liquidated damages clause is an exclusive remedy even if actual damages are later determined to be different from the liquidated damages.

Pregnancy Discrimination Act

was enacted as an amendment to Title VII.5 The act forbids employment discrimination against a female job applicant or employee because of her pregnancy, childbirth, or a medical condition related to pregnancy or childbirth. Example Susan, a 30-year-old college graduate, goes on a job interview for an open position at a company. The interviewer asks Susan if she plans on having children, if that would affect her ability to come to work every day or to perform her duties, and if it would affect her ability to travel on company business. The company refuses to hire Susan because she is a female who might have children. This is a violation of the Pregnancy Discrimination Act. It is unlawful to harass a woman because of her pregnancy, childbirth, or a medical condition related to pregnancy or childbirth and the harassment is so severe that it creates a hostile work environment.

Generic Names

If a word, name, or slogan is too generic, it cannot be registered as a trademark. If a word is not generic, it can be trademarked. Example The word secret cannot be trademarked because it is a generic name or word. However, the brand name Victoria's Secret is permitted to be trademarked because it is not a generic name. Once a company has been granted a trademark or service mark, it usually uses the mark as a brand name to promote its goods or services. Obviously, the owner of the mark wants to promote its brand so that consumers and users will easily recognize the brand name. However, sometimes a company may be too successful in promoting a mark, and at some point in time the public begins to use the brand name as a common name to denote the type of product or service being sold rather than as the trademark or service mark of the individual seller. A trademark that becomes a common term for a product line or type of service is called a generic name. Once a trademark becomes a generic name, the term loses its protection under federal trademark law. Example Sailboards are boards that have sails mounted on them that people use to ride on water. There were many manufacturers and sellers of sailboards. However, the most successful manufacturer of these sailboards used the trademarked brand name Windsurfer. However, the word windsurfer was used so often by the public for all brands of sailboards that the trademarked name Windsurfer was found to be a generic name, and its trademark was canceled.

Employer Lockout

If an employer reasonably anticipates a strike by some of its employees, it may prevent those employees from entering the plant or premises. This is called an employer lockout. Example The National Basketball Association (NBA) is a professional basketball league with teams located in Canada and the United States. The National Basketball Players Association, a labor union, represents the players. In 2011, after a collective bargaining agreement had expired and the owners and players could not reach an agreement, the NBA owners locked the players out. The team owners and the union eventually reached an agreement, but not before part of the season was canceled.

Undersecured secured creditor

If the value of the collateral securing the secured loan is less than the secured interest, the secured creditor is an undersecured creditor. In this case, the property is usually awarded to the secured creditor. The secured creditor then becomes an unsecured creditor as to the amount still owed to it, which consists of unpaid principal and interest and reasonable fees and costs of the debtor's default.

Unemployment Compensation

In 1935, Congress established an unemployment compensation program to assist workers who are temporarily unemployed. Under the Federal Unemployment Tax Act (FUTA) 7 and state laws enacted to implement the program, employers are required to pay unemployment contributions (taxes). The tax rate and unemployment wage level are subject to change. Employees do not pay unemployment taxes. State governments administer unemployment compensation programs under general guidelines set by the federal government. Each state establishes its own eligibility requirements and the amount and duration of the benefits. To collect benefits, applicants must be able to work and be available for work and seeking employment. Workers who have been let go because of bad conduct (e.g., illegal activity, drug use on the job) or who voluntarily quit work without just cause are not eligible to receive unemployment benefits.

Fair Labor Standards Act (FLSA)

In 1938, Congress enacted the Fair Labor Standards Act (FLSA) to protect workers.3 The FLSA applies to private employers and employees engaged in the production of goods for interstate commerce. The U.S. Department of Labor is empowered to enforce the FLSA. Private civil actions are also permitted under the FLSA. Minimum Wage The FLSA establishes minimum wage and overtime pay requirements for workers. Managerial, administrative, and professional employees are exempt from the act's wage and hour provisions. The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked. The federal minimum wage is set by Congress and can be changed. As of 2017, the federal minimum wage was set at $7.25 per hour. The Department of Labor permits employers to pay less than the minimum wage to students and apprentices. An employer may reduce the minimum wage by an amount equal to the reasonable cost of food and lodging provided to employees. There is a special minimum wage rule for tipped employees. An employee who earns tips can be paid $2.13 an hour by an employer if that amount plus the tips received equals at least the minimum wage. If an employee's tips and direct employer payment does not equal the minimum wage, the employer must make up the difference. More than half of the states have enacted minimum wage laws that set minimum wages at a rate higher than the federal rate. Some cities have enacted minimum wage requirements, usually called living wage laws, which also set higher minimum wage rates than the federal level. Examples New York City, Seattle, and San Francisco have a living wage of $15.

Worker Adjustment and Retraining Notification Act

In 1988, Congress enacted the Worker Adjustment and Retraining Notification Act, also called the WARN Act or Plant Closing Act.6 The act requires employers with 100 or more employees to give their employees 60 days' notice before engaging in certain plant closings or layoffs. If employees are represented by a union, the notice must be given to the union; if they are not, the notice must be given to the employees individually. The act covers the following actions: Plant closings. A plant closing is a permanent or temporary shutdown of a single site that results in a loss of employment for 50 or more employees during any 30-day period. Mass layoffs. A mass layoff is a reduction of 33 percent of the employees or at least 50 employees during any 30-day period. An employer is exempted from having to give such notice if: The closing or layoff is caused by business circumstances that were not reasonably foreseeable at the time that the notice would have been required. The business was actively seeking capital or business that, if obtained, would have avoided or postponed the shutdown and the employer believed in good faith that giving notice would have precluded it from obtaining the needed capital or business.

North American Free Trade Agreement

In 1990, Mexico asked the United States to set up a 2-country trade pact. Negotiations between the 2 countries began. Canada joined the negotiations, and on August 12, 1992, the North American Free Trade Agreement (NAFTA) was signed by the leaders of the 3 countries. The treaty creates a free trade zone stretching from the Yukon to the Yucatan, bringing together more than 475 million people in the 3 countries NAFTA has eliminated or reduced most of the duties, tariffs, quotas, and other trade barriers among Mexico, the United States, and Canada. Agriculture, automobiles, computers, electronics, energy and petrochemicals, financial services, insurance, telecommunications, and many other industries are affected. The treaty contains a safety valve: A country can reimpose tariffs if an import surge from one of the other nations hurts its economy or workers. Like other regional trading agreements, NAFTA allows the bloc to discriminate against outsiders and to cut deals among its members. NAFTA also includes special protection for favored industries that have a lot of lobby muscle. Thus, many economists assert that NAFTA is not a "free trade" pact but a managed trade agreement. NAFTA forms a supernational trading region that competes with the EU and other regional trade organizations. Consumers in all 3 countries began to pay lower prices on a wide variety of goods and services as trade barriers fell and competition increased. Critics contend that NAFTA shifted U.S. jobs—particularly blue-collar jobs—to Mexico where wage rates are lower than those in the United States.

Family and Medical Leave Act

In February 1993, Congress enacted the Family and Medical Leave Act (FMLA).4 This act guarantees workers unpaid time off from work for family and medical emergencies and other specified situations. The act, which applies to companies with 50 or more workers as well as federal, state, and local governments, covers about half of the nation's workforce. To be covered by the act, an employee must have worked for the employer for at least 1 year and must have performed more than 1,250 hours of service during the previous 12-month period. Covered employers are required to provide up to 12 weeks of unpaid leave during any 12-month period due to the following: The birth of and care for a child The placement of a child with an employee for adoption or foster care A serious health condition that makes the employee unable to perform his or her duties Care for a spouse, child, or parent with a serious health problem Leave because of the birth of a child or the placement of a child for adoption or foster care cannot be taken intermittently unless the employer agrees to such an arrangement. Other leaves may be taken on an intermittent basis. The employer may require medical proof of claimed serious health conditions. An eligible employee who takes leave must, on returning to work, be restored to either the same or an equivalent position with equivalent employment benefits and pay. The restored employee is not entitled to the accrual of seniority during the leave period, however. A covered employer may deny restoration to a salaried employee who is among the highest-paid 10 percent of that employer's employees if the denial is necessary to prevent "substantial and grievous economic injury" to the employer's operations.

Partial or intermittent strikes

In partial strikes, or intermittent strikes, employees strike part of the day or workweek and work the other part. This type of strike is illegal because it interferes with the employer's right to operate its facilities at full capacity.

Sit-down strikes

In sit-down strikes, striking employees continue to occupy the employer's premises. Such strikes are illegal because they deny the employer's statutory right to continue its operations during the strike.

Prepetition and Postpetition Counseling

Individuals filing for bankruptcy must receive prepetition counseling within 180 days prior to filing a petition for bankruptcy. This includes counseling on types of credit, the use of credit, and budget analysis. The counseling is to be provided by not-for-profit credit counseling agencies approved by the U.S. Trustee. Before an individual debtor receives a discharge in a Chapter 7 or Chapter 13 bankruptcy the debtor must receive postpetition counseling by attending a personal financial management course approved by the U.S. Trustee. This course is designed to provide the debtor with information on responsible use of credit and personal financial planning.

right-to-work laws

Laws enacted by some states that provide that an individual employee cannot be forced to join a union or pay union dues and fees even though a labor union has been elected by other employees If a state enacts a right-to-work law, individual employees cannot be forced to join a union or pay union dues and fees, even though a labor union has been elected by other employees. Many state governments and businesses support right-to-work laws to attract new businesses to a nonunion environment. Unions vehemently oppose the enactment of right-to-work laws because they substantially erode union power. The remedies for violation of right-to-work laws vary from state to state but usually include damages to persons injured by the violation, injunctive relief, and criminal penalties

choice of forum clause (or forum-selection clause)

Many international contracts contain a choice of forum clause (or forum-selection clause) that designates which nation's court has jurisdiction to hear a case arising out of a contract. In addition, many contracts also include a choice of law clause that designates which nation's laws will be applied in deciding such a case. Absent these 2 clauses and without the parties agreeing to these matters, an international dispute may never be resolved.

European Union (EU)

Members of several significant regional organizations have agreed to work together to promote peace and security as well as economic, social, and cultural development. One of the most important international regional organizations is the European Union (EU), formerly called the European Community, or Common Market. The EU, which was created in 1957, is composed of many countries of Europe. Member nations include the following: Austria Belgium Bulgaria Croatia Cyprus (the Greek part) Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden A unanimous vote of existing EU members is needed to admit a new member country. Nonmember countries must apply for and be admitted as members of the EU, a process that takes many years. Future candidates for EU membership include Albania, Iceland, Macedonia, Montenegro, Serbia, and Turkey. United Kingdom. The United Kingdom (UK) is comprised of 4 countries, Britain, Wales, Scotland, and Northern Ireland. In 1973, the United Kingdom joined the European Community, which is now the EU. In 2016, the electorate of the United Kingdom voted to leave the EU. Reasons cited for doing so include restoring British sovereignty, freeing itself of EU laws, ending free movement of EU workers into the UK, and regaining control over immigration. The UK is scheduled to leave the EU in 2019. In the UK referendum vote, Britain and Wales voted to leave the EU, while Scotland and Northern Ireland voted to remain in the EU. The UK, as a combined entity, will be leaving the EU. If Scotland or Northern Ireland choose to be members of the EU, they may have to apply for admittance. The EU treaty creates open borders for trade by providing for the free flow of capital, labor, goods, and services among member nations. Under the EU, customs duties have been eliminated among member nations and common customs tariffs have been established for EU trade with the rest of the world. The EU represents more than 450 million people and has a gross community product that approximately equals that of the United States, Canada, and Mexico combined.

"blue-sky" laws

Most states have enacted securities laws. State securities laws generally require the registration of certain securities, provide exemptions from registration, and contain broad antifraud provisions. State securities laws are usually applied when smaller companies are issuing securities within that state. The Uniform Securities Act has been adopted by many states, which coordinates state securities laws with federal securities laws. State securities laws are often referred to as "blue-sky" laws because they help prevent investors from purchasing a piece of the blue sky. The state that has most actively enforced its securities laws is New York. The office of the New York state attorney has brought many high-profile criminal fraud cases in recent years.

Respondeat Superior

Negligence Principals are liable for the negligent conduct of agents acting within the scope of their employment. This liability is based on the common law doctrine of respondeat superior ("let the master answer"), which in turn is based on the legal theory of vicarious liability (liability without fault). In other words, the principal is liable because of the employment contract with the negligent agent, not because the principal was personally at fault. The doctrine of negligence rests on the principle that, if someone (i.e., the principal) expects to derive certain benefits from acting through others (i.e., an agent), that person should also bear the liability for injuries caused to third persons by the negligent conduct of an agent who is acting within the scope of employment. Example Business Unlimited Corporation employs Harriet as its marketing manager. Harriet is driving her automobile to attend a meeting with a client on behalf of her employer. On her way to the meeting, Harriet is involved in an automobile accident that is caused by her negligence and several people are seriously injured. In this example, Harriet is personally liable to the injured parties. In addition, Business Unlimited Corporation is liable as the principal because Harriet was acting within the scope of her employment when she caused the accident.

United Nations (UN)

One of the most important international organizations is the United Nations (UN), which was created by a multilateral treaty on October 24, 1945.1 Most of the countries of the world are members of the UN. The goals of the UN, which is headquartered in New York City, are to maintain peace and security in the world, promote economic and social cooperation, and protect human rights The UN is governed by the General Assembly, the Security Council, and the Secretariat, which are discussed in the following paragraphs.

insider trading

One of the most important purposes of Section 10(b) and Rule 10b-5 is to prevent insider trading. Insider trading occurs when a company employee or company advisor uses material, nonpublic information to make a profit by trading in the securities of the company. This practice is considered illegal because it allows insiders to take advantage of the investing public. In the Matter of Cady, Roberts & Company,11 the SEC announced that the duty of an insider who possesses material, nonpublic information is either to (1) abstain from trading in the securities of the company or (2) disclose the information to the person on the other side of the transaction before the insider purchases or sells the securities. For purposes of Section 10(b) and Rule 10b-5, Section 10(b) insiders are defined as (1) officers, directors, and employees at all levels of a company; (2) lawyers, accountants, consultants, and agents and representatives who are hired by the company on a temporary and nonemployee basis to provide services or work to the company; and (3) others who owe a fiduciary duty to the company. Example Widger Corporation has its annual audit done by its outside certified public accountants (CPAs), Young & Old, CPAs. Priscilla is one of the CPAs who conduct the audit. The audit discloses that the Widger Corporation's profits have doubled since last year, and Priscilla rightfully discloses this fact to Martha, the chief financial officer (CFO) of Widger Corporation. Both Martha and Priscilla are insiders. The earnings information is definitely material, and it is nonpublic until the corporation publicly announces its earnings in 2 days. Prior to the earnings information being made public, Priscilla and Martha buy stock in Widger Corporation at $100 per share. After the earnings information is made public, the stock of Widger Corporation increases to $150 per share. Both Priscilla and Martha are liable for insider trading, in violation of Section 10(b) and Rule 10b-5, because they traded in the securities of Widger Corporation while they were insiders in possession of material, nonpublic inside information. Martha and Priscilla could be held civilly liable and criminally guilty of insider trading, in violation of Section 10(b) and Rule 10b-5. In the following case, the court had to decide whether an insider was criminally liable for insider trading.

Short-Swing Profits

Section 16(a) of the Securities Exchange Act of 1934 defines any person who is an executive officer, a director, or a 10 percent shareholder of an equity security of a reporting company as a Section 16 statutory insider who is subject to the rules of Section 16. Statutory insiders must file reports with the SEC to disclose their ownership and trading in the company's securities.14 Reports must be filed with the SEC and made available on the company's website within 2 days after the trade occurs. Section 16(b) Section 16(b) of the Securities Exchange Act of 1934 requires that any profits made by a statutory insider on transactions involving short-swing profits—that is, trades involving equity securities occurring within 6 months of each other—belong to the corporation. The corporation may bring a legal action to recover these profits. Involuntary transactions, such as forced redemption of securities by the corporation or an exchange of securities in a bankruptcy proceeding, are exempt. Section 16(b) is a strict liability provision. Generally, no defenses are recognized. Neither intent nor the possession of inside information need be shown. Example Rosanne is the president of a corporation and a statutory insider who does not possess any inside information. On February 1, she purchases 1,000 shares of her employer's stock at $10 per share. On June 1, she sells the stock for $14 per share. The corporation can recover the $4,000 profit because the trades occurred within 6 months of each other.

Age Discrimination in Employment Act (ADEA)

Some employers have discriminated against employees and prospective employees based on their age. Primarily, employers have often refused to hire older workers. The Age Discrimination in Employment Act (ADEA), a federal statute that was passed in 1967, prohibits certain age discrimination practices.10 The ADEA protects employees who are 40 and older from job discrimination based on their age. The ADEA prohibits age discrimination in all employment decisions, including hiring, promotions, payment of compensation, and other terms and conditions of employment. Employers cannot use employment advertisements that discriminate against applicants covered by the ADEA. The Older Workers Benefit Protection Act (OWBPA) amended the ADEA to prohibit age discrimination with regard to employee benefits.11 Example Wayne, who is 50 years old, applies for an open position as manager at Big Box Retail Stores, Inc. Wayne meets the job requirements of having a college degree and prior experience as a store manager and is otherwise qualified for the job. The employer refuses to hire Wayne because of his age and hires someone who is 30 for the job. This is age discrimination in violation of ADEA. Because persons under 40 are not protected by the ADEA, an employer can maintain an employment policy of hiring only workers who are 40 years of age or older without violating the ADEA. However, some state laws protect persons under the age of 40 from being discriminated against. Under ADEA, an employer can maintain an employment practice whereby it gives preferential treatment to older workers over younger workers when they are both within the 40-years-and-older category. Example An employer can legally prefer to hire persons 50 years of age and older over persons aged 40 to 49. Discrimination can occur when the victim and the person who inflicted the discrimination are both over 40. It is unlawful to harass a person because of his or her age if it is so severe that it creates a hostile work environment. Example A supervisor or coworker frequently makes offensive remarks about a person's age. The ADEA permits age discrimination where a bona fide occupational qualification (BFOQ) is shown. A BFOQ may be asserted as a necessary qualification of the job or for public safety. Example Hiring a young person to play a young character in a movie or play is a lawful BFOQ. Setting an age limit for pilots would be a lawful BFOQ for public safety reasons. The ADEA is administered by the EEOC. Private plaintiffs can also sue under the ADEA. A successful plaintiff in an ADEA action can recover back wages, attorney's fees, and equitable relief, including hiring, reinstatement, and promotion. Where a violation of the ADEA is found, the employer must raise the wages of the discriminated-against employee. It cannot lower the wages of other employees.

Permissive subjects

Subjects that are not compulsory or illegal are permissive subjects of collective bargaining. These subjects may be bargained for if the company and union agree to do so. Examples The size and composition of the supervisory force, location of plants, corporate reorganizations, and the like.

Equal Employment Opportunity Commission (EEOC)

The Equal Employment Opportunity Commission (EEOC) is the federal agency responsible for enforcing most federal antidiscrimination laws. The members of the EEOC are appointed by the U.S. president. The EEOC is empowered to conduct investigations, interpret the statutes, encourage conciliation between employees and employers, and bring suits to enforce the law. The EEOC can also seek injunctive relief. The EEOC has jurisdiction to investigate charges of discrimination based on race, color, national origin, gender, religion, age, disability, and genetic information. Complaint Process If a person believes that he or she has been discriminated against in the workplace, he or she cannot immediately file a lawsuit against the employer. The complainant must first file a complaint with the EEOC. The EEOC often requests that the parties try to resolve their dispute through mediation. If mediation does not work, the EEOC will investigate the charge. If the EEOC finds a violation, it will decide whether to sue the employer. If the EEOC sues the employer, the complainant cannot sue the employer. In this case, the EEOC represents the complainant. If the EEOC finds a violation and chooses not to bring suit or does not find a violation, the EEOC will issue a right to sue letter to the complainant. This gives the complainant the right to sue the employer. If a state has a Fair Employment Practices Agency (FEPA), the complainant may file a claim with the FEPA instead of the EEOC. Often, a complainant will file a complaint with a FEPA if state law provides protection from discrimination not covered by federal laws or if the FEPA's procedure permits a filing date that is longer than that of the EEOC. The FEPA complaint process is similar to that of the EEOC.

Criteria That Justify a Differential in Wages

The Equal Pay Act expressly provides four criteria that justify a differential in payment systems: Seniority Merit (so long as there is some identifiable measurement standard) Quantity or quality of product (i.e., commission, piecework, or quality-control-based payment systems are permitted) "Any factor other than sex" (i.e., shift differentials, such as night versus day shifts) The employer bears the burden of proving these defenses. Example Peter, a college graduate, has been working for a company for 5 years as a staff accountant. Mary, a new college graduate with no experience, is hired by the company as a staff accountant with the same job duties and responsibilities as Peter. Peter is paid a 20 percent higher salary than Mary. This differential is justified based on seniority and therefore does not violate the Equal Pay Act.

Child Labor

The FLSA forbids the use of oppressive child labor and makes it unlawful to ship goods produced by businesses that use oppressive child labor. The Department of Labor has adopted the following regulations that define lawful child labor: (1) Children under the age of 14 cannot work except as newspaper deliverers, (2) children ages 14 and 15 may work limited hours in nonhazardous jobs approved by the Department of Labor (e.g., restaurants), and (3) children ages 16 and 17 may work unlimited hours in nonhazardous jobs. The Department of Labor determines which occupations are hazardous (e.g., mining, roofing, working with explosives). Children who work in agricultural employment and child actors and performers are exempt from these restrictions. Persons age 18 and older may work at any job, whether it is hazardous or not.

Fraudulent Transfer of Property Prior to Bankruptcy

The bankruptcy court may void certain fraudulent transfers of a debtor's property made by the debtor within 2 years prior to filing a petition for bankruptcy. To void a transfer or an obligation, the court must find that (1) the transfer was made or the obligation was incurred by the debtor with the actual intent to hinder, delay, or defraud a creditor or (2) the debtor received less than a reasonable equivalent in value. Example Kathy owes her unsecured creditors $100,000. On February 9, Kathy knows that she is insolvent. Kathy owns a Mercedes-Benz automobile that is worth $55,000. On February 9, Kathy sells her Mercedes-Benz automobile to her friend, Wei, for $30,000. Wei is a bona fide purchaser who does not know of Kathy's financial situation. On July 1, Kathy files for Chapter 7 liquidation bankruptcy while still owing the $100,000 to her unsecured creditors. The court can void Kathy's sale of her automobile to Wei as a fraudulent transfer because it occurred within 2 years of the petition and Kathy received less than a reasonable equivalent in value. Because Wei was a bona fide purchaser, the court must repay Wei the purchase price of $30,000 to recover the automobile from her.

Fiduciary duties

The duties of obedience, care, and loyalty owed by directors and officers to their corporation and its shareholders. Because the agency relationship is based on trust and confidence, an agent owes the principal a duty of loyalty in all agency-related matters. Thus, an agent owes a fiduciary duty not to act adversely to the interests of the principal. If this duty is breached, the agent is liable to the principal. The most common types of breaches of loyalty are discussed in the following paragraphs.

Homestead Exemption

The federal Bankruptcy Code permits homeowners to claim a homestead exemption of $23,675 in their principal residence. If the debtor's equity in the property (i.e., the value above the amount of mortgages and liens) exceeds the exemption limits, the trustee may sell the property to realize the excess value for the bankruptcy estate. Example Assume that a debtor owns a principal residence worth $500,000 that is subject to a $400,000 mortgage and the debtor therefore owns $100,000 of equity in the property. The debtor files a petition for Chapter 7 liquidation bankruptcy. The trustee may sell the home, pay off the mortgage, pay the debtor $23,675 (applying the federal exemption), and use the remaining proceeds of $76,325 for distribution to the debtor's creditors.

Automatic Stay

The filing of a voluntary or an involuntary petition automatically stays—that is, suspends—certain legal actions by creditors against the debtor or the debtor's property. This is called an automatic stay. The stay, which applies to collection efforts of secured and unsecured creditors, is designed to prevent a scramble for the debtor's assets in a variety of court proceedings. The following creditor actions are stayed: Instituting or maintaining legal actions to collect prepetition debts Enforcing judgments obtained against the debtor Obtaining, perfecting, or enforcing liens against the property of the debtor Nonjudicial collection efforts, such as self-help activities (e.g., repossession of an automobile) Actions to recover domestic support obligations (e.g., alimony, child support), the dissolution of a marriage, and child custody cases are not stayed in bankruptcy. Criminal actions against the debtor are also not stayed.

Wrongful Termination

The termination of an agency extinguishes the power of the agent to act on behalf of the principal. If the principal's or agent's termination of an agency contract breaches the contract, the other party can sue to recover damages for wrongful termination. Example A principal employs a licensed real estate agent to sell his house. The agency contract gives the agent an exclusive listing for 4 months. After one month, the principal unilaterally terminates the agency. The agent can no longer act on behalf of the principal. Because the principal did not have the right to terminate the contract, however, the agent can sue him and recover damages (i.e., lost commission) for wrongful termination.

Civil Rights Act of 1964

This was a historical and sweeping civil rights law that prohibited discrimination based on race, color, national origin, gender, and religion in public accommodations (e.g., motels, hotels, restaurants, theaters), by state and municipal government public facilities, by government agencies that receive federal funds, and in employment. One of the major provisions of the Civil Rights Act of 1964 is Title VII, which governs the employment relationship. Title VII of the Civil Rights Act of 1964 is discussed in the following feature. Scope of Coverage of Title VII Title VII of the Civil Rights Act of 1964 applies to (1) employers with 15 or more employees, (2) all employment agencies, (3) labor unions with 15 or more members, (4) state and local governments and their agencies, and (5) most federal government employment. Native American tribes and tax-exempt private clubs are expressly excluded from coverage. Other portions of the Civil Rights Act of 1964 prohibit discrimination in housing, education, and other facets of life. Title VII prohibits discrimination in hiring; decisions regarding promotion or demotion; payment of compensation and fringe benefits; availability of job training and apprenticeship opportunities; referral systems for employment; decisions regarding dismissal; work rules; and any other "term, condition, or privilege" of employment. Any employee of a covered employer, including undocumented aliens, may bring actions for employment discrimination under Title VII. United States citizens employed by U.S.-controlled companies in foreign countries are covered by Title VII. Foreign nationals employed in foreign countries by U.S.-controlled companies are not covered by Title VII. Title VII prohibits 2 major forms of employment discrimination: disparate-treatment discrimination and disparate-impact discrimination. These are discussed in the following paragraphs.

student loans

To prevent such abuse of bankruptcy law, Congress amended the Bankruptcy Code to make it more difficult for students to have their student loans discharged in bankruptcy. Student loans are defined to include loans made by or guaranteed by governmental units; loans made by nongovernmental commercial institutions such as banks; as well as funds for scholarships, benefits, or stipends granted by educational institutions. The Bankruptcy Code now states that student loans cannot be discharged in any form of bankruptcy unless their nondischarge would cause an undue hardship to the debtor and his or her dependents. Undue hardship is construed strictly and is difficult for a debtor to prove unless the debtor can show severe physical or mental disability or inability to pay for basic necessities, such as food or shelter, for his or her family. Co-signers (e.g., parents who guarantee their child's student loan) must also meet the heightened undue hardship test to discharge their obligation.

closed shop

Under a closed shop agreement, an employer agrees to hire only employees who are already members of a union. The employer cannot hire employees who are not members. A closed shop agreement is illegal in the United States. On proper notification by the union, union and agency shop employers are required to deduct union dues and agency fees from employees' wages and forward these dues to the union. This is called dues checkoff.

Union shop

Under a union shop agreement, an employer may hire anyone whether he or she belongs to a union or not. However, an employee must join the union within a certain time period (e.g., 30 days) after being hired. Union shops are lawful.

Agency shop

Under an agency shop agreement, an employer may hire anyone whether he or she belongs to a union or not. After employees are hired, they do not have to join the union, but if they do not join, they must pay an agency fee to the union. This fee includes an amount to help pay for the costs of collective bargaining. A nonunion employee cannot be assessed fees for noncollective bargaining union activities, such as political campaigning and the like. The agency fee prevents the free rider problem that would occur if an employee did not have to pay union dues or their equivalent but was the recipient of union collective bargaining activities. Agency shops are lawful.

Secondary Boycott Picketing

Unions sometimes try to bring pressure against an employer by picketing the employer's suppliers or customers. Such secondary boycott picketing is lawful only if it is product picketing (i.e., if the picketing is against the primary employer's product). The picketing is illegal if it is directed against the neutral employer instead of the struck employer's product. Example Union members go on strike against their employer, a toy manufacturer. The union members picket retail stores that sell the manufacturer's toy products. They carry signs announcing their strike and request that consumers not buy toy products manufactured by their employer. This is lawful secondary boycott picketing. Example Union members go on strike against their employer, a toy manufacturer. The union members picket retail stores that sell the manufacturer's toy products. They carry signs requesting that consumers not shop at the retail stores. This is unlawful secondary boycott picketing.

Securities and Exchange Commission (SEC)

a federal administrative agency that is empowered to administer federal securities law. The SEC is an agency composed of 5 members who are appointed by the president. The major responsibilities of the SEC are the following: Adopting rules (also called regulations) that further the purpose of the federal securities statutes. These rules have the force of law. Investigating alleged securities violations and bringing enforcement actions against suspected violators. These enforcement actions may include recommendations for criminal prosecution. Criminal prosecutions of violations of federal securities laws are brought by the U.S. Department of Justice. Bringing a civil action to recover monetary damages from violators of securities laws. A whistle-blower bounty program allows a person who provides information that leads to a successful SEC action in which more than $1 million is recovered to receive 10 to 30 percent of the money collected. Regulating the activities of securities brokers and advisors. This includes registering brokers and advisors and taking enforcement action against those who violate securities laws.

Equal Pay Act

a federal statute passed in 1963, protects both sexes from pay discrimination based on sex.9 The act covers all levels of private-sector employees and state and local government employees. Federal workers are not covered, however. The act prohibits disparity in pay for jobs that require equal skill (i.e., equal experience), equal effort (i.e., mental and physical exertion), equal responsibility (i.e., equal supervision and accountability), or similar working conditions (e.g., dangers of injury, exposure to the elements). To make this determination, the courts examine the actual requirements of jobs to determine whether they are equal and similar. If two jobs are determined to be equal and similar, an employer cannot pay disparate wages to members of different sexes. Job content, not job titles, determines whether positions are substantially equal. All forms of pay are covered by the Equal Pay Act, including salary, overtime pay, bonuses, profit-sharing plans, insurance, vacation and holiday pay, reimbursement of expenses, and benefits. Employees can bring a private cause of action against an employer for violating the Equal Pay Act. Back pay and liquidated damages are recoverable. The employer must increase the wages of the discriminated-against employee to eliminate the unlawful disparity of wages. The wages of other employees may not be lowered. Example Both Mary and Peter meet the educational requirements for a particular entry-level job and are both hired as staff accountants by a company to perform exactly the same duties at their job. The company pays Peter a salary that is 20 percent higher than Mary's salary; its action is a violation of the Equal Pay Act.

Means Test

is a calculation that establishes a bright-line test to determine whether the debtor has sufficient disposable income to pay prepetition debts out of postpetition income. Disposable income is determined by taking the debtor's actual income and subtracting expenses for a typical family the same size as the debtor's family. Income is the actual income of the debtor. However, expenses are determined by using preestablished government tables and not the actual expenses of the family. A complicated formula is used to calculate the debtor's disposable income and thus determine whether the debtor qualifies for Chapter 7 bankruptcy. If, because of the application of the means test, a debtor is determined to have a sufficient disposable income as determined by bankruptcy law, the debtor does not qualify for Chapter 7 bankruptcy. The petition for Chapter 7 bankruptcy will be denied by the bankruptcy court. Usually, these debtors will file for Chapter 13 bankruptcy (discussed later in this chapter). If, however, using the means test calculation a debtor is determined to have an insufficient amount of disposable income as determined by bankruptcy law, the debtor qualifies for Chapter 7 bankruptcy. These debtors may be granted Chapter 7 discharge of debts. Thus, some of the debtors that have income above the state's median income for the debtor's size of family will qualify for Chapter 7, and some will not.

Injunction

is a court order that prohibits a person from doing a certain act. To obtain an injunction, the requesting party must show that he or she will suffer irreparable injury if the injunction is not issued. Example A professional basketball team enters into a 5-year employment contract with a basketball player. The basketball player breaches the contract and enters into a contract to play for a competing professional basketball team. Here, the first team can obtain an injunction to prevent the basketball player from playing for the other team during the remaining term of the original contract.

Trademark

is a distinctive mark, symbol, name, word, motto, or device that identifies the goods of a business. Examples Coca-Cola (The Coca-Cola Company), Walmart (Wal-Mart Stores, Inc.), Big Mac (McDonald's Corporation), iPhone (Apple Computer), Intel Inside (Intel Corporation), Better Ingredients. Better Pizza. (Papa John's Pizza), and Harley (Harley-Davidson Motor Company) Certain marks cannot be registered. They include (1) the flag or coat of arms of the United States, any state, municipality, or foreign nation; (2) marks that are immoral or scandalous; (3) geographical names standing alone (e.g., "South"); (4) surnames standing alone (note that a surname can be registered if it is accompanied by a picture or fanciful name, such as Smith Brothers Cough Drops); and (5) any mark that resembles a mark already registered with the federal PTO

Lilly Ledbetter Fair Pay Act of 2009

is a federal statute that provides that each discriminatory pay decision restarts the statutory 180-day clock. Thus, a plaintiff can file a claim against an employer within 180 days of the most recent paycheck violation. The act provides that a court can award back pay for up to 2 years preceding the filing of the claim if similar violations occurred during the prior 2-year period. Example A female is hired by an employer as an employee. During a 36-month period, the employer engages in pay act violations and underpays the female employee each pay period. In this example, the female employee has 180 days from the date of the last paycheck violation to file her claim. If she files the claim and the employer is found to have violated the law during the 3-year period, the female employee can recover back pay for the 2 years preceding the date of the last paycheck violation.

Copyright

is a legal right that gives the author of qualifying subject matter and who meets other requirements established by copyright law the exclusive right to publish, produce, sell, license, and distribute the work. The Copyright Revision Act of 1976 currently governs copyright law.5 The act establishes the requirements for obtaining a copyright and protects copyrighted works from infringement. Federal copyright law is exclusive; there are no state copyright laws. Federal copyright law protects the work of authors and other creative persons from the unauthorized use of their copyrighted materials and provides a financial incentive for authors to write, thereby increasing the number of creative works available in society. Copyrights can be sold or licensed to others, whose rights are then protected by copyright law.

Involuntary petition

is a petition that is filed by a creditor or creditors and places the debtor into bankruptcy. An involuntary petition can be filed in Chapter 7 (liquidation) and Chapter 11 (reorganization) cases; an involuntary petition cannot be filed in Chapter 12 (family farmer or fisherman) or Chapter 13 (adjustment of debts) cases.

International Court of Justice (ICJ), also called the World Court

is located in The Hague, the Netherlands. It is the judicial branch of the UN. Only nations, not individuals or businesses, can have cases decided by this court. The ICJ hears cases that nations refer to it as well as cases involving treaties and the UN Charter. A nation may seek redress on behalf of an individual or a business that has a claim against another country. The ICJ is composed of 15 judges who serve 9-year terms.

Disparate-treatment discrimination

occurs when an employer treats a specific individual less favorably than others because of that person's race, color, national origin, sex, or religion. In these situations, complainants must prove that (1) they are a member of a Title VII protected class, (2) they applied for and were qualified for the employment position, (3) they were rejected despite this, and (4) the employer kept the position open and sought applications from persons with the complainants' qualifications. Example A member of a minority race applies for a promotion to a position advertised as available at his company. The minority applicant, who is qualified for the position, is rejected by the company, which hires a nonminority applicant for the position. The minority applicant sues under Title VII. He has a prima facie case of illegal discrimination. The burden of proof shifts to the employer to prove a nondiscriminatory reason for its decision. If the employer offers a reason, such as saying that the minority applicant lacked sufficient experience, the burden shifts back to the minority applicant to prove that this was just a pretext (i.e., not the real reason) for the employer's decision.

Americans with Disabilities Act (ADA)

which was signed into law July 26, 1990, is the most comprehensive piece of civil rights legislation since the Civil Rights Act of 1964. The ADA imposes obligations on employers and providers of public transportation, telecommunications, and public accommodations to accommodate physically challenged individuals. The following feature discusses the portion of the ADA that prohibits employment discrimination against persons with covered disabilities. Qualified Individual with a Disability A qualified individual with a disability is a person who can show that he or she has a disability in one of 3 ways: A physical (physiological) or mental (psychological) impairment that substantially limits one or more major life activities, such as walking, talking, seeing, hearing, or learning A history of such impairment, such as cancer Regarded as having such impairment even if he or she does not have the impairment The ADAAA's mandate is to construe the term disability broadly. The person with a disability must, with or without reasonable accommodation, be able to perform the essential functions of the job that person desires or holds. A physiological impairment includes any physical disorder or condition, cosmetic disfigurement, or anatomical loss affecting one or more of the following body systems: neurological, musculoskeletal, special sense organs, respiratory, cardiovascular, reproductive, digestive, genitourinary, hemic and lymphatic, skin, and endocrine. Examples Deafness, blindness, speech impediments, partial or complete missing limbs, mobility impairments requiring the use of a wheelchair, autism, cancer, cerebral palsy, diabetes, epilepsy, HIV/AIDS, multiple sclerosis, and muscular dystrophy. Impairment also includes mental or psychological disorders, such as intellectual disability (e.g., mental retardation), organic brain syndrome, emotional or mental illness, and specific learning disabilities. Examples Major depression, bipolar disorder, posttraumatic stress disorder, obsessive-compulsive disorder, and schizophrenia.