BLAW Exam #4

Liability for agent's intentional torts

Principal is liable for torts committed in the scope of employment. Employer is liable for acts which employer knew or should have known the employee had a propensity to commit.

Quality control in franchise contract

Quality control is a legitimate issue for franchisor because of good will, reputation, and trademark value. Courts will not question Franchisor's strict supervision but Franchisor may be liable for torts of agents

Non-compete agreement

Seller should sign a non-compete agreement when you are buying their pre-existing business- protects you from the seller going into the marketplace and creating another business that will dilute your sales -geographically and time restrained

Quorum

Shareholders representing more than 50% of shares must be present to conduct business ex. bylaws say 7/10 directors need to be present to pass a vote

Minimum wage requirements

Since 2009 FLSA minimum wage is $7.25/hour in covered industries. Employers in food or lodging industries can deduct reasonable cot of those services from wages States may vary raise minimum wage

Large vs small corporations locations

Small ones will incorporate in state where they do most business, large ones will incorporate where they are viewed most favorably

Duty of loyalty

Subordination of personal interests to the welfare of the corporation -no competition w corporation -no corporate opportunity -no conflict of interests -no insider trading

Overtime provisions and exemptions rule

Under FLSA, employees who work over 40 hours per week are entitled to 1.5 times their hourly wage for those hours worked.

Formation of partnership

Voluntary by agreement: draw up articles of partnership Involuntary formation: by implication, ex sharing of profits, constitutes prima facie evidence that a partnership exists . , governed by uniform partnership act

Principal is liable for acts entered into by agent when she gives agent either _______ or ________ authority

actual, apparent

Franchisee definition

agreement in which franchisor licenses intellectual property (trademark, trade name or copyright) to franchisee to use in the sale of goods or services

Management and control for sole proprietorships

all assets with one person

Fair labor standards act

an extension of wage and hour regulation to workers in interstate commerce

Works for hire

any copyrighted work created during scope of employment is owned by employer

S corps

avoids federal tax under IRS code "subchapter S" -created to encourage entrepreneurship by offering tax breaks -shareholders have limited liability of a corporation and the tax status of a flow through entity (sole proprietorship or LLC- not taxable entities, all profits/losses pass through shareholders who pay tax at their individual rates) *avoids double taxation of a regular corporation - only dividends are taxed to the shareholders as personal income -limitations (shareholders must be citizens or residents in the US, fewer than 100 shareholders, only one class of stock, corporation s domestic

Historically, employment law was governed by the ___________ doctrine of _________

common law, employment at will

Shultz vs GE healthcare financial services

defaulted on obligations to GE - GE was able to pierce the corporate veil bcs through discovery it was found Shultz had used corporation money to buy property in his name -when veil is pierced, shareholder is personally liable

Liability for Independent Contractor's negligence

employer is not liable for acts of independent contracts because employer has no right to control

Liability for agents negligence: doctrine of respondeat superior

employer is vicariously liable for employee's negligent torts committed within the agent's "course and scope of employment"

Family and medical leave Benefits and protections

employer must continue worker's health care on same terms. Worker must be restored to position upon return to work (unless its a key employee)

Employment at will: wrongful discharge

even if employer's actions do not violate any express employment contract or statute, liability may still attach based on tort theory or agency

Power of attorney gives agent ________ authority. A POA is...

express -POA is a written document and usually notarized -special: specified acts only -general: all business for principal -terminates on principals death or incapacity

Directors and officers are __________ and owe the company ethical and legal duties.

fiduciaries

Agent is a _________ relationship based on trust and confidence

fiduciary -agent must do what is of the best interest of the principal

Agency by agreement

formed through express consent (oral or written) or implied by conduct

generally shares in a corporation are _________ however sometimes transfers are restricted

freely transferable

Equal dignity rule

if law requires written contract, agent's authority must be in writing, or contract voidable exceptions: executive officer acting for corporation OR agents acts in principals presence

Employee Privacy Protection

is there an employee expectation of privacy?

Disadv of LLC

lack of uniformity w state law

Funding for LLCs

members contribute capital

Owners of an LLC are called _________, not shareholders and their ownership is called an ________, not shares

members, interest

Exceptions to at will based on public policy

must be clearly stated in statutes governing that jurisdiction

shareholders are generally _________ liable for the contracts or torts of the corporation

not liable - if the corporation fails, shareholders generally cannot lose more than their investment

Private corporations

not publicly traded

FLSA prohibits....

oppressive child labor practices

Social Security

portion of income (whether paycheck or self-employed) goes to FICA (Federal insurance contributions act)

Laws governing franchises

primarily governed by contract law UCC article 2 governs franchises for sale of goods

Federal regulation of franchises

protect franchisee from unreasonable demands and bad faith termination

COBRA procedures and payment

provides a federal right to continued health insurance procedures: worker has 60 days to decide payment: COBRA is not free, payments depending on conditions and worker status

C-Corps

publicly traded corps, all have double taxation

FMLA requirements for family and medical leave

requires employers with over 50 employees to provide 12 weeks unpaid leave to employees who need to care for a spouse, child, parents suffering with a serious medical condition -serious injuries or military can take up to 26 weeks

Corporate profits can be kept as ________ or passed on to the shareholders as ________. This is up to the _________

retained earnings, dividends board of directors

Like corporations, LLC are creatures of _____ law

state

Today, employment law is heavily regulated by _____.

state and federal statutes

Exception to the employment at will doctrine based on tort theory

termination may give rise to wrongful discharge claims

Lie Detector tests

the employee polygraph protection act exempts government, security, and controlled substance firms

OSHA (Occupational Safety and Health Act)

the fundamental federal law aimed toward safety in the workplace -enforcement is OSHA< NIOSH, an the OSHRC

All employees who deal with ______________ are agents

third parties

Scope of employment: Employee travel time

to or from meals is outside scope of employment

Corporate taxation

with C corps there is double taxation: once to the corporation and then to the shareholders via dividends

Actual authority can be ______ or _______

written, oral

Can foreign investors can members of an LLC?

yes

ECPA

"business-extension exception" allows employer to monitor

Rights of directors

- Participate in corporate decisions and inspect corporate books and records. - Compensation -corporation should guarantee reimbursement or purchase liability insurance to protect the board from personal liability

Director liability

- Protected by the business judgement rule. - Directors and officers must act in good faith and with prudence to avoid personal liability. - Can consult experts, but must study issues.

Corporate formation

- file articles of incorporation: name, names and addresses of all incorporators, capital structure of the corporation, types of stock -must hold initital meeting after incorporation: elect new directors, adopt bylaws, issue stock, ratify pre incorporation contracts

Process of election of directors

- number of directors is set forth in the articles of incorporation - directors appointed at the first organizational meeting - in closely held companies, directors are generally the incorporators and/or the shareholders -term of directors varies 1-3 years -removal of directors: directors can be removed for cause -vaccines on board: if director dies or resigns or new position created by the articles or bylaws

Principals duties to the agent

-Compensation (express or implied) -reimbursement and indemnification -cooperation -safe working conditions

Torts and Crime for Corporations

-Corp is liable for the torts committed by agents or officers within the scope of their employment under the doctrine of respondeat superior -corporation can be liable for criminal acts via fines and/or license revocation -responsible officers may go to prison

Election of directors

-Elected by shareholders to make corporate policy -May operate by committee -Hire officers of corporation and set officers' salaries

Reasons for piercing the corporate veil

-No formalities: personal and corporate properties are mixed together -ignoring corporate formalities- elections, meetings -forming to perpetrate a fraud on creditors ex paying with corporate card for personal expenses

What are agents used for?

-Principals use agents to be able to conduct multiple business operations simultaneously in various locations -Principal has the right to control the agent in matters entrusted to the agent

State regulation of franchising

-Protection from unfair trade practices and bad faith terminations. -Disclosure documentation (Franchise Disclosure Document), including costs of operation, recurring expenses, profits earned, and substantiating of these figures. -State law may prohibit termination without "good cause."

Corporate personnel

-Responsibility for overall management of company rests with board of directors (elected by shareholders). -Board of directors makes policy decisions and hires officers to run corporation on a daily basis.

Where to incorporate

-Status of state's corporation laws, some are more user friendly than others- ex Delaware -state tax laws -ability to attract employees (Silicon Valley) -incentives (preferential tax treatment for creating jobs for ex)

How to determine scope of employment

-Was employee act authorized by employer? -The time and place and purpose of act -Was act commonly performed by employees -Did act advance employer's interests? -Did employer furnish instrumentality? Did employer have reason to know employee would do the act? Did the act involve a serious crime?

Implied authority

-agent has implied power to do what is reasonably necessary to carry out express authority

Partnership definition

-an association of two or more persons to carry on as co-owners of a business for profit -can include corporation and natural persons

Process of voting on mergers, consolidations, and sale of assets

-board of directors adopts resolution in favor of combination or sale -resolution will notice of meeting sent to all shareholders -shareholders vote on resolution at meeting

Transferability of interest for sole proprietorship

-business can be sold: property, inventory, goodwill -owner will usually sign a non-compete agreement

Sources of funding for partnerships

-capital contributions of partners -loans by partners -outside loans

Exemptions to overtime provisions

-certain employees including executive or professional, are exempt from FLSA overtime requirements -do not apply to manual laborers, nurses, police, firefighters, and other public safety workers. 'blue collar' workers

Partnerships are governed by both ________ law and ______ law

-common, statutory

Qualifications of agency relationships

-consensual (can be oral) -require no consideration -require principal to have contractual capacity (agency does not) -can be created for any legal purpose

Violations of the FMLA

-damages -job reinstatement -promotion (if lost)

Dividends

-distribution of corporate profits or income ordered by the board -up to board of directors to give out dividends and how much

Formation of sole proprietorships

-done by an individual -may have a fictitious name -no formal requirements for formation -may have to publish d/b/a name

When choosing a business entity, entrepreneurs should consider:

-ease of creation -owners liability -tax considerations -need for capital

Management of an LLC

-either member-managed or manager-managed -fiduciary duties: managers and members owe fiduciary duties to the LLC and each other

Employment at will

-either party may terminate at any time for any reason, unless contract provides to the contrary

LLC operating agreement

-equivalent to a corporations bylaws -written is preferred -partnership law may apply: if the operating agreement is silent, courts will apply partnership principles

State Workers' Compensation Laws

-establish an administrative procedure for compensating workers injured on the job -instead of suing for injuries, a worker is compensated

The franchise contract includes...

-franchisee type of business entity including capital structure, sales quotas and record keeping -payment for the franchise -business premises is leased and purchased -location of the franchise

Bylaws

-governs corporations -do not need to be filed -governs internal management structure: meeting details -quorum: necessary for meetings

LLC definition

-hybrid entity that combines the limited liability of a corporation and the tax advantages of a partnership

Business judgement rule

-immunizes a director or officer from liability from bad decisions -court will not require directors or officers to manage "in hindsight" -will apply as long as decision was reasonable, informed, made in good faith and best interests of the corp

Tax Consequences

-income passes through to members -LLC does not pay taxes

Transferability of interest in LLC

-interest can be transferred -transferee does not become a member unless majority of remaining members approve

Adv of LLCs

-limited liability: liability of members limited to amount of investment -flexibility in taxation -management and foreign investors

Requirements of shareholders meetings

-must occur at least annually

Shareholder rights

-no right to manage daily affairs -elect directors -controlling shareholders owe a fiduciary duty to minority shareholders -right to vote on mergers, consolidations, and sale of assets, not on acquisition -have access to books and records with proper purpose

voting requirements and procedures are:

-notice of meetings: quorum -proxies: someone casts your vote on your behalf -shareholder proposals

Tax consequences for sole proprietorships

-owner claims all income and losses -no separate filling requirement

Agency

-principal and agent -most common and most important -employer is principal and employees are agents

Formation of an LLC

-requires filing articles of organization with central state authority: name of business, principal address, name and addresses of registered agent, name of owners

Corporation Characteristics

-separate legal entity treated as artificial persons created in the state they are filed in, recognized by state law -can sue other parties and be sued -can be found civilly and criminally liable -can be incorporated in only one state but do business in any state -recognized as legal persons and enjoy many of the rights and privileges under our constitution as natural persons -must have legal existence (formal paper work filed and accepted) -unlimited duration (corporations can exist in perpetuity unless otherwise stated) -free transferability of interest (public shares can be traded on open market) -limited liability (liable for own contracts and debts, shareholders are liable to amount invested, personal assets are protected) -centralized management (directors and officers) -can hold legal title to property (real estate, bank accounts)

Closely held corporation

-stock is not publicly traded -shareholders play active role in company -special treatment in state laws: -transfer restrictions on stock -small group (6 people) -misappropriation of closely held funds -compensation should be responsible

Characteristics of sole proprietorships

-the owner is the business -owner is personally liable for all losses or liabilities incurred by the business

Dissolution and termination of an LLC

-withdrawal, death, or expulsion of members will dissolve a company -some state permit judicial dissolution -all state permit voluntary dissolution

Medicare

A federal government health program for people 65 years of age and for those under 65 who are disabled

Agency can be terminated by

Act of the parties: lapse of time, purpose achieved, occurence of a specific event, mutual agreement, termination by one party, notice of termination or by operation of law

Actual vs Apparent Authority

Actual authority arises out of the reasonable belief of agents.... Apparent authority arises out of the reasonable belief of third parties.

Liability for agent's crime

Agent is liable for own crimes Principal is not liable, even if the crime was committed within the scope of employment unless: principal participated in the crime in some states, principals may be liable for agent violation of regulations

Franchise Termination

Agreement may grant franchisee the opportunity to "cure" an ordinary breach within a period of time to prevent termination

Apparent authority

Arises baed on what pricnipal causes a third party (not agent) to believe -agent has apparent authority when principal, by either word or act, causes 3rd party to reasonably believe that agent has authority to act for principal

B-corp

Benefit corporation- want to make profit but also promoting environmental, social, and social responsibility issues

Laurel creek health care center v Bishop

Bishop said he wanted his wife to sign the admission paperwork- he ended up dying at the facility and they were found negligent of malpractice. Family wanted to sue for malpractice- they could not because paperwork said they agreed for arbitration. Family argued that deceased never sign it. Facility said husband gave her verbal authority to sign the documents He is bound to terms of document

Jurisdiction requirements for an LLC

Citizenship of an LLC is the citizenship of its members, which may live in multiple jurisdictions

Corporate "veil" of limited liability can be pierced

Court can look beyond corporate structure and go after shareholders personal assets if fact pattern warrant it

Importance of good faith and fair dealing with termination of franchise

Courts will usually try to balance the rights of both parties. If franchisor arbitrarily or unfairly terminates a franchise, the franchise will be provided with a remedy for wrongful termination

Scope of employment: detour vs frolic

Detour: principal may not be liable Frolic: usually liable- degree of deviation

Disclosure of potential conflicts of interest

Directors and officers must provide full disclosure of any potential conflicts of interest and abstain from voting on any transaction that may benefit the director/officer personally. -if reasonable, can be approved

Duty of care-directors must make informed decisions

Directors are expected to be fully informed on corporate matters

Determining employee status

Does employer exercise a great degree of control over the details of work? Is the worker engaged in an occupation or business distinct from employer? Is the work usually done under employer's supervision? Does employer provide the tools? Has the worker been employed a long time? Is the worker paid at the end of the job? Is there a degree of skill required?

Private pension plans

ERISA does not require employers to setup pension plans, but provides rules on management and investment vesting

Employer- Independent contractor relationships

Employers have no control over the details of contractors work performance -determination of employee status

Facebook Whistleblower 60 min

FB is aware of the hate and misinformation on the app but they chose to keep it up because it keeps people on the app

The Franchise Rule

FTC requires franchisors to disclose certain material facts that a prospective franchisee needs to make an informed decision concerning the purchase of a franchise

Smith v. Johnson and Johnson

Facts: Smith is a sales representative for J&J in the area of pharmaceutical sales. She is paid by salary and bonuses and runs her territory with little involvement of her company. She has filed a lawsuit against J&J under the Fair Labor Standards Act for non-payment of overtime. J&J filed for a summary judgment based on the administrative employee exemption. The court agreed, and Smith appealed. Issue: Does the administrative employee exemption in the FLSA apply to Smith. 1. Employee must be salaried 2. Primary duty is to the performance of the office or non-manual work directly related to mgmt or general business operations 3. Exercise of discretion and independent judgment Decision: Court upheld the summary judgment because Smith's employment met all the rules of the exemption.

FICA

Federal Insurance Contributions Act

Holiday Inn Franchising v. Hotel Associates

Holiday Inn Franchising, Inc had an agreement with Hotel Associates, Inc to renew their franchising license after 10 years after HAI recovered the cost of renovations. Aden had a plan to franchise another hotel and not renew the license for HAI. HAI filed a suit againt Holiday Inn asserting fraud for not telling them of Aden's plan.

Implied compensation example

If you hire a contractor to put in a fireplace it is expected you will pay them for it

Nonprofit corporations

In the business of promoting a social good, not to benefit shareholders

Difference between independent contractor and employee in terms of principal liability

Independent contractor: principal generally not liable unless strict liability Employee: principal is liable if it is within the scope of employment

Exceptions to the employment at will doctrine based on contract theory

Is there an implied employment agreement? What about oral promises from employer?

Sources of funding for sole proprietorships

Loans, government help

Lopez v Palmar Taxi inc

Lopez was in an accident which she filed suit for while in a palmar taxi. The driver was an independent contractor so the liability was not on Palmar Taxi. The court ruled in favor of palmar taxi but the plantiffs appealed

Liability for LLCs

Members stand to lose capital contributions, but their personal assets are not subject to attachment

NASA v. Nelson (2011)

NASAs background checks were a violation of constitutional privacy right

How agency relationships are terminated

Once agency is terminated, agent has no actual authority to bind the principal, but may have apparent authority to bind principal

Management and control for LLCs

Operating agreement: specifies voting rights -one member or an outside consultant can have operating authority delegated to him or her

Adv vs Disadv of sole proprietorships

Owner is in complete control and recieves all profits, flexibility, ease of creation and maintenance Owner is personally liable for all torts and contracts, lacks continuity after death, difficult to raise financing

Agents duty to the principal

Performance: use reasonable diligence and skill -If agent fails, possible reach of contract Notification: to principal of all matters concerning subject matter of agency Loyalty: fundamental duty as fiduciary (no conflict of interest)