MGMT Final Exam (Business Organizations, Agency & Employment law, Intellectual Property Rights)

Agency law

Involves situations where a person or business may be liable for misconduct (br/k, negligence, etc.) committed by another person or business.

Labels for parties to an agency relationship (agency)

principal-agent, employer-employee, and employer-independent contractor

Actual authority (most common) - expressed

written or oral instructions by principal to agent which can be general or specific

Actual authority (most common) - implied

usually shown by custom and practice of the particular agency (e.g. the “unwritten” rules informed by corporate culture or industry/professional standards.

Apparent authority

Agent’s “appearance of authority” can be based on principal’s act/statement to others (“reasonable person” standard).

Business judgement rule

The agent will not be liable to the principal even if the agent fails so long as agent makes reasonable efforts to become informed before taking risk, and had rational basis for taking risk.

Agent’s Duty of Loyalty

Agent is not permitted to make personal profit based on confidential information learned during agency

Traditional definition

Prohibition of sale or purchase of stock based on inside information (nonpublic corporate information) known by corporate insider (any corporate officer, director or employee with access to nonpublic corporate information).

Tipper/Tippee liability

Tipper is corporate insider with inside information who gives it to tippee, person who sells or buys stock based on such inside information - Martha Stewart case

Misappropriation theory

Corporate outsider (not director, officer or employee) is entrusted with inside information and then sells or buys stock based on such inside information (misappropriation for own profit)

• outside lawyer or CPA hired by company for one matter

Agent’s Duty of Obedience

Agent must obey principal’s directions and the law when agent is acting on principal’s behalf

Compensation

Principal must compensate agent according to agreement, not more or less than agreed

Reimbursement

Principal required to reimburse agent for money spent by agent on principal’s behalf, usually based on agreement

Indemnification

If agent sued for act done during agency, principal must pay for the

1. Agent’s defense (e.g. lawyer, litigation expenses)

2. Settlement or judgment against agent

Liability of Principal/Agent to Plaintiff - Br/K

If disclosure - principal, not agent, will be liable/responsible to perform contract

If no disclosure - agent, not principal, will be liable to perform contract

How to “disclose” the agency?

Written and oral contract

Liability of Principal/Agent to plaintiff negligence

Agent who committed the negligence is always liable to plaintiff

Rule of respondent superior

“let the chief [master] answer” Principal may also be liable if agent within course and scope of the agency

“Coming and going” rule

agency usually not within course and scope of agency while commuting between home and job site but beware of the “technology” exception

Reasons why classifying a worker as an employee or independent contractor important

• Employer’s responsibility for withholding taxes from worker’s paycheck

• Employer’s obligation to comply with certain statutes (e.g. legal requirement to carry worker’s compensation insurance)

• Worker’s right to collect worker’s compensation or employment benefits

Factors in IRS Publication 15A

Behavioral control, Financial control, Type of relationship

At-Will Employment Rule

(default rule) Employer or employee may end employment relationship at any time for any legal reason; e.g. incompetence, economics, or even a silly or dumb reason

Constructive termination

Employer makes conditions so intolerable that reasonable person would quit; e.g. sexual harassment case

Exceptions to At-Will Employment Rule

An exception to the at-will employment rule can support a wrongful termination lawsuit

Termination in violation of public policy when employee fired in retaliation for

• Refusing to do illegal act

• Being a “whistleblower”

Contract trumps at-will employment rule

Employment contract specifies reasons for termination, such as “good cause” or some other limited circumstances

Employer promises “permanent” or “lifetime” job

Process or reasons for termination set forth in union agreement or employee handbook

In order for employee to get worker’s compensation, employee’s injury must

• Be the result of an accident no matter who caused accident

• Occur in course and scope of employment (broad definition)

• If both are present, then worker’s compensation is employee’s exclusive remedy against employer

Employee may try to get worker’s comp. by claiming the jury was

• Due to intentional tort by employer or co-employee; workplace assault

• Caused by a third party to the employer-employee relationship (“third-party lawsuit”)

Drug testing

generally cannot be required of an employee but there are some exceptions, such as public safety job, pre-employment, or employment or union contract

Job application and interview process

Employer is entitled to gather information in order to make good hiring decisions

Productivity issue

if the employee is “playing” on the internet or phone, the employee is not working the job

Liability issue for employee privacy rights

sexual harassment

Disparate treatment

person intentionally treated (unfairly) differently, e.g. company will not hire blacks or promote women beyond certain level

Disparate impact

Job qualification appears to be neutral but, in reality, it results in discrimination, e.g. minimum height required

Basis of a discrimination case under Title VII is an “adverse employment action”

plaintiff is terminated or not hired (job applicant) due to reason made illegal by Title VII

Employer’s Defense

Employer must defend by presenting a valid legal reason for firing or not hiring/promoting plaintiff; Good cause/business necessity, BFOQ, after-acquired evidence rule

Quid pro quo

typically shown by request by employer/supervisor for sex in exchange for employee’s getting or keeping job, promotion, etc.

Hostile environment

Workplace, atmosphere of comments, conduct, decorations, etc. of sexual nature; repeated request for dates; “prolonged staring.”

Intellectual property

The result of intellectual/creative processes; e.g. your textbook, “Jack” or Jack in the box, the latest Taylor swift, a movie like barbie

Why is intellectual property often the subject of hotly-contested litigation?

Money

Types of intellectual property

Trademarks, patents, copyrights are covered by federal law, so the law is the same throughout the USA

Trade secrets are covered by state law

Trademarks

Includes any word, name, symbol, or device, or any combination thereof - (1) used by a person, (2) which a person has a bona fide intention to use in commerce and applies to register on the principal register established, to identity and distinguish his or her goods. eg. McDonalds golden arches, air jordan brand

Patent

Is a grant from the federal gov’t that provides an exclusive right to make, use and sell anything described in the section; e.g. recipe for food or drink, machine or any part of it

Copyrights

“Protection subsist…in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device” including creations such as literary works, musical works etc.

“Fair use” exception to copyright infringement

• Purpose and character of the use including whether use is commercial or nonprofit educational purpose

• Nature of the original (copyrighted) work - nonfiction/fiction, published/nonpublished

• Amount and substantiality of portion of work used

• effect of use on potential market for the copyrighted work

Trade secrets

Information, including a formula, pattern, compilation, program, device, method, technique, or process, that

1. Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use

2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy

Trade secrets violation often alleged when employee leaves company to work for a competitor

e.g. Ex- employer makes accusation that former employee stole customer list or secret formula

Victim of misappropriation of trade secret

usually wants an injunction (TRO, preliminary, permanent) for actual or threatened misappropriation in order to stop defendant from using, transferring, publishing, etc. the trade secret

Trade secret victim

Victim can also sue for damages (money), attorney’s fees, and other court orders preserving the secrecy of the trade secret.

Equity

money invested by someone who wants to be an owner in exchange for an ownership interest in the business,, this is an investment in the business

Debt

money borrowed by business; this is a loan to the business

Sole proprietorship

Easiest to from and start up, you are your own boss, does not have to share profits but owner has unlimited responsibility and personal liability for business problems

Does a sole proprietorship files tax returns?

No, but the owner responsible for taxes based on business income

Partnership

“an association of two or more persons to carry on as co-owners a business for profit.”