FINAL EXAM

Question 1

Agency

Answer 1

A legal relationship in which one party (an agent) has the power to act on behalf on another (the principal)

Question 2

What type of relationship is an agency?

Answer 2

Fiduciary

The agent (the fiduciary of the principal) has a duty to act for the principal’s benefit, arising from the special relationship between them.

Question 3

Two ways agency issues arise?

Answer 3

1. Relationship between the principal and the agent.
   - How do we know if they are even in an agency relationship?
   - What is the scope of the agent’s authority?
   - What duties does the agent owe to the principal?
   - What duties does the principal owe to the agent?
2. Relationship between the agency and some outside person (a “third party”).
   - Is the principal required to perform a contract with the third party based on the agent’s agreement to the contract?
   - Is the principal liable to the third party in tort or negligence based on what the agent did?

Question 4

The test for existence of agency is ______ based not on what the principal for agent thought, but on ________________________

Answer 4

objective test

whether their words or other conduct indicate agreement that one person is acting on behalf of the other

Question 5

An agency relationship does __________ so there is no __________

Answer 5

no need to be contractual

requirement of any consideration

Question 6

Agent’s 5 duties to principal

Answer 6

1. Duty of Loyalty: Agent acts for principal’s benefit – not for agent’s benefit at principal’s expense.
   - No Conflicts of interest: self-dealing, working both sides of the deal, competing for principal’s business, accepting a kickback
   - Maintain confidentiality even after agency relationship ends
2. Obey Reasonable instructions
3. Act with reasonable care and skill (or high care and skill if that’s what you’ve advertised)
4. Duty to Account: Segregate funds and keep good records
5. Keep principal Informed of opportunities and risks

Question 7

Principal’s 5 duties to agent

Answer 7

1. Honor Agreements: If principal and agent have an agreement, principal (and agent) should abide by it.
2. Compensate agent? Only if agreed (and as agreed)
3. Reimburse agent for expenses agent reasonably incurs for principal’s benefit
4. Indemnify agent for contract or tort liability agent incurs by acting on principal’s behalf (unless agent was unauthorized or solely at fault)
5. Inform agent of known risks.

Question 8

How is an agent’s authority created? - the two types of authority

Answer 8

• agency law - contract liability of principal*
  1. actual express authority - sometimes authority is very clear from works of the principal says or writes to the agent
  2. Actual implied authority - principals authorization of the agent is implied from parties conduct or position granted to agent

Question 9

4 ways How is an agent’s authority created?

Answer 9

• agency law - contract liability of principal
  1. actual express authority - sometimes authority is very clear from works of the principal says or writes to the agent
  2. Actual implied authority - principals authorization of the agent is implied from parties conduct or position granted to agent
• gut check

Test based on questions of fact:
a. Was the agent doing the sort of activity that would be expected of a person in that role?

b. Was the agent doing something that helped accomplish the goals of the agency?
c. Did the principal know about and acquiesce in (not do anything to stop) the agent’s acts?
d. Was the agent acting reasonably in an emergency?
3. Apparent Authority - principal’s conduct/words (or failure to let others know an agent is terminated) lead a third party to reasonably believe that an agent has authority to act for the principal.
4. Ratification - occurs when a principal voluntarily decides to honor an agreement, even though the agent was not authorized to enter the agreement

Question 10

5 ways Termination of the agency

Answer 10

1. Object (goal) of the agency is accomplished or the agreed term of the agency has passed.
2. The parties agree to terminate.
3. Death of either the principal or the agent
4. Changes in the law that make the business of the agency illegal terminate the agency by operation of law
5. Either party always has the power to terminate the agency on his own, but not always the right to do so.

Question 11

Termination of agency - effect on third parties

Answer 11

Apparent Authority of the agent will continue unless the principal gives notice to third parties that the agency has terminated.

1. Direct notice by statement or writing to third parties with who have previously dealt with the agent
2. Constructive notice (i.e. newspaper, website) to other parties.

Question 12

Contract Liability of the Agent

Answer 12

Agent’s liability on a contract made for the principal depends on what the third party knows about the principal:

1. Disclosed principal (third party knows that the agent is working for a principal, and knows who the principal is) = agent not liable on contract. [normal situation]
2. If agent does not disclose identity or fact of the principal to the third party, or if the principal does not exist at the time the deal is made, then..
   AGENT is personally liable.

Question 13

2 ways a principal may be liable for an agents tort

Answer 13

• tort liability - principals
  1. Respondeat Superior - only for employee/employer relationships, NOT independent contractor relationships
  2. Direct liability - applied to both employees and non-employee agents

Question 14

Respondeat Superior

Answer 14

Employer liable when employee commits tort within the scope of the employment.

The employee, in addition to the employer, may be liable to the third party.

The doctrine does not apply to non-employee agents

Question 15

Direct Liability

Answer 15

tort liability - principals liability

This is much narrower scope of liability than respondeat superior, and applies to both employee and non-employee agents.

Principal is directly liable for agent’s tort if the principal authorized the tortious conduct.

Negligent hiring or negligent supervision: Principal will be directly liable if principal was negligent in hiring /supervising agent.

If the agency relationship is an employee relationship, then the employer has more obligations re benefit expenses, regulations that apply to employees, etc.

Question 16

Employee or independent contractor?

Answer 16

Nearly all employees are agents of their employer

Independent contractors are someone who is hired to undertake a contractually defined result and is not an employee of the principal but is sometimes an agent (like a realtor or lawyer)

Question 17

Employee versus Non-employee Agents

Answer 17

Principal’s right to control the manner and means of the agent’s performance;
Skill required
Source of tools
Location of the work
Duration of the relationship
Principal’s right to assign additional projects to the agent

Agent’s discretion over when and how long to work
Method of payment
Agent’s role in hiring and paying assistants
Whether the work performed by the agent is part of the regular business of the principal
Whether the principal is a business
Tax treatment of the hiring party

*justin and janet

Question 18

As a general rule is an agent liable for their own torts?

Answer 18

Tort liability - agent

yes

Question 19

Joint and several liability and indemnification in agent tort liabillity

Answer 19

Both the agent and the principal may be liable to the third party for the same tort –

Agent is not absolved from liability to a third party just because she acted at the direction of the principal.

But the principal may have to indemnify the agent for torts committed in the course of performing her duties, if she was not acting beyond the scope of her authority.

The injured party will only recover once, but can recover from either the agent or the principal or some combination.

Question 20

Who is liable for agents tortious conduct if the agent is an employee?

Answer 20

Was employee acting within the scope of her employment?

If YES: Principal liable (respondeat superior). Agent also liable, but may be entitled to reimbursement from principle.

Did the principal authorize the tortious conduct?

YES: Principal may also be directly liable for the tort. (principal may be both directly liable and liable under respondeat superior) Agent is also liable but may be entitled to reimbursement from P.

Was the principal’s own conduct negligent in some way (hiring, supervising)?

YES: Principal directly liable for negligence. Agent also liable (unless had no reason to know of defective tools).

Question 21

Who is liable for agents tortious conduct if the agent isn’t an employee?

Answer 21

Did Principal actually authorize the agent to commit the tortious conduct?
If YES – Principal directly liable.

Was the principal’s own conduct negligent in some way (hiring, improper instructions, failure to discharge, etc.)?
If YES – Principal directly liable for her own negligence.

If No to both of the above, the principal is not liable for a non-employee agent’s tort.

Question 22

Why forms of business matter

Answer 22

Creation 
Continuity 
Control 
Liability 
Taxation

Question 23

4 Basic Forms of businesses

Answer 23

1. sole proprietorship
2. partnership - LLP
3. Corporation - C corp, S Corp
4. LLC

Question 24

Sole Proprietorship

Answer 24

A sole proprietorship has only one owner. The business is just an extension of its owner.
It is not a legal entity and cannot sue or be sued, so creditors/claimants sue the owner directly. Often is the form of business just by default – the owner simply opened the business and started operating.

Advantages
no formalities,
owner takes all profit and control,
not taxed as business before flowing through to proprietor

Disadvantage:
owner bears all risk of loss
Organization cannot continue past the owner’s life
Not amenable to outside investor/outside ownership

Question 25

Partnership

Answer 25

Objective test for determining whether partnership exists:
Two or more people who
Have a common interest in business
And share profits and losses.

A partnership may be created without the people in it intending to create one

Consequences of General Partnership:

The default arrangement by law is that partners share profits and losses equally. AND
Partners in a general partnership are individually (personally) liable for the torts of the partnership (torts committed within the scope of the business).

A partnership is a legal entity (can sue and be sued, though in a general partnership the partner are still individually liable)…
…but not a federal tax-paying entity

Advantages:  
relatively easy to create 
individual taxation
partners control the business
flexible structure without a lot of formality

Disadvantages:
sometimes too easy to create (can form general partnership by default)
general partners bear all risk of loss jointly and severally.

Question 26

LLP

Answer 26

As a partner in an LLP, you do not have personal liability for the LLP’s torts.
You do, however, have unlimited liability for your own wrongful acts.
Eliminates the problem of a partner being on the hook for his partner’s malpractice.
Often used by professionals (e.g. lawyers, auditors)
LLPs can elect to be taxed either like a partnership or like a corporation.

Question 27

Joint Venture

Answer 27

A partnership for a limited purpose.

Sometimes courts find a joint venture has been created when the arrangement is limited to a single project rather than an ongoing business.

Treated mostly like a general partnership, but the joint venturers may have more limited scope of authority to bind the venture in contracts.

Question 28

Corporation

Answer 28

Limited liability for owners (i.e. shareholders)

Free transferability of shares of ownership (can sell shares)

Separation of management from ownership

Legal status distinct from owners and managers (corp is a fictitious “person”)

Corporation itself pays taxes on corporation’s income. Exception: Subchapter S corporations. S Corps must have no more than 100 SHs all of which are individuals or trusts (not other businesses).
S Corps are taxed more like a partnership (through the shareholders’ individual tax returns).

Question 29

LLC

Answer 29

*turducken

A limited liability company (LLC) combines the limited liability and management advantages of corporations with the favorable tax treatment of partnerships.
limited liability for members;
can elect to be taxed like a corporation or like a partnership
can separate ownership from management to some degree

An LLC is owned by members, who may manage themselves or retain a manager to run the business.
They create an operating agreement to determine issues like whether the members will manage, how they will share profits, how members can withdraw from the LLC, etc. Member’s liability limited to the member’s capital contribution, except for the member’s own torts.

Question 30

6 steps to form a corporation

Answer 30

*formed only under statutes

1. Draft articles of incorporation.
2. incorporators sign the articles.
3. File the articles with the secretary of state, and pay fees.
4. Get “Filed” copy back from Secretary of state.
5. Hold organizational meeting to adopt bylaws and elect officers (and maybe other business too).
6. Going forward: Corp must file annual report with secretary of state and pay any franchise fee/tax to avoid dissolution

• if article are amended shareholder approval is required
• if mess up these steps it’s possible that there is NO corporation and the shareholders and managers are personally liable for corporations contracts and torts

Question 31

By-Laws in in corp formation

Answer 31

Adopted at first organizational meeting.

Supplement the Articles of Incorporation

Incorporators or initial Board of Directors can adopt the initial bylaws.

Board of Directors can repeal or amend bylaws without SH approval, unless the articles say the SHs must approve.

Question 32

“Corporation” is not A magic eraser of all personal liability

Answer 32

A shareholder can become personally liable for corporate debts or contracts if she AGREES to do so in her individual capacity.

An individual is always personally liable for the torts and crimes he commits himself.

Question 33

Directors and officers are _______ of the corporation

Answer 33

Fiduciaries

Question 34

3 Basic duties of officers and directors

Answer 34

1. Act within their authority - Must act within authority granted by articles, bylaws, and board of directors
2. Exercise Due Care - Officers and directors must act in good faith, in a manner the director/officer reasonably believes to be in the best interests of the corporation, and with the care that would be used by a “reasonably prudent person under similar circumstances”.

Courts figure this out through the business judgment rule & will generally let managments decision stand - want this rule to apply if youre a director or officer

3. Be Loyal to the Corporation

problems arise with self-dealing (conflict of interest transactions) and insider trading

Question 35

3 elements for the business judgment rule to apply

Answer 35

1. Informed – requires reasonable investigation.
2. Free of conflicts of interest – No self-interest/self-dealing involved.
3. Rational basis – Must have “rational basis” for decision. Sounds like (and is) a form of second-guessing by the court. BUT: standard is very low – gross negligence.

Question 36

Duty of loyalty - self dealing

Answer 36

If a director or officer has a direct or indirect conflict of interest with the corporation in a transaction – then the transaction may be voided or rescinded, unless….
Appropriate approval has been given either:
by unanimous consent of informed shareholders; OR
by majority of disinterested directors or disinterested shareholders, so long as the deal is not intrinsically unfair to the corp.

Question 37

Duty of loyalty - insider trading

Answer 37

When an insider (including officer or director) makes a profit by buying or selling the stock based on information that will affect the share price, before that information becomes public, and thereby breaches a duty of trust or confidence to the corporation.
The situation is trickier when the person trading is not the insider, but someone the insider “tipped.”

Insider trading is illegal under federal Securities and Exchange Act;
Insider trading is illegal under some state law as well (less than half of states).

Question 38

Employment at will doctrine

Answer 38

Either the employer or the employee may terminate the employment relationship at any time and for any reason, no reason, or even a bad reason.

TERM Employment is not “employment at will.”

If there is an employment CONTRACT that specifies a particular TERM (time period) of employment (e.g. hire the Coach Andy Reid on a 5-year contract for $7,500,00/year), then it is “term employment,” and the At-Will doctrine does not apply.

Question 39

What are the 3P exceptions to employment at will?

Answer 39

Public policy – (most states) refusing to commit an unlawful act, performing a public duty (jury duty, whistle blowing), exercising some lawful right (making a workers comp claim, FMLA)

Promises by employers – (some states) - courts may hold employers to promises made in hiring process etc

Protective Statutes – (all states – federal laws and some state law) - health/safety, wages/pensions/benefits, collective bargaining/unions, equal opportunity, employee privacy.

*Discharge (firing) an employee in violation of one of these can result in a “wrongful discharge” action by the employee against the employer.

Question 40

“Wrongful discharge”

Answer 40

An employer in violation of any of the 3ps of employment of at will exception

Question 41

5 areas of protection and key statutes in employment law

Answer 41

1. health/safety - workers comp, fmla
2. wages/pensions/benefits - fair labor standards
3. collective bargaining/unions
4. equal opportunity
5. employee privacy

Question 42

Works comp only protects _____

Answer 42

employees - not independent contractors

Question 43

At what level does works comp operate at?

Answer 43

state

Question 44

What kind of liability is workers comp under

Answer 44

strict

this means that injured employee does not need to prove employer negligence

this eliminates employer defenses so the employer cannot claim the injury was the result of their own negligence etc

Question 45

How can a worker recover through the employer and what’re the limitations

Answer 45

ONLY through workers comp not through a separate suit unless the employer intentionally injured the worker

Question 46

remedies for works comp

Answer 46

(1) hospital and medical expenses,
(2) disability benefits,
(3) specified recoveries for loss of certain body parts, and
(4) death benefits to survivors and/or dependents

Question 47

Employees recover only for work-related injuries in workers comp if

Answer 47

1. were accidental

2. arise out of the employment in the course of the employement

Question 48

Family Medical Leave Act (FMLA)

Answer 48

Employers of 50 or more workers must provide employees up to 12 weeks of unpaid leave annually for:

1. Their own serious illness
2. Birth or adoption of a child
3. Care of a seriously ill child, spouse, or parent.

Can take the leave all at once or in small increments

unpaid protects workers ability to come back to the same or equivalent job

Question 49

to be eligible for FMLA leave must have

Answer 49

1. worked there for more than 1 year
2. minimum for 1250 hours
3. employer can exempt the top 10% of its work force

does not apply to company fewer than 50 employees

Question 50

FMLA - nursing

Answer 50

requires resonable time for nursing mom and shielded area thats not a bathroom

Question 51

Fair Labor Standards Act (FLSA)

Answer 51

regulates wages and hours for employees

Question 52

Fair Labor Standards Act (FLSA) - minimum wage

Answer 52

FLSA establishes the federal minimum

• does not apply to contractors
• states and some cirties have other laws require more
• time and a half for 40+
• can reduce by way of food and lodging and tipped employees

Question 53

Fair Labor Standards Act (FLSA) - age of employment

Answer 53

FLSA FORBIDS employment of children under 14 in most cases.

Exceptions: working for parents, working on family farm, newspaper route, theater production….

Question 54

FLSA exemptions

Answer 54

Some workers or businesses are exempt from the FLSA minimum wage and hour rules.

Small seasonal businesses (e.g. small agriculture and fishing operations)

Salaried workers…who are paid a statutory weekly minimum and fit into one of the required categories

1. executives - primary duty is management of at least 2 other employees
2. professionals - intellectual work requiring specialized education (lawyers, doctors, teachers)
3. Administration - high-level support work requiring exercise of independent judgement

Question 55

FLSA - enforcement

Answer 55

important to get this right because can sue for 2x back pay

can lead to fines and imprisionment

Private parties can also sue for back pay, penalty and attorney fees

Question 56

Title 7 civil rights act

Answer 56

Basic Idea: Employers must not discriminate on basis of personal traits people cannot control, and which have no relation to effective job performance.

Applies to employers with more than 15 employees (but similar state statutes may apply to smaller employers in some states).

Question 57

The two area title 7 prohibits discrimination

Answer 57

making employment decisions - refusing to hire, failing to promote firing, pay, job assignments, reducing opportunity, benefits

against a person based on a membership in a protected class - race, color, religion, sex or national origin

Question 58

Title 7 procedure

Answer 58

1. Aggrieved person must file a charge or complaint with EEOC for investigation and allow agency to either file a lawsuit or obtain resolution
2. If, after six months, EEOC fails to file suit or resolve the claim, plaintiff may obtain a “right to sue” letter.
3. Plaintiff can then file a civil lawsuit based on disparate impact or disparate treatment theory (or both).

Question 59

Two ways to prove discrimination

Answer 59

1. disparate treatment - employer treated employee differently because of race, color, religion, sex, national origin
2. disparate impact - seemingly neutral policies have a disproportionately negative effect on members of a protected group *hat

Question 60

Disparate treatment proof

Answer 60

1. Employee first must show that discrimination played a role in the employment decision.
   - If, at the moment the decision was made, one of the reasons for making the decision was that the applicant or employee was a [woman], then that decision was motivated by [gender] discrimination. If employee can show this, then…
2. The burden of proof shifts to the employer to show the same decision would have been made had there been no discrimination. If they can do this then
3. Burden then shifts back to employee who must prove that employers reason is mere pretext to win the case
   * if fails at any step the case is over accordingly

Question 61

Employer defenses to title 7

Answer 61

1. Bona Fide Occupational Qualification (BFOQ)
   - VERY NARROW
   - exception if discrimination based on the protected status is reasonably necessary to the job.
   - Example: If you are a Baptist church hiring a minister, it makes sense that you need the minister to be Baptist. does NOT work if the alleged need for differential treatment is: based on stereotypes about ability (e.g. “this job must be done by a man because women are not aggressive” – no)
2. Bona Fide Seniority or Merit System

Employer may treat employees differently based on:
- seniority

• quantity of quality of the employee’s production, or
• a professionally developed ability test,

But only if the system used by the employer
- is not facially discriminatory

• was not created for discriminatory reasons, and
• is not operated in a discriminatory way.

Question 62

Disparate Impact Proof

Answer 62

1. Plaintiff shows that employer has a rule or practice that on its face seems seems non-discriminatory or neutral, but the impact disproportionately excludes people in a protected class *hat
2. If plaintiff proves (1), then burden shifts to employer to show job-related reason why the practice is business necessity.
3. If employer proves (2), then burden shifts back to plaintiff to show that other criteria/method would achieve employer’s purpose with less impact on protected groups.

THIS DOES NOT HAVE TO BE INTENTIONAL TO BE ACTIONABLE BY THE PLAINTIFF

Question 63

Title VII Remedies

Answer 63

If plaintiff or EEOC wins - compensatory damages - back pay, emotional distress etc, resonable attorneys fees, equitable relief

If intentional then punitive damages

Question 64

title 7 prohibits discrimination on basis of race but …

Answer 64

employers’ voluntary racial preferences that favor minorities qualified for the job are not barred by Title VII if the preferences:

Are intended to correct a racial underrepresentation of minorities in traditionally segregated job categories;

Do not ‘unnecessarily trammel’ the rights of white employees or create an absolute bar to the white employees’ advancement; and

Are only temporary.

Discrimination is permitted if employer cannot accommodate the religious practice without undue hardship.

Question 65

Title 7 Sexual harassment - 2 major categories

Answer 65

1. Quid Pro Quo - when an aspect of a job is made contingent on employees sexual activity
2. Hostile work environment - when sexual talk and innuendo are so pervasive that a hostile work environment is created for employee

Question 66

Process of Hostile Work Environment

Answer 66

Victim must show:

1. The harassment was unwelcome.
2. Behavior must be sufficiently pervasive or severe that a reasonable victim would find the situation hostile or abusive.

Employer will still win if it can show

1. Employer took reasonable care to prevent and promptly correct any harassing behavior, and
2. Plaintiff unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer to avoid harm.

NOTE: Employers should have an internal complaint reporting system.