Regulation of Employment and Environment

Question 1

Title VII of the Civil Rights Act of 1964 forbids?

Answer 1

Discrimination in employment based on:

• Race
• Color
• Religion
• Religion- Limitation
• Sex
• National Origin

Note Title VII does not protect:

• Elderly (but see ADEA)
• Disabled (but see ADA)

Question 2

Title VII of the Civil Rights Act of 1964 applies to?

Who enforces Title VII?

Answer 2

1. Employers having 15 or more employees for at least 20 weeks, and
2. Whose business affects interstate commerce (virtually every business)

Title VII is enforced by the Equal Employment Opportunity Commission (EEOC)

Question 3

Title VII Defenses for Employers

Answer 3

• Bona Fide Occupational Qualification – (BFOQ)
  
  • i.If a requirement that has a discriminatory impact is a bona fide occupational qualification pertaining directly to the needs of the job, then it is not a Title VII violation.
• Bona Fide seniority or merit system –
  
  • i.No affirmative action plan can override such systems.
• Professional-developed ability test –
  
  • i.Purpose – To prove that standards or requirements serve a legitimate business purpose.

Question 4

Age Discrimination in Employment Act (ADEA)

Answer 4

A. Purpose – To supplement Title VII, which did not address age discrimination, by eliminating discrimination against older workers.

B. Protects – Individuals 40 years and older.

• 1.Main Effect: Prohibit mandatory retirement.
  
  • a.Exemption for executives 65 or older;
  • b.Former exemption: Tenured professors.
• 2.Also protects from discrimination in all other areas of employment practice.
• 3.There is no cause of action for “reverse age discrimination” against the young.

C. Applies to: –

1. Businesses employing at least 20 people;
2. State and Local Governments;
3. Unions (with at least 25 members);
4. Employment Agencies.

D. Procedures, remedies, and defenses are generally same as under Title VII –

Question 5

Americans with Disabilities Act (ADA)

Answer 5

Similar qualifications for Title VII (15 employees or more, enforced by the EEOC, etc.)

Protected:

• Muscular dystrophy
• HIV infected
• Mental retardation
• Alcoholism
• Emotional illness

Not Protected:

• Homosexuality
• Bisexuality
• Transvestitism
• Transsexualism
• Pedophilia
• Exhibitionism
• Voyeurism
• Sexual behavior disorders
• Compulsive gambling
• Kleptomania
• Pyromania
• Psychiatric substance disorders resulting from current illegal use of drugs or abuse of alcohol

Question 6

Which of the following statements is correct under the Federal Fair Labor Standards Act?

• Some workers may be included within the minimum-wage provisions, but exempt from the overtime provisions.
• Some workers may be included within the overtime provisions, but exempt from the minimum-wage provisions.
• All workers are required to be included within both the minimum-wage provisions and the overtime provisions.
• Possible exemptions from the minimum-wage provisions and the overtime provisions must be determined by the union contract in effect at the time.

Answer 6

Some workers may be included within the minimum-wage provisions, but exempt from the overtime provisions. Nearly everyone is covered by the minimum-wage provision. However, some of these covered workers may be exempt from the general requirement that employers pay overtime to employees who work over 40 hours per week.

Question 7

The Fair Labor Standards Act?

Answer 7

This Act contains maximum hours and minimum wage provisions. It also sets minimum ages for working various jobs, and sets rules for paying overtime (to non-exempt workers who work more than 40 hours a week).

Question 8

Which of the following Acts prohibit(s) an employer from discriminating among employees based on gender?

• The Equal Pay Act.
• Title VII of the Civil Rights Act.

Answer 8

BOTH. The Equal Pay Act guarantees equal pay for equal work done by a worker of either gender. The Civil Rights Act is much broader, but also addresses this issue by ensuring equality in hiring, firing, promotion, and compensation.

Question 9

Under the Fair Labor Standards Act, which of the following pay bases may be used to pay covered, non-exempt employees who earn, on average, the minimum hourly wage?

• Hourly
• Weekly
• Monthly

Answer 9

ALL 3. The FLSA does not prohibit any of these pay periods. It ensures that a worker’s total compensation is not below a certain level, but wages may be paid on an hourly, weekly, or monthly basis.

Question 10

Under the Federal Fair Labor Standards Act, which of the following would be regulated?

• Minimum wage.
• Overtime
• Number of hours in the working week.

Answer 10

All 3. This is the Act that sets a minimum wage for most workers. Also, the Act requires that most workers be paid overtime if they work more than 40 hours in a given week.

Question 11

While on vacation, Massey is severely injured in a motorcycle accident. Which of the following is true?

• Because he was not injured on the job, Massey is ineligible for disability benefits under the Social Security system.
• In order to be eligible for benefits, Massey must be prevented from working for a year or more.
• Massey is under 65, so he is ineligible for benefits.
• A and C.

Answer 11

In order to be eligible for benefits, Massey must be prevented from working for a year or more.

The disability must be sufficiently serious to prevent the applicant from working for at least a year, so this answer is accurate.

Question 12

Syl Corp. does not withhold FICA taxes from its employees’ compensation. Syl voluntarily pays the entire FICA tax for its share and the amounts that it could have withheld from the employees.

The employees’ share of FICA taxes paid by Syl to the IRS is

• Deductible by Syl as additional compensation that may be included in the employees’ taxable income.
• Not deductible by Syl, because it does not meet the deductibility requirement as an ordinary and necessary business expense.
• A non-taxable gift to each employee, provided that the amount is less than $1,000 annually to each employee.
• Subject to prescribed penalties imposed on Syl for its failure to withhold required payroll taxes.

Answer 12

Deductible by Syl as additional compensation that may be included in the employees’ taxable income.

The IRS does not let workers escape tax liability that easily. Employees are required under FICA to contribute around 7.5% of their earnings. If this amount is paid for them, it is a very real increase in their “pay,” and is therefore treated as income. Syl, then, may deduct these amounts as paid income.

Question 13

An employer who fails to withhold Federal Insurance Contributions Act (FICA) taxes from covered employees’ wages, but who pays both the employer and employee shares would

• Be entitled to a refund from the IRS for the employees’ share.
• Be allowed no federal tax deduction for any payments.
• Have a right to be reimbursed by the employees for the employees’ share.
• Owe penalties and interest for failure to collect the tax.

Answer 13

Have a right to be reimbursed by the employees for the employees’ share.

If both halves are paid by the employer, the employer has a right to recover half of the expense from the EMPLOYEE, but not the IRS.

Question 14

Tower drives a truck for Musgrove Produce, Inc. The truck is owned by Musgrove. Tower is paid on the basis of a formula that takes into consideration the length of the trip, cargo, and fuel consumed.
Tower is responsible for repairing or replacing all flat tires. Musgrove is responsible for all other truck maintenance. Tower drives only for Musgrove.

If Tower is a common-law employee and not an independent contractor, which of the following statements is correct?

• All Social Security retirement benefits are fully includible in the determination of Tower’s federal taxable income if certain gross-income limitations are exceeded.
• Musgrove remains primarily liable for Tower’s share of FICA taxes if it fails to withhold and pay the taxes on Tower’s wages.
• Musgrove would not have to withhold FICA taxes if Tower elected to make FICA contributions as a self-employed person.
• Bonuses or vacation pay that are paid to To

Answer 14

Musgrove remains primarily liable for Tower’s share of FICA taxes if it fails to withhold and pay the taxes on Tower’s wages.

Ignore all of the information about the relationship, because the question tells us the important thing: Tower is an employee. An employer must either deduct FICA taxes or pay them for ALL employees.

So long as a person is not classified as an independent contractor, these taxes are due one way or the other.

Question 15

Which of the following types of income is subject to taxation under the provisions of the Federal Insurance Contributions Act (FICA)?

• A. Interest earned on municipal bonds.
• B. Capital gains of $3,000.
• A vehicle received as a productivity award.
• Dividends of $2,500.

Answer 15

A vehicle received as a productivity award.

Social security is set up to help retirees with their loss of earned income. Generally, to be subject to FICA taxes, the income must be earned in the course of employment. This does not mean that only traditional wages are taxed. A car earned as a bonus is still very much a benefit realized in the course of employment, and so the value of the car will be the basis for FICA taxes.

Dividends are exempt from FICA taxes. Social security is set up to help retirees with their loss of earned income. Generally, to be subject to FICA taxes, the income must be earned in the course of employment, which dividends are not.

Question 16

After serving as an active director of Lee Corp. for 20 years, Ryan is appointed an honorary director, with the obligation to attend directors’ meetings, but with no voting power.

In 2005, Ryan receives an honorary director’s fee of $5,000. This fee is

• Reportable by Lee as employee compensation subject to Social Security tax.
• Reportable by Ryan as self-employment income subject to Social Security self-employment tax.
• Taxable as “other income” of Ryan, not subject to any Social Security tax.
• The $5,000 is considered to be a gift not subject to Social Security self-employment or income tax.

Answer 16

Reportable by Ryan as self-employment income subject to Social Security self-employment tax.

Because he has no voting power, Ryan is not an “employee” of the corporation, and the $5,000 is not employee compensation. He is receiving the money for doing something, however, because he is obligated to attend the meetings.
This obligation makes his $5,000 income, and not a gift. Because he is not an employee of the corporation, this amount is self-employment income, which is subject to both self-employment tax and Social Security tax.

Question 17

Assume that the maximum wage base for FICA is $100,000. Jill earns $50,000 while working for MaximumEd Corporation. Jill also has her own business on the side, making $100,000 net. Upon what amount must Jill pay taxes under the Self-Employment Contributions Act?

• $150,000.
• $100,000.
• $50,000.
• None of the above.

Answer 17

C. $50,000.

The maximum wage base for FICA is reduced by the amount Jill paid through other means. She and MaximumEd both paid their share on the $50,000 that she made working for MaximumEd. Therefore, Jill should have to pay taxes under SECA on only $50,000, so this is the correct answer.

Question 18

Assume that the maximum wage base for FICA is $100,000 and that the tax rate is 6.20% of Social Security and 1.45% for Medicare. Employers and employees share the tax equally, meaning that both pay 7.65%. Which of the following is true for Joe, a self-employed person?

• Joe must pay 15.3% (7.65% in his role as employer and 7.65% in his role as employee) under the Self-Employment Contributions Act of 1954.
• In calculating his “net earnings from self-employment” that will be subject to the tax, Joe may subtract 7.65% of his gross earnings to account for the fact that employees do not get taxed on their employers’ contribution to the second half of FICA, so self-employed persons should not be taxed on that half of their contribution either.
• A and B.
• None of the above.

Answer 18

A and B

Question 19

Last year, Mary made money by selling quilts that she quilted out of her home, by serving on the Board of Directors of her sister’s company, and by receiving gifts from her rich uncle. Which of these are subject to Self-Employment Contributions Act (SECA)?

• The net profits made selling quilts.
• The director’s fees.
• The gifts from Mary’s uncle.
• A and B.

Answer 19

A and B.

Question 20

Randolph has a bad year with his business, a sole proprietorship, which he runs out of his home. However, his rich aunt, who worries about him, gives Randolph $250,000 in July. Which of the following is true?

• Randolph must pay tax under SECA on the $250,000.
• Randolph need not pay tax under SECA on the $250,000 because it is not “income.”
• Neither A nor B.
• All of the above.

Answer 20

Randolph need not pay tax under SECA on the $250,000 because it is not “income.”

Gifts are “passive” income and not covered by SECA.

Question 21

Taxes payable under the Federal Unemployment Tax Act (FUTA) are

• Partially deductible by the covered employee for federal income-tax purposes.
• Calculated as a fixed percentage of all compensation paid to an employee.
• Payable by all employers, regardless of the total amount of compensation paid to individual employees.
• Deductible by the employer as a business expense for federal income-tax purposes.

Answer 21

Deductible by the employer as a business expense for federal income-tax purposes. An employer pays for all obligations under FUTA and the employees do not contribute out of their paychecks. These taxes are fully deductible by the employer when the employer calculates federal income taxes.

Question 22

An unemployed CPA would generally receive unemployment compensation benefits if the CPA

• Was fired as a result of the employer’s business reversals.
• Refused to accept a job as an accountant while receiving extended benefits.
• Was fired for embezzling from a client.
• Left work voluntarily without good cause.

Answer 22

Was fired as a result of the employer’s business reversals.

Unemployment compensation is given to persons who lose their jobs and are not fired for cause. If an employer changes or “downsizes” his business, the newly laid-off worker is generally eligible for benefits.

Question 23

A return must be filed under FUTA if there are ANY employees during a substantial portion of the year. What is the time frame.

Answer 23

If a full OR part-time employee is around for over 20 weeks in a given year, a return must be filed.

Question 24

An employer having an experience unemployment tax rate of 3.2% in a state having a standard unemployment tax rate of 5.4% may take a credit against a 6.2% federal unemployment tax rate of

• 3.0%
• 3.2%
• 5.4%
• 6.2%

Answer 24

5.4%

6.2%. Therefore, all 5.4% of the state’s standard unemployment tax rate may be credited against the federal percentage.

Question 25

The Federal Unemployment Tax Act (FUTA)

• Requires both the employer and employee to pay FUTA taxes, although the amounts to be paid by each are different.
• Does not apply to businesses with fewer than 35 employees.
• Does not apply to employers that conduct business only in one state and employ only residents of that state.
• Allows the employer to take a credit against the FUTA tax if contributions are made to a state unemployment fund.

Answer 25

Allows the employer to take a credit against the FUTA tax if contributions are made to a state unemployment fund.

Many states run their own unemployment fund and require employers to make contributions to it. If such is the case, the employer does not have to pay more overall unemployment tax. The employer may credit the amounts paid to a state fund against contributions required by the federal government.

Question 26

In which of the following situations might CPAs be sued with regard to their activities relating to pension and other benefit plans?

• A CPA exercises discretionary management or control over management of a plan and invests its funds in the stock of a company in which the CPA holds an undisclosed controlling interest.
• A CPA participates in a transfer of plan assets to the plan’s lawyers for less than fair value.
• An auditor carelessly audits a plan, missing the fact that a fiduciary has been flagrantly embezzling, and is sued under state malpractice law.
• All of the above.

Answer 26

All of the above. A CPA who exercises such discretionary control becomes a “fiduciary” of the plan and could be liable for breaching that fiduciary obligation by having such a conflict of interest.

Question 27

Under the Federal Consolidated Budget Reconciliation Act (COBRA), when an employee voluntarily resigns from a job, the former employee’s group health insurance coverage that was in effect during the period of employment with the company

• Automatically ceases for the former employee and spouse, if the resignation occurred before normal retirement age.
• Automatically ceases for the former employee’s spouse, but continues for the former employee for an 18-month period at the former employer’s expense.
• May be retained by the former employee at the former employee’s expense for at least 18 months after leaving the company, but must be terminated for the former employee’s spouse.
• May be retained for the former employee and spouse at the former employee’s expense for at least 18 months after leaving the company.

Answer 27

May be retained for the former employee and spouse at the former employee’s expense for at least 18 months after leaving the company.

COBRA protects workers from losing benefits if they quit a job, are laid off, or are fired for a reason other than gross misconduct.
It does not, however, require the former employer to continue paying for the benefits; this becomes the responsibility of the former employee.

Question 28

Edna suspects there is even more to the question of how accountants can become liable as plan fiduciaries. Which of the following accountants might assume such a status and its attendant liability?

• Providing advice about management of the plan in a setting where it is nearly certain that the company will follow the accountant’s advice.
• Providing regular consulting services to the client regarding plan administration.
• Exercising discretionary control over plan funds.
• All of the above.

Answer 28

All of the above.

Question 29

Dan is naturally concerned, as an ex-employee of Goggle, how long his insurance will last, given that he is having a difficult time finding a new job in a down economy. This is particularly important, because Dan’s wife Sarah was disabled in a car accident just a month before Dan was laid off. Which of the following is true, assuming Dan pays the premiums?

• Dan will be covered for 18 months following the layoff.
• Sarah will be covered for at least 29 months following the layoff.
• Both A and B.
• None of the above.

Answer 29

Both A and B.

Remember the Steve Sample example. The employee must pay all the premiums under the COBRA plan.

Question 30

Worker’s compensation benefits are available to which of the following parties?

• Only those employees injured while working in the workplace.
• Only those employees injured while working within the scope of employment.
• All agents injured while commuting to and from work.
• All agents injured while using the employer’s automobile for personal use.

Answer 30

Only those employees injured while working within the scope of employment.

This choice correctly states the standard for recovering worker’s compensation benefits - was the employee injured while working within the scope of employment?

Question 31

Under which of the following conditions is an on-site inspection of a workplace by an investigator from the Occupational Safety and Health Act (OSHA) permissible?

• Only if OSHA obtains a search warrant after showing probable cause.
• Only if the inspection is conducted after working hours.
• At the request of employees.
• After OSHA provides the employer with at least 24 hours’ notice of the prospective inspection.

Answer 31

At the request of employees.

If employees complain to the OSHA of unsafe working conditions, an inspection is more than justified.

Question 32

OSHA regulations do not apply to:

• The federal government.
• State governments.
• Certain industries that are subject to other safety regulations (such as mining).
• All of the above.

Answer 32

All of the above.

Question 33

Which of the following statements is correct regarding the scope and provisions of the Occupational Safety and Health Act (OSHA)?

• OSHA requires employers to provide employees with a workplace free from risk.
• OSHA prohibits an employer from discharging an employee for revealing OSHA violations.
• OSHA may inspect a workplace at any time regardless of employer objection.
• OSHA pre-empts state regulation of workplace safety

Answer 33

OSHA prohibits an employer from discharging an employee for revealing OSHA violations.

Employees are specifically allowed to file complaints under the OSHA, and employers are prohibited from firing employees for doing so. This is, in fact, a very common way for dangerous working conditions to be uncovered.

Question 34

Which of the following statements is (are) correct regarding the authority of the Occupational Safety and Health Administration (OSHA)?

• I. OSHA is authorized to establish standards that protect employees from exposure to substances that may be harmful to their health.
• II. OSHA is authorized to develop safety equipment and requires employers to instruct employees in its use.

Answer 34

I only.

This is a difficult question. OSHA does establish workplace safety standards (Choice I) and lots of other things, like requiring employers to keep records; investigating complaints and inspecting workplaces; determining whether violations have occurred; and assessing remedies. While it might seem logical that OSHA would develop safety equipment, it does not do so. That is why A is the correct choice.

Question 35

Workers’ Compensation laws provide for all of the following benefits, except

• Burial expenses.
• Full pay during disability.
• The cost of prosthetic devices.
• Monthly payments to surviving dependent children.

Answer 35

Full pay during disability.

The benefits given will not necessarily be equal to an employee’s full pay. (S)he will receive payment for all medical bills and will receive disability benefits while away from the job. However, there is no guarantee that the disability benefits match the worker’s normal wage.

Question 36

Generally, which of the following statements concerning worker’s compensation laws is correct?

• The amount of damages recoverable is based on comparative negligence.
• Employers are strictly liable, without regard to whether or not they are at fault.
• Worker’s compensation benefits are not available if the employee is negligent.
• Worker’s compensation awards are payable for life.

Answer 36

Employers are strictly liable, without regard to whether or not they are at fault.

Worker’s compensation is a no-fault system. Unless an employee INTENTIONALLY injures him/herself, (s)he receives full benefits for on-the-job injuries. Other defenses are not available to employers.

Question 37

Kroll, an employee of Acorn, Inc., is injured in the course of employment while operating a fork-lift vehicle manufactured and sold to Acorn by Trell Corp. The fork-lift was defectively designed by Trell.

Under the state’s mandatory worker’s compensation statute, Kroll will be successful in?

1. Obtaining worker’s compensation benefits?
2. A negligence action against Acorn?

Answer 37

1. Obtaining worker’s compensation benefits? YES
2. A negligence action against Acorn? NO

Worker’s compensation is a “no-fault” system. This means that a plaintiff does not have to prove that anyone caused his/her injury, but only has to show that (s)he was actually injured on the job.
To win a negligence action, however, a plaintiff must show that the defendant acted carelessly. Since Acorn was not at fault and did not act carelessly, Kroll will lose a negligence suit against them.

Question 38

If an employee is injured, full worker’s compensation benefits are not payable if the employee

• Was injured because of failing to abide by written safety procedures.
• Was injured because of the acts of fellow employees.
• Intentionally self-inflicted injury.
• Brought a civil suit against a third party who caused the injury.

Answer 38

Intentionally self-inflicted injury.

Worker’s compensation is a strict liability system. This means that the worker may recover, even if the employer was not at fault, and even if the employee was negligent. However, intentionally self-inflicted injuries cannot be the basis of a recovery.

Question 39

Which of the following payments are deducted from an employee’s salary?

1. Unemployment compensation insurance?
2. Worker’s compensation insurance?

Answer 39

NEITHER. Both of these are financed by a tax on employers. Employees do not have monies deducted from paychecks for these programs as they do for some others, such as Social Security.

Question 40

Which of the following claims is (are) generally covered under workers’ compensation statutes?

1. Occupational disease?
2. Employment-aggravated pre-existing disease?

Answer 40

BOTH. The key factors in whether or not a claim can be made are:

1. whether the injury was accidental and
2. whether the injury happened on the job.

If the disease or aggravation happened accidentally and on the job, then coverage is available. Do not be fooled by the phrase “pre-existing condition” in this question. It is true that pre-existing conditions alone are not covered, but the AGGRAVATION of an existing injury or condition IS covered. For example, an asthmatic who suffers more severe respiratory problems after being exposed to asbestos at work may file a claim.

Question 41

Under the Federal Insurance Contributions Act (FICA) and the Social Securities Act (SSA),

• Persons who are self-employed are not required to make FICA contributions.
• Employees who participate in private retirement plans are not required to make FICA contributions.
• Death benefits are payable to an employee’s survivors only if the employee dies before reaching the age of retirement.
• The receipt of earned income by a person who is also receiving Social Security retirement benefits may result in a reduction of such benefits.

Answer 41

The receipt of earned income by a person who is also receiving Social Security retirement benefits may result in a reduction of such benefits. Returning to work after retirement can reduce an individual’s Social Security benefits.

• Early retirement results in reduced benefits
• Returning to work after retirement can affect social security benefits
  
  • Income from private pension plans, savings, investments, or insurance does not affect benefits because not earned income
  • Income from limited partnership is considered investment income rather than self-employment income

Question 42

Tony wishes to bring a union to his workplace. What percentage of eligible employees must sign authorization cards to require the employer to hold an election as to whether a union should be certified?

• 10%
• 30%
• 50%
• None of the above.

Answer 42

30%

The NLRA sets the threshold at 30%.

Question 43

The unionized employees of XYZ Co. go out on a lengthy strike. During their absence, XYZ hires replacement workers. Ultimately, a new collective-bargaining agreement is signed. Under what circumstances must XYZ rehire the workers who went on strike?

• If this was an authorized strike protesting unfair management practices.
• If this was an economic strike over wages and related matters.
• Both A and B.
• Neither A nor B.

Answer 43

If this was an authorized strike protesting unfair management practices.

Management must rehire striking workers after an “unfair-labor-practice” strike.

Question 44

Primary purpose of the National Labor Relations Act (NLRA)?

Answer 44

Its primary purpose is to protect employees’:

• Right to form, join, or assist unions;
• Right to bargain collectively through their chosen union; and
• Right to engage in concerted activities (such as strikes) for the purpose of collective bargaining or other mutual protection.

Question 45

The National Labor Relations Act does NOT apply to?

Answer 45

1. Independent contractors;
2. Government employees;
3. Managerial and supervisory employees;
4. Airline and railway employees who are covered by other statutes.

Question 46

Antitrust Statutes

• Sherman Act
• Clayton Act
• Federal Trade Commission
• Robinson-Patman Act

Enforcement of antitrust statutes is done by:

• Department of Justice (all statutes)
• Federal Trade Commission (Clayton, Robinson-Patman & FTC)

Answer 46

1.The Sherman Act (1890) –

• a.Section 1 prohibits “contracts, combinations, and conspiracies in restraint of trade.” It requires at least two actors.
• b.Section 2 prohibits “monopolization, attempts to monopolize, and conspiracies to monopolize.” It looks at the conduct of a single economic actor.

2.The Clayton Act (1914) –

• a.Section 2 prohibits price discrimination.
• b.Section 3 prohibits some tying and exclusive dealing arrangements.
• c.Section 7 forbids anticompetitive mergers.
• d.Section 8 prohibits interlocking directorates among large corporations that compete with one another.

3.Federal Trade Commission Act (1914) –

• a.Created the Federal Trade Commission (FTC) to enforce antitrust laws.
• b.Section 5 prohibits “unfair methods of competition.”

4. Robinson-Patman Act (1936) –
   * a.Section 2 amends the Clayton act to make the law against price discrimination more effective.

Question 47

Elements of a Sherman ActSection 2 violation include:

Answer 47

1. Overwhelming market power; and
2. Intent to monopolize.

Market share is the key component in measuring market power, and less than 50% is usually insufficient to monopolize, and a 75% share is often sufficient.

Markets can be Product or Geographic

Question 48

3 Types of Mergers and Details on Each

Answer 48

Horizontal mergers – Between competitors are especially likely to diminish competition and will likely draw regulatory attention if the combined market shares of the companies exceeds 30%, although that number is scarcely hard and fast and is affected by numerous other factors, including the number of competitors in the market.

Vertical mergers – Between companies in a distribution chain (e.g., a steel manufacturer acquires a key ore supplier or a manufacturer of products made of steel) are less likely to diminish competition and are unlikely to be successfully challenged unless the vertically combined market is already highly concentrated and both companies have a large market share.

Conglomerate mergers – That have neither horizontal nor vertical characteristics (e.g., a steel manufacturer buys a chain of ice cream stores) are very unlikely to face serious antitrust challenge.

Question 49

Horizontal Restraints of Trade

Note that Vertical ROT involve Resale Price Maintenance (RPM) - which is also judged by the rule of reason standard.

Answer 49

Key to violation is collusion.

Collusion violates the “rule of reason”

Per se illegality:

1. Price fixing
2. Market division
3. Boycotts by other firms

Question 50

Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), if land is found to be contaminated, which of the following parties would be least likely to be liable for cleanup costs?

1. A bank that foreclosed a mortgage on the land and purchased the land at the foreclosure sale.
2. A parent corporation of the corporation that owned the land.
3. A minority stockholder of the public corporation that owned the land.
4. A trustee appointed by the owner of the land to manage the land.

Answer 50

A minority stockholder of the public corporation that owned the land.

Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) which is often also known as the Superfund legislation, many parties can be found liable for the cleanup costs of contaminated land. The parties would typically not include minority stockholders of a public corporation that owned the land because shareholders would usually be able to protect themselves due to the corporate veil.

Question 51

Which of the following is true under the Family and Medical Leave Act?

1. The employee has the right to up to 12 workweeks of unpaid leave to care for his or her spouse who has a serious health problem.
2. The employee has the right to up to 12 workweeks of paid leave to care for his or her newborn baby.
3. The employee has the right to up to 12 workweeks of paid leave for the employee’s own serious medical problems.
4. This Act covers employees of all corporations and partnerships.

Answer 51

The employee has the right to up to 12 workweeks of unpaid leave to care for his or her spouse who has a serious health problem.

Question 52

Employers have the right to

1. Dismiss an employee for notifying OSHA about potential safety violations until the area of contention is resolved.
2. Adopt an internal plan of workplace safety and regulation in place of being subject to OSHA and state standards, if such plan is reviewed yearly by OSHA.
3. Require OSHA to obtain a search warrant prior to an inspection of its facilities.
4. Avoid liability under OSHA if the violation is mutually resolved between the employer and affected employee(s).

Answer 52

Require OSHA to obtain a search warrant prior to an inspection of its facilities.

Question 53

If an employee is injured, full workers’ compensation benefits are not payable if the employee

1. Was injured because of failing to abide by written safety procedures.
2. Was injured because of the acts of fellow employees.
3. Intentionally caused self-inflicted injury.
4. Brought a civil suit against a third party who caused the injury.

Answer 53

Intentionally caused self-inflicted injury.

Workers’ compensation coverage extends to all employees who are injured on the job or in the course of their employment. Coverage is extended without regard to fault, and recoverability is not precluded by negligence or gross negligence on the part of the employee, failure of the employee to follow employer’s rules, negligent or intentional act of another employee or outside party, or assumption of risk by the employee. However, recoverability is precluded by intentional self-infliction, participation in mutual altercation, or intoxication of the employee.

Question 54

Jay White, an engineer, entered into a contract with Sky, Inc. agreeing to provide Sky with certain specified consulting services. After performing the services, White was paid pursuant to the contract but social security taxes were not withheld from his check since Sky considered White an independent contractor. The IRS has asserted that White was an employee and claims that a deficiency exists due to Sky’s failure to withhold and pay Social Security taxes. Which of the following factors is most likely to support the IRS’s position that White is an employee?

1. White was paid in one lump sum after all the services were performed.
2. White provided his own office and supplies.
3. Sky supervised and controlled the manner in which White performed the services.
4. Sky reserved the right to inspect White’s work.

Answer 54

Sky supervised and controlled the manner in which White performed the services.

When deciding whether a person is an employee or an independent contractor for the purposes of Social Security legislation, the most important factor is whether the person’s performance is subject to the physical control of the employer. If Sky supervised and controlled the manner in which White performed the services, this factor would support the IRS’s position that White is an employee. The fact that White was paid in one lump sum and provided his own office and supplies would support Sky’s position that White was an independent contractor.

Question 55

McAllister sold some property on which he had caused hazardous waste pollution. Wood, aware of the problem, purchased the land and caused more hazardous waste pollution on the property. Wood also leased the property to Jenk, who operated a business on it and caused more hazardous waste pollution. The government seeks to clean up the property and hold McAllister, Wood, and Jenk liable for the cleanup costs. It can be established that these three parties were respectively responsible for the following portions of the hazardous waste; one-third, one half, and one-sixth. Which of the following is correct?

1. McAllister may be held liable for all of the costs.
2. McAllister is not liable for any of the cleanup costs.
3. Jenk can be held liable for at most a small portion of the cleanup costs.
4. Wood must pay all of the costs unless insolvent.

Answer 55

McAllister may be held liable for all of the costs.

Past owners of the site as well as current owners and operators of the site all have joint and several liability for the cleanup costs. Therefore, any of these may be held liable for any proportion or all of the cleanup costs.

Question 56

The primary purpose for enacting workers’ compensation statutes was to

1. Eliminate all employer-employee negligence lawsuits.
2. Enable employees to recover for injuries regardless of negligence.
3. Prevent employee negligence suits against third parties.
4. Allow employees to recover additional compensation for employer negligence.

Answer 56

Enable employees to recover for injuries regardless of negligence.

The workers’ compensation statutes are intended to enable employees to recover for job-related injuries or diseases whether the employer is negligent or not.

Question 57

Under Title VII of the 1964 Civil Rights Act, which of the following forms of discrimination is not prohibited?

1. Sex.
2. Age.
3. Race.
4. Religion.

Answer 57

Age.

Title VII of the Civil Rights Act of 1964 forbids discrimination in employment on the basis of

1. race,
2. color,
3. religion,
4. sex, or
5. national origin.

Question 58

Which of the following statements best describes the relationship between the Occupational Safety and Health Administration (OSHA) regulation and OSHA-approved state regulation of the safety and health of the work environment?

1. OSHA requires the states to identically adopt its standards and regulations.
2. OSHA sets minimum acceptable standards for the states to incorporate in the regulation of workplace safety and health.
3. OSHA standards preempt any corresponding state standards.
4. OSHA discourages state participation in safety and health regulation so as to standardize and enforce the administration of workplace safety and health at the federal level.

Answer 58

OSHA sets minimum acceptable standards for the states to incorporate in the regulation of workplace safety and health.

Question 59

For the entire year 1, Ral Supermarket, Inc. conducted its business operations without any permanent or full-time employees. Ral employed temporary and part-time workers during each of the 52 weeks in the year. Under the provisions of the Federal Unemployment Tax Act (FUTA), which of the following statements is correct regarding Ral’s obligation to file a federal unemployment tax return for year 1?

1. Ral must file a year 1 FUTA return only if aggregate wages exceeded $100,000 during year 1.
2. Ral must file a year 1 FUTA return because it had at least one employee during at least 20 weeks of year 1.
3. Ral is obligated to file a year 1 FUTA return only if at least one worker earned $50 or more in any calendar quarter of year 1.
4. Ral does not have to file a year 1 FUTA return because it had no permanent or full-time employees in year 1.

Answer 59

Ral must file a year 1 FUTA return because it had at least one employee during at least 20 weeks of year 1.

The Federal Unemployment Tax is imposed on employers who employ one or more individuals covered by the act.

Question 60

Eddy Sun created a new solar power light bulb that was substantially less expensive than any other light bulbs in the marketplace. As a result of the low cost of the bulb and the low cost to use the bulb, Sun’s bulb soon gained 80% of the light bulb market. Sun’s market share was a direct result of consumers simply demanding Sun’s light bulb because it was the most cost efficient bulb available. Nevertheless, one of Sun’s competitors has sued Sun for engaging in monopolization, a violation of Section 2 of the Sherman Act. What is the likely outcome of the lawsuit?

1. The lawsuit will fail; only the government, not private parties, can sue for violations of the antitrust laws.
2. The lawsuit will fail. Sun has demonstrated no intent to monopolize; his market share is a result of having a superior product.
3. The lawsuit will succeed; an 80% market share is presumptively illegal.
4. The lawsuit will succeed; this is an example of an illegal tying arrangement.

Answer 60

The lawsuit will fail. Sun has demonstrated no intent to monopolize; his market share is a result of having a superior product.

Violations of Section 2 of the Sherman Act can only occur when there is monopoly power, evidenced by a large market share, and intent. The intent element is absent here.

Question 61

Under the Federal Age Discrimination in Employment Act, which of the following practices would be prohibited?

• Compulsory retirement of employees below the age of 65
• Termination of employees between the ages of 65 and 70 for cause

Answer 61

Compulsory retirement of employees below the age of 65 is prohibited.

The Federal Age Discrimination in Employment Act prohibits discrimination in hiring, firing, compensating, or otherwise on the basis of age. The Act also prohibits the mandatory retirement of most employees under the age of 70. Compulsory retirement of employees below the age of 65 is prohibited under the Act; however, termination of employees for cause, regardless of age of employee, is not prohibited.

Question 62

Imperial Corp. is offering $450,000 of its securities under Rule 504 of Regulation D of the Securities Act of 1933. Under Rule 504, Imperial is required to

1. Provide full financial information to all nonaccredited purchasers.
2. Make the offering through general solicitation.
3. Register the offering under the provisions of the Securities Exchange Act of 1934.
4. Notify the SEC within 15 days after the first sale of the securities.

Answer 62

Notify the SEC within 15 days after the first sale of the securities.

Rule 504 of Regulation D of the Securities Act of 1933 exempts an issuance of securities up to $1,000,000 in a 12-month period to any number of investors. The issuer must notify the SEC of the offering within 15 days after sale of the securities begins.

Requirements under the Securities Exchange Act of 1934 are separate from Regulation D which comes under the 1933 Act.

Question 63

Wilk, an employee of Young Corp., was injured by the negligence of Quick, an independent contractor. The accident occurred during regular working hours and in the course of employment. If Young has complied with the state’s workers’ compensation laws, which of the following is correct?

1. Wilk is barred from suing Young or Quick for negligence.
2. Wilk will be denied workers’ compensation if he was negligent in failing to adhere to the written safety procedures.
3. The amount of damages Wilk will be allowed to recover from Young will be based on comparative fault.
4. Wilk may obtain workers’ compensation benefits and also properly maintain an action against Quick.

Answer 63

Wilk may obtain workers’ compensation benefits and also maintain an action against Quick (third party that caused injury). If Wilk recovers against third party (Quick) after obtaining workers’ compensation benefits, a part of the recovery equal to the benefits received belongs to the employer (Young Corp.).

Question 64

Samuelson, an employee of Bitler and Sons, was injured in the course of employment. Which of the following situations would not bar Samuelson from obtaining workers’ compensation benefits under Bitler’s workers’ compensation plan?

1. Samuelson intentionally inflicted the injury upon himself.
2. Samuelson was engaged in a fistfight with Hastings, a fellow employee, when the injury occurred.
3. Samuelson was legally intoxicated when the injury occurred.
4. The injury was the direct result of Samuelson’s negligence and failure to follow known safety rules.

Answer 64

The injury was the direct result of Samuelson’s negligence and failure to follow known safety rules.

An employee is entitled to workers’ compensation benefits without regard to employee fault.

Question 65

Employers may not be given OSHA citations for

1. Breach of the general duty obligation.
2. Breach of specific safety and health standards.
3. Failure to keep records of job-related injuries, make reports or post notices as required by the Act.
4. Failure to provide a risk-free work environment.

Answer 65

Failure to provide a risk-free work environment. Providing an environment free of risk is not possible.

Question 66

Fairfax was employed by Wexford Manufacturing Company as a salaried salesman. While Fairfax was driving a company car on a sales call, a truck owned and operated by Red Van Lines ran a stoplight and collided with Fairfax’s car. Fairfax applied for and received workers’ compensation for the injuries sustained. As a result of receiving workers’ compensation, Fairfax

1. Must assign any negligence cause of action to Wexford pursuant to the doctrine of respondeat superior.
2. Is precluded from suing Red for negligence because of the workers’ compensation award.
3. Can recover in full against Red for negligence, but must return any duplication of the workers’ compensation award.
4. Can recover in full against Red for negligence and retain the full amounts awarded under workers’ compensation.

Answer 66

Can recover in full against Red for negligence, but must return any duplication of the workers’ compensation award.

Acceptance of workers’ compensation does not bar suit against a third party whose negligence caused the injury. However, if the employee recovers from the third party, he is required to reimburse his employer to the extent that the recovery duplicates the benefits already received from workers’ compensation.

Question 67

Which of the following is required in order for an employee to recover under a compulsory state workers’ compensation statute?

1. The employee must be free from any wrongdoing.
2. The injury must arise out of the negligence of the employer or fellow employee.
3. The injury must arise out of and in the course of employment.
4. The injury must occur while the employee is engaged in interstate commerce.

Answer 67

The injury must arise out of and in the course of employment.

Under the various states’ compulsory worker’s compensation acts, any employee injured within the scope of employment is entitled to receive medical or disability benefits. There is no need, as there is under the common law, to prove negligence on the part of the employer. Therefore, the employer’s common law defenses, such as contributory negligence on the part of the employee and negligence of a fellow employee, are destroyed.

Question 68

In general, which of the following statements is correct with respect to unemployment compensation?

1. An employee who is unable to work because of a disability is entitled to unemployment compensation.
2. An individual who has been discharged from employment because of work-connected misconduct is ineligible for unemployment compensation.
3. The maximum period during which unemployment compensation may be collected is uniform throughout the United States.
4. The maximum amount of weekly unemployment compensation payments made by a state is determined by federal law.

Answer 68

An individual who has been discharged from employment because of work-connected misconduct is ineligible for unemployment compensation.

Unemployment compensation is generally available only to persons unemployed through no fault of their own.

Unemployment benefits

• Eligibility for and amount of unemployment benefits governed by state laws
• Does not include self-employed
• Generally available only to persons unemployed through no fault of their own; however, not available to seasonal workers if paid on yearly basis (e.g., professional sports player in off-season)
• One must have worked for specified period of time and/or earned specified amount of wage

Question 69

Taxes payable under the Federal Unemployment Tax Act (FUTA) are

1. Partially deductible by the covered employee for federal income tax purposes.
2. Calculated as a fixed percentage of all compensation paid to an employee.
3. Payable by all employers regardless of the total amount of compensation paid to individual employees.
4. Deductible by the employer as a business expense for federal income tax purposes.

Answer 69

Deductible by the employer as a business expense for federal income tax purposes.

Taxes payable under the Federal Unemployment Tax Act (FUTA) are used to provide unemployment compensation benefits to workers who lose jobs and cannot find replacement work. These taxes paid are deductible by the employer as a business expense for federal income tax purposes, but they are not deductible by the employee because the employee does not pay them.

Question 70

Silk was employed at Rosco Corp. as a chauffeur. While in the course of employment, Silk was involved in an automobile accident with Lake who was employed by Stone Corp. as a truck driver. While making a delivery for Stone, Lake negligently drove through a red light, causing the accident with Silk. Both Silk and Lake have received workers’ compensation benefits as a result of the accident. Silk

1. Is precluded from suing Lake since both are covered under workers’ compensation laws.
2. Is precluded from suing Stone if Stone complied fully with the state’s workers’ compensation laws.
3. Can recover in full against Lake only, but must reimburse the workers’ compensation carrier to the extent the recovery duplicates benefits already obtained under workers’ compensation laws.
4. Can recover in full against Lake or Stone, but must reimburse the workers’ compensation carrier to the extent the recovery duplicates benefits already obtained under workers’ compensation laws.

Answer 70

Can recover in full against Lake or Stone, but must reimburse the workers’ compensation carrier to the extent the recovery duplicates benefits already obtained under workers’ compensation laws.

Silk may recover damages from either Lake or Stone since it appears that Lake negligently struck Silk while s/he was acting within the scope of his/her employment. Consequently, both the principal and the agent would be liable for the agent’s negligence. However, in the event that Silk recovers damages from Lake or Stone, Silk must reimburse the workers’ compensation carrier to the extent the recovery duplicates benefits already received under workers’ compensation.