Business And Its Legal Environment (Management 246)

1. Business And Its Legal Environment (Management 246) Professor Charles H. Smith Agency and Employment Law (Chapters “the first” 19, 20 and “the first” 21) Spring 2010

2. Introduction to the Law of Agency • Agency law involves situations where person or business may be liable for misdeed committed by another person or business. • Generic agency relationship is principal-agent; more specific labels are employer-employee and employer-independent contractor. • An agency relationship is often simply called an “agency.” • “Agent” is someone who acts on behalf of a business entity or another person (the “principal”); the agent is the principal’s “fiduciary” – see page 478 for detailed definitions of “agency” and “fiduciary.”

3. Determining Whether an Agency Exists • Agency by agreement – most common way to create an agency; can be in writing or oral, though writing may be required by statute of frauds. • Example – employment contract, contract between building owner and plumber for installation of plumbing in building. • Agency by ratification – principal’s subsequentapproval of action or acceptance of benefits due to action by person claimed to be the principal’s agent. • Example – person signs contract on behalf of principal without principal’s knowledge, but principal performs as stated in contract. • Agency by estoppel – principal’s act/statement creates appearance of an agency (objective “reasonable person” standard); agent’s act/statement cannot create agency. • Example – principal refers to person as “her agent” or “his representative” despite no agency.

4. Determining the Limits on an Agent’s Authority • Even if it is clear that agency exists, there are usually limits on an agent’s authority. • Actual authority (most common) • Express – written or oral instructions by principal to agent. • Implied – usually shown by custom and practice of the particular agency. • Apparent authority • Agent’s “appearance of authority” can be based on principal’s act/statement (objective “reasonable person” standard); agent’s act/statement cannot be the basis of apparent authority.

5. Agent’s Duties to the Principal • Care (aka “business judgment rule” or “due diligence”) – agent required to use best efforts and act appropriately under the circumstances; focus on effort, not success. • Loyalty – agent cannot (1) compete with principal or (2) use confidential information learned during agency for personal profit. • Obedience – agent must (1) obey principal’s instructions and (2) obey laws applicable to agency. • Accounting – agent required to account to principal re all funds spent and received on principal’s behalf. • Notification – principal charged with all knowledge gained by agent during agency.

6. Principal’s Duties to the Agent • Compensation – principal must compensate agent per contract. • Reimbursement – principal required to reimburse agent for money spent by agent on principal’s behalf; usually per contract. • Indemnification – if agent sued for act done during agency, principal must pay for (1) agent’s defense (e.g., lawyer, costs) and (2) settlement or judgment against agent. • Cooperation – principal required to provide agent with what agent needs to work per agency (e.g., information). • Provide safe working conditions – usually covered by safety statutes/rules (e.g., building code, safety regulations for specific workplace such as construction site).

7. Liability of Principal and/or Agent to Plaintiff • Contracts – was agency disclosed to the other party to the contract? • How to “disclose” the agency? • If so – principal, not agent, will be liable/responsible to perform contract. • If not – agent, not principal, will be liable/responsible to perform contract. • Torts – agent always liable; principal may also be liable if • Negligence – agent within course and scope of agency (“respondeat superior”); ask if there is a “substantial departure” from job duties (very broad definition). • Fraud – (1) agent has principal’s actual or apparent authority and (2) agent in course and scope of agency.

8. Employee vs. Independent Contractor • Important issue since different rights and responsibilities come into play when a worker is classified as an employee or independent contractor. • Some reasons why classifying a worker as an employee or independent contractor is important include • 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 unemployment benefits. • Classification of worker not done in vacuum; many cases, statutes and other guidelines used (see next slide).

9. Employee vs. Independent Contractor cont. • Three factors in IRS Publication 15A • Behavioral control. • Financial control. • Type of relationship. • See http://www.irs.gov/pub/irs-pdf/p15a.pdf for details and examples (pages 6-9 only). • If you are unsure about the details of the law, rely on these basic rules • More control exercised by employer over worker, more likely worker is employee. • Less control exercised by employer over worker, more likely worker is independent contractor.

10. At-Will Employment Rule • Employment is generally “at-will” • Employer or employee may end employment relationship at any time for any legal reason; e.g., incompetence, economics or even a silly reason. • Termination usually based on statement(s) and/or act(s) by one or both parties. • Constructive termination – employer makes conditions so intolerable that reasonable person would quit; e.g., sexual harassment case. • Employment may be terminated due to operation of law; e.g., completion of work or time stated in contract. • Two-week notice – required by law or just a good idea?

11. Exceptions to At-Will Employment Rule • An exception to the at-will employment rule can support a wrongful termination lawsuit; examples include • Termination in violation of public policy when employee fired in retaliation for • Refusing to do illegal act. • Being a “whistle-blower.” • Based on contract law • 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. • Discrimination/sexual harassment (discussed in later slides).

12. Worker’s Compensation • Applies to employees only, not independent contractors. • Intended to provide injured employee with streamlined procedures and prompt remedy. • Employee’s injury must • Be the result of an accident no matter who caused accident. • Occur in course and scope of employment (broadly defined) • If both are present, then worker’s compensation is employee’s exclusive remedy against employer.

13. Worker’s Compensation cont. • Damages in worker’s compensation normally limited to special damages only (no general damages available) so injured employee may seek ways to get matter out of worker’s compensation and into court such as • Intentional tort by employer or co-employee. • Third party (not employer or co-employee; could be customer, vendor or complete stranger) at fault for on-the-job accidental injury; two legal proceedings for same incident.

14. Employees’ Privacy Rights • Threshold issue – what is the employee’s reasonable expectation of privacy? • Drug testing – generally not allowed but there are some limited exceptions, such as • Public safety job. • Pre-employment. • Employment or union contract.

15. Employees’ Privacy Rights cont. • Pre-employment screening • Job application and interview – employer needs to gather information in order to make good hiring decisions. • However, inquiry must be relevant to the job – may be OK for one job but not another. • Careful – “innocent” questions can be cover for discrimination. • Internet/e-mail use at the office • Generally, no privacy rights. • After all, who owns the computer and who provides the internet and e-mail access?

16. Title VII – Federal Employment Discrimination Law • Title VII – federal law passed by Congress as part of Civil Rights Act of 1964; remedy for people traditionally underrepresented or not represented in the workplace. • Prohibits discrimination in employment on the basis of race, color, religion, national origin and gender. • We will not be covering other types of discrimination, such as discrimination based on age, disability or sexual orientation, that are covered by other federal or state laws. • Two types of employment discrimination • Disparate treatment – “obvious” discrimination. • Disparate impact – “hidden” discrimination.

17. Three-Step Analysis re Employment Discrimination Under Title VII • First, plaintiff (person who was fired or not hired or promoted) must prove all four elements of prima facie case. • Second, defendant (employer) must present defense based on valid legal reason. • Third, plaintiff must show defense not valid legal reason but instead is “pretext” for discrimination.

18. Plaintiff’s Prima Facie Case • Plaintiff is member of protected class – e.g., woman, person of color or non-European descent. • Plaintiff applied and qualified for position. • Plaintiff is fired or application rejected – not hired or promoted. • Employer continues to seek applications or hires person who is member of unprotected class – e.g., WASP man. • If evidence re all four, employer must defend – if all four not proved, employer wins.

19. Employer’s Defense • Employer must defend by presenting a valid legal reason for firing or not hiring/promoting plaintiff; defenses include • At-will employment rule. • Good cause. • Bona fide occupational qualification (BFOQ). • Bona fide seniority system. • Business necessity. • After-acquired evidence. • Need to be consistent in application!

20. Plaintiff’s Rebuttal/Response • Plaintiff must rebut/respond to employer’s valid legal reason defense by showing that the reason is not valid and, in fact, is a pretext for discrimination.

21. Sexual Harassment • Sexual harassment in the workplace involves sex but is really about the employer’s power trip/abuse of authority; can be man harassing woman, woman harassing man or same-sex harassment. • Two types of sexual harassment • 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 – usual situation is workplace atmosphere of comments, conduct, decorations, etc. of sexual nature.

22. Sexual Harassment cont. • Can be difficult to prove since sometimes no other witnesses – credibility contest. • Big defense is consent since “unwelcome” conduct is required • Also hard to prove, especially when plaintiff does not object and may actually participate in or approve of subject misconduct. • “Consenting adults” defense. • Can provocative clothing (or lack thereof) be consent? • Can plaintiff ever truly give consent due to “superior” position of employer? “Consent” may be given just to get or keep job, be a “team player,” etc.

23. Benefits, Political Correctness and Affirmative Action • What benefits flow from laws re employment discrimination? • Have laws re employment discrimination made the workplace too politically correct? • Affirmative action – compensating for past sins or an unfair advantage for people who have been traditionally not represented or underrepresented in the workplace at the expense of WASP men?