Questions and Answers of The Legal Environment

Both the agent and the principal have the power to terminate an agency relationship, but they may not have the right. If the termination violates the agency agreement and causes harm to the other
An agency relationship automatically terminates if the principal or agent can no longer perform the required duties or if a change in circumstances renders the agency relationship pointless.
A principal is bound by the contracts of the agent if the agent has express, implied, or apparent authority.
The principal grants express authority by words or conduct that, reasonably interpreted, cause the agent to believe that the principal desires her to act on the principal’s account.
Implied authority includes authority to do acts that are incidental to a transaction, usually accompany it, or are reasonably necessary to accomplish it.
Apparent authority means that a principal is liable for the acts of an agent who is not, in fact, acting with authority if the principal’s conduct causes a third party reasonably to believe that
An agent is not liable for any contract she makes on behalf of a fully disclosed principal. The principal is liable. In the case of a partially disclosed or undisclosed principal, both the agent and
Under respondeat superior, a master is liable when a servant acting within the scope of employment commits a negligent tort that causes physical harm to a person or property.Under some limited
The principal is only liable for the physical torts of an independent contractor if the principal has been negligent in hiring or supervising him.
A principal is liable for nonphysical torts only if the servant acts with actual, implied, or apparent authority.
The German-American Vocational League was formed in New York during World War II to serve as a propaganda agency for the German Reich. Under U.S. law all foreign agents were required to register.
David and Fiona Rookard purchased tickets for a trip through Mexico from a Mexicoach office in San Diego. Mexicoach told them that the trip would be safe. It did not tell them, however, that their
Penny Wilson went to Arlington Chrysler-Plymouth-Dodge to buy an automobile. Penny told Arlington that, as a minor, she could not buy the car unless she obtained credit life insurance that would pay
One Friday afternoon a custodian at the Lazear Elementary School in Oakland, California, raped an 11-year-old student in his office on the school premises. The student sued the school district on a
This article appeared in The New York Times:A week after criminal charges were announced in the death of tennis star Vitas Gerulaitis, his mother filed suit yesterday against eight defendants,
CPA QUESTION A principal will not be liable to a third party for a tort committed by an agent:a. Unless the principal instructed the agent to commit the tortb. Unless the tort was committed within
A. B. Rains worked as a broker for the Joseph Denunzio Fruit Co. Raymond Crane offered to sell Rains nine carloads of emperor grapes.Rains accepted the offer on behalf of Denunzio.Later, Rains and
Roy Watson bought vacuum cleaners from T & F Distributing Co. and then resold them door-todoor.He was an independent contractor. Before hiring Watson, the president of T & F checked with two former
YOU BE THE JUDGE WRITING PROBLEM Sara Kearns went to an auction at Christie’s to bid on a tapestry for her employer, Nardin Fine Arts Gallery. The good news is that she purchased a Dufy tapestry
ROLE REVERSALWrite a multiple choice question that deals with the liability of principals for the acts of their servants.
Acting as an undisclosed principal, William Zeckendorf employed agents to purchase the land in New York on which the United Nations headquarters was ultimately built. Can you find any other examples
The traditional common-law rule of employment provided that an employee at will could be fired for a good reason, a bad reason, or no reason at all.
The National Labor Relations Act prohibits employers from penalizing workers for union activity.
The Family and Medical Leave Act guarantees workers up to 12 weeks of unpaid leave each year for childbirth, adoption, or medical emergencies for themselves or a family member.
An employer who fires a worker for a bad reason is liable under a theory of wrongful discharge.
Generally, an employee may not be fired for refusing to break the law, exercising a legal right, or performing a legal duty.
Whistleblowers receive some protection under both federal and state laws.
Oral promises made during the hiring process may be enforceable, even if not approved by the company’s top executives. An employee handbook may create a contract.
Employers may be liable for defamation if they give false and unfavorable references.
The goal of the Occupational Safety and Health Act is to ensure safe conditions in the workplace.
Employees have a limited right to privacy in the workplace.
The Fair Labor Standards Act regulates minimum and overtime wages. It also limits child labor.
Workers’ compensation statutes ensure that employees receive payment for injuries incurred at work.
The Social Security system pays benefits to workers who are retired, disabled, or temporarily unemployed and to the spouses and children of disabled or deceased workers.
The Employee Retirement Income Security Act regulates private pension plans.
Under the Equal Pay Act, an employee may not be paid at a lesser rate than employees of the opposite sex for equal work.
Title VII of the Civil Rights Act of 1964 prohibits employers from discriminating on the basis of race, color, religion, sex, or national origin.
The Age Discrimination in Employment Act prohibits age discrimination against employees or job applicants who are age 40 or older.
The Americans with Disabilities Act prohibits employers from discriminating on the basis of disability.
This article appeared in The Wall Street Journal:When Michelle Lawrence discovered she was pregnant, she avoided telling Ron Rogers, the owner of the Los Angeles public relations agency where she
CPA QUESTION An unemployed CPA generally would receive unemployment compensation benefits if the CPA:a. Was fired as a result of the employer’s business reversalsb. Refused to accept a job as an
The Duke Power Co. refused to transfer any employees at its generating plant to better jobs unless they had a high school diploma or could pass an intelligence test. The company was willing to pay
YOU BE THE JUDGE WRITING PROBLEM Nationwide Insurance Co. circulated a memorandum asking all employees to lobby in favor of a bill that had been introduced in the Pennsylvania House of
The following question appeared in The Wall Street Journal. How would you answer it?Q: Imagine an employer and a male job candidate discussing employment. The candidate discloses that his wife is
ROLE REVERSAL Prepare a short-answer question in which an employee alleges that his discharge violated public policy, but you think a court would not agree.
At http://www.usdoj.gov/crt/ada/workta.htm, the federal government provides a guide for people with disabilities. Employers sometimes complain that the EEOA unfairly favors workers. What do you think
Section 7 of the National Labor Relations Act(NLRA) guarantees employees the right to organize and join unions, bargain collectively, and engage in other concerted activities.
Section 8(a) of the NLRA makes it an unfair labor practice for an employer to interfere with union organizing, discriminate against a union member, or refuse to bargain collectively.
Section 8(b) of the NLRA makes it an unfair labor practice for a union to interfere with employees who are exercising their rights under§7, to encourage an employer to discriminate against an
Section 9 of the NLRA makes a validly recognized union the exclusive representative of the employees.
During a union organizing campaign, an employer may vigorously present anti-union views to its employees, but it may not use threats or promises of benefits to defeat the union effort.
The National Labor Relations Board (NLRB)will certify a proposed bargaining unit only if the employees share a community of interest.
The employer and the union must bargain over wages, hours, and other terms and conditions of employment. They may bargain other subjects, but neither side may insist on doing so.
The union and the employer must bargain in good faith, but they are not obligated to reach an agreement. Management may not unilaterally change wages, hours, or terms and conditions of employment
The NLRA guarantees employees the right to strike, with some limitations.
After an economic strike, an employer is not obligated to lay off replacement workers to give a striker her job back, but he may not discriminate against a striker. After a ULP strike, the striking
Picketing the employer’s workplace in support of a strike is generally lawful; a secondary boycott is generally illegal.
An employer may lock out workers, but only after giving them notice.
Multi-employer bargaining and implementation do not violate antitrust laws.
The duty of fair representation requires that a union represent all members fairly, impartially, and in good faith.
Power, Inc., operated a surface coal mine in central Pennsylvania. Financial losses led it to lay off a number of employees. After that, several employees contacted the United Mine Workers of America
Douglas Kuroda worked for the Hertz Corp.He and his supervisor had a heated argument in which Kuroda told his boss, “You may have a master’s degree but you don’t know shit.” The supervisor
YOU BE THE JUDGE WRITING PROBLEM Plainville Ready Mix Concrete Co. was bargaining a CBA with the drivers’ union.Negotiations went forward, on and off, over many months, with wages the major source
Labor Day is a national holiday originally intended to celebrate the contributions of working men and women. But for most people today it simply means a day off from work—or the day before school
ETHICS The chapter refers in several places to the contentious issue of subcontracting. Make an argument for management in favor of a company’s ethical right to subcontract, and one for unions in
ROLE REVERSAL Write an essay question involving a union organizing campaign and a management response that includes both permissible advocacy and illegal conduct.
Find a Website that is campaigning against sweatshops.What are sweatshops? Do they exist in the United States? Describe a current campaign about this issue. Do you agree or disagree with what is
ETHICS McNeely told Hardee’s officials that he was interested in purchasing multiple restaurants in Arkansas. A Hardee’s officer assured him that any of the company-owned stores in Arkansas would
CPA QUESTION Assuming all other requirements are met, a corporation may elect to be treated as an S corporation under the Internal Revenue Code if it has:a. Both common and preferred stockholdersb. A
Glenleigh Falls Development Co. was a limited liability company that hired architects John and Marion Zaugg to design a residential golf course. The Zauggs were to receive partial payment for their
Alan Dershowitz, a law professor famous for his wealthy clients (O. J. Simpson, Claus von Bulow, Leona Helmsley), joined with other lawyers to open a kosher delicatessen, Maven’s Court. Dershowitz
A joint venture is a(n):a. Association limited to no more than two persons in business for profitb. Enterprise of numerous co-owners in a nonprofit undertakingc. Corporate enterprise for a single
YOU BE THE JUDGE WRITING PROBLEM Cellwave was a limited partnership that applied to the Federal Communications Commission(FCC) for a license to operate cellular telephone systems. After the FCC
Arnold and Judith Germain bought two franchises from My Pie International, Inc. They did not receive the franchise disclosure statement from My Pie until two years after the purchase.Did My Pie
Leonard C. Blum, an attorney, was negligent in his representation of Louis Anthony, Sr. In settlement of Anthony’s claim against him, Blum signed a promissory note for $10,400 on behalf of his law
ROLE REVERSAL Draft a multiple-choice question that focuses on the difference between an LLC and an S corporation.
At http://ftc.gov/ the Federal Trade Commission provides information on enforcement cases it has brought against franchisors who violate FTC rules.Do you see a pattern? Are some violations more
Promoters are personally liable for contracts they sign before the corporation is formed unless the corporation and the third party agree to a novation.
Companies generally incorporate in the state in which they will be doing business. However, if they intend to operate in several states, they may choose to incorporate in a jurisdiction known for its
A corporate charter must generally include the company’s name, address, registered agent, purpose, and a description of its stock.
A court may, under certain circumstances, pierce the corporate veil and hold shareholders personally liable for the debts of the corporation.
Termination of a corporation is a three-step process requiring a shareholder vote, the filing of “Articles of Dissolution,” and the winding up of the enterprise’s business.
Officers and directors have a fiduciary duty to act in the best interests of the shareholders of the corporation.
The business judgment rule protects managers from liability for their decisions as long as the managers observe the duty of care and the duty of loyalty.
Under the duty of loyalty, managers may not enter into an agreement on behalf of their corporation that benefits them personally, unless the board of directors or the shareholders have first approved
Under the duty of loyalty, managers may not take advantage of an opportunity that rightfully belongs to the corporation.
Under the duty of care, managers must make honest, informed decisions that have a rational business purpose.
The Williams Act regulates the activities of a bidder in a tender offer for stock in a publicly traded corporation.
Virtually all publicly held companies solicit proxies from their shareholders. A proxy authorizes someone else to vote in place of the shareholder.
Under certain circumstances public companies must include shareholder proposals in the proxy statement.
A shareholder of a privately held company who objects to a fundamental change in the corporation can insist that her shares be bought out at fair value. This protection is referred to as
Controlling shareholders have a fiduciary duty to minority shareholders.
Congress, the NYSE, and NASDAQ have all taken steps to prevent management abuses.These new regulations require that companies adopt effective financial controls. They also require more independent
A derivative lawsuit is brought by shareholders to remedy a wrong to the corporation. The suit is brought in the name of the corporation, and all proceeds of the litigation go to the corporation.
If a group of shareholders all have the same claim against the corporation, they can join together and file a class action, rather than suing separately.
CPA QUESTION A corporate stockholder is entitled to which of the following rights?a. Elect officersb. Receive annual dividendsc. Approve dissolutiond. Prevent corporate borrowing
YOU BE THE JUDGE WRITING PROBLEM Asher Hyman and Stephen Stahl formed a corporation named Ampersand to produce plays.Both men were employed by the corporation.After producing one play, Stahl decided
Daniel Cowin was a minority shareholder of Bresler & Reiner, Inc., a public company that developed real estate in Washington, D.C. He alleged numerous instances of corporate mismanagement, fraud,
CPA QUESTION Generally, a corporation’s articles of incorporation must include all of the following except the:a. Name of the corporation’s registered agent.b. Name of each incorporator.c. Number
Two shareholders of Bruce Company, Harry and Yolan Gilbert, were fighting management for control of the company. They asked for permission to inspect Bruce’s stockholder list so that they could

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