SCENARIO ANSWERS - Employment Law: New Challenges In The Business ...

Copyright © 2014 Pearson Education, Inc.1 Employment

Law:

New Challenges In The Business Environment Fifth Edition Instructor Manual

John Jude Moran, J.D., M.B.A. 1 / 4

Copyright © 2014 Pearson Education, Inc.3 PART I—Employment Relationship and Procedure

CHAPTER 1

Employment Relationship

SCENARIO ANSWERS

• Employment Scenario #1 is an introduction.

• Susan ponders the information given and suggests that Martha, Stephanie, and Lucy would all

appear to be independent contractors. They set their own hours, control how the work is to be performed, and will be held liable if the work is not done properly. Martha, Stephanie, and Lucy have a significant investment in their own materials, to wit: sewing machine, computer, and cleaning apparatus, respectively. They can employ others to assist them in conducting their business. Although their work is important, the store will not fail without them. An argument can be presented that each worker exhibits some traits of being an employee, because the employer designates where the work is to be performed, as with Martha and Lucy, and have control over the compensation for Stephanie’s consulting services. However, these traits pale in comparison, both in number and significance, to those traits of an independent contractor, which they exhibit.Long and Short graciously thank Susan for elucidating the difference between an employee and independent contractor. L&S promises Susan that it will implement her advice.

• Susan cautions that the result might be to depress the morale of the sales staff because the

covenant evidences a lack of trust in them. The restriction may also force them to refuse the job.The salespeople may consider that if they are unhappy working for L&S, their freedom to work elsewhere will be restricted. L&S counters with a compromise that restricts the salespeople from establishing their own large, tall, or short men’s clothing store or working for another clothing establishment that specializes in this line of work. Susan agrees to draft a “noncompete” agreement, which integrates these stipulations.

• Susan states that liability is determined by whether the tort was committed within the scope of

employment, or in other words, “on the job.” Susan tells L&S that Grant should have requested the customer to leave the store and to escort him out in the process. L&S will be liable to Fred for the injuries he received.

The word employment may be defined as the rendering of personal service by one person on behalf of another in return for compensation. The person requesting the service is the employer.The person performing the service may be either the employee or an independent contractor.Employment law has its roots in the law of agency.

Agency is a contractual relationship, involving an agent and a principal, in which the agent is given the authority to represent the principal in dealings with third parties. The most common example is an employer-employee relationship wherein an agent (employee) is given the power by a principal (employer) to act on his or her behalf. An agent may be an employee or an independent contractor. A principal is a person who employs an agent to act on his or her behalf. 2 / 4

Copyright © 2014 Pearson Education, Inc.4 A principal (employer) has full control over his or her employee. The employee must complete the work assigned by following the instructions of the employer. An independent contractor is an individual hired by an employer to perform a specific task. The employer has no control over the methods used by the independent contractor. The following are among those who act independently of an employer: electricians, carpenters, plumbers, television repairpersons, and automobile mechanics. Independent contractors also include professional agents such as lawyers, physicians, accountants, securities brokers, insurance brokers, real estate brokers, and investment advisors. Independent contractors may also employ others in their field who will be bound to them as employees.

Employment is a contractual relationship wherein the employee or independent contractor is given authority to act on behalf of the employer. All the requirements of contract law are applicable to the creation of employment. Both the employer and the employee or independent contractor must have the capacity to contract.

An employment contract may be created expressly, through a written or a verbal conversation, or impliedly, through the actions of the parties. However, when the employee’s or independent contractor’s duties involve entering into a contract on behalf of the employer, which is required to be in writing under the statute of frauds, then the employment contract must also be in writing.The statute of frauds is a list of those contracts required to be in writing.

TYPES OF AUTHORITY

Actual Authority

The employer usually determines the scope of an employee's authority. Actual authority is the express authority conveyed by the employer to the employee, which also includes the implied authority to do whatever is reasonably necessary to complete the task. This implied authority also gives the employee power to act in an emergency. Implied authority is authority, which the employer has given to the employee. It comes with the job.

Apparent Authority

Apparent authority is the authority the employee professes to have which induces a reasonable person to believe in the employee. The reliance on apparent authority must be justifiable. With apparent authority, the employee appears to have the authority to act, but he or she actually does not.

DUTIES OF EMPLOYEES AND INDEPENDENT CONTRACTORS

Duty of Loyalty

The relationship between employers and employees or independent contractors is a fiduciary one, based on trust and confidence. Inherent in this relationship is the employee’s or independent contractor’s duty of loyalty. An employee has a duty to inform, to obey instructions, and to protect confidential information. An employee or independent contractor has a duty to disclose 3 / 4

Copyright © 2014 Pearson Education, Inc.5 all pertinent information he or she learns of that will affect the employer, the employer’s business, or the task at hand. An employee or independent contractor must not take advantage of the employer’s prospective business opportunities or enter into the contracts on behalf of the employer for personal aggrandizement without the employer’s knowledge. An employee, and in some cases an independent contractor (lawyer, investment banker, sports-team scout), may not work for two employers who have competing interests.

Duty to Act in Good Faith

An employee or independent contractor has an obligation to perform all duties in good faith. He or she must carry out the task assigned by using reasonable skill and care. The employee or independent contractor has a further duty to follow the employer’s instructions and not to exceed the authority delegated to him or her.

Duty to Account

An employee or independent contractor has a duty to account for all compensations received, including kickbacks. Upon the employer’s request, an employee or independent contractor must make a full disclosure, known as an accounting, of all receipts and expenditures. The employee or independent contractor must not commingle funds, but rather must keep the employer’s funds in an account separate from his or her own. Furthermore, an employee or independent contractor must not use the employer’s funds for his or her own purposes.

EMPLOYER’S DUTIES

Duty to Compensate

An employer has the duty to compensate the employee or independent contractor for the work performed. An employee or independent contractor will be entitled to the amount agreed upon in the contract; otherwise, he or she will be entitled to the reasonable value of the services rendered.Sales representatives are usually paid according to a commission-based pay structure, which incorporates a minimum level of compensation against which the sales representatives are entitled to draw. An employer must also reimburse an employee for the expenses incurred by the employee during the course of conducting the employer’s business. For tax purposes, an employer has a duty to keep a record of the compensation earned by an employee and the reimbursements made for expenditures. Employers are required to withhold payroll taxes from employees’ paychecks. This is not so with fees paid to independent contractors.

Duty to Maintain Safe Working Conditions

The maintenance of safe working conditions is another obligation placed on the employer. Any tools or equipment furnished to the employee must be in proper working order; otherwise, the employer may be liable for the harm resulting to an employee under the Occupational Safety and Health Act.

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