All forms of business have rules and regulations that govern them. Business owners, as well as those who interact with business, should be mindful of these rules so that their conduct can comply and their interests remain protected.
Principals and Agents in the Commercial Context
Most of the world’s work is performed by agents, the one performing for another, on behalf of principals, the one for whom the work is performed. Agency enables a person to broaden his or her activities by having someone else render services on his or her behalf, and then receive the benefit of those services.
An agent is a person who by agreement with the principal acts on behalf of and subject to the control of the principal. A principal must have capacity to contract, but anyone can be an agent, even a minor or an incompetent person. An agency relationship is always created by the words or actions (or lack of action) of the principal. An agency results in a fiduciary relationship between an agent and a principal.
A principal is a person on whose behalf an agent acts. Principals are divided into three classes: disclosed, unidentified (partially disclosed), and undisclosed.
Distinguishing Agency from Other Relationships
Disputes between the principal and agent over agency relationships usually focus around two issues: the principal’s right to control the agent or the fiduciary nature of the relationship.
Both of these characteristics must be present in order to have an agency relationship. An independent contractor is a person who contracts with another to do something but who is not controlled by the other with respect to his physical conduct in the performance of the undertaking.
One of the important attributes of an agent is the power to bind the principal to third parties and to bind third parties to the principal. This power gives the agent the authority to act on behalf of and bind the principal. An agent has actual authority to act in a given way on a principal’s behalf if the principal’s words or conduct would lead a reasonable person in the agent’s position to believe that the principal wishes the agent to act.
Express authority is communicated to the agent in writing or orally. If the agent has express authority and acts within the scope of that authority, the principal is bound.
Actual authority may also be implied. Implied authority may come from several sources: consent; custom and usage; ambiguity; emergency; and conduct of the parties. In each case, the principal will be liable for the acts of the agent. In both express and implied authority, the authority is derived from some instruction from the principal to the agent.
In order for there to be apparent authority, the principal must act in such a way as to clothe the agent with the authority. An agent has apparent authority to act if actions of the principal to the third party would lead a reasonable person in the third person’s position to believe that the principal has authorized the agent to act. If an agent has apparent authority and acts within the scope of that authority, the principal is bound. It may arise because of what the principal has said or because of some document, such as a power of attorney, that the principal has given the agent and which the agent has shown to the third party. It may also arise because the agent has been placed in such a position that a person of ordinary business prudence would be justified in believing that the agent was authorized.
Forms of Business
Business is a broad term describing all kinds of profit-making and non-profit activity. Businesses may be looked at in different ways and is conducted either by a single individual or a collection of individuals. Another way to classify business is by labeling them corporations, either privately or publicly owned or unincorporated business entities.
When choosing a business form, many things should be considered.
One unincorporated business owned by a single individual is called a sole proprietorship. The sole proprietor is personally liable on all business obligations since there is no legal separation between the owner and the business.
A partnership is an association of two or more persons to carry on a business for profit. Some partnerships are governed by a partnership agreement. If two or more parties enter an agreement to perform together and split the profits, a general partnership is formed. If a business has the essential characteristics of a partnership, it is a partnership.
A limited partnership consists of one or more general partners and one or more limited partners.
Generally, limited partners share profits and losses in proportion to their investment. The general partners of a limited partnership are personally liable for the partnership’s debts. In order to form a limited partnership, the owners must file a certificate of limited partnership with the state and operate under the state’s statute. Most limited partnerships are governed by a partnership agreement and it is the partnership agreement, not the certificate of limited partnership filed with the state that details and determines the rights, responsibilities, and relationships of the partners. Only general partners manage the business and only the general partners have the power to bind the partnership.
Limited Liability Companies
The limited liability company (LLC) is a hybrid form of business that combines the liability shield of a corporation with the federal tax classification of a partnership. Generally, an LLC is formed by filing articles of organization with the secretary of state in the state where it is formed. Unless the statutory filing requirements are complied with, however, the courts are not likely to recognize the LLC. Unlike a partnership, an LLC can be formed by one person, and can operate like a sole proprietorship and is called a Single Member LLC (SMLLC). Flexible management rules allow LLC’s to function like a corporation, if they choose, or to function like a partnership.
If the owners of the LLC decide to function more like a partnership, then they elect to be “member-managed.” If the owners decide to function more like a corporation, then they elect to be “manager-managed.” Governance in a manager-managed LLC is like a corporation.
Generally, those who manage a LLC owe a duty of loyalty and care to the entity.
The corporate form of business is different in that the ownership of the corporation and the management of the corporation are in separate hands. Corporations are legal fictions. They exist only as allowed by law. All corporations, regardless of their type, are created by statute, either federal or state, and each statute determines the corporation’s powers.
Corporations may be classified as government, private or public, closely held, for profit or not for profit, domestic or foreign, or as a professional corporation. A government corporation is one that is created to administer a unit of local civil government, such as a county, city, town, village, school district, or one created by the U.S. government to conduct pubic business. A public corporation is one created to conduct a publicly owned business enterprise for profit or not for profit. One of the characteristics of a publicly owned corporation is the trading of its shares on a stock exchange. A corporation is described as closely held when its outstanding shares of stock are held by a small number of persons, frequently family relatives or friends. In most closely held corporations, the shareholders are active in the management and control of the business.
A profit corporation is one that is founded for the purpose of operating a business for profit from which payments are made to shareholders in the form of dividends. A not for profit corporation can earn a profit, but the profit may not be distributed to its members, officers or directors but must be used exclusively for the charitable, educational, or scientific purpose for which the corporation was organized.
Next, we will explore the different laws employers must consider in making workplace decisions consistent with fair employment practices and equal employment opportunity as required by law.
Our ultimate goal is to ensure that you will learn not to make employment decisions that may later serve as the basis for costly, time-consuming, embarrassing, discrimination litigation. The intent of the law is to provide equal employment opportunity for all, not equal employment, as many take the law to mean.
Employers do not have to hire someone simply because she is female, African American, Hispanic, etc., if she is not qualified for the job. Since most of you have lived only in a time when employment discrimination was illegal, some may wonder why anti-discrimination laws are needed–particularly since the laws received such a lambasting around the issue of affirmative action. We need such laws because people discriminate.
WHAT IS TITLE VII OF THE CIVIL RIGHTS ACT OF 1964?
The single most important law piece of legislation that impacts the workplace in the area of discrimination is the Civil Rights Act of 1964. This federal law prohibits discrimination in any way in employment, including hiring, firing, promotion, compensation, benefits, training, discipline and other workplace decisions.
Title VII applies to employers with 15 or more employees, as well as to labor organizations and other organizations that perform hiring or job referral functions. Title VII protects employees on the basis of race, color, gender, religion or national origin. Gender discrimination includes discrimination on the basis of pregnancy, as well as sexual harassment. The federal law does not apply to employers with less than 15 employees. Religious organizations are also allowed to act consistently with their religious faith in employment. The law also permits employers to discriminate in favor of Native Americans working on or near reservations, and to discriminate against Communists
Sexual harassment is a form of gender discrimination. It is discriminatory to have employees of one gender and not the other subject to workplace requirements or oppressive and offensive behavior that interfere with the employee’s ability to do his or her job. Sexual harassment need not necessarily involve sex. Courts have found sexual harassment where the activity was not necessarily sexual in nature, but instead exhibited “anti-female animus” toward the harasee so that because of her gender she is made to endure a negative work environment.
There are two types of sexual harassment: quid pro quo sexual harassment and hostile environment sexual harassment. Quid pro quo sexual harassment involves the employee directly or indirectly being threatened with not receiving workplace benefits or entitlements such as hire, promotions, raises, training, and so on, unless the employee engages in sexual activity with the harasser. Hostile environment sexual harassment is quite different and not always as clear-cut. Under the EEOC sexual harassment guidelines virtually any unwanted activity directed to one gender but not the other which creates for an employee a hostile or offensive environment and unreasonably interferes with the employee’s ability to perform can be the subject of a sexual harassment claim.
In order to be actionable the activity must meet certain requirements which ensure that the activity alleged to be sexual harassment is not a mere isolated incident which simply annoys an employee or hurts his or her feelings.
While many have notions regarding the “frailty” of pregnant employees, the law takes the position that it is gender discrimination on the basis of pregnancy to treat pregnancy differently from any other short-term disability that any other employee has. Pregnant employees cannot be made to leave work early and take maternity leave at a certain arbitrarily set date, as was once the case with teachers. They also cannot have their job duties taken away unless there is some basis for doing so, such as inability to perform.
Equal Pay and Comparable Worth
The Equal Pay Act was passed in 1963, the year before Title VII. The Act prohibits discrimination in pay on the basis of gender, except in certain circumscribed situations such as where the difference in pay is based upon the amount produced, quality of production, and so forth. Its biggest contribution may well be that it also gave rise to the concept of comparable worth. Comparable worth permits jobs that are not the same, but are of comparable worth to the employer, to be examined for wage disparities.
Employers should recognize that the gender classification of Title VII has been deemed not to include discrimination on the basis of affinity orientation. This category includes gays, lesbians, bi-sexuals, transgenders and others on the basis of gender identity. Discrimination on the basis of affinity orientation is not covered under Title VII, but many state and municipal governments have laws providing protection from job discrimination on this basis, and the list changes quickly. In addition, thousands of employers have such policies.
Discrimination on the basis of religion is also prohibited by Title VII. Not only should employers refrain from asking applicants or employees what their religion is, they should also refrain from treating employees differently based upon religion unless the law so permits. Unlike the prohibitions on race or gender, the prohibition on discriminating on the basis of religion is limited in that employers cannot discriminate unless to do so would present an undue hardship. The religion need not be one which the employer recognizes in order for Title VII to apply. As long as the employee’s belief is sincerely held and takes the place of religion in his or her life, the employer cannot dismiss it as not being a “legitimate” religion. Religious conflicts can arise in any number of ways, including an employee not being able to work certain days or hours because of his or her Sabbath, not being able to engage in certain activity because it is against his or her religion, the wearing of certain clothing, or inability to wear workplace required clothing, and so on. Again, an employer must accommodate on the basis of religion unless it would present an undue hardship to do so.
National origin discrimination can take a number of forms. It can be employer refusing to hire or firing those of a particular nationality, such as Asians or Iranians; having policies not permitting those with a native language other than English to speak their native language in the workplace even when it does not interfere with their jobs; not permitting those with accents to hold certain jobs, and so on. None of this is permissible under Title VII. “English only” rules may be permissible if the speaking of English is actually a job requirement.
THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967
If an employee is age forty or over, the employee cannot be discriminated against in any aspect of employment on the basis of age. Such targeting on the basis of age is a violation of the Age Discrimination in Employment Act, or ADEA. The Employee Retirement Income Security Act (ERISA) also prevents employees from being excluded from a pension plan because of age.
While age, as religion, can be a bona fide occupational qualification (BFOQ) reasonably necessary for the operation of the employer’s business, it is not to be used merely to justify not hiring older employees.
THE AMERICANS WITH DISABILITIES ACT OF 1990
The passage of the Americans with Disabilities Act (ADA) in 1990 provided Title VII-type relief to those who are disabled. The Act was hailed as the “Declaration of Independence” or “Emancipation Proclamation” for the disabled and the most far-reaching civil rights law since the Civil Rights Act of 1964. Disability discrimination is similar to religious discrimination in that it prohibits employers with 15 or more employees from discriminating against qualified applicants who are disabled unless to do so would present an undue hardship.
The law addresses three types of barriers to those who are disabled: (1) intentional discrimination due to social bias; (2) neutral standards with a disparate impact upon those who are disabled; and (3) barriers to job performance that can be addressed by accommodation. Under the ADA a disability is a physical or mental impairment that substantially limits one or more of a person’s major life activities.
Lesson Learning Objectives
By the conclusion of this Lesson you should be able:
- Describe the duties between agents and principals.
- Compare and contrast various types of businesses organizations.
- Explain the government regulations that impact corporations.
- Explain why there is a need for employment discrimination laws.
- Compare and explain the two theories of recovery under Title VII.
- Set forth the provisions of the Age Discrimination in Employment Act.
- Distinguish the employer defenses of BFOQ, business necessity and legitimate nondiscriminatory reason.
- Discuss what affirmative action is and is not.
Study Chapters 10 and 11 of the text.
The following Assignments should be completed and submitted to the course faculty via the learning platform for evaluation and grading. Submit your responses to these questions in one WORD document. List the question first, and then your response.
Be sure to properly site your sources, both in-text and with a reference list at the conclusion. If you use an online source to support your answers, you must provide a properly formatted link to the source. You should use APA citation format and make sure your sources are credible. In most cases, your responses should be no more than 100 words.
Short Answer Questions
- What is an agency? What is an agent?
- What is the difference between an agent and an independent contractor?
- What is apparent authority?
- What is ratification?
- What is a sole proprietorship?
- What is a limited partnership?
- To whom does Title VII apply and who is protected under Title VII?
- Explain hostile environment sexual harassment.
- Discuss briefly the Age Discrimination in Employment Act of 1967.
- What is the Americans with Disabilities Act of 1990?
- Contrast a public and private corporation.
Professional Development Questions
- Regina was involved in putting a corporation together for her and her brothers to operate a beauty salon. They agreed that Regina would buy the equipment, lease the beauty salon space, and hire the employees, which she did. Her brothers then got into a huge argument with each other and refused to pursue the business as planned. What role did Regina play and what is her liability to each of the things that she did for the non-existent corporation?
- Richard retires from the post office after a 35-year career. After being at home and dealing with his wife for a few days, he’s sorry he retired. Richard then applies for a position with the local recreation center as an after-school recreation coordinator. The superintendent does not hire Richard because he says Richard would not be able to keep up with the children in the recreation program because he is too old. Does Richard have a cause of action?
Lesson 5 Quiz
Use the quiz to test your knowledge of the concepts covered in this lesson. You may take the quiz as many times as you wish. The results are not calculated into your grade.