This Document Contains Chapters 11 to 12 Chapter 11: Agency CHAPTER OVERVIEW This chapter is the introductory chapter to the next unit of the textbook: Regulation in the Workplace. The starting point of workplace regulation is agency. The chapter covers the definition, categories, and creation of an agency relationships as well as liabilities and duties of principals and agents. The next chapter transitions into specific coverage of employment relationships including the employment-at-will doctrine. KEY LEARNING OUTCOMES Outcome Accreditation Categories Recognize, define and give examples of an agency relationship and be able to classify agents as either employees or independent contractors by applying the direction and control tests. Application, Critical thinking Understand the process for creating and terminating agency relationship and the impact of that relationship on the liability of the principal. Knowledge Define the fiduciary duties owed between principal, agent, and third parties. Knowledge Apply the doctrine of respondeat superior and identify its impact and limits. Application, Critical thinking TEACHING OUTLINE A. Definitions and Sources of Agency Law [P.303] Points to emphasize: • Agency is a legal relationship in which the parties agree, in some form, that one party will act as an agent for another party, called the principal, subject to the control of the principal. • Agency law generally exists in the state statutory level with a blend of state common law and is based on the Restatements (Second) of Agency. B. Classification of Agents [P.303] Points to emphasize: • Agents are classified into one of three broad categories: (1) employee agents, (2) independent contractor agents, or (3) gratuitous agents. • Employee Agents: Individual employees who are authorized to transact business on behalf of the employer/principal, and therefore the principals are liable for the employee agent’s actions or omissions. o An independent contractor agent is not considered an employee and has no legal protections of employees, and therefore the principal generally has no liability for the independent contractor agent’s actions or omissions. o Gratuitous agents are agents who act on behalf of a principal without receiving any compensation. • Employee Agents versus Independent Contractors: Direction and Control: The agent is classified applying a substance-over-form analysis based on the amount of direction and control that the principal has over the agent in terms of setting a work schedule, pay rate, and day-to-day supervision: o Generally, anyone who performs services for a principal is considered an employee if the principal can control what will be done and how it will be done; they are considered an independent contractor if the principal has the right to control or direct only the result of the work and not the means and methods of accomplishing the result. o IRS’s Three-Prong Test: The IRS considers (1) behavioral aspects of the agency, (2) the financial arrangements between principal and agent, and (3) the type of working relationship the parties had in terms of benefits and promises of continuing employment. • The consequences of a business owner or manager misclassifying an employee can be severe. Self-Check: Agency Classifications: What is More’s agency classification? [P.306] Solutions for Managers: Classification of Workers [P.307] C. Overview of an Agency Transaction [P.307] Points to emphasize: • Fundamentally, an agency transaction involves one party hiring another party to transact business on behalf of the hiring party. • First, an agency relationship is typically created expressly by the parties with the duties of the agent being set out by the principal; second, the parties perform their respective duties in accordance with their agreement and agency law; third, an agency transaction is ended by the termination of the agency by the parties. • Table 10.1: Agency Transaction Overview [P.248] • Creation of an Agency Relationship: Agency is described as a fiduciary relationship that results from manifestations of consent by the principal to the agent to act on the principal’s behalf subject to her control. o Manifestations and Consent: Courts apply an objective standard to determine if the principal manifested some offer to form an agency and the agent did in fact consent to the agency relationship. o Control: In addition to consent, the parties must have some sense that the principal is defining the tasks and objectives of the agency relationship. • Overlay of Agency Law with Other Areas of Law: The law of agency operates in tandem with other areas of the law, especially contracts and torts. Case 11.1 Bosse v. Brinker Restaurant dba Chili’s Grill and Bar, 2005 Mass. Super. LEXIS 372 (Mass. Superior Court) Facts: Bosse was part of a group of four teenagers who fled from a Chili’s restaurant without paying. A regular patron of the restaurant saw them leave without payment and followed them in his own car. The patron's car was unmarked; it bore no Chili's insignia. He wore civilian clothing and no uniform or other insignia of employment at Chili's. In the course of the high-speed chase, the teenagers collided with a cement wall and were injured. The pursuing patron left the crash scene area and was never identified. Issue: Do the actions of the parties result in the Chili’s patron being converted to an agent of Chili’s? Ruling: No. The court held that an agency relationship requires three elements: 1) consent, 2) right of control, and 3) the agent’s conduct must benefit the principal in some way. In this case, the court ruled that the evidence was insufficient to create a genuine issue whether Chili's authorized the patron to act as a posse to conduct a chase. Case Questions 1. If the pursuing patron were actually an off duty employee of Chili’s, how would that impact your agency analysis? Answer: In that case, the employee would be an agent of Chili’s. However, it still does not necessarily render Chili’s liable for the agent’s conduct (authority is discussed in the next section). 2. When the pursuing patron called the Chili’s employee with a description of the pursuit, and that employee in turn called the police, isn’t that an act of consent by Chili’s? Answer: The court determined that it was not enough because consent occurs when an agent agrees to act for a principal. However, the principal must first manifest some offer to form an agency. Here no such manifestation as present. Concept Summary: Overview of Agency Law [P.309] D. Liability of the Principal for Acts of the Agent [P.310] Points to emphasize: • For agency purposes, liability can arise either through a contract obligation or through vicarious liability in tort. • Authority: The power to bind the principal in a certain transaction is derived from the agent’s authority. o Actual Authority: Occurs when the parties either expressly agree to create an agency relationship or where the authority is implied based on custom or the course of past dealings. o Apparent Authority: Occurs when there is an appearance of legitimate authority to a third party and that third party was objectively reasonable in her belief that the apparent agent is in fact authorized to act for the principal. o Ratification: A retroactive source of the agent’s authority occurring when the principal affirms a previously unauthorized act by either (1) expressly ratifying the transactions, or (2) not repudiating the act via retaining the benefits while knowing that the benefits resulted from an unauthorized act by the agent. Case 11.2 Hannington v. University of Pennsylvania, 809 A.2d 406 (Pa. Super. 2002) [P.311] Facts: Hannington brought a breach of contract suit against Penn. Just prior to trial, Hannington’s attorney notified the court that a settlement had been reached and sent Penn a final draft of a proposed settlement agreement. Penn agreed to the terms and sent the agreement back to Hannington’s attorney with Penn’s authorized signatures. Hannington refused to sign the agreement, hired a new attorney, and opted to proceed to trial. The trial court refused to allow Hannington’s case to go to trial because Hannington’s attorney had apparent authority to settle the case. Issue: Does Hannington’s attorney have apparent authority to settle the case even though Hannington refused to sign the settlement agreement? Ruling: Yes. Under the doctrine of apparent authority, the innocent party, Penn, was entitled to rely on counsel’s representations where they reasonably believed that Hannington’s attorney had the authority to settle the case. Answers to case questions: 1. Suppose that in the middle of settlement negotiations, Hannington becomes frustrated with the impasse. He hires his neighbor, another attorney not yet involved in the case, to draft a settlement agreement and sends it to Penn. Is apparent authority created in this circumstance? Explain. Answer: In this circumstance, the newly hired attorney may not have apparent authority to settle the case. The key to understanding the power of apparent authority is to determine if a third party was objectively reasonable in her belief that the apparent agent is in fact authorized to act for the principal. If Penn spent over three months negotiating with one attorney and then all of a sudden received a settlement agreement from another attorney, it is not objectively reasonable that the unknown attorney is in fact authorized to act for the principal, Hannington. 2. Since Hannington never actually signed the agreement, was it reasonable for Penn to assume that Hannington’s attorney had obtained his express consent to the terms? Has the court effectively deprived Hannington of his right to proceed to trial? Answer: Even absent Hannington’s signature, it was objectively reasonable for Penn to assume that Hannington’s attorney had obtained his express consent to the terms. • Contract Liability to Third Parties: An agent’s liability to third parties in a contract hinges on whether the agency relationship is fully disclosed, partially disclosed, or undisclosed. o Fully Disclosed Agency: Created where the third party entering into the contract is aware of the identity of the principal and knows the agent is acting on behalf of the principal in the transaction – Only the principal is contractually obligated to the third party. o Partially Disclosed Agency: Created where the third party knows that the agent is representing a principal, but does not know the actual identity of the principal – Both the principal and the agent may be liable for the obligations under the contract. o Undisclosed Agency: Created where a third party is completely unaware that an agency relationship exists and believes that the agent is acting on her own behalf in entering a contract – The agent is fully liable to perform the contract. • Tort Liability to Third Parties: The doctrine of respondeat superior stands for the proposition that a principal (employer) is liable for the servant/agent’s (employee) tort when the act resulted in some physical harm or injury and occurred within the employee’s scope of employment. o Scope of Employment: In order for the principal to be liable, the agent’s tortuous conduct must have (1) been related to her duties as an employee of the principal, (2) occurred substantially within the reasonable time and space limits, and (3) been motivated, in part, by a purpose to serve the principal. Case 11.3 Edgewater Motels, Inc v. A.J. Gatzke and Walgreen Company, 227 N.W.2d 11(Minn. 1979) [P.314] Facts: Walgreen employed Gatzke and paid for Gatzke’s temporary housing at the Edgewater Motel for a period of several weeks while Gatzke supervised the opening of a new restaurant. Gatzke used his hotel room as a makeshift office, and as a management-level salaried employee, had no set work schedule. On one workday, Gatzke returned to his hotel room after a business dinner and cocktails while discussing the new restaurant and began to fill out his expense report when he accidentally dropped a lit cigarette in the trashcan next to his desk. This started a fire resulting in severe damage to the motel and Edgewater sued Walgreen claiming that they were vicariously liable for the acts of Gatzke as its employee agent. Issue: Was Gatzke’s negligent smoking outside the scope of his employment and therefore outside the ambit of respondeat superior? Ruling: No. The court pointed to the chain of events that led to the negligence and concluded that in this context, Gatzke’s actions were all in furtherance of Walgreen’s business and short personal interruptions, such as smoking, do not necessarily take the employee agent outside of his scope of employment. Answers to case questions: 1. If the evidence showed that Gatzke had intentionally tried to commit arson, how would that impact the court’s analysis? Answer: If the evidence showed that Gatzke had intentionally tried to commit arson, then this would be classified as an intentional tort of an employee. Under this analysis, Walgreen would have no liability to Edgewater unless the act was directly tied to Gatzke’s responsibilities. Only Gatzke would be liable to Edgewater for damages. 2. Suppose that Gatzke had been writing out personal postcards and not been filling out an expense report when he started the fire. Would Walgreen still be liable? Answer: Under this circumstance, Walgreen would likely not be held liable, as they would assert the exception of frolic, protecting them from any harm suffered as a result of Gatzke’s negligence while on the frolic. The act of writing personal postcards is purely for Gatzke’s own reasons that are unrelated to employment and thus during this time, Gatzke’s conduct would be outside of the zone that is governed by respondeat superior. Edgewater could contend that the act of filing out personal postcards was only a small-scale deviation and thus a simple detour; however, filling out postcards is not normally expected in the workday. o Frolics and Detours: Frolic is another exception to the respondeat superior doctrine occurring when an agent, during a normal workday, does something purely for her own reasons that is unrelated to employment. • If the conduct is a small-scale deviation that is normally expected in the workday, that is not considered a frolic, but rather a detour, which is still within the ambit of respondeat superior. o Intentional Torts: Generally, intentional torts by an agent are thought of to be outside the scope of employment and, therefore, employers are not liable for such conduct unless the intentional tort has a close connection to serving the principal. • Negligent Hiring Doctrine: A tort based theory of liability for employers for negligent or intentional torts of employees when the employer had reason to know that the employee may cause harm within his scope of employment. o Negligent hiring occurs when, prior to the time the employee is actually hired, the employer knew or should have known of the employee’s unfitness. o Independent Contractors: Generally, principals are not liable for the negligent acts or omissions of an independent contractor agent except for when the principal hires a contractor for an inherently dangerous job that poses a peculiar risk. Concept Summary: Principal and Agent Liability to Third Parties [P.316/317] Teaching Tip: Using the Summary Charts/Examples for Principal and Agent Liability to Third Parties. Agency can be a difficult concept for students because the subject matter can be dry and abstract. I have found that students benefit from a review of liability through the use of the Concept Summary (charts on p. 316-317) and asking students to provide me with an example of each type of liability. Use of the margins helps students set up a good study aid to review before an exam. E. Duties, Obligations, and Remedies of the Principal and Agent [P.317] Points to emphasize: • Certain duties and obligations of the parties are inherent in an agency relationship. • Agent’s Duties to the Principal: Agents owe a fiduciary duty to principals, requiring that the agent act according to higher standards than nonfiduciaries in a transaction, including the duty of loyalty, obedience, care, disclosure, and accounting. o Loyalty: The centerpiece of fiduciary obligation because the agent is obliged to advance the principal’s interest over her own interests. • The duty of loyalty applies universally to all agents irrespective of the scope of the agency. o Obedience: An agent has the duty to obey lawful instructions from the principal and cannot substitute her own judgment for the judgment of the principal (unless specifically authorized). o Care: The duty to act with due care requires the agent to act in the same careful manner when conducting the principal’s affairs as a reasonable person would use in conducting her own personal affairs. • Gratuitous Agents: Held to a lower duty of care to the principal, whereby in order to breach his duty he must have acted so recklessly that a reasonable person would regard the conduct as grossly negligent. o Disclosure: Agents have an ongoing duty to keep the principal informed and disclose any and all relevant facts to the principal throughout all phases of the relationship. o Accounting: Unless the parties agree otherwise, the agent must keep appropriate written records for any money that the agent spends or receives in the course of the agent’s representation. Self-Check: Fiduciary Duty: Which fiduciary duty, if any, was breached? [P.320] • Principal’s Remedies for Breach: If an agent’s breach of duty to the principal causes damages to the principal, the principal may recover those damages from the agent; if the agent’s breach of duty resulted in the principal’s becoming liable to a third party, then the agent must indemnify and hold harmless the principal from any losses as a result of the liability. o Rescission and Disgorgement: If the agent breaches the duty of loyalty, the principal may rescind any agreement between principal and agent and the agent may be liable to return profits earned as a result of the breach. • Duties and Obligations of the Principal to the Agent: Principals have a duty to reimburse and indemnify agents for expenses incurred, injuries suffered, or damages caused to third parties when the agent acted within the actual authority or in good faith on behalf of the principal. o A principal does not have a duty to reimburse or indemnify the agent if the payments made or expenses incurred were (1) outside the agent’s actual authority, or (2) from losses resulting in the agent’s negligence, or (3) from losses resulting from the agent’s intentional tort or an illegal act. • Agent’s Remedies for Breach: When a principal breaches a duty owed to an agent (e.g. refuses to reimburse or indemnify), the agent generally has the right to recover damages in court. Case 11.4: Romanelli v. Citibank, 60 A.D.3d 428 (2009) [P. 321] Facts: Romanelli hired Schor as an accountant and financial advisor for his business and personal matters. Schor suggested opening accounts at a new bank in order to obtain a lower interest rate on a line of credit. Romanelli, as principal of Romanelli, Inc., signed a business account application, corporate resolution, and signature card and gave it to Schor. Schor used this account to embezzle several hundred thousand dollars from Romanelli. Issue: Since Schor was not authorized to conduct business on Romanelli’s behalf, were the banks negligent in allowing him to do so? Ruling: No. The court ruled that principles of agency that made principals liable for authorized acts of agents also made the principles liable for unauthorized acts. The risk of loss from the unauthorized acts of a dishonest agent falls on the principal that selected the agent. Case Questions: 1. Romanelli argued that Schor was acting outside his scope of authority and thus no liability for the principals exists. Does that strike you as convincing? Answer: This question is intended to spur discussion on the type of line that a court must draw in terms of unauthorized acts of an agent versus the realities of protecting an innocent third party. 2. What remedy does Romanelli have against Schor? Answer: Since the agent’s breach of duty caused damages, Romanelli is entitled to indemnification, rescission, and disgorgement of any profits. F. Termination of the Agency Relationship [P.322] Points to emphasize: • An agency relationship is terminated either through express acts (termination or expiration) or through operation of law (destruction of subject matter, death, bankruptcy, mental capacity). • Express Acts: Acts in which an agency relationship is terminated through either simply communicating the desire to terminate the relationship, the expiration of a fixed term, or satisfaction of purpose. Solutions For Managers: Eliminating Lingering Liability via Notification [P.323] Teaching Tip: Legal Acumen in Business Planning The Solutions for Managers feature on p. 323 provide an ideal and practical example of how a manager’s legal knowledge can be integrated into business planning to limit risk by eliminating “lingering liability” after an agency has been terminated. • Operation of Law: Method in which an agency relationship is terminated as provided for by a statute or through certain common law doctrines covering the destruction of an essential subject matter, or death, bankruptcy, or lack of requisite mental capacity. Concept Summary: Duties, Obligations, and Remedies of the Parties [P.324] END OF CHAPTER PROBLEMS, QUESTIONS AND CASES Theory to Practice [P. 326] 1. Crusoe would be classified as an independent contractor. Under the general test of direction and control, CCT’s oversight is limited and they have not set any specific work schedule for him to accomplish his tasks. Under the IRS three-prong test: Behavioral- Crusoe has independent judgment as to how to perform his duties; Financial- Crusoe is paid only upon invoice and is required to document his hours; Working relationship- Although Crusoe spends 100% of his time for CCT, it is clear that this assignment is project oriented rather than an ongoing employment relationship. [Ties to Classification of Agents] 2. Crusoe’s authority is “actual” because principal and agent (CCT-Crusoe) expressly agreed to the agency relationship. [Ties to Authority] 3. Because Crusoe is an independent contractor, CCT is not vicariously liable for his negligence. This is why understanding agent classification is crucial—if Crusoe was an employee agent rather than an independent contract, CCT would have had vicarious liability for an injuries suffered as a result of Crusoe’s negligence. [Ties to Tort Liability to Third Parties] 4. Crusoe’s actions violated his fiduciary duty as an agent. Specifically, he violated the duty of loyalty, care, and perhaps disclosure. Crusoe’s selling of the trade secrets is the classic type of self-dealing which are prohibited by the Restatements. CCT’s potential remedies are rescission (rescind any transaction) and disgorgement of Crusoe’s profits as a result of the breach. [Ties to Agent’s Duties to the Principal] 5. CCT would probably be liable under a theory of lingering liability. Given the course of past dealing with the office supply store, Crusoe could still have apparent authority to transact business despite the fact that CCT terminated the agency relationship, their failure to give notice to the office supply store could give rise to CCT’s liability through Crusoe’s apparent authority. [Ties to Termination of the Agency Relationship]. 6. CCT could have sent a simple notification to the office supply store informing them that Crusoe was no longer associated with CCT and that any new orders must be specifically authorized. [Ties to “Solution for Managers”] Manager’s Challenge [P. 327] Sample answers to all Manager’s Challenge exercises are provided in the student and instructor’s versions of this textbook’s Web site: www.mhhe.com/melvin. Case Summary 11.1: Respondeat Superior: Bishop v. Texas A&M University [P.327] 1. Do you believe TAMU should be held vicariously liable under the doctrine of respondeat superior in this case? Why or why not? Answer: TAMU should be held vicariously liable under the doctrine of respondeat superior in this case because the faculty advisor that supervised the performance acted negligently and was an employee-agent acting in the scope of employment. 2. Assume that the directors were independent contractors rather than university-employed faculty, how does that affect your analysis? Explain. Answer: If the directors were independent contractors rather than university-employed faculty, TAMU would likely not be held vicariously liable under the doctrine of respondeat superior because principals are generally not liable for negligent acts of agents that are independent contractors. Case Summary 11.2: Public Policy: Brundridge v. Fluor Federal Services, Inc. [P.328] 1. What exceptions displacing the employment-at-will doctrine could the pipe fitters assert? Answer: Possible exceptions include: collective bargaining agreements (express contract); Implied contracts (if employee handbook extended some protections for employees such as a process of progressive discipline before termination); Statutory prohibitions under the whistle-blower statute (if they reported their supervisor’s conduct to authorities prior to termination); and a public policy exception. 2. What theory would be best advanced by the pipe fitters? Explain. Answer: The public policy exception would be the best theory because the termination was certainly inconsistent with the general public’s well being in light of possible nuclear contamination. Case Summary 11.3: Fiduciary Duty: Toms v. Links Sports Management Group [P.328] 1. What agency relationship exists between Toms and Parker? Answer: Toms and Parker’s relationship would best be characterized as an independent contractor agency because Parker is a professional service provider and maintains majority of the direction and control of his own business. 2. If an agency relationship exists, when was a fiduciary duty created and what subduties apply to this case? Explain. Answer: Fiduciary duties are formed automatically and need not be agreed upon by the parties specifically and these fiduciary duties include the subduties of loyalty, obedience, care, disclosure and accounting. Loyalty and disclosure are the duties that apply most specifically to this case because Parker attempted to advance his own interests over that of Toms by disclosing relevant information. 3. Is Parker’s employer also liable for the actions of Parker? Why or why not? Answer: Parker’s employer could also be held liable for Parker’s actions if he was an employee and was acting within the scope of his employment. Case Summary 11.4: Independent Contractor Status: Estrada v. FedEx Ground Package System, Inc., [P.328] 1. Should the drivers be classified as independent contractors? Answer: Yes. The court held that FedEx can no longer shield themselves from agent created liability through agreements and labels. They now must align their conduct with the classification they seek and balance this with the interest of best business practices. 2. What tests should the court apply to determine the status of the drivers? Answer: Direction and control. Paid weekly; receive standard benefits; Full-time schedules; FedEx insignia Quick Assessment Questions (QAQs) 1. Which of the following is/are express acts that terminate an agency relationship? a. Destruction of subject matter b. Expiration c. Bankruptcy d. a and c e. All of the above Answer: b 2. Which of the following duties is the centerpiece of fiduciary obligation whereby the agent is obliged to advance the principal’s interest over his own interests? a. The duty of care b. The duty of obedience c. The duty of disclosure d. The duty of loyalty e. The duty of accounting Answer: d 3. Which of the following is derived from the doctrine of respondent superior? a. An employer is never held liable for an employee’s tort because they are independently liable for their own actions. b. An employer is always held liable for an employee’s tort when the act resulted in some physical harm. c. An employer is held liable for an employee’s tort only when the act resulted in some physical harm and occurred within the employee’s scope of employment. d. An employer is held liable for an employee’s tort only when the act resulted in some physical harm and occurred on a frolic or detour. e. None of the above Answer: c 4. Agency law generally exists at the federal statutory level and is based on the Restatements (Second) of Agency. Answer: False 5. The status of an agent is determined based on a written operating agreement. Answer: False 6. The public policy exception is a widely applied exception that displaces the employment-at-will rule. Answer: False Chapter 12: Employment Relationships and Labor Law OVERVIEW This chapter continues thus unit by bridging from the previous chapter’s discussion of agency to the employment-at-will doctrine and coverage of the regulation of employment relationships. The chapter covers laws related to the well-being of the employees, and also labor law, which governs the rights of workers to organize and operate labor unions. Note that employment discrimination is covered in the next chapter. KEY LEARNING OUTCOMES Outcome Accreditation category Describe the main statutory protections in the areas of: wages and hours, retirement, health care, sudden job loss, work-related injuries and workplace safety, and medical or family leave. Knowledge Identify federal statutes that impact labor-management relations and give examples of specific protections for workers that are set out in each law regarding union formation, collective bargaining, and right to strike. Analysis, Knowledge, Critical thinking Differentiate between an economic strike and a unfair labor practices strike and give examples of illegal work stoppages. Analysis, Knowledge, Critical thinking TEACHING OUTLINE A. Origins of Employment Regulation [P.331] Points to emphasize: • In the mid-1880s employment opportunity shifted away from agriculture toward industrial production whereby there was an availability of an abundant workforce comprised of immigrants and displaced farmers willing to work long hours for low wages in poor, unregulated working conditions. • However, in the early 1900s, a growing labor movement forced the federal government to legislate federal protections for employees regarding working conditions, unionization, child labor laws and additional worker protections. Teaching tip: Law and literature I am always looking for ways to connect the legal material discussed in class to other disciplines so that students understand the inter-relationship of their coursework in the curriculum as a whole. Covering the origins of employment regulation law provides the opportunity to relate many good examples of how literature affected law. I use The Jungle as an example of how a novel helped shaped public policy (see footnote 1, p. 331), but there are many other works of that era that would make the same point. It also provides a spring board to a broader discussion about government regulation in general and notions of corporate social responsibility (covered in Chapter 5). B. Employment-At-Will [P.332] • Agency-based legal doctrines that apply to the interaction between employer and employee are governed by a combination of state common law and statutory law at both the federal and state levels. • Employment-at-Will Doctrine: Stands for the proposition that employers have the right to terminate an employee with or without advance notice and with or without cause, subject to certain exceptions. o Express Contracts: An important exception to the employment-at-will rule when an employee has an express contractual relationship with the employer. o Labor Contracts: Collective bargaining agreements often provide a protection by prescribing a process that must be used by the employer before terminating an employee. o Implied Contracts: Employment-at-will relationships may be converted into an implied contract relationship if the employer acted in a manner where a reasonable person would believe the employer intended to offer an employee protection from termination without cause, through either a manual or bulletin, or an oral promise. o Statutory Prohibitions: Certain federal and state statutes displace common law employment-at-will rules (e.g. antidiscrimination laws). • Whistle-Blowers: An important statutory prohibition for business owners and managers are federal and state statutory protections of whistle-blowers, who are generally protected when they report the violation of a law or a standard by their employer to the authorities. • Employers may terminate employees who are whistle-blowers if they can show that they terminated the employee for reasons that are independent of any whistle-blowing. • Federal Whistle-Blower Statutes: Federal employees and employees of companies that contract with the government to provide goods or services are protected from retaliation for whistle-blowing by the Whistleblower Protection Act of 1989. • Public Policy Exception: A common law rule that places the public welfare ahead of the rights on an employer and allows employers to terminate an employee for certain reasons that contradict public policy. • Courts have been reluctant to expand the narrow public policy exception (Bammert v. Don’s Super-Valu, Inc. [P.335]). • Absent a specific statutory protection (such as a whistle-blower law) the threshold for relief using a public policy justification is very high. Case 12.1: Jasper v. H. Nizam, Inc., 764 N.W.2d 751 (Iowa 2009) [P. 334] Facts: Jasper was hired as the director of Kid University (KU) with no specific terms of employment. A short time after Jasper started her employment, the owners insisted that Jasper find a way to cut staff expenses, and Jasper protested that the current staffing was necessary for compliance with state regulations. Soon thereafter, KU terminated Jasper from her employment at the facility. Issue: Was Jasper’s refusal to violate the staff-children ratio the basis for her termination and is such a termination a violation of public policy? Ruling: Yes. The court held that, even absent a statute, a clear public policy existed that child care centers be adequately staffed. Case Questions 1. KU pointed out that there was no evidence that it actually violated the regulation during Jasper’s period of employment. Shouldn’t an employer have to “act” before any public policy concerns justify an exception to the employment-at-will rule? Answer: This question is intended to spur discussion on how far courts should go in carving out exceptions to the employment-at-will doctrine. Yes, an employer should typically have to actively violate the regulation before public policy concerns justify an exception to the employment-at-will rule. Merely having the potential for a violation is generally insufficient for an exception. 2. Does the court’s ruling mean that all state administrative regulations are now the source of public policy considerations? Answer: No. Public policy is applied very narrowly and the court made clear that the regulation dealing with child care is what made it fit into this narrow exception. Concept Summary: Employment Relationships [P.336] C. Employment Regulation [P.335] Points to emphasize: • Federal law often works in tandem with state law in regulating employers with respect to minimum wages, overtime pay, use of child labor, sudden job loss, workplace injuries, workplace safety, and medical leave. • Wages and Hours: The centerpiece of wage and hour law protections is the Fair Labor Standards Act (FLSA) passed in 1938 and intended to cover all employers engaged in interstate commerce in providing payment of a minimum wage, a maximum 40-hour workweek, overtime pay, and restrictions on children working in certain occupations and during certain hours. o Minimum Wage, Maximum Hours, and Overtime: Minimum wage is currently set at $7.25, however states are permitted to set a higher minimum wage level for employees working within a state’s jurisdictional boundaries. • 40-hour Workweek: The FLSA sets a standard workweek at 40 hours in a seven-day period and any hours worked by an employee over the standard workweek are entitled to overtime compensation calculated at time and a half times the employee’s hourly base rate. • Exempt Employees: The FLSA does not cover all employees, exempt employees are generally those whose responsibilities are primarily executive, administrative, or professional. o Examples of employees that are not covered by the FLSA include (1) professionals that require specialized study and certifications; (2) management or supervisory employees; (3) computer programmers and engineers; and (4) employees subject to certain certification and regulatory requirements. o The consequences of the misclassification may be severe. o Figure 12.1: FLSA Liability [P.339] Case 12.2 Falcon, et al. v. Starbucks Corporation, 580 F.Supp.2d 528 (S.D. Tex. 2008) [P.338] Facts: In October 2002, Starbucks changed the job description for assistant store managers (ASMs) to include routine tasks including service, cleaning, and other nonmangement tasks, and reclassified them for purposes of the FLSA from “exempt” to “nonexempt.” Though this made all ASMs throughout the country eligible for overtime, Starbucks did not increase store labor budgets and store managers were discouraged from allowing workers overtime. Several ASMs filed suit claiming that the new job responsibilities could not be completed in 40 hours and that Starbucks managers enforced an unwritten policy of encouraging or allowing ASMs to work “off-the-clock” in order to control overtime costs in violation of the FLSA. Issue: Did the Starbucks policies amount to FLSA violations? Ruling: Yes. Evidence showed that Starbucks created an environment that motivated managers to commit the alleged FLSA violations because ASM job duties were not easily completed within 40 hours while overtime was strongly discouraged, labor budgets were not increased, and manager bonuses were based, in part on limiting overtime hours. Answers to case questions: 1. What could have Starbucks done to be sure that its prohibition against off-the-clock work was enforced? Answer: Starbucks could have reduced the job responsibilities of ASMs to the extent that they could reasonably be completed in a 40-hour workweek. They could have also had an internal policy in place whereby employees could anonymously report managers that violated its prohibition against off-the-clock work. Alternatively, Starbucks could have increased store labor budgets to compensate for the expected increases in overtime pay. 2. Why does the court consider it important that Starbucks did not increase store budgets when they reclassified the ASMs as nonexempt? Answer: The court considered it important that Starbucks did not increase store budgets when they reclassified the ASMs as nonexempt because they could reasonably anticipate that ASMs would continue to work more than 40 hours after the reclassification. In knowing that they would likely continue to work more than 40 hours and not providing the financial resources or support necessary to ensure overtime compensation, they were indirectly encouraging off-the-clock work. Self-Check: Exempt vs. Covered Employees: Which employees are exempt from the FLSA protections? [P. 339] • Child Labor Laws: The FSLA imposing restrictions on hiring workers under 18 years old (Table 12.1: Child Labor Restrictions [P.340]). • Retirement: Employers are not required to establish retirement plans for their employees although as a competitive matter many often offer a pension or a tax-deferred retirement savings account to attract and retain high-quality employees. o Regulation of Pensions and Retirement Accounts: Employers that establish retirement benefits are subject to the requirements of ERISA laws and regulation that primarily requires employers to (1) make certain disclosures related to investment risk, and (2) provide transparency to plan beneficiaries. • Social Security: The Social Security Act of 1935 provides a retirement income from the federal government and a broad set of benefits for workers that are funded by mandatory employment taxes paid by both employer and employee into a trust fund and administered by the federal government. • Health Care: Employers are not required to provide employees with health care insurance or plans; however, it they do, the Health Insurance Portability and Accountability Act (HIPPA) sets administrative rules and standards designed to protect employee medical information and records from disclosure to a third party, and the Consolidated Omnibus Budget Reconciliation Act (COBRA) mandates that employers provide (not pay) continuous coverage to any employee who has been terminated for up to 18 months. o Health Care and Education Reconciliation Act of 2010: Act overhauling the U.S. health care system, whereby in 2014, individuals who are not covered through their employer’s policy are legally required to purchase health care insurance from a health care “exchange” that is set up by individual states (or groups of states). • Sudden Job Loss: The Federal Unemployment Tax Act (FUTA) of 1935 provides limited payments that are funded by employer-employee employment taxes to workers who have been temporarily or permanently terminated from employment through no fault of their own. o WARN Act: Employers with 100 or more employees to provide at least a 60-day written notification of facility closings and mass lay-offs of employees. • Workplace Injuries: All states now have workers’ compensation statutes that provide an employee, injured in the course of employment, with a partial payment funded through employer-paid insurance policies, in exchange for mandatory relinquishment of the employee’s right to sue his or her employer for the tort of negligence. o Intentional Actions or Recklessness of Employer: Two important exceptions whereby the injured party may bypass the workers’ compensation system and sue the employer for a full recovery including punitive damages are (1) when an employer has engaged in actions that intentionally create conditions that resulted in harm, or (2) when an employer acts with a reckless disregard for the safety of its employees. o Course of Employment: In order to trigger protection under workers’ compensation laws, the injury must meet two main criteria: (1) the injury was accidental, and (2) the injured occurred within the course of employment. The definition of these terms is a hot topic in the business community. Employers fear that the definition has become too broad because of cases such as Sisco (p. 345). Case 12.3 Sisco v. Quicker Recovery, Inc., 180 P.3d 46 (Ct. App. Ore. 2008) [P.345] Facts: Sisco worked as a tow truck driver for Quicker Recovery, a towing company that had a contract to provide towing services for a police department within 30 minutes of receiving the request for services. In route to tow an impounded truck, Sisco was pulled over for speeding and refused to produce identification for the police, physically resisted arrest, and was subdued by officers who used an electronic stun gun to take him into custody. The day after the arrest, Sisco complained of neck pain and recurring spasms that prevented him from working caused by the altercation with the officers and submitted a worker’s compensation claim, which was subsequently denied by the state’s compensation board. Issue: Can workers’ compensation rights extend to an employee who was injured during a criminal act? Ruling: Yes. The court held that the risk of proximate interaction with the officers after being stopped for speeding while responding to a tow call was sufficiently related to his employment and therefore, the employee’s injury did “arise out of” his employment. Answers to case questions: 1. Suppose Sisco’s altercation occurred while he was en route to his house during an unpaid one-hour lunch break. Would Sisco still be eligible for compensation? Why or why not? Answer: In this situation, the court could find that Sisco’s returning home for lunch during an unpaid one-hour lunch break would be outside the scope of his employment because the injury did not directly arise out of and in the course of employment. Under this analysis both the time and the place facets would not be directly related to Sisco’s employment. However, even when the injury is indirectly related to the employee’s job responsibilities, courts have been willing to extend workers’ compensation coverage to the injured employee. It could be argued that Sisco would still be eligible for compensation because as a tow truck driver, Sisco had to drive somewhere for lunch, thus, his detour was sufficiently related to his employment. 2. Would Sisco have been better served trying to articulate a negligence claim? Explain. Answer: No, because negligence would be a difficult theory to prove in this case. Under the workers’ compensation system, the employee is paid regardless of any issues related to fault or negligence of the employee, the employer, or any third party. This plan would best serve Sisco because it assures him an immediate, more certain, and continuous income. 3. Doesn’t public policy prevent a worker from claiming compensation for an incident involving a criminal act? Should the court take public policy considerations into account? Answer: The workers’ compensation system allows for compensation regardless of negligence on the part of the employee. The underlying theory is that workers compensation furthers a public policy objective in itself by providing compensation to employees with job-related injuries or illnesses. If Sisco was not a tow truck driver employed by Quicker Recovery, it would be unlikely that Sisco would be in the situation to commit the criminal act in the first place. • Regulation of Workplace Safety: The Occupational Safety and Health Act (OSHA) passed in 1970 makes the workplace as safe as possible for workers engaged in business operations through (1) setting of national safety standards, (2) mandating information disclosure and warning of hazardous working areas/assignments, (3) record keeping and reporting requirements, and (4) imposing a general duty upon employers to keep a workplace reasonably safe. o Occupational Safety and Health Administration: The federal administration charged with administering and enforcing the Occupational Safety and Health Act. • OSHA Provisions: Employers with 11 or more employees are required to maintain records about the company’s safety records and to document the investigation of any accident among other industry specific rules and standards. • Under the OSHA rules, employees have a limited right to walk off the job when faced with a hazardous workplace condition (Whirlpool v. Marshall [P.346]). Case 12.4 Corbesco v. Dole, 926 F.2d 422 (5th Cir. 1999) [P. 347] Facts: Corbesco was an industrial roofing company that was hired to install roofing and insulation at a site where workers were on the roof of a hanger that was 60 feet high. Although the roof was essentially flat and there was little danger of slippage due to its slope, the nature the work required the workers to kneel or stand on the edge of the roof. This resulted in high winds posing a significant danger to the workers and Corbesco regularly sought wind and weather forecasts from the National Weather Service. Mathew, one of Corbesco’s workers installing insulation on the roof, lost his balance after a wind gust caught the sheet of insulation he was holding and was killed. OSHA issued a citation and penalty based on an OSHA safety net regulation. Issue: Did OSHA’s citation violate Corbesco’s rights to due process? Ruling: No. The court rejected Corbesco’s contention that safety net rule was a “general regulation” and that the government was required to show that Corbesco had actual knowledge that it was required to furnish the safety nets. Case Questions: 1.When a particular custom and practice of an industry have been established, is it necessary for OSHA to still regulate in that area? Why or why not? Answer: It is a public policy question. Should businesses be allowed to self- regulate or should the government’s role in protecting employee safety take precedence? 2. OSHA determined that a flat roof cannot be considered a temporary floor. Corbesco argued otherwise. Is it fair to Corbesco that it is cited when the regulation is not specific and is open to interpretation? Answer: Ultimately, the role of the courts is to decide whether or not a regulation is specific enough to warrant a citation. On the other hand, Corbesco did not act in bad faith and still was fined. 3. OSHA officers had visited the site several times prior to the accident but had never informed Corbesco that safety nets were needed. As a government agency, OSHA has immunity from lawsuits for negligent or improper safety inspections. Is it right for OSHA to issue the citation when the agency had failed to notify Corbesco of the violation? Answer: This was Corbesco’s primary argument, but it failed. Although the administrative law judge reduced the penalty from $1000 to $50, Corbesco was still likely to face a lawsuit from the estate of the worker killed in the accident. It is hard to imagine what more Corbesco could have done. It is almost a strict liability standard imposed by the court. • Family Medical Leave Act (FMLA): Sets out basic protections for workers who need a brief leave from work to care for themselves or an immediate family member. o FMLA Scope and Coverage: The FMLA applies to employers who have 50 or more full-time employees and requires that employers provide up to 12 weeks of unpaid leave to eligible employees for the purposes of caring for family medical matters during any 12-month period. o FMLA Protections: Requires that (1) employer maintain the employee’s health care benefits throughout the leave period; (2) employers do not take or threaten any adverse job action against the employee; (3) upon returning from the leave, employees are guaranteed employment in the same or similar job at the same rate of pay; and (4) employers must reinstate an FMLA leave employee immediately upon the employees notification that the leave is over. o Key Employees: Employees whose salary range is in the top 10 percent of all salaries of the company, whom although entitled to FMLA protections, employers have a right not to reinstate if reinstatement would cause a “substantial and grievous economic injury.” Concept Summary: Employment Regulation Laws [P. 348] D. Employee Privacy [P.349] Points to emphasize: • Generally, an employee’s right to privacy in the workplace is very limited; however, employees may have some limited rights that are typically afforded by statute. • Monitoring of E-Mails and Internet Usage: An employee’s activities while using an employer’s computer system are not protected by any privacy laws. o Employer Liability: Employers are increasingly employing elaborate employee monitoring measures primarily to limit their risk of vicarious liability. • Telephone and Voicemail: The Electronic Communications Privacy Act (ECPA) restricts an employer from monitoring an employee’s personal calls or accessing an employee’s office voicemail without their consent or unless it is in the ordinary course of business. • Drug and Alcohol Testing: Employee privacy protection from the use of regular or random drug or alcohol tests in the workplace is governed primarily by state statutes and these laws vary considerably. o American with Disabilities Act Considerations: The ADA prohibits discrimination on the basis of physical disability; therefore, if the testing uncovers a former drug addiction, under certain circumstances the employee is protected from discipline or termination. • Polygraph Testing: The Employee Polygraph Protection Act prohibits most private sector employers from requiring a polygraph test as a condition of employment. Case 12.5: Leonel v. American Airlines, 400 F.3d 702 (9th Cir. 2005) [P. 351] Facts: Leonel and two other applicants were given conditional offers of employment by American Airlines. The offers of employment were contingent on passing background checks and medical examinations. Prior to the background checks being completed, American sent Leonel and the other applicants to its on-site facility for the required medical exams and each applicant filled out a medical questionnaire. Although Leonel and the other applicants were HIV-positive, they did not disclose their condition or related medications on the questionnaire. After blood tests revealed that the applicants were HIV-positive, American rescinded the employment offers citing each applicant’s failure to disclose relevant information on the medical questionnaires. Issue: Did the premature medical exams required for Leonel and the other applicants violate the American with Disabilities Act (and similar state statutes)? Ruling: Yes. The court held that the ADA and California state statutes prohibits the use of medical testing prior to such time as the application process was completed. The court rejected American’s argument that the expedited medical examinations were necessary to remaining competitive for the best candidates. Case Questions: 1.Why should medical tests be given only after all nonmedical tests are completed satisfactorily? Answer: To avoid possible liability under the ADA by separating the hiring process from the medical process. 2. Why did the court determine that American had not truly tendered a conditional offer of employment? Answer: Because the employer had not conducted a background check before the medical testing and did not establish a reason why they could not complete the background checks before the medical exams were given. 3. At what point would a true conditional offer of employment have been appropriate? Answer: After the background checks. E. Labor Unions and Collective Bargaining [P.351] Points to emphasize: • Another source of legal protections for workers is through labor unions. • Labor Law: The National Labor Relations Act (NLRA) is administered, implemented and enforced by the National Labor Relations Board (NLRB) and provides general protections to the rights of workers to organize and engage in collective bargaining • In general, the NLRA covers all employers whose business activity involves some aspect of interstate commerce. • Labor-Management Relations: Through amendments to the NLRA, Congress deemed certain labor practices as illegal, thus making them an unfair labor practice under the NLRA. o Labor-Management Relations Act: (also known as the Taft-Hartley Act) A federal law enacted in 1947 prohibiting the forcing of employees to join or continue membership in a union as a condition of employment. o Labor-Management Reporting and Disclosure Act: (also known as the Landrum-Griffin Act) A federal law enacted in 1959 to establish a system of reporting and checks intended to uncover and prevent fraud and corruption among union officials through regulating internal operating procedures and union matters. • Union Formation: If an employer has not already recognized a union, and a group of employees decide they wish to form a collective bargaining unit to deal with labor-management matters, the NLRA sets out a procedure for forming a union (Table 12.2: Forming a Union [P.355]). o Authorization Cards: Signed statements by employees indicating that they wish to unionize and/or are electing to be represented by an existing union of which at least 30 percent must be signed by employees in a certain bargaining unit. o Election: A vote to elect or reject unionization by the entire bargaining unit that is preceded by campaigning as regulated by the NLRB. o Certification: The process in which a collective bargaining unit is recognized as a union, occurring when a legally sound election reveals a simple majority of pro-union votes. o Reform Efforts: Beginning in 2007, several efforts have been made to amend the NLRA with the Employee Free Choice Act, which would provide workers an option of procedures for having a union certified as the legal representative of the bargaining unit. • Collective Bargaining: The process of negotiating terms and conditions of employment for employees in the collective bargaining unit as set out in NLRA regulations. o Good Faith Bargaining Requirements: The NLRA requires that both parties engage in good faith negotiations. o Grievances: A complaint filed with or by a union to challenge an employer’s treatment of one or more union members, whereby the union is given the exclusive authority to invoke the arbitration provisions of the agreement, and it conducts the proceeding before the arbitrator on behalf of the employee. • If the union chooses not to bring a grievance to arbitration, the individual union member is normally not authorized to pursue a lawsuit against the employer to enforce contract provisions. • Strikes and Other Work Stoppages: The NLRA specifically provides for union employees to commence a strike (with the exception of certain occupations) in order to induce the employer to concede certain contract terms during collective bargaining as well as guidelines for when, where, and how a strike may be carried out. o Post strike Rehiring: Employers have no legal obligation to rehire striking workers or provide retroactive pay in cases of a strike for economic reasons; however, if a strike is commenced due to an unfair labor practice the striking employees are entitled to immediate reinstatement with back pay once they unconditionally return to work. o A strike can be devastating to the revenue of the employer if the strike requires a full or partial shutdown of business operations. o Strikers have the right to engage in picketing at the employer’s facilities, although there is no right to picket upon the actual property owned by the company. o Unions may also call for union members and public boycotts of the employer’s product or services as a method of pressuring management to engage in negotiation or concede a disputed point in a collective bargaining contract. Case 12.6 NLRB v. Midwestern Personnel Services, Inc., 322 F.3d 969 (7th Cir. 2003) [P. 357] Facts: Under a contract, MPS provided unionized cement and transport truck drivers to River City, a construction materials company, for a project at a union job site. As a result, MPS required their drivers to join an out-of-state union, however the drivers became dissatisfied with the out-of-state union and formed a local union. When MPS refused to recognized the local union on the basis that the agreement with the out-of-state union remained in effect, the drivers went on strike and MPS subsequently refused the employees’ unconditional offer to return to work and hired replacement workers. The NLRB concluded that employee’s strike of MPS was based on MPS’s unfair labor practices, rather than an economic dispute, and ordered the drivers reinstated with back pay, MPS appealed. Issue: Was the employees’ strike based on MPS’s unfair labor practices, and thus, were the employees entitled to reinstatement with back pay? Ruling: Yes and yes. MPS unlawfully assisted the out-of-state union by negotiating with and recognizing it without any indication of uncoerced majority support by the employees. Further, the union authorization cards were unlawfully obtained by threats of termination, and the refusal to reinstate the employees was itself an unfair labor practice. Answers to case questions: 1. Why does the court criticize MPS for recognizing the out-of-state union as the exclusive bargaining representative of the workers? Answer: The court criticizes MPS for recognizing the out-of-state union as the exclusive bargaining representative of the workers because they did so without any indication of support by the employees. In fact, MPS chose the out-of-state union themselves and advised employees that signing authorization cards was required to keep their jobs at MPS. The out-of-state union was chosen and recognized by MPS rather than the employees. 2. Suppose that MPS did recognize the local union and, subsequently, MPS and the local union negotiations reached an impasse over wages. Does MPS have any legal obligation to rehire the striking workers? Explain. Answer: In this circumstance, assuming that MPS did not engage in any unfair labor practices in other contexts, MPS does not have a legal obligation to rehire the striking workers. The NLRA provides that economic strikers may be permanently replaced and a strike over wages would constitute an economic strike. However, as a practical matter, rehiring of striking workers is frequently guaranteed by the post strike contract agreement. If this were included in the agreement between MPS and the local union, they would have a contractual obligation to rehire the striking workers. Legal/Ethical Reflection and Discussion: Unions and job losses [P. 357] • Illegal Work Stoppages and Boycotts: If peaceful picketing turns violent, or union members threaten management, then the strike becomes an illegal stoppage and union members engaged in that conduct are not protected under the NLRA. • Other illegal work stoppages include wildcat strikes, sit-in strikes, strike during a cooling-off period and secondary boycotts. o Lockouts and Replacement Workers: A lockout is the shutdown of a business by the employer to prevent employees from working, thus depriving them of their employment and putting economic pressure on the union’s members before the union can strike, and is permissible so long as a legitimate business reason underlies the lockout. • Employers who are subject to a strike may hire nonunion replacement workers in order to continue operations during the strike. Self-Check: Unfair Labor Practices: Which of these actions may constitute an unfair labor practice under the NLRA? [P.358] END OF CHAPTER PROBLEMS, QUESTIONS AND CASES Theory to Practice [P. 361] 1. [Ties to FLSA Classification] Position Classification Reason Executive managers Exempt Executive position General managers Exempt Supervisory / pay rate Professional staff Exempt High skill level / pay rate Support staff Non-exempt Directly supervised by managers, lower skill level, lower pay rate Plant supervisor Exempt Supervisory Line manager Probably exempt The evaluation function tends to be associated with supervisory level (exempt) employees. Skilled Trades, Trades, Drivers Non-exempt Hourly pay, physical labor, repetitive tasks. 2. Under the FMLA (CBC is covered because they have more than 50 employees), CBC is obligated to return Falstaff to his previous position or a similar position at the same rate of pay. CBC cannot re-assign Falstaff to a lower position simply because his position was still filled. CBC could have limited their liability by notifying Falstaff that he was a key employee. However, key employees must be in the top 10% of all salaries in the company. Therefore, as a plant supervisor, Falstaff would not fit the FMLA definition for key employee and would be entitled to reinstatement at the same position/pay. [Ties to Family Medical Leave Act]. 3. No. Employees are not protected from employer monitoring or Web site blocking when using the employer’s equipment or infrastructure. [Ties to Employee Privacy]. 4. Employees with a mutuality of interests include: 1) Support staff, 2) Tradespersons (either divided into skilled/unskilled or as a group), 3) Delivery truck drivers. [Ties to Union Formation]. 5. This question is related to the example in the textbook using International Transportation Service v. NLRB to explain that employees are typically permitted to distribute pro-union flyers at an unpaid lunch hour. However, as for distributing the pro-union flyers to employees working on the line, CBC could ban that practice as a legitimate effort to promote safety in the factory. [Ties to Union Formation]. 6. The picket in front of CBC’s headquarters is legal so long as it remains peaceful and does not interfere with the operations of the employer. The picket in front of Sports Outlet is considered a secondary boycott and is illegal under the NLRA. Any efforts to boycott a third party on the basis of a labor dispute is an unfair labor practice. Since the union strike is based on an unfair labor practice (SCBC refusing to recognize the union) rather than an economic strike, the striking workers are entitled to immediate reinstatement with back pay once they unconditionally return to work. [Ties to Strikes and Other Work Stoppages]. Manager’s Challenge [P. 362] Sample answers to all Manager’s Challenge exercises are provided in the student and instructor’s versions of this textbook’s Web site. Case Summary 12.1: Compensation for Commuting: Bonilla v. Baker Concrete Construction [P.362] 1. Who prevails and why? Answer: The employer Baker Concrete prevails because the provision is applied relatively narrowly to only those circumstances in which the commute involves active employment-related responsibility. 2. Explain your analysis and construct a hypothetical situation in which the losing party may have prevailed. Answer: The time the employees spent traveling on the vehicles both before and after the security check point is exempt from compensation under the FLSA because the employees were not engaging in any work-related activity before arriving at their work sites inside the airport tarmac. Although the screening was necessary for employees to perform their work, the employer did not primarily—or even particularly—benefit from the security regime. Hypothetically, if Baker Concrete required employees to service equipment or examine blueprints prior to arriving at the site, then they may have prevailed. Case Summary 12.2: Overtime: Mitchell v. Abercrombie & Fitch, Co. [P.363] 1. Given the stipulated facts, could Mitchell be considered a non-exempt employee entitled to overtime compensation? Why or why not? Answer: Given the stipulated facts, it is likely that Mitchell could be considered a non-exempt employee entitled to overtime compensation because there were minimal educational or skill level requirements for the position, the tasks were relatively basic and unskilled and as an MIT it can be assumed that such employees are supervised rather closely. 2. Would your answer change if Mitchell were promoted to the position of manager? Explain. Answer: If Mitchell were promoted to the position of manager it he would most likely be considered an exempt employee because then the employee’s primary duty as store manager would be to perform managerial, exempt tasks. Case Summary 12.3: Unfair Labor Practices: Waremart Foods v. NLRB [P.363] 1. Does WinCo have the right to limit the local union’s campaign activities on their property? What would they have to prove in order to do so? Cite an example. Answer: Yes WinCo has the right to limit any union campaign activities that take place on the employer’s property and/or during the regular workday so long as they can justify the limits based on business reasons and not simply an effort to stop unionization. For example, if WinCo could prove that customers do not like to be bothered by solicitors while doing their shopping. 2. Would the union’s actions have any impact on the upcoming election? Explain. Answer: Yes, misconduct during a campaign constitutes an unfair labor practice and will result in the NLRB or a court setting aside any election results as well as other enforcement action. Case Summary 12.4: Warn Act: Childress v. Darby Lumber, Inc. [P.363] 1. Could the WARN Act apply to Darby given the stipulated facts? Why or why not? Answer: Yes because the WARN Act applies to employers with at least 100 full-time employees (Darby had 106), and if the closing will affect 50 or more employees (Darby laid off 88). 2. Suppose the layoffs were for a period of 5 months. Are the law’s requirements triggered? Explain. Answer: No because the law’s requirements are triggered when the intended closing will result in permanent terminations, layoffs for six months or longer, or when the company imposes a reduction in work time of 50 percent or more for six months or longer. Case Summary 12.5: Compensation for On-Call Time: Casserly v. State [P. 364] 1. Since on-call employee had to remain in a state of readiness, was their time for their benefit or for the employer’s benefit? Answer: The court ruled that the ob-call time was for the benefit of the employer and that the severe personal restrictions put on employees (e.g., 20 minute response time) warranted overtime pay under the FLSA. 2. Are the physician assistants justly compensated by the $1.75 per hour, or are they entitled to one and one-half times regular pay pay under the FLSA? Should they be paid at the one-and-one-half rate even when sitting home? Answer: The court ruled that the $1.75 an hour rate violated the FLSA. If the employee is “engaged to be waiting” and not able to go about their normal activities, then waiting time is the same as working time and they are entitled to overtime pay at one and half times their hourly pay. Case Summary 12.6: FMLA: Sullivan v. U.S. Postal [P. 364] 1. Even though Sullivan supplied a physician’s certification, did the agency have the right to require a second medical evaluation? Answer: Yes. Under the FMLA, an agency is permitted to seek clarification of an employee’s medical certification or require the employee to take a second exam. 2. How could Sullivan have avoided the conflict and qualified for leave? Answer: Submitting to the second medical exam. Case Summary 12.7: Whistle-blower protection: Haynes v. Zoological Society [P. 365] 1. Should Haynes be prevented from asserting a whistleblower claim because she is a member of a union? Answer: Although Haynes won at the trial level, the appellate court reversed because her membership in a union took her out of the employee-at-will status. Her union contract was the exclusive method of dealing with discipline. 2. Could Haynes claim the public policy exception in regard to this termination? Why or why not? Answer: Haines did initially claim that this was a public policy exception and the trial court agreed. But the appellate court ruled that the public policy exception only applies to employees-at-will and not to union employees. Quick Assessment Questions (QAQs) 1. Which of the following is/are (a) provision(s) of the Fair Labor Standards Act? a. Compensation for work-related injury b. Maximum 40-hour workweek c. Payment of a minimum wage d. b and c e. All of the above Answer: d 2. At which stage of union formation is the collective bargaining unit recognized as a union? a. Authorization Cards b. Certification c. Filing with the NLRB d. Election e. Campaigning Answer: b 3. Which of the following work stoppages or boycotts are expressly illegal? a. Lockouts b. Picketing c. Sit-in strikes d. Boycotts of the employer’s product or services e. All of the above Answer: c 4. The FMLA requires that employers pay eligible employees that take leave to care for themselves or an immediate family member for a limited period of time. Answer: False 5. The FLSA provisions apply to all employees universally. Answer: False 6. Generally, an employee’s right to privacy in the workplace is very limited. Answer: True Solution Manual for The Legal Environment of Business: A Managerial Approach: Theory to Practice Sean P. Melvin, Michael A. Katz 9780078023804
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