Business Law: Employment Discrimination, LLCs, Corporations, Securities, Antitrust, and IP

Posted on Dec 24, 2024 in Law & Jurisprudence

Chapter 19: Constitutional Protections and Employment Discrimination

Constitutional Protections: The 5th and 14th Amendments protect individuals from discrimination by federal, state, and local governments, ensuring equal protection under the law.

Civil Rights Act of 1866: Prohibits racial discrimination in private and public employment.
Equal Pay Act of 1963: Mandates equal wages regardless of sex, allowing pay differences based on seniority, merit, quantity, or quality of work.
Title VII of the Civil Rights Act: Applies to employers with 15+ employees and prohibits discrimination based on race, color, religion, or sex, covering all employment stages.

Types of Discrimination

Disparate Treatment: Intentional discrimination. The plaintiff must show they belong to a protected category, experienced adverse action, and circumstances suggest discrimination. The plaintiff must then show the employer’s reason is a pretext for discrimination.
Disparate Impact: Neutral policies that disproportionately affect a protected group. The plaintiff must show the policy caused an impact, and the employer must prove the policy is job-related and important.
Hostile Work Environment: Harassment so severe that it affects work.
Retaliation: Prohibits firing employees for filing claims.

Additional Protections

Religion: Employers must reasonably accommodate religious practices.
Pregnancy Discrimination Act: Treats pregnancy as any other disability.
Sexual Orientation: Protected under Title VII.
Age Discrimination: Protects workers over 40; no mandatory retirement for most jobs.
Disability (ADA and Rehabilitation Act): Employers must provide reasonable accommodations.
Genetic Information: Prohibits using genetic information in employment, such as medical history.
Background Checks: “Ban the Box” policies prevent asking about criminal history early in the recruitment process.
Immigration: Employers can ask if an applicant is authorized to work in the US but not their origin.

Defenses Against Discrimination Claims

Merit: Hiring based on performance.
Seniority: Legal unless intentional discrimination is involved.
Bona Fide Occupational Qualification (BFOQ): Discrimination is allowed if necessary for the job (e.g., hiring women for a female locker room), but race can never be a BFOQ.
Affirmative Action: Can remedy past discrimination but cannot create quotas. Employers can use outreach programs for equal representation.

Legal Process and Remedies

The Equal Employment Opportunity Commission (EEOC) investigates claims, attempts mediation, and may file a lawsuit or issue a right-to-sue letter. Remedies include reinstatement, back pay, compensation, and damages capped at $300,000 under Title VII and the ADA.

Chapter 20: LLCs, Corporations, and Other Business Structures

Limited Liability Companies (LLCs)

LLCs combine the limited liability of a corporation with the tax benefits of a partnership.

Limited Liability: Members are not personally liable for company debts.
Avoid Double Taxation: Profits are taxed only once at the individual level.
Continuity: LLCs can continue even if a member withdraws.
Membership: Can include corporations, partnerships, and non-resident aliens.

Drawbacks: More expensive than sole proprietorships and partnerships, inconsistent laws across states, and members can be personally liable if formalities are not followed, assets are commingled, the business is undercapitalized, or fraud is committed.

Corporations

Advantages: Limited liability, easy transferability of interests, and perpetual existence.

Disadvantages: High formation costs, double taxation (corporate profits and shareholder dividends).

Sole Proprietorships

Unincorporated businesses owned by one individual. Easy to form, with the owner paying tax on profits. However, the owner is personally liable for debts and must finance the business from personal funds.

General Partnerships

Unincorporated businesses where two or more people manage and share profits. Easy to form and tax, but partners are personally liable for debts, including those caused by other partners. Creditors can sue any partner for the partnership’s full debt.

Limited Liability Partnerships (LLPs)

Used by lawyers and accountants, providing limited liability for partners with easy taxation. However, LLPs must comply with state registration rules or lose liability protection.

S-Corporations

Combine a corporation’s limited liability with partnership tax benefits. Limited to 100 US shareholders and one class of stock.

Social Enterprises

Focus on people, planet, and profit, adhering to accountability and reporting standards.

Franchises

Offer an established brand and support but involve high costs and tight control from the franchisor.

Fiduciary Duties in Partnerships

Partners owe duties of good faith, loyalty, and full disclosure. They cannot compete or take business opportunities for personal purposes.

Chapter 21: Formation and Operation of Corporations

Promoter’s Liability

A promoter organizes a corporation, raises capital, and manages pre-incorporation agreements. Promoters are liable for contracts signed before the corporation is formed unless the corporation adopts the contract or a novation occurs.

Incorporation Process

Companies incorporate under state law, often choosing Delaware for its flexible laws, efficient Chancery Court, and extensive legal precedents. Out-of-state companies may face extra taxes and fees.

Key Components of a Charter

Name: Must include “Company” or “Corporation.”
Address and Registered Agent: Official location and contact.
Purpose: Broad to allow flexibility.
Incorporator: Promoter or lawyer who files the charter.
Stock Information: Par value, authorized shares, classes of stock.

Election Process and Corporate Governance

The incorporator selects initial directors, shareholders elect directors, and directors elect officers. Bylaws define rules, meeting dates, and quorum requirements.

Officers’ Duties: Duty of loyalty (no self-dealing) and duty of care (act with prudence and informed judgment).

Business Judgment Rule (BJR): Protects managers who act in good faith, avoid conflicts of interest, act in the corporation’s best interests, and exercise reasonable care.

Shareholder Rights

Shareholders have rights to vote, inspect records, and approve major changes. They can inspect financial statements and board meeting minutes with a proper purpose.

Proxy Voting: Authorize someone else to vote using a proxy card.

Zombie Directors: Fail to get a majority vote but remain on the board.

Proxy Access: Shareholders owning 3% of shares for three years can nominate board candidates.

Shareholder Voting: Required for amendments to the charter or bylaws, mergers and acquisitions (M&A) or asset sales, and voluntary dissolutions.

Piercing the Corporate Veil: Courts may hold shareholders personally liable if the corporate form is misused, personal and corporate assets are mixed, the corporation is undercapitalized, or fraud is committed.

Derivative Lawsuits

Shareholders can sue on behalf of the corporation for breaches of fiduciary duty.

Executive Compensation

CEO pay often outpaces performance and company growth. The Securities and Exchange Commission (SEC) can implement clawbacks to recover bonuses if financial misstatements occur. “Say on Pay” votes are non-binding votes on executive compensation, often ignored by boards.

Chapter 22: Securities Law

Securities Act of 1933

Regulates the issuance of new securities, requiring issuers to register securities with the SEC and provide investors with full information. The Act does not evaluate the quality of securities.

Securities Exchange Act of 1934

Regulates companies with publicly traded securities, establishing disclosure rules like Form 10-K (annual report), Form 10-Q (quarterly report), and Form 8-K (major events).

Securities and Exchange Commission (SEC)

Enforces securities laws, focusing on preventing fraud, ensuring full disclosure, and prosecuting violations.

Definition of a Security

An investment in a common enterprise, such as stocks, bonds, profit-sharing certificates, and non-traditional assets like orange groves.

Exempt Securities

Government securities, bank securities, non-profit securities, and insurance contracts.

Rule 147A

Securities sold within a single state are exempt from SEC regulation.

Regulation D

Allows private offerings, limited to accredited investors with restrictions on resale.

Crowdfunding

Permits small, private companies to raise up to $1.07 million, but disclosure is minimal.

Conventional Public Offering (CPO)

Traditional, costly IPO requiring detailed prospectuses and SEC filings.

Direct Listing (DL)

An alternative to CPO, bypassing underwriters and reducing costs but lacking sales promotion.

Violations of the 1933 Act

Selling unregistered securities, making fraudulent statements, or errors in registration. The due diligence defense can help avoid liability if a thorough investigation was performed.

Violations of the 1934 Act

False filings require intent and material misrepresentation affecting stock price.

Insider Trading

Short-Swing Trading: Insiders cannot profit by buying and selling company stock within a six-month period.
Tippers: Those who share inside information.
Tippees: Those who receive and use inside information for trading.
Misappropriation Theory: Trading based on confidential information that was stolen or misused.
Takeovers (Rule 14e-3): Illegal to trade on insider information during a company takeover.

National Securities Markets Improvement Act (NSMIA)

Federal law that overrides state-level security regulations for specific transactions (e.g., NYSE, NASDAQ) to reduce the burden of complying with both state and federal laws.

Blue Sky Laws

State-level security regulations protecting investors from fraud and scams.

Chapter 23: Antitrust Law

Antitrust law ensures free and fair competition in the market, preventing monopolies and protecting consumers from high prices and limited choices.

Sherman Act

Section 1: Prohibits agreements that restrain trade (e.g., horizontal price fixing, where competitors agree to set the same price, or companies dividing territories or customers).
Section 2: Bans monopolization. A legal monopoly is a company dominating through innovation or efficiency. An illegal monopoly is maintained through improper conduct (e.g., Microsoft tying Internet Explorer to its operating system).

Clayton Act

Prevents business practices that could harm competition before they lead to monopolies or unfair dominance. This includes preventing mergers and acquisitions that could reduce competition and banning the practice of forcing customers to buy one product to get another (e.g., ink and printer).

Robinson-Patman Act

Prohibits price discrimination to protect smaller businesses. Price discrimination involves charging different prices to different buyers for the same product.

Enforcement

Department of Justice (DOJ): Handles criminal and civil cases.
Federal Trade Commission (FTC): Focuses on civil cases, mergers and acquisitions, monopolies, and deceptive practices.

Types of Violations

Per Se Violations: Automatically illegal; courts do not consider any justifications (e.g., horizontal price fixing, market division).
Rule of Reason Violations: Illegal only if proven to harm competition; courts weigh benefits against harms.

Monopolization

It’s not illegal to have a monopoly; it’s the way the company acquires or maintains the monopoly that matters.

Key Questions:

What is the relevant market?
Does the company control the market? (Market share threshold is at least 50%. Control involves the ability to exclude competitors or raise prices without losing customers.)
Did the company use improper conduct? (e.g., setting prices below competitors’ costs, forcing customers to buy less popular products)

Collusion

Agreements between competitors to control prices, production, or territories.

Horizontal Collusion: Competing firms agree to fix prices or divide markets (per se violation).
Vertical Collusion: Agreements between different levels of the supply chain (rule of reason).

Chapter 24: Intellectual Property

Intellectual property (IP) refers to creations of the mind, such as inventions and artistic works. Historically, land was more important, but now ideas are more valuable. Strong IP laws protect creators, but excessive protection can limit public access.

Patents

Protect inventions and grant exclusive rights to make, use, or sell the invention.

Design Patents: Protect the appearance of products (e.g., Apple’s home button) for 14 years.
Plant Patents: Protect new and reproducible plants for 20 years.
Utility Patents: Protect the functionality of inventions (e.g., chemical processes) for 20 years.

Requirements: Novelty, nonobviousness (must not be an obvious improvement to an expert in the field), utility (must be useful), and patentable subject matter (cannot be abstract ideas, natural phenomena, or laws of nature).

Copyrights

Protect the expression of an idea (e.g., books, music, movies), not the idea itself.

Individual Creator: Life of the author plus 70 years.
Corporate-Owned Works: 95 years from publication or 120 years from creation, whichever is shorter.
Automatic Protection: Arises as soon as the work is fixed in a tangible form.

Infringement: To prove infringement, you must show that the work is original, the infringer copied the work, or the two works are substantially similar.

Remedies: Prohibiting future violations, destroying infringing material, and awarding damages.

Defenses:

First Sale Doctrine: Owners of lawfully made copies can resell them.
Fair Use Doctrine: Allows limited use of copyrighted material for purposes like education and research.

Trademarks

Any word, symbol, or phrase that identifies a product.

Trademark: For goods (e.g., Nike).
Service Mark: For services (e.g., McDonald’s restaurant services).
Certification Mark: Used to certify standards.
Collective Mark: Identify members of an organization.

Requirements: Must be distinctive and unique.

Infringement: To win a case, the plaintiff must prove the defendant’s use is likely to confuse customers.

Trademark Dilution:

Blurring: Weakens the distinctiveness of the mark.
Tarnishment: Damages the mark’s reputation.

Trade Secrets

Information that provides a competitive advantage and is kept confidential. Trade secrets last as long as they remain secret and are protected under the Uniform Trade Secrets Act and the Economic Espionage Act.

Global Applications

Patents: Must apply separately in each country unless covered by treaties like the Paris Convention (grants a one-year grace period for international filings) or the Patent Cooperation Treaty (PCT), which streamlines the international application process.
Copyrights: Governed by the Berne Convention, requiring automatic protection in 179 member countries.
Trademarks: The Madrid Protocol simplifies international trademark registration.
Digital Millennium Copyright Act (DMCA): Protects copyrights in the digital age. Safe harbor provisions shield platforms (e.g., YouTube) from liability if they act promptly on takedown notices.

Case Studies

Griggs v. Duke Power Co.: Duke Power Co. required a high school diploma and passing a test, but Black employees were less likely to pass due to historical educational disparities. The Supreme Court ruled that the requirements were discriminatory under Title VII because they were not related to job performance, establishing the concept of disparate impact.
Groff v. DeJoy: Postal worker Groff refused to work on Sundays due to religious reasons. USPS tried to accommodate him but faced disruptions. He sued USPS for failing to accommodate him under Title VII. The Supreme Court ruled that employers must show significant difficulty or expense to deny a religious accommodation, not just minimal disruption.
Ridgaway v. Silk: Ridgaway was drunk, but the bar, Silk, served him more alcohol, and he died in a car accident. The court found the bar negligent for serving a visibly intoxicated patron. The LLC was held personally liable.
BLD Products v. Technical Plastics of Oregon: BLD had a manufacturing contract, but Technical Plastics breached it by failing to deliver. The court found that BLD failed to meet its obligations and awarded damages for lost profits and expenses.
In re The Goldman Sachs Group, Inc. Shareholder Litigation (formerly In re Foo Company): Dole’s CEO, Murdock, took the company private, but shareholders argued he manipulated the stock price. The court found that Murdock breached his fiduciary duties of loyalty and care.
Northeast Harbor Golf Club v. Harris: Harris, the club’s president, purchased land next to the golf course that could have benefited the club and later sold it for a profit. The court ruled that Harris violated the corporate opportunity doctrine.
U.S. v. O’Hagan: O’Hagan, an attorney, used confidential information from his law firm to trade stocks. The SEC charged him with insider trading. The Supreme Court upheld the misappropriation theory, ruling that O’Hagan’s actions constituted insider trading.
Salman v. United States: Salman received stock tips from his brother-in-law, a Citigroup insider, and the SEC charged them with insider trading. The Supreme Court ruled that a tip given as a gift to a relative constitutes insider trading, as it benefits the relative and violates the Dirks precedent.