Study Guide (2)

Monday, December 10, 2018 10:43 AM

CH 8, 16-21

Chapter 8
Intellectual Property (IP)
• Becoming more important as more of companies value relies on IP
• Protection from article in Constitution to "secure for limited times to authors & inventors the exclusive right to their respective writings and
discoveries"

• Types
○ Trademarks: Distinguish from other goods (applies to products)
 Rights may be used to prevents other from using confusingly similar mark but not to prevent others from making same good (under
different mark)
 Registration: register with US Patent Trademark Office; allows use of ® symbol
 Statutory Protection
□ Lanham Trademark Act: creates incentives for companies to invest & prevents unjust enrichment of companies who infringe
(designed to prevent consumer confusion about similar marks)
□ Federal Trademark Dilution Act: cause of action regardless of competition or confusion based on a similar mark (more likely to lessen
the value of a famous mark when the companies using the marks provide related goods or compete against each other in the same
market)
 Dilution: Lessening of capacity of famous mark to identify & distinguish goods/services, regardless of presence or absence of:
□ Competition between owner of famous mark & other parties
□ Likelihood of confusion, mistake or deception
 Tarnishment: unauthorized use of mark which inks to products that are of poor quality or which portrayed as unwholesome/unsavory;
likely to reflect adversely upon owner's product
 Infringement: when trademark copied or used intentionally or unintentionally
□ Cause for action unless trademark is generic term
□ Lanham Act
 Distinctiveness: mark must be sufficiently distinct
□ Strong marks: fanciful, arbitrary, suggestive marks receive automatic protection because identify particular product's source (Xerox,
Google, Dutch Boy, Blu-Ray)
□ Secondary meaning: descriptive, geographic terms and names legally protected when customers begin to associate specific
term/phrase with trademarked items (Long Fog)
 Once a secondary meaning is attached to a term or name, a trademark is considered distinctive and is protected. Even a color
can qualify for trademark protection, as did the color schemes used by some state university sports teams, including
□ Generic terms receive no protection even if they acquire second meaning (escalator, aspirin)
 Trade Dress: image & overall appearance of product
□ Same protection as trademark
□ Issue of consumer confusion (distinctive décor, product names, packaging, company names)
 Trade Names: applies to part of business's name

JHU^MBmore Page 1
  Trade Names: applies to part of business's name
□ May be protected as trademark if trade name is also name of company's trademarked product (Coca Cola)
□ Protected under common law if unusual or fancifully used (Safeway)
 Counterfeit Goods: copy or imitate trademarked goods, but not genuine (usually imported)
□ Stop Counterfeiting in Manufactured Goods Act - criminal penalties up to $2m and 10 years
 Service Marks: trademark that is used to distinguish the services (rather than the products) of one person or company from those of
another
□ Titles and character names used in radio and television are examples
○ Patents: right granted under US constitution to prevent others from using your invention for term of patent
 Inventor is given exclusive rights to market, use & sell for fixed period of time in return for disclosing details of invention to the public -
rewards inventor for benefits to society
 Contract with the government - govt gives limited monopoly to give public invention not seen bfore
 Procedures
□ Invention disclosure
□ Patent review committee
□ Prior art search
□ Application preparation & filing
 Must be filed within 1 year following public disclosure, sale, offering for sale or public use
 Need to file before foreign disclosure, sale, offering
 Foreign applications must be filed w/in one year of corresponding US patent
□ Examination before US Patent & Trademark Office
□ If patentable, issues 2-3 yrs after filing
□ Ongoing duty of disclosure
 Duty of candor and good faith with Patent Office
 All information known to the individual to be material to patentability
 Requirements
□ Novelty,
□ Public disclosure
□ Public use
□ Non-obviousness
□ Subjective test: whether one having ordinary skill in the art would arrive at the invention in view of the prior art
□ Usefulness
 Inventorship
□ Joint Inventor: each individual with share in ideas as defined in the claims, even if only as to one claim
□ Sole inventor: one person has provided all the ideas of invention
○ Copyrights: protects form of expression rather than subject matter of the writing
 Automatic protection after 1978 (protected by registration at US Copyright Office)
 Copyright Infringement
□ Protected from:
1. Reproduction of the work
2. Development of derivative works
3. Distribution of the work
4. Public display of the work.
□ Does not extend to idea, procedure, process, system
 Software Protection
□ Computer Software Copyright Act: classifies computer software as a "literary work", but does not apply to "look and feel"
 Law do not protect “look and feel”—the general appearance, command structure, video images, menus, windows, and other
screen displays—of computer programs
 Digital Information
□ No Electronic Theft Act
□ Digital Millennium Copyright Act: provides civil and criminal penalties to circumvent encryption software (like DVD)
□ Limits ISP liability for subscriber act
 MP3 and File Sharing Technology
□ P2P networking (music sharing - Napster, Kazaa)
□ Company which distributes software with intention of promoting use to infringe - liable for copyright infringement
 "Fair Use" Exceptions
□ Libraries, universities and others for digital information
□ When material used for criticism, comment, news, teaching, parody, research
□ Four factors required:
 The purpose and character of the use, including whether such use is of commercial nature or is for nonprofit educational
purposes (weights toward nonprofit, educational, personal)
 nature of the copyrighted work (weighs towards fact, published; against imaginative, unpublished)
 amount and substantiality of the portion used in relation to the copyrighted work as a whole (weighs towards small amount)
 effect of the use upon the potential market for, or value of, the copyrighted work (supportive if original out of print, copyright
owner unidentifiable; weighs against competition with original, avoids royalties in permissions market)
 First Sale Doctrine: the owner of a particular item that is copyrighted can, without the authority of the copyright owner, sell or otherwise
dispose of it; once a copyright owner sells or gives away a particular copy of a work, the copyright owner no longer has the right to control
the distribution of that copy
Cyberspace IP

JHU^MBmore Page 2
 ○ Cyberspace IP
○ Trade Secrets: business process or information cannot or should not be patented, copyrighted or trademarked
 Can included: customer lists, plans, research, formulas, pricing information, marketing techniques, recipes
 Protection
□ Uniform Trade Secrets Act
□ NDA, CDA and non-compete clauses
□ Engage "reasonable efforts" to protect from industrial espionage
□ Misappropriation - "improver means (breaking & entering)
□ Maintain a "quality of confidence"
□ Inform 3rd parties of obligation of confidence
○ Non-compete: agreements in employment contracts to not work for competitors or to start competing business for a specified period of time
after termination of employment
○ International Protection for IP
 Berne Convention: If US citizen writes a book, every party signed on to convention must recognize US author's copyright to book; if a
citizen of a country that has not signed the convention first publishes a book in one of the 169 countries that have signed, all other
countries that have signed the convention must recognize that author’s copyright
 Trade-Related Aspects of Intellectual Property (TRIPS): most wide-reaching scope; establishes standards for the international protection
of IP including patents, trademarks, and copyrights for movies, computer programs, books, and music
□ member nation cannot give its own nationals (citizens) favorable treatment without offering the same treatment to nationals of all
other member countries.
 World Intellectual Property Organization (WIPO) Copyright Treaty:
 Madrid Protocol: someone seeking trademark abroad can submit a single application and designate other member countries in which the
company would like to register its mark. The treaty was designed to reduce the costs of international trademark protection
 Anti-Counterfeiting Trade Agreement (ACTA): increase international cooperation, facilitate the best law enforcement practices, and
provide a legal framework to combat counterfeiting
□ ACTA applies not only to counterfeit physical goods, such as medications, but also to pirated copyrighted works being distributed via
the Internet.
Chapter 16-19
Business entity requirements:
1. Business name registration
2. Occupational licensing
3. State tax registration (for instance, to obtain permits for collecting and remitting sales taxes)
4. Health and environmental permits
5. Zoning and building codes
6. Import/export regulation
Types of business entities
• Considerations: ease of creation, owner's liability, tax considerations, need for capital
• Sole Proprietorship: owner is the business
○ Anyone who does business without creating separate business organization
○ Advantages: owner in complete control & receives all profits; flexibility; ease of creation & maintenance
○ Disadvantages: owner is personally liable for all losses or liabilities incurred by the business enterprise; lacks continuity after death; difficult to
raise financing
• Partnership: created when 2 or more persons agree (implicitly or explicitly) to carry on business for profit
○ Partners: co-owners with equal right to manage & share profits
○ Considered an entity for suing purposes
○ Advantages: easy to create & maintain; flexible/informal; partners share profits & losses equally
○ Disadvantages: partners personally liable for torts/contracts; dissolved upon death; difficult to raise financing
○ Governed by common & statutory laws
 State common law
 Uniform Partnership Act (UPA) - adopted by all states in some form
 Revised Uniform Partnership Act (RUPA) - adopted in some states
 In absence of partnership agreement, state statutes govern partner rights
○ Agency concepts & partnership law
 Joint ownership of business
 Equal right to be involved in management of business
 Partners share in profits & losses
○ Exceptions (when partnerships not inferred if profits received from following situations):
 Wages of an employee
 Rent to landlord
 Annuity to widow or representative of deceased partner
 Sale of good will
○ Rights of partners
 Management: all partners have equal rights in managing the partnership; unless the partners agree otherwise, each partner has one vote
in management matters regardless of the proportional size of his or her interest in the firm
□ The majority rule controls decisions on ordinary matters connected with partnership business, unless otherwise specified in the
agreement
□ Decisions that significantly change the nature of the partnership or that are outside the ordinary course of the partnership business,
however, require the unanimous consent of the partners
 Interest in partnership: each partner is entitled to the proportion of business profits and losses specified in the partnership agreement

JHU^MBmore Page 3
  Interest in partnership: each partner is entitled to the proportion of business profits and losses specified in the partnership agreement
□ If the agreement does not indicate how the profits will be shared, the UPA provides that profits will be shared equally
 Compensation: Devoting time, skill, and energy to partnership business is a partner’s duty and generally is not a compensable service
(compensation comes from profits of company)
 Inspection of the books: accessible to all partners and also by representative of deceased partner
 Accounting of assets or profits: can be performed voluntarily or compelled by court order
□ Also when other partners commit fraud, embezzlement, wrongful exclusion, or anytime it is just or reasonable
 Property: Property acquired by a partnership is the property of the partnership and not of the partners individually
□ A partner may use or possess partnership property only on behalf of the partnership; a partner is not a co-owner of partnership
property and has no right to sell, mortgage, or transfer partnership property to another
□ Partner can assign her right to her share of the profits to another to satisfy individual debt
○ Duties & Liabilities
 Derived from agency law
 Each partner is an agent of every other partner and acts as both a principal and an agent in any business transaction within the scope of
the partnership agreement
 Fiduciary duties: partners are fiduciaries and general agents of one another and the partnership
□ Duty of care: refraining from “grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law”
□ Duty of loyalty: requires a partner to account to the partnership for “any property, profit, or benefit” derived by the partner in the
conduct of the partnership’s business or from the use of its property
 can be breached by self-dealing, misusing partnership property, disclosing trade secrets, or usurping a partnership business
opportunity
 Authority of partners: partners have implied authority to conduct ordinary partnership business
□ If a partner acts within the scope of her or his authority, the partnership is legally bound to honor the partner’s commitments to
third parties
□ Partnership may limit a partner’s capacity to act as the firm’s agent or transfer property on its behalf by filing a “statement of
partnership authority”
□ Limits on a partner’s authority normally effective only with respect to third parties who are notified of the limitation
□ Need unanimous consent to sell assets or donate to charity
 Liability of Partners: partners are personally liable for the debts of the partnership
□ Essentially unlimited
□ Joint liability: a third party must sue all of the partners as a group, but each partner can be held liable for the full amount
 if the third party does not name all of the partners in the lawsuit, the assets of the partnership cannot be used to satisfy the
judgment
□ Joint and several liability: a third party has the option of suing all of the partners jointly or one or more of the partners separately
 All partners in a partnership can be held liable even if a particular partner did not participate in, know about, or ratify the
conduct that gave rise to the lawsuit
□ Indemnification: With joint and several liability, a partner who commits a tort can be required to indemnify (reimburse) the
partnership for any damages it pays
○ Tax treatment: Modern law treats a partnership as an aggregate of the individual partners rather than a separate legal entity for federal income
tax purposes
 Pass-through entity (no tax liability) and not a taxpaying entity
 The entity’s income is passed through to the owners, who pay income taxes on it
○ Disassociation: occurs when partner ceases to be associated in the carrying on the partnership business
 Events that cause disassociation
□ Voluntarily giving notice of intent to withdrawal
□ Occurrence of event in partnership agreement
□ By unanimous vote of other partners
□ By order of court or arbitrator for wrongful conduct
□ By a partner declaring bankruptcy
 Requires that the partnership purchase interest of disassociated partner
 Partner’s duty of loyalty ends; duty of care continues only with respect to events that occurred before dissociation, unless the partner
participates in winding up the partnership’s business
 For two years after a partner dissociates from a continuing partnership, the partnership may be bound by the acts of the dissociated
partner based on apparent authority
○ Partnership termination
 Dissolution: legal death of the partnership (by act of partners, operation of law or judicial decree)
□ Ex: death of partner (if specified in agreement), fixed terms or completion of undertaking, event which makes it unlawful for
business to operate,
 Winding up: process of collecting, liquidating and distributing partnership assets

JHU^MBmore Page 4
• Franchises: an arrangement in which the owner of intellectual property—such as a trademark, a trade name, or a copyright—licenses others to use it
in the selling of goods or services
○ Franchisee: purchaser of a franchise; legally independent of franchisor; economically dependent on franchisor business systems (gets advantage
from regional or national organization)
○ Franchisor: seller of the franchise
○ Governed by contract law; both state and federal law
○ Types of franchises:
 Distributorship: franchisor licenses franchisee to sell its product; covers an exclusive territory
 Chain-Style Business Operations: franchise operates under a franchisor’s trade name and identified as member of a select group of
dealers; franchisee is generally required to follow standardized or prescribed methods of operation; franchisee may be required to obtain
materials and supplies exclusively from the franchisor
 Manufacturing Arrangement: franchisor gives franchisee the essential ingredients or formula to make a particular product; franchisee
then markets the product according to franchisor’s standards
○ Federal Regulation
 Regulates through laws applied to specific industries & the Franchise Rule - created by the Federal Trade Commission (FTC)
 Industry-specific regulations: protect the franchisee from unreasonable demands and bad faith terminations of the franchise by the
franchisor (ex: automobile dealerships)
 Franchise rule: requires franchisors to disclose certain material facts that a prospective franchisee needs in order to make an informed
decision concerning the purchase of a franchise
○ State Regulation
 Laws similar to the federal rules - require provide presale disclosures to prospective franchisees
 Some require that a disclosure document (known as the Franchise Disclosure Document, or FDD) be registered with state
 State laws may also require that a franchisor submit advertising aimed at prospective franchisees to the state for approval
• Limited Liability Company (LLC): hybrid entity created by the state statute that combines the limited liability of a corporation and tax advantages of a
partnership
○ Attractive in today's global business environment because allow foreign investors to own interest
○ Owners are called members (not shareholders) and their ownership is called interest (not shares)
○ LLC members have no personal liability for the obligations of the LLC (similar to corporations)
○ Formation
 Article of Organization require
□ Name of business (must include LLC or Limited Liability Company)
□ Principal address
□ Name & address of registered agent
□ Management
 LLC Operating Agreement
□ Analogous to corporation's bylaws
□ May be oral
□ Contain provisions relating to:
 Management & how future managers chosen & removed
 How profits divided
 Transfer of membership interests
Whether dissociation of a member, such as by death or departure

JHU^MBmore Page 5
  Whether dissociation of a member, such as by death or departure
 Meetings
 How voting rights will be apportioned
□ If OA silent, courts apply partnership principles
○ Management

 If articles are silent, statutes provide each member has one vote or votes based on percentages of ownership
• Limited liability partnership (LLP): hybrid form of business designed mostly for professionals who normally do business as partners in a partnership
○ Almost all of the states have enacted LLP statutes
○ Allows professionals, such as attorneys and accountants, to avoid personal liability for the malpractice of other partners; a partner in an LLP is
still liable for her or his own wrongful acts (negligence)
○ Advantages: allows a partnership to continue as a pass-through entity for tax purposes but limits the personal liability of the partners.
• Limited Partnerships (LLP): limits the liability of some of its owner
○ consists of at least one general partner and one or more limited partners
○ General partner assumes management responsibility for the partnership and has full responsibility for the partnership and for all its debts
○ Limited partner contributes cash or other property and owns an interest in the firm but is not involved in management responsibilities; not
personally liable for partnership debts beyond the amount of his or her investment
• Corporations: creature of statue, artificial "person" to conduct business and incur liability; authority and liability are separate and apart from
shareholders
○ Most states follow Model Business Corporation Act (MBCA) or RMBCA
○ Shares (stock) of corporation owned by at least one shareholder
○ Personnel:
 Individual shareholders own corporation
 Shareholders elect board of directions to manage corporation
 Board of directors hire officers to run daily business
○ Limited liability of shareholders
 Shareholders generally not personally liable beyond extent of their investments
 In limited situations, third parties can sue shareholders personally (piercing corporate veil)
□ Factors a court considers:
 Party is tricked into dealing with a corporation rather than the individual
 Corporation is set up never to make a profit or remain insolvent or is under capitalized
 Corporation is formed to evade existing legal obligation
 Statutory formalities are not followed
 Commingling of personal & corporate interest or assets
□ Alter-Ego Theory: corporation is alter ego of majority shareholder and personal/corporate interests are commingled such that the
corporation has no separate identity
○ Ultra Vires Doctrine: corporate acts beyond express or implied powers of the corporation (by statue of articles of incorporation)
 Articles of incorporations now adopt very broad purposes to prevent lawsuits
○ Business Judgement Rule: immunizes a board or officer from liability from bad decisions
 Court will not require directors/officers to manage "in hindsight"
 As long as decision was reasonable, informed, made in good faith and in the best interest of the corporation, BJR will apply
○ Duties & Liabilities of Directors and Officers
 Duty of loyalty: subordination of personal interests to the welfare of the corporation
□ No competition with corporation, corporate opportunity, conflict of interests, insider trading, transaction that is detrimental to
minority of shareholders
□ Conflict of interests: directors/officers must provide full disclosure of potential conflicts of interest and abstain from voting on any
transaction that may benefit the director/officer personally
 Liability: directors/officers may be liable for crimes and torts committed individually and/or those committed by employees under their
supervision
□ Shareholder derivative suits where shareholder(s) sue directors on behalf of corporation

JHU^MBmore Page 6
JHU^MBmore Page 7
Agency Relationships: fiduciary relationship based on trust and confidence; commonly exist between employees and employers
• Fiduciary duties: duty created by undertaking act primarily for another's benefit in matters connected w/ undertaking
○ Heart of agency law
○ Distinguish employee vs. independent contractor relationships
• Employment laws (state and federal) apply only to the employer-employee relationship
○ All employees who deal with third parties are deemed to be agents (normally)
• Independent contractor: a person who contracts with another to do something who is not controlled by the other nor subject to the other’s right to
control with respect to his [or her] physical conduct in the performance of the undertaking. Ma or may not be an agent.
• Determination of employee status
a. How much control does the employer exercise over the details of the work? If the employer exercises considerable control over the details of the
work and the day-to-day activities of the worker, this indicates employee status.
b. Is the worker engaged in an occupation or business distinct from that of the employer? If so, this points to independent-contractor, not
employee, status.
c. Is the work usually done under the employer’s direction or by a specialist without supervision? If the work is usually done under the employer’s
direction, this indicates employee status.
d. Does the employer supply the tools at the place of work? If so, this indicates employee status.
e. For how long is the person employed? If the person is employed for a long period of time, this indicates employee status.
f. What is the method of payment—by time period or at the completion of the job? Payment by time period, such as once every two weeks or
once a month, indicates employee status.
g. What degree of skill is required of the worker? If a great degree of skill is required, this may indicate that the person is an independent
contractor hired for a specialized job and not an employee
• Works for Hire: Ordinarily, a person who creates a copyrighted work is the owner of it—unless it is a “work for hire.” Under the Copyright Act, any
copyrighted work created by an employee within the scope of her or his employment at the request of the employer is a “work for hire.” The employer
owns the copyright to the work.
• Principals use agents to be able to conduct multiple business operations simultaneously in various locations
○ Principal has the right to control the agent in matters entrusted to the agent

• Agency by Agreement: based on express or implied agreement that the agent will act for the principal and that the principal agrees to have the agent
so act (can be expressed written contract, oral agreement, or implied by conduct)
• Agency by Ratification: if someone who is not an agent (or an agent acting outside of authority) makes contract on behalf of principal and the principal
approves or affirms the contract by word or action then agency relationship created by ratification (involves question of intent, expressed by words or
conduct)
• Agency by Estoppel: when principal's actions create the appearance of an agency that does not in fact exist (causes a third person to believe that
another person is the principal's agent and the third person acts on that belief)

JHU^MBmore Page 8
 another person is the principal's agent and the third person acts on that belief)
• Agency by Operation of Law
○ Family: based on social policy or legal duty to supply necessaries to family members (spouse purchases basic necessaries and charge's to other
spouse's account)
○ Emergency: if agent cannot contact principal and failure to act would cause principal substantial loss, agent may take steps beyond authority
• Unauthorized acts: outside of agent's express, implied or apparent authority
○ If agent has no authority, principal is not liable but agent is
• Liability for Agent's Torts
○ Agent is liable to third party for his/her own torts
○ Principal may be liable for agent's torts if they result from:
 Principal's own tort
 Principal's authorization of tort
 Agent's unauthorized but fraudulent conduct made within scope of agency
• Liability for Agent's Negligence
○ Applies only to employer-employee relationships
○ Respondeat Superior: Employer is vicariously liable for employee's negligent torts committed within the Agent's "course and scope" of
employment
• Liability for Independent Contractor's Torts
○ Employer is not liable for acts of independent contracts because the employer has no right to control
○ Independent Contractor liable for own torts

Employee Actions while employed

Chapter 20 & 21

JHU^MBmore Page 9
JHU^MBmore Page 10
• Employment-at-Will: employment relationships traditionally have been by common law doctrine of "employment at will"
○ Either party may terminate at any time for any reasons
○ Exceptions
 Contracts: implied employment contract (including oral promises) may exist between employer and employee; if employee fired outside
terms of implied contract, he/she may have grounds for breach of contract even though no written contract exists
 Tort: lawsuit for abusive discharge procedures for infliction of emotional distress or damages; can also sue for fraud for false promises
 Public Policy: (most common) based on employer's reason for firing violates fundamental public policy of the jurisdiction (expressed in
statutory law)
• The Davis-Bacon Act requires contractors and subcontractors working on federal government construction projects to pay “prevailing wages” to their
employees.
• The Walsh-Healey Act applies to U.S. government contracts. It requires that a minimum wage, as well as overtime pay at 1.5 times regular pay rates,
be paid to employees of manufacturers or suppliers entering into contracts with agencies of the federal government.
• The Fair Labor Standards Act (FLSA) extended wage hour requirements to cover all employers engaged in interstate commerce or in producing goods
for interstate commerce. Certain other types of businesses were included as well. The FLSA, as amended, provides the most comprehensive federal
regulation of wages and hours today
○ Child labor: Prohibits oppressive child labor. Restrictions on child labor differ by age group.
○ Minimum wage: Provides a minimum wage of $7.25 per hour must be paid to covered nonexempt employees.
 Most states also have minimum wages (more than half of the states have set their minimum wages above the federal minimum wage)
○ Tipping: FLSA gives employers a tip credit toward the minimum wage amount; employers must make up difference if wages and tips do not equal
minimum wage; other accommodations can also be made
○ Overtime: any employee who works more than forty hours per week must be paid no less than 1.5 times her or his regular pay for all hours
worked over forty
• Worker Adjustment and Retraining Notification (WARN) Act: requires employers to provide 60 days’ notice before implementing a mass layoff or
closing a plant that employs more than fifty full-time workers.
○ Applies to employers with at least one hundred full-time employees
○ A mass layoff is a layoff of at least one third of the full-time employees at a particular job site.
• Occupational Safety and Health Administration (OSHA): imposes on employers a general duty to keep the workplace safe
○ established specific safety standards that employers must follow, depending on the industry. It also sets maximum levels of exposure to
substances in the workplace that may be harmful to workers’ health.
• State workers’ compensation laws: establish administrative procedure for compensation workers injured on the job
○ Rules vary by state
○ Requirements for receiving workers' compensation:
 The existence of an employment relationship.
 An accidental injury that occurred on the job or in the course of employment, regardless of fault. (An injury that occurs while an employee
is commuting to or from work usually is not covered because it did not occur on the job or in the course of employment.)
• Income security
○ Social Security: provides for retirement, survivors' and disability insurance
○ Medicare: federal govt health insurance program for people over 65 and disabled persons under 65
○ Federal Insurance Contributions Act (FICA): employers and employees must contribute to Social Security and Medicare (determined different
for employers and employees)
○ Employee Retirement Income Security Act (ERISA): major federal statute that regulates employee retirement plans; empowers USDoL to
enforce provisions governing employers that have private pension funds for their employees
○ Federal Unemployment Tax Act (FUTA): a state-administered system that provides unemployment compensation to eligible individuals who
have lost their jobs
 FUTA and state laws require employers that fall under the provisions of the act to pay unemployment taxes at regular intervals. The
proceeds from these taxes are then paid out to qualified unemployed workers.
 Requirements to receive unemployment
□ Worker must be willing and able to work
□ Workers who have been fired for misconduct or who have voluntarily left their jobs are not eligible for benefits
□ Normally, workers must be actively seeking employment to continue receiving benefits.

JHU^MBmore Page 11
 □ Normally, workers must be actively seeking employment to continue receiving benefits.
○ Consolidated Omnibus Budget Reconciliation Act (COBRA): enables employees to continue, for a limited time, their health-care coverage after
they are no longer eligible for group health-insurance plans.
 The workers pay the premiums for the continued coverage
 A worker has sixty days (from the date that the group coverage would stop) to decide whether to continue with the employer’s group
insurance plan
 Only workers filed for gross misconduct are excluded from protection
○ The Health Insurance Portability and Accountability Act (HIPAA): restricts manner in which employers collect, use and disclose the healt
information of employees and their families
○ Affordable Care Act: requires most employers with over 50 full time employees to offer health-insurance benefits
The Health Insurance Portability and Accountability Act (HIPAA)20
• Employee Privacy Rights
○ Employees of private (nongovernment) employers have some privacy protection under tort law and state constitutions; state and federal
statutes may also limit an employer’s conduct in certain respects
 Electronic Communications Privacy Act: prohibits employers from intercepting an employee’s personal electronic communications unless
they are made on devices and systems furnished by the employer
○ Reasonable expectation of privacy
 Courts weigh the employer’s interests against the employee’s reasonable expectation of privacy
 If employees have been informed that their communications are being monitored, they cannot reasonably expect those interactions to be
private
 Court will typically hold that employees do not have a reasonable expectation of privacy when using a system provided by the employer
 If employees are not informed that certain communications are being monitored, the employer may be held liable for invading their
privacy
○ Employee Polygraph Protection Act: generally prohibits employers from requiring employees or job applicants to take lie detector tests. The act
also restricts employers’ ability to use or ask about the results of any lie-detector test or to takeemployment action based on the results
○ Drug testing - could be in violation of Fourth Amendment (unreasonable search and seizure)
 Allowed by statute for some public workers (transportation)
 Courts normally uphold drug testing of certain employees when drug use in a particular job may threaten public safety or if there is a
reasonable basis for suspecting public employees of drug use
 The Fourth Amendment does not prohibit drug testing by private employers (governed by state law instead)
• Under the Civil Rights Act of 1964, employees and job applications are given protection against certain forms of discrimination, with other forms of
discrimination being permitted
○ There is a balance between employee rights and employer prerogatives
○ Prior to the passage of the Civil Rights Act, all forms of discrimination were permitted
○ Enforcement of Title VII by EEOC : an employee alleging discrimination must file a claim with the EEOC before a lawsuit can be brought against
the employer
 Intentional discrimination or disparate-treatment discrimination
□ Prima Facie Case: Latin for “at first sight” or “on its face”; refers to a fact that is presumed to be true unless contradicted by
evidence
 A plaintiff who sues on the basis of disparate-treatment discrimination must first make out a prima facie case
 To establish a prima facie case, the plaintiff must show that he or she was fired or treated adversely for discriminatory reasons.
 A plaintiff must show all of the following:
i) The plaintiff is a member of a protected class
ii) The plaintiff applied and was qualified for the job in question
iii) The plaintiff was rejected by the employer
iv) The employer continued to seek applicants for the position or filled the position with a person not in a protected class.
□ Burden-Shifting Procedure:
 Once the prima facie case is established, the burden then shifts to the employer-defendant, who must articulate a legal reason
for not hiring the plaintiff (or firing or other adverse employment actions)
 If the employer can articulate a legitimate reason for the action, the burden shifts back to the plaintiff
 Unintentional discrimination or disparate-impact discrimination
□ when a protected group of people is adversely affected by an employer’s practices, procedures, or tests, even though they do not
appear to be discriminatory
□ The complaining party must first show that the employer’s practices, procedures, or tests are effectively discriminatory
 Pool of applicants: by comparing the employer’s workforce to the pool of qualified individuals available in the local labor
market. The plaintiff must show that (1) as a result of educational or other job requirements or hiring procedures, (2) the
percentage of nonwhites, women, or members of other protected classes in the employer’s workforce (3) does not reflect the
percentage of that group in the pool of qualified applicants.
 Rate of hiring: discrimination by comparing the employer’s selection rates of members and nonmembers of a protected class
□ Once the plaintiff has made out a prima facie case, the burden of proof shifts to the employer to show that the practices or
procedures in question were justified
○ Constructive Discharge: Employer allows working conditions so intolerable that reasonable person would feel compelled to quit
 employees who leave their jobs voluntarily can claim that they were “constructively discharged” by the employer
 Objective proof of intolerable working conditions
 Courts usually require causation by employer
• Discrimination based on race, color or national origin
○ Prohibited by Title VII
○ If an employer’s standards or policies for selecting or promoting employees have a discriminatory effect on employees or job applicants in these
protected classes, then a presumption of illegal discrimination arises

JHU^MBmore Page 12
 protected classes, then a presumption of illegal discrimination arises
○ Title VII also protects against reverse discrimination (discrimination of majority group)
• Discrimination based on religion
○ Prohibited by Title VII
○ Employers cannot treat their employees more or less favorably based on their religious beliefs or practices. They also cannot require employees
to participate in any religious activity or forbid them from participating in one.
○ Reasonable accommodation: In addition to prohibiting religious discrimination, employers must reasonably accommodate employee's religious
practices
○ Undue Hardship: An employer is not required to make an accommodation that would cause the employer undue hardship
 Does not necessarily require the employer to satisfy every employee request or to make a permanent change for an employee’s benefit
• Discrimination based on gender
○ Employers are prohibited from classifying jobs as male or female or from advertising as such, unless employer can prove gender is essential to
the job
○ Determining factor: Plaintiff must show gender was determining factor in hiring, firing or lack of promotion
○ Types of sex discrimination
 Differential treatment
 Sexual harassment
□ Hostile Work Environment
 When workplace is “permeated” with discriminatory intimidation, ridicule, insult so severe to alter the conditions of the
victim’s employment
 The conduct in the workplace must be offensive to a reasonable person as well as to the victim, and it must be severe and
pervasive
□ Quid Pro Quo
 Involves the demands for sexual favors by a superior from a subordinate, in exchange for some workplace benefit
 Under certain conditions, an employer may be liable for the quid pro quo harassment committed by its supervisory employees
○ The Pregnancy Discrimination Act: expanded Title VII’s definition of gender discrimination to include discrimination based on pregnancy.
 Women affected by pregnancy, childbirth, or related medical conditions must be treated the same as other persons not so affected but
similar in ability to work
○ Harassment by supervisors: For an employer to be held liable for a supervisor’s sexual harassment, the supervisor normally must have taken a
tangible employment action against the employee
 Tangible employment action: significant change in employment status or benefits. Such an action occurs when an employee is fired,
refused a promotion, demoted, or reassigned to a position with significantly different responsibilities
○ Retaliation by employer: Employers sometimes retaliate against employees who complain about sexual harassment or other Title VII violations
 Retaliation can take many forms (demoting, firing, or otherwise change the terms, conditions, and benefits of employment)
 Title VII prohibits retaliation
 In a retaliation claim, an individual asserts that she or he has suffered harm as a result of making a charge, testifying, or participating in a
Title VII investigation or proceeding
○ Harassment by Co-workers & nonemployees
 Employer generally liable only if employer knew or should have known and failed to take action
□ Employee notice to supervisor is notice to employer under agency law
 Employers may also be liable for harassment by non-employees
○ Same-Gender Harassment: SC ruled that Title VII protection extends to individuals who are sexually harassed by members of the same gender
 Can be difficult to prove
○ Sexual-Orientation Harassment: Federal law does not prohibit discrimination or harassment based on a person’s sexual orientation
 A growing number of states have enacted laws that prohibit sexual orientation discrimination in private employment
• Discrimination based on age
○ ADEA prohibits employment discrimination on the basis of age against individuals over 40; prohibits mandatory retirement for nonmanagerial
workers; protects federal and private-sector employees from retaliation based on age-related complaints
○ Prima Facie Age Discrimination
 The plaintiff must show that she or he was the following
1) a member of the protected age group
2) Qualified for the position from which she or he was discharged
3) Discharged because of age discrimination
 Then the burden shifts to the employer to give a legitimate nondiscriminatory reason for the adverse action
○ Replacing older workers with younger workers: plaintiff must prove that the discharge was motivated by age bias (replaced worker must be
younger)
○ State employees not generally covered by ADEA
 states are immune from lawsuits brought by private individuals in federal court (based on interpretation of 11th Amendment)
• Discrimination based on disability
○ Employers “reasonably accommodate” the needs of persons with disabilities unless to do so would cause the employer to suffer an “undue
hardship.”
○ State government employers are generally immune under the Eleventh Amendment
○ Plaintiff must show they:
 have a disability
 Are otherwise qualified for the employment in question
 were excluded from the employment solely because of the disability
○ What is a disability?
 A physical or mental impairment that substantially limits one or more of the major life activities of the affected individual
 A record of having such an impairment

JHU^MBmore Page 13
  A record of having such an impairment
 Being regarded as having such an impairment
○ Reasonable Accommodation: The ADA does not require that employers accommodate the needs of job applicants or employees with disabilities
who are not otherwise qualified for the work
 If a job applicant or an employee with a disability, with reasonable accommodation, can perform essential job functions, however, the
employer must make the accommodation
• Employer Defenses
○ Business necessity defense: requires the employer to demonstrate that the imposition of a job qualification is reasonably necessary to the
legitimate conduct of the employer’s business
 Defense to disparate impact discrimination
○ Bona Fide Occupational Qualification: requires an employer to show that an particular skill is necessary for the performance of a particular job
 Used in cases of disparate treatment discrimination
○ Seniority system: workers with more years of service are promoted first or laid off last
 An employer with a history of discrimination may have no members of protected classes in upper-level positions but the employer may
have a defense if promotions or other job benefits have been distributed according to a fair seniority system
○ Have defense (according to SC) if:
 They took “reasonable care to prevent and correct promptly any sexually harassing behavior” by establishing and distributing effective
harassment policies and procedures
 That the employee suing for harassment failed to follow these policies and procedures
• Affirmative action: requires that certain employers show efforts to improve job opportunities for women and racial minorities who have been
previously underrepresented in the workplace
○ Applies to all employers who have contracts with the federal government
○ Affirmative action programs may violate the equal protection clause of the Fourteenth Amendment to the U.S. Constitution because of their
inherently discriminatory nature (any affirmative action program that uses racial or ethnic classifications as the basis for making decisions is
subject to strict scrutiny by the courts)

JHU^MBmore Page 14