Module 33: Regulation of Business Employment, Environment, and Antitrust
Overview
Issues on this topic are based on the Workers’ Compensation Laws and Federal Social Security Rules including the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). These laws supplement the law of agency. In this area, emphasis is placed on the impact that state and federal laws have on the regulation of employment.
A. Federal Social Security Act
B. Workers’ Compensation Act
C. Employee Safety
D. Employment Discrimination
E. Federal Fair Labor Standards Act
F. National Labor Relations Act (NLRA)
G. Federal Consolidated Omnibus Budget Reconciliation Act (COBRA)
H. Pensions
I. Worker Adjustment and Retraining Notification Act
J. Federal Employee Polygraph Protection Act and Drug Testing
K. Employer Rights to E-Mail
L. Environmental Regulation
M. Telephone Consumer Protection Act
N. Federal Telecommunications Act
O. Identity Theft
P. Antitrust Law
Q. Sherman Act of 1890
R. Clayton Act of 1914
S. Robinson-Patman Act of 1936
T. Federal Trade Commission Act of 1914
Key Terms
Multiple-Choice Questions
Multiple-Choice Answers and Explanations
Simulation
Simulation Solution
To adequately understand these materials, you should emphasize the theory and purpose underlying the Workers’ Compensation Laws. You should also focus on the effect that these laws have on employers and employees. Notice the changes these laws have made on common law.
For Federal Social Security Laws, emphasize the coverage and benefits of the respective programs.
Also, focus on the various discrimination laws.
Be familiar with the various environmental laws; you do not need to know them in great detail, but you must be familiar with the purpose and the basics of each provision.
Candidates should also understand the important parts of the Sherman Act, the Clayton Act, the Robinson-Patman Act, and the Federal Trade Commission Act. These laws as amended form the basis for Antitrust Law which is now testable on the CPA exam. Before beginning the reading you should review the key terms at the end of the module.
A. Federal Social Security Act
1. Main purpose of Act is as name implies (i.e., attainment of the social security of people in our society)
a. Basic programs include
(1) Old age insurance
(2) Survivor’s and disability insurance
(3) Hospital insurance (Medicare)
(4) Unemployment insurance
b. Sources of financing for these programs
(1) Old-age, survivor’s, disability, and hospital insurance programs are financed out of taxes paid by employers, employees, and self-employed under provisions of Federal Insurance Contributions Act and Self-Employment Contributions Act
(2) Unemployment insurance programs are financed out of taxes paid by employers under the Federal Unemployment Tax Act and various state unemployment insurance laws
2. Federal Insurance Contributions Act (FICA)
a. Imposes social security tax on employees, self-employed, and employers
b. Social security tax applies to compensation received that is considered to be wages
c. In general, tax rates are same for both employer and employee
d. Taxes are paid only up to base amount that is also changed frequently
(1) If employee pays FICA tax on more than base amount, s/he has right to refund for excess
(a) May happen when employee works for two or more employers; these two or more employers, however, do not get refunds
e. FICA is also used to fund Medicare,
not Medicaid
(1) There is no earnings cap for the Medicare portion, thus employees pay the Medicare portion of the tax on all earned wages.
f. It is employer’s duty to withhold employee’s share of FICA from employee’s wages and remit both employee’s amount and employer’s equal share to government
(1) Employer subject to fines for failure to make timely FICA deposits
(a) Also, employer subject to fine for failure to supply taxpayer identification number
(2) Employer is required to match FICA contributions of employees on dollar-for-dollar basis
(3) If employer neglects to withhold, employer may be liable for both employee’s and employer’s share of taxes (i.e., to pay double tax)
(a) Once employer pays, s/he has right to collect employee’s share from employee
(b) Employer may voluntarily pay not only its share but also employee’s share
1] Employee’s share is deductible by employer as additional compensation and is taxable to the employee as compensation
(4) Employer is required to furnish employee with written statement of wages paid and FICA contributions withheld during calendar year
g. Taxes paid by employer are deducted on tax return of employer
(1) But employee may not deduct taxes paid on his/her tax return
h. Neither pension plans nor any other programs may be substituted for FICA coverage
(1) Individuals receiving payments from private pension plans may also receive social security payments
3. Self-Employment Contributions Act
a. Self-employed persons are required to report their own taxable earnings and pay required social security tax
b. Self-employment income is net earnings from self-employment
c. Tax rates paid on self-employment income up to base amount
(1) Since self-employed does not have employer to match the rate, tax rate is that of employer and employee combined
(2) Base amount and tax rate are subject to amendment
(3) Base rate is reduced by any wages earned from another employer during year because wages are subject to FICA
(4) Self-employed can deduct half of FICA tax paid on his/her income tax form
4. Unemployment Insurance (Federal Unemployment Tax Act—FUTA)
a. Tax is used to provide unemployment compensation benefits to workers who lose jobs and cannot find replacement work
b. Federal unemployment tax must be paid by employer if employer employs one or more persons covered by Act
(1) Deductible as business expense on employer’s federal income tax return
(2) Not deductible by employee because not paid by employee
c. Employer must also pay a state unemployment tax
(1) An employer is entitled to credit against his/her federal unemployment tax for state unemployment taxes paid
(2) State unemployment tax may be raised or lowered according to number of claims against employer
(3) If employer pays a low state unemployment tax because of good employment record, then employer is entitled to additional credit against federal unemployment tax
5. Coverage under Social Security Act is mandatory for qualifying employees
a. Person may not elect to avoid coverage
b. Part-time and full-time employees are covered
c. Compensation received must be “wages”
6. Definitions
a. Wages—all compensation for employment
(1) Include
(a) Money wages
(b) Contingent fees
(c) Compensation in general even though not in cash
(d) Base pay of those in the service
(e) Bonuses and commissions
(f) Most tips
(g) Vacation and dismissal allowances
(2) Exclude
(a) Wages greater than base amount
(b) Reimbursed travel expenses
(c) Employee medical and hospital expenses paid by employer
(d) Employee insurance premiums paid by employer
(e) Payment to employee retirement plan by employer
b. Employee—person whose performance is subject to physical control by employer not only as to results but also as to methods of accomplishing those results
(1) Partners, self-employed persons, directors of corporations, and independent contractors are not covered by unemployment compensation provisions since they are not “employees”
(a) Are covered as self-employed persons for old-age, survivor’s, and disability insurance program purposes
(2) Independent contractor distinguished from an employee
(a) Independent contractor not subject to control of employer or regular supervision as employee
(b) That is, employer seeks results only and contractor controls method
EXAMPLE
A builder of homes has only to produce the results.
(3) Officers and directors of corporations are “employees” if they perform services and receive remuneration for these services from corporation
c. Employment—all service performed by employee for person employing him/her
(1) Must be continuing or recurring work
(2) Services from following are exempt from coverage
(a) Student nurses
(b) Certain public employees
(c) Nonresident aliens
(3) Services covered if performed by employee for employer without regard to residence or citizenship
(a) Unless employer not connected with US
(4) Domestic workers, agricultural workers, government employees, and casual workers are governed by special rules
d. Self-employment—carrying on trade or business either as individual or in partnership
(1) Wages greater than base amount are excluded
(2) Can be both employed (in one job) and self-employed (another business), but must meet requirements of trade or business (i.e., not a hobby, occasional investment, etc.)
(3) Includes director fees if director is not otherwise employed by the corporation
e. Employer
(1) For Federal Unemployment Tax Act (FUTA) need only employ one person or more for some portion of a day for twenty weeks, or pays $1,500 or more in total wages in any calendar quarter
(2) In general, may be individual, corporation, partnership, trust, or other entity
7. Old-age, survivor’s, and disability insurance benefits
a. Availability of benefits depends upon attainment by individual of “insured status”
(1) Certain lengths of working time are required to obtain insured status
b. An individual who is “fully insured” is eligible for following benefits
(1) Survivor benefits for widow or widower and dependents
(2) Benefits for disabled worker and his/her dependents
(3) Old-age retirement benefits payable to retired worker and dependents
(a) Reduced benefits for retirement at age sixty-two
(4) Lump-sum death benefits
c. Individual who is “currently insured” is eligible for following benefits
(1) Limited survivor benefits
(a) In general, limited to dependent minors or those caring for dependent minors
(2) Benefits for disabled worker and his/her dependents
(3) Lump-sum death benefits
(4) Survivors or dependents need not have paid in program to receive benefits
(5) Divorced spouses may receive benefits
d. Amount of benefits defined by statute which changes from time to time and depends upon
(1) Average monthly earnings, and
(2) Relationship of beneficiary to retired, deceased, or disabled worker
(a) For example, husband, wife, child, grandchild—may be entitled to different benefits
(3) Benefits increased based on cost of living
(4) Benefits increased for delayed retirement
8. Reduction of social security benefits
a. Early retirement results in reduced benefits
(1) Retirement age is increasing in steps
b. Returning to work after retirement can affect social security benefits
(1) Income from private pension plans, savings, investments, or insurance does not affect benefits because not earned income
(2) Income from limited partnership is considered investment income rather than self-employment income
9. Unemployment benefits
a. Eligibility for and amount of unemployment benefits governed by state laws
b. Does not include self-employed
c. Generally available only to persons unemployed through no fault of their own; however, not available to seasonal workers if paid on yearly basis (e.g., professional sports player in off-season)
d. One must have worked for specified period of time and/or earned specified amount of wages
NOW REVIEW MULTIPLE-CHOICE QUESTIONS 1 THROUGH 9
B. Workers’ Compensation Act
1. Workers’ compensation is a form of strict liability whereby employer is liable to employee for injuries or diseases sustained by employee which arise out of and in course of employment
a. Also may include those only partially sustained in course of employment
b. Employee is worker subject to control and supervision of employer
c. Distinguish from independent contractor (See Module 32, section B.2.)
2. Purpose
a. To give employees and their dependents benefits for job-related injuries or diseases with little difficulty
(1) Previously, employee had to sue employer for negligence to receive any benefits in form of damages
(2) Employee usually cannot waive his/her right to benefits
b. Cost is passed on as an expense of production
c.
No fault need be shown; payment is automatic upon satisfaction of requirements
(1) Removes employer’s common law defenses of
(a) Assumption of risk
(b) Negligence of a fellow employee—employer formerly could avoid liability by proving it was another employee’s fault
(c) Contributory negligence—injured employee was also negligent
3. Regulated by states
a. Except that federal government employees are covered by federal statute
b. Each state has its own statute
4. Generally, there are two types of statutes
a. Elective statutes
(1) If employer rejects, s/he loses the three common law defenses against employee’s common law suit for damages so most accept
b. Compulsory statutes
(1) Require that all employers within coverage of statute provide benefits
(2) Majority of states have compulsory coverage
5. Insurance used to provide benefits
a. In lieu of insurance policy, employer may assume liability for workers’ compensation claims but must show proof of financial responsibility to carry own risk
6. Legislative scope
a. Workers’ compensation coverage extends to all employees who are injured on the job or in the course of the employment (i.e., while acting in furtherance of employer’s business purpose)
b. Coverage also extends to occupational diseases and preexisting diseases that are aggravated by employment
c. Coverage does not extend to employee while traveling to or from work
d. Out-of-state work may be covered if it meets above mentioned criteria
e. All states have workers’ compensation law; most employees covered
f. Must be employee; coverage does not extend to independent contractors
g. Public employees are often covered
7. Legal action for damages
a. Employers covered by workers’ compensation insurance are generally exempt from lawsuits by employees
(1) If employee does not receive benefits covered under workers’ compensation, s/he may sue insurance company that agreed to cover workers
b. Benefits under workers’ compensation laws received by employee are in lieu of action for damages against employer and such a suit is barred
(1) Employer assumes liability in exchange for employee giving up his/her common law rights to sue employer for damages caused by the job (e.g., suit based on negligence)
(2) When employee is covered by workers’ compensation law, his/her sole remedy against employer is that which is provided for under appropriate workers’ compensation act
(3) However, if employer intentionally injures employee, employee may proceed against employer based on intentional tort in addition to recovering under workers’ compensation benefits
c. Employee is entitled to workers’ compensation benefits
without regard to fault
(1) Negligence or even gross negligence of injured employee is not a bar to recovery
(2) Employee’s negligence plays no role in determination of amount of benefits awarded
(3) Failure of employee to follow employer’s rules is not a bar to recovery
(4) However, injuries caused by intentional self-infliction, or intoxication of employee, can bar recovery
d. When employer fails to provide workers’ compensation insurance or when employer’s coverage is inadequate, injured employee may sue in common law for damages, and employer cannot resort to usual common law defenses
(1) When employer uninsured, many states have a fund to pay employee for job-related injuries
(a) State then proceeds against uninsured company
(b) Penalties imposed
8. Actions against third parties
a. Employee’s acceptance of workers’ compensation benefits does not bar suit against third party whose negligence or unreasonably dangerous product caused injury
(1) If employee sues and recovers from third party, employer (or its insurance carrier) is entitled to compensation for workers’ compensation benefits paid to employee
(a) Any recovery in excess of workers’ compensation benefits received belongs to injured employee
(b) To the extent that recovery duplicates benefits already obtained from employer (or carrier), that employer (or carrier) is entitled to reimbursement from employee
EXAMPLE
Kraig, an employee of Badger Corporation, was injured in an auto accident while on the job. The accident was due to the negligence of Todd. Kraig can recover under workers’ compensation and also fully recover from Todd in a civil court case. However, Kraig must reimburse the workers’ compensation carrier to the extent the recovery from Todd duplicates benefits already obtained under workers’ compensation laws.
b. If employee accepts workers’ compensation benefits, employer (or its insurance carrier) is subrogated to rights of employee against third party who caused injury
(1) Therefore, if employee elects not to sue third party, employer (or its insurance carrier) obtains employee’s right of action against third person
9. Claims
a. Employees are required to file claim forms on timely basis
10. Benefits
a. Medical
(1) Provides for medical care to injured or diseased employee
b. Disability
(1) This is partial wage continuation plan
c. Death
(1) Various plans and schedules provide payments to widow(er) and minor children
d. Special provisions
(1) Normally, statutes call for specific scheduled payments for loss of limb or eye
(2) Also, if employee’s injury is of a nature that prevents his/her returning to his/her occupation, plan may pay cost of retraining
e. Normally not subject to waiver by employee
NOW REVIEW MULTIPLE-CHOICE QUESTIONS 10 THROUGH 16
C. Employee Safety
1. Occupational Safety and Health Act (OSHA)
a. OSHA applies to almost all employers except federal government, state governments, and certain industries subject to other safety regulations
b. Purpose of OSHA is to promote safety standards and job safety
c. Occupational Safety and Health Administration (OSHA) administers this law
(1) OSHA develops and enforces standards in work place on health and safety
(2) OSHA investigates complaints and makes inspections of workplace
(a) Employers can require OSHA to get search warrant for inspection
1] Search warrant issued based on probable cause
a] High employee complaint rate can form basis for probable cause
(3) Employers required to keep records of job-related injuries and report serious accidents to OSHA
(4) Employers required to comply with regulations set by OSHA
(5) Employers are prohibited from discriminating against or discharging employees for exercising his/her rights under OSHA
(6) OSHA may assess civil penalties for violations
(7) Employers may be criminally liable if willful violation results in death of employee
(a) Possible fine, imprisonment, or both
NOW REVIEW MULTIPLE-CHOICE QUESTION 17
D. Employment Discrimination
1. Title VII of the 1964 Civil Rights Act forbids discrimination in employment on the basis of race, color, religion, sex, or national origin
a. Applies to employers and labor unions having fifteen or more employees whose business affects interstate commerce; also applies to government employers and employment agencies
b. Job discrimination applies to discrimination in hiring, promotion, transfers, firing, compensation, etc.
c. Enforced by Equal Employment Opportunity Commission (EEOC) which is a federal government administrative agency, or by lawsuits of private individuals
d. Not necessarily illegal to treat employees differently, but
(1) Illegal discrimination occurs when employee treated differently because of his/her race, color, religion, sex, or national origin; this is referred to as disparate treatment.
(2) Illegal discrimination may occur when employer adopts seemingly neutral rules that adversely affect a member of a protected class
EXAMPLE
Rules requiring certain minimum standards on weight and/or height have historically discriminated against women as a class since generally men are taller and weigh more.
(3) Illegal discrimination may be proven statistically to show pattern of discrimination
(4) Defendant may have defenses to Title VII violations
(a) In those certain instances where sex, religion, or national origin is a bona fide (Latin—good faith) occupational qualification (BFOQ) reasonably necessary to the normal operation of that particular enterprise
1] Courts construe this defense narrowly
(b) Bona fide seniority or merit system
(c) Professionally developed employment testing and education requirements
1] Employers must be able to show that the test/educational requirements are job related and/or related to job performance if the test is adversely affecting a protected class.
(d) National security reasons
(e) Employer only needs to make reasonable accommodations for discrimination based on religion
(f) No BFOQs exist for discrimination on the basis of race or color
e. Sexual harassment
(1) Quid pro quo (Latin—this for that) is intentional harassment involving promotions, job offers, job benefits, in exchange for sexual relations. It also includes sex in exchange for not being fired, demoted, etc.
(2) Hostile work environment involves harassment that creates an offensive or intimidating work environment. This can include jokes, lewd comments, graphic pictures, etc.
f. Remedies for a successful claimant under Title VII
(1) Back pay
(2) Job or promotion
(3) Retroactive seniority
(4) Compensatory damages, and in extreme cases punitive damages, for cases involving intentional discrimination
2. Age Discrimination in Employment Act
a. Discrimination by employers with 20 or more employees, unions, employment agencies, and federal government
b. Generally applies to individuals at least forty years old
c. Very similar in application to Title VII except discrimination is based on age.
3. Vocational Rehabilitation Act of 1973 applies to employers with federal contracts over $2,500
a. Employers required to take affirmative action to employ and advance qualified handicapped individuals
4. Americans with Disabilities Act (ADA)
a. Forbids companies and most other entities from discriminating against qualified persons with a disability in various employment decisions including hiring, firing, promotion, and pay
(1) Qualified individual with disability means person who can perform essential functions of job either with or without reasonable accommodation
(a) Reasonable accommodation may include acquiring new equipment, modifying facilities, restructuring jobs, modifying work schedules, etc. unless employer can show undue hardship based on significant expense or hardship
(b) ADA does not protect person using illegal drugs unless rehabilitated and no longer using drugs
(2) Disabilities include physical impairments, mental impairments, medical conditions, and/or perceived impairments
b. ADA protects disabled persons from discrimination and guarantees them equal access to, among others,
(1) Public services including public transportation and public accommodations
(2) Public services operated by private entities
c. Enforcement may be by attorney general or by private legal action
5. Pregnancy Discrimination Act
a. Actually a 1978 amendment to Title VII
b. Employers prohibited from discriminating against employees becoming pregnant or giving birth
(1) Unmarried and married woman are covered
(2) Employers’ health and disability insurance must cover pregnancy the same as any other medical condition
6. Vietnam Era Veterans Readjustment Assistance Act
a. Employers with federal contracts of $10,000 or more must take affirmative action in hiring and promoting qualified veterans of the Vietnam War or qualified disabled veterans
7. Equal Pay Act
a. Requires equal pay for equal work for both sexes
b. Differences in pay may be based on merit, quality of work, seniority, or shift differentials
c. Enforced by Equal Employment Opportunity Commission (EEOC)
d. To remedy violations, back pay may be required and wages of wronged employees must be raised to eliminate disparity
(1) Other employees’ wages may not be reduced instead
8. Family and Medical Leave Act
a. Covers employees employed for at least twelve months for at least 1250 hours by employers having at least fifty employees
b. Employees have the right to up to twelve work weeks of leave during a twelve-month period for any of following reasons
(1) Employee’s own serious health problem
(2) To care for serious health problem of parent, spouse, or child
(3) Birth and care of baby
(4) Child placed with employee for adoption or foster care
c. Leave of twelve weeks may be done intermittently for cases of serious health problems of employee or his/her covered relatives
d. Typically, leave is without pay
e. When employee returns, s/he must get back same or equivalent position
f. Returning employee cannot lose benefits due to leave
g. Employers who deny these rights to employee are civilly liable for damages
9. Health Insurance Portability and Accountability Act
a. Restricts using exclusions for preexisting conditions in employer sponsored group health insurance policies
10. Whistle-Blower Protection Act
a. Federal law that protects federal employees from retaliation by employers for reporting employer legal violations
b. Majority of states also have laws that protect whistle-blowers from employers’ retaliation
NOW REVIEW MULTIPLE-CHOICE QUESTIONS 18 THROUGH 25
E. Federal Fair Labor Standards Act
1. Applies to all businesses that affect interstate commerce
2. All covered employees must be paid at least “the minimum wage”
a. Employees younger than twenty may be hired for a somewhat lower “opportunity wage” for ninety calendar days
3. Covered workers who work more than forty hours per week must be paid time and a half
4. Some employees are not covered under some or all of the minimum wage and time-and-a-half provisions
a. For example, professionals, executives, outside salespersons
5. Some employees must get at least minimum wage but are not covered by the overtime rules
a. For example, taxi drivers, railroad employees
6. Employees may be paid based on various time bases such as hourly, weekly, monthly, etc.
7. Enforced by Department of Labor and may include fines and/or prison
F. National Labor Relations Act (NLRA)
1. Provides that employees have right to join, assist, or form labor organizations
2. Enforced by the National Labor Relations Board (NLRB)
3. NLRB runs and supervises union elections
4. If union is elected, then management and union must collectively bargain
a. Mandatory bargaining subjects are topics that both sides
must negotiate about in good faith. These subjects are
(1) Wages
(2) Hours, and
(3) Other conditions of employment (e.g., benefits, safety conditions, seniority rules, etc.)
b. Illegal bargaining subjects are topics that neither side may bring up (e.g., anything that would violate the NLRA such as an unfair labor practice [UFLP]). Examples include
(1) Featherbedding, which requires employers to pay employees for work not actually performed
(2) Involving other parties not directly involved in the labor dispute
c. Permissive bargaining subjects are topics that either side may negotiate about. If a subject is not mandatory or illegal, then it is permissive.
5. Strikes, employees refusing to work, are generally legal, but a strike can only be about a mandatory bargaining subject.
6. Certain employees are
not covered by the NLRA. This does not mean these employees cannot create unions, but they are not protected by the provisions of the NLRA
a. Government employees
b. Agricultural employees
c. Management level employees
d. Railroad employees
7. The Landrum-Griffin Act amended the NLRA to regulate union abuses against its own members
a. Requires extensive financial reporting involving unions
b. Provides for civil and criminal action against misdeeds of union officers
c. Provides for bill of rights for union members in conducting meetings and elections
NOW REVIEW MULTIPLE-CHOICE QUESTIONS 26 THROUGH 28
G. Federal Consolidated Omnibus Budget Reconciliation Act (COBRA)
1. Provides that when employee quits, s/he may keep same group health insurance coverage for eighteen months for that former employee and spouse
a. Former employee pays for it
b. Trade Act increases election period to keep same coverage
2. Applies to employers with 20 or more employees
H. Pensions
1. Employee Retirement Income Security Act (ERISA)
a. Does not require employer to set up pension plan
b. If employer does set up plan, it must meet certain standards
(1) Generally, employee contributions to pension plan vest immediately
(2) In general, employee’s rights to employer’s contributions to pension plan vest from five to seven years after beginning employment based on formulas in law
(3) Standards on investment of funds are set up to avoid mismanagement
(4) Employers cannot delay employee’s participation in pension plan
(5) Covered plans must give annual reports to employees in plan
(6) Plan must be in writing
(7) Plan manager must be named. Manager is a fiduciary.
2. In noncontributory pension plan, employee does not pay but employer pays for all
3. Maximum punishments for violations of Act by individuals increased to imprisonment of ten years and fine of $100,000—by entities, maximum fine is increased to $500,000
4. Sarbanes-Oxley Act requires administrators of employee benefit and profit sharing plans to provide participants and beneficiaries thirty-day advance notice of blackout periods when their rights are temporarily suspended to make changes in plan
a. Criminal penalties increased by significantly greater fines and longer imprisonment terms
(1) Based on intent of reducing excesses of some corporations and holding officers and directors more accountable
b. Prohibits officers and directors from acquiring or transferring stock for services to corporation during blackout periods
NOW REVIEW MULTIPLE-CHOICE QUESTIONS 29 THROUGH 31
I. Worker Adjustment and Retraining Notification Act
1. Provides that employers before they close a plant or have mass layoffs must give sixty days notice to employees as well as to state and local officials
2. Act allows shorter notice period in case of emergencies or failing companies
3. Applies to businesses with 100 or more employees
J. Federal Employee Polygraph Protection Act and Drug Testing
1. Private employers may not require employees or prospective employees to take lie detector test or make adverse employment decisions based on such tests or refusals to take them
a. Act allows polygraph tests to be used by
(1) Security services hiring employees to protect public health and safety
(2) Employers that deal with national defense issues
(3) Drug manufacturers and distributors
b. Government employers exempted
c. Private employer may use lie detector tests as part of investigation of economic loss when employer has reason to suspect individual
(1) Employer is limited in topics of questions that violate privacy especially in topics not directly related to investigation of economic loss
2. Drug testing by public employers and private employers of prospective employees has increased very significantly in the past few years
a. Employees and job applicants frequently view this as an invasion of privacy
b. Employers see drug testing as a way to decrease possible liability and also as a way to increase productivity
c. Generally courts rule preemployment drug screening is legal because job applicants have a lower expectation of privacy than current employees
(1) Courts generally hold current employees can be tested if either employer has reasonable suspicion employee is drug-impaired or all employees who have had accidents are tested for drugs
K. Employer Rights to E-mail
1. Courts consistently rule employees have no expectation of privacy using employer’s e-mail systems
a. Most employers warn employees about this limitation on privacy at work
(1) Lack of this warning does not affect employer’s rights to review employees’ e-mail
2. Unsolicited bulk e-mail or spam has caused problems for both employers and employees
a. Lawyers have creatively used the traditional tort of trespass to stop some of these problems in cyberspace
L. Environmental Regulation
1. Under common law
a. Parties may be liable under doctrine of nuisance
(1) Based on party using property in manner that unreasonably interferes with another’s right to use and enjoy property
(2) Typically, monetary damages is remedy rather than injunction
(3) Often, plaintiffs need to show their injury is distinct from harm of public in general
b. Businesses may be liable for negligence
(1) Plaintiff shows that his/her harm was caused by business polluter who failed to use reasonable care to prevent foreseeable harm
c. Businesses may be liable under strict liability if involved in ultrahazardous activities
EXAMPLE
B is in the business of transporting radioactive materials. Strict liability may be used which makes B liable for all damages it causes without the need to prove negligence.
2. Under federal statutory laws
a. Environmental Protection Agency (EPA)
(1) Administrative agency set up to ensure compliance with environmental protection laws
(2) EPA may enforce federal environmental laws by use of administrative orders and/or civil penalties
(a) May also refer criminal or civil actions to Department of Justice
(3) EPA also adopts regulations and conducts research on environment and effects of pollution
(4) Most environmental statutes provide for criminal liability
(a) Generally, corporate officers must be “blameworthy,” based on ability to prevent or correct, to be criminally liable
(5) EPA generally uses civil suits more than criminal prosecutions because civil suits require preponderance of evidence to win but criminal convictions require proof beyond a reasonable doubt
(6) Private citizens may also sue violators or may sue EPA to enforce compliance with laws
(7) States may also sue violators
b. National Environmental Policy Act
(1) Requires all federal agencies consider environmental factors in all major decisions
(a) Requires preparation of environmental impact statement (EIS) when federal action or proposed laws significantly affect environment
1] Shows expected impact on environment
2] Describes adverse consequences of action that are unavoidable
3] Must examine alternatives to achieve goals
4] For EIS, environment means more than natural environment—can include aesthetic, cultural, and national heritage interests, etc.
(b) Federal agency must consider environmental impact prior to project
(c) If federal government needs to grant a permit to a private party, then typically private party will need to submit EIS
(d) If agency finds no EIS is warranted, it must prepare and make available to public document called “Finding of No Significant Impact” with reasons for no action needed
c. Clean Air Act
(1) EPA is required to create national ambient air quality standards (NAAQS)
(a) Primary standards are created to protect the public health
(b) Secondary standards are created to protect public welfare (e.g., crops, animals, structures)
(2) States must then submit a state implementation plan (SIP) detailing how the state will achieve the NAAQS
(3) Provides that EPA set air quality standards for mobile sources, such as autos, and stationary sources, such as factories
(a) Recent amendments now require more, including some smaller businesses to be regulated by Clean Air Act such as many paint shops, bakeries, and dry cleaners
(b) Recent amendments have also encouraged cities and counties to impose residential regulations such as no-burn days for fireplaces, regulations on reducing numbers of fireplaces in certain areas, or restrictions on charcoal barbeques
(c) EPA notes air in some buildings is more polluted than outside air
(4) New stationary sources constructed after a NAAQS must show that they are using the best technological system of emissions reduction
(5) Regulates various toxic pollutants, including those that affect acid rain and ozone layer
(6) Act allows private citizens to sue violators of Act and also state or federal officials who fail to take action under the law
(a) Those winning successful citizens’ lawsuits can get attorneys’ fees and court costs and punitive damages
(b) Court may also order EPA to perform its duties and impose civil penalties
(7) Encourages and requires use of alternative fuels to help meet pollution goals
(8) Federal government may force recall of automobiles violating emission regulations
(9) EPA can assess stated civil penalties per violation
(a) When company finds it cost effective to violate Clean Air Act, EPA may wage penalty equal to benefit company received by not complying
(b) Criminal fines and imprisonment for intentional violations have recently been made harsher
1] Most violations under Act are now felonies rather than misdemeanors
2] Act allows that any responsible corporate officers can be criminally liable
(10) Amendments to Clean Air Act allow companies to trade some rights to pollute
(11) Recent Supreme Court case says that Clean Air Act does not require EPA to consider cost in making air clean
(a) EPA required to strictly reduce certain toxic pollutants such as mercury
(12) Areas that have already met or exceeded clean air requirements are prohibited from any significant deterioration of their current air quality
d. Clean Water Act
(1) EPA sets standards to reduce, eliminate, or prevent pollution of rivers, seas, ponds, wetlands, streams, etc.
(a) For example, controls dredging or filling of rivers and wetlands
(b) Also by amendments, requires acid rain control program
(2) Implemented similar to Clean Air Act: EPA creates framework of clean water standards and states are responsible for making sure that the federal standards are met
(3) Owners of point sources such as floating vessels, pipes, ditches, and animal feeding operations must obtain permits which control water pollution
(a) Nonpoint sources such as farms, forest lands, and mining are exempt
(4) Broad in scope—includes regulation of discharge of heated water (e.g., by nuclear power plant or electric utilities)
(a) EPA awards grants for programs to notify public of potential exposure to disease-causing organisms in coastal recreation waters
1] Many states are now directed to increase monitoring programs for recreational water for such things as E. coli
2] Applies to coastal regions on oceans and Great Lakes
(5) Provides for fines and prison for neglect or knowing violations or endangerment (i.e., knowingly putting person in imminent danger of death or serious bodily harm)
e. Safe Drinking Water Act
(1) Regulates safety of water supplied to homes by public water systems
(a) EPA required to prepare new list every three years that identifies contaminants that EPA is considering for future regulation and for drinking water research, monitoring, and health advisory guidance
(b) Recently identified threat to water systems is from terrorism
1] Recent law requires activities at local, state, and national levels to help public health community to respond to threat of terrorism
(2) Prohibits discharge of waste into wells for drinking water
f. Oil Pollution Act
(1) Requires establishment of oil pollution cleanup contingency plans by tanker owners and operators to handle worst case spills under adverse weather conditions
(2) Requires that new tankers have double hulls
(3) Requires phase-in of double hulls on existing oil tankers and barges
g. Noise Control Act
(1) Regulates noise pollution and encourages research on its effects
(2) EPA establishes noise standards for products sold in US
(3) Violations may result in fines, imprisonment, or injunctions
h. Resource Conservation and Recovery Act
(1) Creates permit system to regulate businesses that store, use, or transport hazardous waste
(2) Requires companies to keep strict records of hazardous waste from “cradle to grave” transport
(3) Producers required to label and package correctly hazardous materials that are to be transported
(4) Generators of hazardous waste must implement waste minimization program that reduces toxicity and quantity of hazardous waste.
(5) Fines and prison for violators
(a) Can be doubled for certain violations
(6) Also, household waste regulated
i. Toxic Substances Control Act
(1) Mandates testing and regulation of chemicals that pose unreasonable risk to health or environment
(a) Requires testing before marketing allowed
(2) Requires special labeling of toxic substances
j. Federal Insecticide, Fungicide, and Rodenticide Act
(1) Provides that pesticides and herbicides must be registered with EPA before sale
(2) EPA can
(a) Deny registration
(b) Certify them for general or restricted use
(c) Suspend registration if emergency or imminent danger
(d) Grant conditional registration when useful until effects known
(3) Limits set for amount of pesticide residue permitted on crops for human or animal consumption
(4) Act has labeling requirements
(5) Violators subject to fine and imprisonment
(6) Private party may petition EPA to suspend or cancel registration
k. Federal Environmental Pesticide Control Act
(1) All who distribute pesticides must register them with EPA
(2) EPA uses cost-benefit analysis to decide to register pesticides rather than deciding if they will pose health hazard
l. Comprehensive Environmental, Compensation, and Liability Act (CERCLA)
(1) Often known as the Superfund legislation
(2) Levies taxes on manufacturers of certain dangerous chemicals
(3) Identifies hazardous waste sites needed to be cleaned up
(4) Regulates generation and transportation of hazardous substances
(a) Does not regulate petroleum or natural gas
(5) Government can impose broad liability for cleanup costs and environmental damages
(a) Parties have
joint and several liability and include
1] Current owners and operators of site
2] Past owners and operators of site
3] Persons who transported waste to site
4] Persons who arranged to have waste transported
(b) With limited exceptions, the standard is based on strict liability for all cleanup costs
(c) One who is responsible for portion of waste can be liable for all cleanup costs
(d) Liability is retroactive under this statute
(e) CERCLA lender liability—one important issue is when a lender has responsibility for cleanup when it takes possession of real property due to a foreclosure sale or a deed in lieu of foreclosure
1] Recent statute specifically excludes lender from CERCLA liability in most situations when it takes possession of real estate due to foreclosure
2] Lender is still liable under CERCLA if it participates in management or operational affairs of the facility foreclosed on
3] Lender can do any of following and NOT be liable under CERCLA
a] Lease the property
b] Sell the property
c] Monitor or enforce terms of security agreement involved
d] Provide financial advice
e] Restructure loan terms
f] Mandate debtor to take action on hazardous materials
(f) CERCLA does not make polluters liable to private parties; they generally use private suits under common law
m. Emergency Planning and Community Right-to-Know Act
(1) Companies having specified amounts of extremely hazardous substances must notify state and local agencies and also must issue annual reports of releases of specified toxic chemicals that result from operations
(a) This information is available to public
n. International protection of ozone layer
(1) Many countries, including US, have agreed to reduce or eliminate certain chemicals believed to harm ozone layer
o. Nuclear Waste Policy Act
(1) Creates national plan to dispose of highly radioactive nuclear waste
(2) State may regulate emissions of radioactive particles under Clean Air Act
p. Energy Independence and Security Act
(1) Purpose of Act is to move US toward greater energy independence, to increase production of clean renewable fuels, to increase efficiency of products, vehicles, and buildings, among others
(2) Automakers required to increase fleet-wide gas mileage to specified standards
(a) Applies to all passenger vehicles including light trucks
(3) Requires vehicle technology and transportation electrification
(a) Incentives given for development of plug-in hybrids
(4) Requires specified standards for greater efficiency for lightbulb or similar energy savings
(5) New initiatives to improve efficiency of highway, sea, and railroad infrastructure
(6) Creation of Office of Climate Change and Environment in Department of Transportation
(7) Modernization of electricity grid to improve efficiency
(8) Small business loans toward improving energy efficiency
(9) Creation of training program for green jobs (i.e., energy efficiency and renewable energy workers)
(10) Taxpayer funding for increased funding of biofuels added to gasoline
q. Marine Protection, Research, and Sanctuaries Act
(1) Regulates dumping into oceans
(2) Establishing marine sanctuaries
r. Endangered Species Act
(1) Enforced by both EPA and Department of Commerce
(2) Protects both endangered as well as threatened species
s. Pollution Prevention Act
(1) Provides incentives to industry to prevent some pollution from initially being formed
(2) Facilities must minimize or eliminate pollutants whenever feasible.
t. SEC requires that companies report in financial statements their environmental liabilities
3. Environmental Compliance Audits
a. These are systematic, objective reviews designed to evaluate compliance with federal and state regulations and laws on environment
(1) Some states have environmental audit privilege laws. In these states, businesses’ environmental audits are exempt from discovery in a lawsuit.
(2) EPA will substantially reduce or, in some circumstances, waive fines if companies disclose and correct wrongdoing.
b. Purposes of audit
(1) To discover violations or questionable practices to allow company to avoid litigation
(2) Voluntary discovery allows companies to avoid criminal sanctions
(3) To meet disclosure requirements under securities laws
NOW REVIEW MULTIPLE-CHOICE QUESTIONS 32 THROUGH 44
M. Telephone Consumer Protection Act
1. Restricts use of prerecorded messages
2. Act requires that in order to use prerecorded messages, a live person must introduce prerecorded message and receive from telephoned person permission to play that message
a. Act exempts calls by nonprofit organizations, calls made for emergencies, and calls to businesses
b. Act does not cover personal phone calls
N. Federal Telecommunications Act
1. Prevents local or state governments from preventing entry of the growing telecommunications industry
O. Identity Theft
1. Hackers can collect much information on individuals to piece together information on them to, in many cases, obtain credit or make purchases or obtain government benefits
2. Increased penalties for identity theft to help reduce it
3. FTC is appointed to help victims of identity theft to restore credit and minimize impacts of identity theft
4. All banks, savings associations, and credit unions are required to have an identity theft prevention program
P. Antitrust Law
1. The main purpose of federal antitrust laws is to promote the production and distribution of goods and services in the most economical and efficient manner by preserving free, competitive markets
a. Also promotes fairness and gives consumer a wider choice
2. Regulation (for the CPA Exam) is by federal law, so interstate commerce must be affected before the activity is regulated
a. If there is a substantial economic effect on interstate commerce, then federal law governs
(1) Even if a business is only carried on within a state, it may substantially affect interstate commerce if it
(a) Competes or deals with businesses that do business among several states, or
(b) Purchases or sells a substantial amount of products that come from or wind up in interstate commerce
EXAMPLE
Wholesale dealers in a state agree to divide the state market among them. This agreement is intrastate but it reduces the chances for out-of-state dealers to enter the local market and therefore the agreement affects interstate commerce.
3. If the contract in restraint of trade is illegal, it is unenforceable by the parties, in addition to possible criminal or civil penalties and injunctions
a. Vertical restraints are agreements between parties from different levels of the distribution chain (i.e., between manufacturer and retailer)
b. Horizontal restraints are agreements between parties of the same level of the distribution chain (i.e., between two retailers or two manufacturers)
4. Some contracts in restraint of trade
are legal and enforceable
a. Seller of a business agrees not to compete with the buyer
(1) Only valid if for a reasonable time and a reasonable geographic area and if a proper business interest is sought to be protected
(a) Reasonable time is what is fair under the circumstances to protect buyer (e.g., one year)
(b) Reasonable area would be where the business is conducted (e.g., neighborhood). If business is statewide, then restriction can be for whole state
EXAMPLE
Seller of a bakery covenants not to compete in the immediate locality for one year. This is a reasonable area and also a reasonable length of time.
b. Similarly, partners and employees can covenant not to compete with partnership or employer while relationship lasts and for a reasonable time thereafter and within a reasonable area
c. Buyer or lessee of property may covenant not to use it in competition with, or to the injury of the seller or lessor
(1) Same standards of reasonableness apply
5. Exceptions to the antitrust laws
a. Labor unions unless they join with nonlabor group and act in violation
b. Patents are a twenty-year monopoly; fourteen years for design patents
c. Copyrights are a monopoly for the author’s life plus seventy years
(1) For publishers, 95 years after publication or 120 years after creation
d. Trademarks are a monopoly with an indefinite number of renewals if still used
e. Insurance business that is covered by state regulations
f. US exporters may cooperate to compete with foreign entities
g. State allowed to have quotas on oil marketed for interstate commerce
h. Agricultural cooperatives
i. State government actions
(1) These are industries comprehensively regulated by the state
(2) Utilities, insurance are examples of industries where this is true
j. Legislative activities such as lobbying
k. Professional baseball, no other sports, just baseball
6. Enforcement of the Antitrust Laws
a. Justice Department
(1) Enforces Sherman Act and Clayton Act
(2) Only enforcement entity that may seek criminal penalties
b. Federal Trade Commission (FTC)
(1) Enforces Clayton Act and Federal Trade Commission Act
(2) May only pursue civil enforcement
c. Private parties
(1) Entitled to treble (triple) actual damages and reasonable attorney fees if successful.
(2) May only pursue civil enforcement
Q. Sherman Act of 1890
1. Contracts, combinations, conspiracies, or agreements in restraint of trade are illegal under Section 1 of the Sherman Act.
a. The agreement must be between separate economic entities
EXAMPLE
McDonald’s can decide that all of its stores will sell Quarter Pounders for $1.99. McDonald’s cannot agree with Burger King that if Burger King will charge at least $3.50 for a Whopper, McDonald’s will sell Quarter Pounders for $3.50.
b. Only unreasonable restraints are illegal
c. There are two approaches that courts use to determine whether the restraint is unreasonable:
(1) The per se rule
(2) The rule of reason
d. The per se rule means that the restraint is automatically illegal
(1) Certain activities are viewed as so inherently anticompetitive that there can be no valid justification to engage is such activities
(2) Generally, the per se rule applies to horizontal restraints of trade. (See section 2. of this outline below)
(3) Activities that do not fall under the per se rule are analyzed under the rule of reason
e. The rule of reason balances the procompetitive effects of the agreement versus the anticompetitive effects of the agreement
(1) If on balance, the agreement is more procompetitive than anticompetitive, the agreement is legal
(2) Conversely, if the agreement is more anticompetitive than procompetitive, the agreement is illegal
2. Horizontal restraints of trade involve agreements between competitors
EXAMPLE
An agreement between McDonald’s and Burger King.
a. Many horizontal restraints are analyzed under the per se rule because they tend to directly reduce competition
b. Per se horizontal restraints include
(1) Price fixing (agreement)
(a) Whether it actually affects prices or not
(b) Whether the fixed price is fair or not (presumed unfair)
(c) Dollar volume is unimportant; existence of any price fixing agreement is illegal
(d) An actual agreement is not necessary if the parties have a tacit understanding and adhere to it
(e) Includes quantity limitations and minimum, maximum, buying, and selling prices
(2) Joint boycotts (i.e., group agreements not to deal with another) are per se violations
(3) Horizontal territorial limitation is a per se violation
EXAMPLE
Two competitors agree not to sell in each other’s section of the city.
c. Not all horizontal agreements are illegal per se
(1) A joint venture is analyzed under the rule of reason because most anticompetitive effects are temporary
(2) Trade and professional organization agreements are examined under the rule of reason
3. Vertical restraints of trade involve agreements between businesses at different levels in the distribution chain
EXAMPLE
McDonald’s entering into an agreement with Coke to use only Coca Cola products in McDonald’s restaurants
a. All vertical restraints are subject to a rule of reason analysis (i.e. there are no per se violations for vertical restraints)
b. Resale price maintenance (Vertical price fixing)
(1) Manufacturers may suggest a retail price; this is legal because there is no agreement.
(2) Manufacturers may refuse to sell to retailers who promise to sell at suggested price. This is a unilateral decision by the manufacturer, so there is no agreement. This activity is also legal.
EXAMPLE
Colgate toothpaste tells Mega Mart that it must resell Colgate at a price of no less than $2 a tube. Mega Mart refuses and Colgate does not sell toothpaste to Mega Mart. Since there is no agreement between Colgate and Mega, there cannot be a violation of Section 1 of the Sherman Act.
c. Rule of reason analysis for vertical restraints usually focuses on interbrand and intrabrand competition.
(1) Interbrand competition is the competition between different brands of the same product.
EXAMPLE
Campbell’s soup and Progresso soup.
(2) Intrabrand competition is between the same brands at different places.
EXAMPLE
The price of Campbell’s soup at different competing supermarkets.
(3) Generally interbrand competition is viewed as more beneficial to consumers
(4) Thus, many vertical restraints which injure or limit intrabrand competition, but enhance or promote interbrand competition, are usually legal under the rule of reason
d. Vertical territorial limitations, often contained in franchising agreements, where franchisee receives an exclusive right to sell in a specific territory but is precluded from selling in any area are only illegal if unreasonable (Rule of Reason)
EXAMPLE
A distributor requires dealer to sell only in X suburban area.
2. Monopolization violates Section 2 of the Sherman Act
a. Section 2 makes it illegal for a firm to obtain or maintain a monopoly; it is not illegal to actually have a monopoly
b. Unlike Section 1 of the Sherman Act, there is no agreement necessary to violate Section 2 of the Sherman Act
c. Monopoly is the power to exclude competition and/or to control prices; a firm does not need 100% of the market to have a monopoly under the antitrust laws
(1) Percentage share of the relevant market is a determining factor
(a) Generally, 70% of the relevant market is a presumption of monopoly power
(b) Less than 50% of the relevant market there is a presumption of no monopoly power
(c) A much lower percentage will suffice if the charge is attempting to monopolize rather than holding monopoly power
(2) The relevant market consists of the product market and the geographic market
(a) Product market consists of commodities reasonably interchangeable by consumers
EXAMPLE
In a case involving a cellophane wrapping manufacturer, the product market was flexible wrapping material.
(b) Geographic market is the area in which the defendant and competitors sell the product
EXAMPLE
A geographic market for a major beer brewer is national while for a taxi company it is very local.
d. Intent is also required to violate Section 2
(1) Therefore, to engage in illegal monopolization there needs to be monopoly power and intent
(2) If no intent, or monopoly is thrust on defendant, then not illegal
(a) Growth resulting from superior product, quality of management, or historical accident is not illegal
(b) There must not be any predatory or coercive conduct
EXAMPLE
There are several hotels in a town. Business drops and all but one close. The remaining hotel has taken no action to get the others to close. Although the remaining hotel has a monopoly, it was thrust upon the hotel and is therefore not illegal.
3. Sanctions (not mutually exclusive, both civil and governmental prosecution available)
a. Injunctions, forced divisions, forced divestiture (by individuals, corporations, or government)
(1) Government may seize property shipped in interstate commerce and violating party forfeits it
b. Criminal penalties (by government)
c. Treble damages (by individuals and corporations)
(1) That is, actual damages (e.g., loss of profits, multiplied by three)
(2) Plus attorney fees and court costs
(3) Instituted to encourage private parties to enforce the antitrust laws
R. Clayton Act of 1914
1. Supplemented the Sherman Act to prohibit a corporation from acquiring the stock of a competing corporation (merger) where the effect
might substantially lessen competition or tend to create a monopoly
a. Acquisitions tending to create a monopoly are violations
(1) No actual monopoly need be created
(2) To stop monopolistic trends in their incipiency
(3) Applies where there is a reasonable likelihood the merger or acquisition will substantially lessen competition
(4) As under the Sherman Act, use the percentage of market (product and geographic) test
b. Amendment of 1950 added the prohibition of the acquisition of assets of another corporation where the effect might lessen competition
(1) Thus both asset and stock acquisitions are covered
(2) Includes vertical mergers (sellers-buyers) and conglomerate mergers (e.g., not in same industry) as well as horizontal mergers (competitors)
EXAMPLE
A shoe manufacturer buys out one of its retailers. This is a vertical merger.
EXAMPLE
A shoe retailer buys out another shoe retailer. This is a horizontal merger.
EXAMPLE
A pen manufacturer buys out a clothing retailer. This is a conglomerate merger.
c. Suit may be brought either before or after completion of the merger
(1) For example, preliminary injunction to prevent violation
(2) For example, forced divestiture any time after completion of a merger if competition is threatened
d. Under “failing company doctrine,” a merger that is anticompetitive may be allowed if
(1) The acquired company is failing, and
(2) There is no other willing purchaser whose acquisition of the company would reduce competition less
e. Factors to determine whether a merger will result in a substantial lessening of competition include
(1) Market concentration
(a) If the market is controlled by just a few firms, then it is more likely that the merger will result in a substantial lessening of competition.
(b) If the market is controlled by many firms, then it is less likely that the merger will result in a substantial lessening of competition.
(2) Entry barriers to the market are how difficult or how easy it is for new firms to enter the market. If entry barriers are high, it is more likely a merger will result in a substantial lessening of competition.
(3) Generally, horizontal mergers are the most likely to result in a substantial lessening of competition, and conglomerate mergers are the least likely to do so.
2. Interlocking directorates are prohibited under the Clayton Act
a. Applies to a director sitting on boards of two or more competing corporations that are “large”
b. No proof required that this will lessen competition
c. Remedy typically is to required offending director to resign one of the director positions
3. Tying arrangements
a. Occurs where seller forces buyer to take one or more other products as a condition to acquiring the desired product
EXAMPLE
A manufacturer of a very popular line of jeans requires its retailers to also stock the manufacturer’s line of shirts in order to obtain the jeans.
b. Elements of a tying arrangement
(1) Two separate products
(a) Tying product is the product that is actually desired. In the example above, the tying products are the jeans.
(b) Tied product is the product that the buyer is being “forced” to purchase. In the above example, the tied products are the shirts.
(2) There must be economic power in the tying market. Economic power can be shown by either
(a) A market share of 30% or more in the tying market, or
(b) The product is unique. Uniqueness can often be demonstrated by an intellectual property right such as a patent or a copyright.
EXAMPLE
When the movie Gone with the Wind was released, movie theaters were told that they would also have to take a movie called Getting Gertie’s Garter. While Gone with the Wind did not have a 30% market share, it was a unique production, and thus qualifies as economic power.
(3) Substantial commerce in the tied market
c. Generally, all three elements must be met for the tying arrangement to be considered illegal
S. Robinson-Patman Act of 1936
1. Prohibits price discrimination
2. Price discrimination is when a seller charges different prices to different buyers of the same good.
EXAMPLE
Thor’s Hammers Inc. charges Home Depot $3.00 per hammer, but it charges Mom and Pop Hardware $3.50 per hammer.
3. Price differences are permitted, however, if there is a cost justification
EXAMPLE
Home Depot buys an entire truckload of hammers: Mom and Pop Hardware buys 1/20 of a truckload of hammers. The lower transportation costs for Home Depot can be passed on to Home Depot in the form of a lower price without violating the law.
4. Sellers may also temporarily reduce prices in one region to meet the price of a lower-priced competitor
T. Federal Trade Commission Act of 1914
1. Created the Federal Trade Commission (FTC)
a. FTC has authority to enforce most of the antitrust laws, but not criminal violations
b. FTC has exclusive authority to enforce this Act’s prohibitions (i.e., individuals may not enforce)
c. FTC has authority to determine what practices are unfair or undesirable
2. Prohibits unfair methods of competition and deceptive practices involving advertising, telemarketing, electronic advertising
a. FTC has exclusive authority under this Act and can determine what is unfair
b. FTC may stop unfair and deceptive practices in their incipiency (i.e., before an actual violation occurs) as well as after a violation occurs
EXAMPLE
An oil company agreed with a tire company that the oil company would promote the sale of the tire company’s accessories to the oil company’s independent dealers. There was no tying or overt coercion in these promotions to the independent dealers, but the dominant position of the oil company over its dealers created strong potential for stifling competition. The agreement was therefore an unfair method of competition.
c. Unfairness standards
(1) Cause of substantial injury to competitors or consumers
(2) Offends public policy
(3) Oppressive or unscrupulous practices
3. Sanctions
a. Cease and desist orders
(1) Civil penalty for each violation
(2) Each day of continued violation is separate offense
(3) FTC may also use cease and desist orders for the Sherman Act and Clayton Act
NOW REVIEW MULTIPLE-CHOICE QUESTIONS 45 THROUGH 47
KEY TERMS
Employment Law
Age Discrimination in Employment Act (ADEA). Law that prohibits discrimination against people who are 40 and older.
Americans with Disabilities Act (ADA). Prohibits discrimination against differently abled persons. Includes both physical and mental disabilities.
Bona fide occupational qualification (BFOQ). An employer’s defense to a claim of employment discrimination based on Title VII. The employer is claiming to have a legitimate reason, usually related to job qualifications, for what appears to be discrimination.
Consolidated Omnibus Budget Reconciliation Act (COBRA). Allows former employees, at their own expense, to continue coverage of their group health plan for up to 18 months after losing their job.
Employee Retirement Income Security Act (ERISA). Regulates pension plans for companies that choose to have pensions.
Fair Labor Standards Act (FLSA). Federal law that regulates minimum wage, employment hours, and child labor.
Family and Medical Leave Act. Allows employees to take up to 12 weeks of unpaid leave to deal with family and medical issues.
Federal Insurance Contributions Act (FICA). Law that requires employers and employees to each pay half of the social security tax. Self-employed individuals must pay the entire tax.
Federal Unemployment Tax Act (FUTA). Provides temporary payments to workers who have lost their jobs through no fault of their own.
National Labor Relations Act (NLRA). Legislation that regulates the union/management relationship.
Occupational Safety and Health Act (OSHA). Creates workplace standards of health and safety.
Social Security Act. Provides income/benefits to retirees, disabled workers, and dependents of deceased workers.
Title VII of the 1964 Civil Rights Act. Prohibits discrimination on the basis of race, color, religion, national origin, or gender in all aspects of employment.
Worker’s compensation. Provides payments to workers for injuries that are sustained at work or that arise out of work. This is a no-fault system.
Environmental Law
Clean Air Act. Establishes air quality standards that states enforce.
Clean Water Act. Establishes water quality standards that states enforce.
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Creates a strict liability system for the cleanup of hazardous waste sites and spills.
Environmental compliance audit. A voluntary review by a company to ensure that it is in compliance with the various environmental laws.
Environmental impact statement. A report required for any federal action that will significantly impact the environment.
Environmental Protection Agency (EPA). Primary enforcer and administrator of environmental laws and regulations.
State implementation plan. Plan submitted by a state to show the EPA how the state will achieve the environmental standards set by the EPA.
Antitrust
Horizontal restraint. An agreement among competing economic entities that limits competition.
Merger. Two separate economic entities that combine into one company. Only mergers that will result in a substantial lessening of competition violate the antitrust laws.
Monopolization. When a firm has monopoly power in the relevant market and keeps others out of the market through methods other than legitimate competition.
Monopoly power. A firm has the ability to exclude competitors and control prices in the relevant market.
Per se rule. Applies to inherently anticompetitive activities that are automatically illegal.
Price discrimination. Sellers charging different buyers different prices for the same product.
Relevant market. Refers to the meaningful areas of competition both geographically and by product.
Restraint of trade. An agreement that limits competition.
Rule of reason. If a restraint of trade does not fall under the per se rule, then it is analyzed under the rule of reason, which balances the procompetitive effects of the agreement versus the anticompetitive effects.
Treble damages. One of the remedies for a private party who successfully proves an antitrust violation; the private party receives three times its actual damages.
Tying arrangement. Seller of a desired product forces a buyer to purchase an additional product if the buyer wants the desired product.
Vertical restraint of trade. An agreement between separate economic entities in the chain of distribution that limits competition.
Multiple-Choice Questions (1–47)
A. Federal Social Security Act
1. Taxes payable under the Federal Unemployment Tax Act (FUTA) are
a. Calculated as a fixed percentage of all compensation paid to an employee.
b. Deductible by the employer as a business expense for federal income tax purposes.
c. Payable by employers for all employees.
d. Withheld from the wages of all covered employees.
2. An unemployed CPA generally would receive unemployment compensation benefits if the CPA
a. Was fired as a result of the employer’s business reversals.
b. Refused to accept a job as an accountant while receiving extended benefits.
c. Was fired for embezzling from a client.
d. Left work voluntarily without good cause.
3. After serving as an active director of Lee Corp. for twenty years, Ryan was appointed an honorary director with the obligation to attend directors’ meetings with no voting power. Last year, Ryan received an honorary director’s fee of $5,000. This fee is
a. Reportable by Lee as employee compensation subject to social security tax.
b. Reportable by Ryan as self-employment income subject to social security self-employment tax.
c. Taxable as “other income” by Ryan, not subject to any social security tax.
d. Considered to be a gift not subject to social security self-employment or income tax.
4. Syl Corp. does not withhold FICA taxes from its employees’ compensation. Syl voluntarily pays the entire FICA tax for its share and the amounts that it could have withheld from the employees. The employees’ share of FICA taxes paid by Syl to the IRS is
a. Deductible by Syl as additional compensation that is includible in the employees’ taxable income.
b. Not deductible by Syl because it does not meet the deductibility requirement as an ordinary and necessary business expense.
c. A nontaxable gift to each employee, provided that the amount is less than $1,000 annually to each employee.
d. Subject to prescribed penalties imposed on Syl for its failure to withhold required payroll taxes.
5. Social security benefits may include all of the following except
a. Payments to divorced spouses.
b. Payments to disabled children.
c. Medicare payments.
d. Medicaid payments.
6. Which of the following forms of income, if in excess of the annual exempt amount, will cause a reduction in a retired person’s social security benefits?
a. Annual proceeds from an annuity.
b. Director’s fees.
c. Pension payments.
d. Closely held corporation stock dividends.
7. Which of the following payments are deducted from an employee’s salary?
| |
Unemployment compensation insurance |
Worker’s compensation insurance |
| a. |
Yes |
Yes |
| b. |
Yes |
No |
| c. |
No |
Yes |
| d. |
No |
No |
8. Which of the following types of income is subject to taxation under the provisions of the Federal Insurance Contributions Act (FICA)?
a. Interest earned on municipal bonds.
b. Capital gains of $3,000.
c. Car received as a productivity award.
d. Dividends of $2,500.
9. Under the Federal Insurance Contributions Act (FICA), which of the following acts will cause an employer to be liable for penalties?
| |
Failure to supply taxpayer identification numbers |
Failure to make timely FICA deposits |
| a. |
Yes |
Yes |
| b. |
Yes |
No |
| c. |
No |
Yes |
| d. |
No |
No |
B. Workers’ Compensation Act
10. Which of the following parties generally is ineligible to collect workers’ compensation benefits?
a. Minors.
b. Truck drivers.
c. Union employees.
d. Temporary office workers.
11. Kroll, an employee of Acorn, Inc., was injured in the course of employment while operating a forklift manufactured and sold to Acorn by Trell Corp. The forklift was defectively designed by Trell. Under the state’s mandatory workers’ compensation statute, Kroll will be successful in
| |
Obtaining workers’ compensation benefits |
A negligence action against Acorn |
| a. |
Yes |
Yes |
| b. |
Yes |
No |
| c. |
No |
Yes |
| d. |
No |
No |
12. Which of the following provisions is basic to all workers’ compensation systems?
a. The injured employee must prove the employer’s negligence.
b. The employer may invoke the traditional defense of contributory negligence.
c. The employer’s liability may be ameliorated by a coemployee’s negligence under the fellow-servant rule.
d. The injured employee is allowed to recover on strict liability theory.
13. Workers’ Compensation Acts require an employer to
a. Provide coverage for all eligible employees.
b. Withhold employee contributions from the wages of eligible employees.
c. Pay an employee the difference between disability payments and full salary.
d. Contribute to a federal insurance fund.
14. Generally, which of the following statements concerning workers’ compensation laws is correct?
a. The amount of damages recoverable is based on comparative negligence.
b. Employers are strictly liable without regard to whether or not they are at fault.
c. Workers’ compensation benefits are not available if the employee is negligent.
d. Workers’ compensation awards are payable for life.
15. Workers’ compensation laws provide for all of the following benefits except
a. Burial expenses.
b. Full pay during disability.
c. The cost of prosthetic devices.
d. Monthly payments to surviving dependent children.
16. Which of the following claims is (are) generally covered under workers’ compensation statutes?
| Occupational disease |
Employment aggravated preexisting disease |
| a. |
Yes |
Yes |
| b. |
Yes |
No |
| c. |
No |
Yes |
| d. |
No |
No |
C. Employee Safety
17. Under which of the following conditions is an on-site inspection of a workplace by an investigator from the Occupational Safety and Health Administration (OSHA) permissible?
a. Only if OSHA obtains a search warrant after showing probable cause.
b. Only if the inspection is conducted after working hours.
c. At the request of employees.
d. After OSHA provides the employer with at least twenty-four hours’ notice of the prospective inspection.
D. Employment Discrimination
18. Which of the following Acts prohibit(s) an employer from discriminating among employees based on sex?
| |
Equal Pay Act |
Title VII of the Civil Rights Act |
| a. |
Yes |
Yes |
| b. |
Yes |
No |
| c. |
No |
Yes |
| d. |
No |
No |
19. Under the Age Discrimination in Employment Act, which of the following remedies is (are) available to a covered employee?
| |
Early Retirement |
Back pay |
| a. |
Yes |
Yes |
| b. |
Yes |
No |
| c. |
No |
Yes |
| d. |
No |
No |
20. Which of the following company policies would violate the Age Discrimination in Employment Act?
a. The company will not hire any accountant below twenty-five years of age.
b. The office staff must retire at age sixty-five or younger.
c. Both of the above.
d. None of the above.
21. Under the provisions of the Americans With Disabilities Act of 1990, in which of the following areas is a disabled person protected from discrimination?
| |
Public transportation |
Privately operated public accommodations |
| a. |
Yes |
Yes |
| b. |
Yes |
No |
| c. |
No |
Yes |
| d. |
No |
No |
22. Under the Americans With Disabilities Act, which is (are) true?
I. The Act requires that companies with at least ten employees set up a specified plan to hire people with disabilities.
II. The Act requires companies to make reasonable accommodations for disabled persons unless this results in undue hardship on the operations of the company.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
23. The Americans With Disabilities Act has as a purpose to give remedies for discrimination to individuals with disabilities. Which of the following is (are) true of this Act?
I. It protects most individuals with disabilities working for companies but only if the companies do not need to incur any expenses to modify the work environment to accommodate the disability.
II. It may require a company to modify work schedules to accommodate persons with disabilities.
III. It may require a company to purchase equipment at company expense to accommodate persons with disabilities.
a. I only.
b. I and II only.
c. II and III only.
d. III only.
D.8. Family and Medical Leave Act
24. Which of the following is not true under the Family and Medical Leave Act?
a. An employee has a right to take a leave from work for the birth and care of her child for one month at half of her regular pay.
b. An employee has a right to take a leave from work for twelve workweeks to care for his/her seriously ill parent.
c. An employee, upon returning under the provisions of the Act, must get back the same or equivalent position in the company.
d. This Act does not cover all employees.
25. The Family Medical Leave Act provides for
I. Unpaid leave for the employee to care for a newborn baby.
II. Unpaid leave for the employee to care for the serious health problem of his or her parent.
III. Paid leave for the employee to care for a serious health problem of his or her spouse.
a. I only.
b. II only.
c. I and II but not III.
d. III but not I or II.
E. Federal Fair Labor Standards Act
26. Under the Fair Labor Standards Act, which of the following pay bases may be used to pay covered, nonexempt employees who earn, on average, the minimum hourly wage?
27. Under the Fair Labor Standards Act, if a covered, nonexempt employee works consecutive weeks of forty-five, forty-two, thirty-eight, and thirty-three hours, how many hours of overtime must be paid to the employee?
a. 0
b. 7
c. 18
d. 20
F. National Labor Relations Act (Wagner Act)
28. Which of the following employee benefits is (are) exempt from the provisions of the National Labor Relations Act?
| |
Sick pay |
Vacation pay |
| a. |
Yes |
Yes |
| b. |
Yes |
No |
| c. |
No |
Yes |
| d. |
No |
No |
G. Federal Consolidated Budget Reconciliation Act
29. Under the Federal Consolidated Budget Reconciliation Act of 1985 (COBRA), when an employee voluntarily resigns from a job, the former employee’s group health insurance coverage that was in effect during the period of employment with the company
a. Automatically ceases for the former employee and spouse, if the resignation occurred before normal retirement age.
b. Automatically ceases for the former employee’s spouse, but continues for the former employee for an eighteen-month period at the former employer’s expense.
c. May be retained by the former employee at the former employee’s expense for at least eighteen months after leaving the company, but must be terminated for the former employee’s spouse.
d. May be retained for the former employee and spouse at the former employee’s expense for at least eighteen months after leaving the company.
H. Pensions
30. Under the Employee Retirement Income Security Act of 1974 (ERISA), which of the following areas of private employer pension plans is (are) regulated?
| |
Employee vesting |
Plan funding |
| a. |
Yes |
Yes |
| b. |
Yes |
No |
| c. |
No |
Yes |
| d. |
No |
No |
31. Under the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), which of the following statements is correct?
a. Employees are entitled to have an employer established pension plan.
b. Employers are prevented from unduly delaying an employee’s participation in a pension plan.
c. Employers are prevented from managing retirement plans.
d. Employees are entitled to make investment decisions.
L. Environmental Regulation
32. Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund, which of the following parties would be liable to the Environmental Protection Agency (EPA) for the expense of cleaning up a hazardous waste disposal site?
I. The current owner or operator of the site.
II. The person who transported the wastes to the site.
III. The person who owned or operated the site at the time of the disposal.
a. I and II.
b. I and III.
c. II and III.
d. I, II, and III.
33. Which of the following activities is (are) regulated under the Federal Water Pollution Control Act (Clean Water Act)?
| |
Discharge of heated water by nuclear power plants |
Dredging of wetlands |
| a. |
Yes |
Yes |
| b. |
Yes |
No |
| c. |
No |
Yes |
| d. |
No |
No |
34. Environmental Compliance Audits are used for which of the following purpose(s)?
I. To voluntarily discover violations to avoid criminal sanctions.
II. To discover violations to avoid civil litigation.
III. To meet disclosure requirements to the SEC under the securities laws.
a. I only.
b. I and II only.
c. II only.
d. I, II, and III.
35. Which of the following is (are) true under the Federal Insecticide, Fungicide, and Rodenticide Act?
I. Herbicides and pesticides must be certified and can be used only for applications that are approved.
II. Herbicides and pesticides must be registered under the Act before companies can sell them.
III. Pesticides, when used on food crops, can only be used in quantities that are limited under the Act.
a. I only.
b. I and II only.
c. II and III only.
d. I, II, and III.
36. Under the Comprehensive Environmental Response, Compensation and Liability Act as amended by the Superfund Amendments, which of the following is (are) true?
I. The present owner of land can be held liable for cleanup of hazardous chemicals placed on the land by a previous owner.
II. An employee of a company that had control over the disposal of hazardous substances on the company’s land can be held personally liable for cleanup costs.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
37. The National Environmental Policy Act was passed to enhance and preserve the environment. Which of the following is not true?
a. The Act applies to all federal agencies.
b. The Act requires that an environmental impact statement be provided if any proposed federal legislation may significantly affect the environment.
c. Enforcement of the Act is primarily accomplished by litigation of persons who decide to challenge federal government decisions.
d. The Act provides generous tax breaks to those companies that help accomplish national environmental policy.
38. Under the federal statutes governing water pollution, which of the following areas is (are) regulated?
| |
Dredging of coastal or freshwater wetlands |
Drinking water standards |
| a. |
Yes |
Yes |
| b. |
Yes |
No |
| c. |
No |
Yes |
| d. |
No |
No |
39. The Clean Air Act provides for the enforcement of standards for
I. The emissions of radioactive particles from private nuclear power plants.
II. The emissions of pollution from privately owned automobiles.
III. The emissions of air pollution from factories.
a. I and II only.
b. I and III only.
c. II and III only.
d. I, II and III.
40. Under the Clean Air Act, which of the following statements is (are) correct regarding actions that may be taken against parties who violate emission standards?
I. The federal government may require an automobile manufacturer to recall vehicles that violate emission standards.
II. A citizens’ group may sue to force a coal burning power plant to comply with emission standards.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
41. The Environmental Protection Agency is an administrative agency in the federal government that aids in the protection of the environment. Which of the following is not a purpose or function of this agency?
a. It adopts regulations to protect the quality of water.
b. It aids private citizens to make cases for private civil litigation.
c. It may refer criminal matters to the Department of Justice.
d. It may refer civil cases to the Department of Justice.
42. Whenever a federal agency recommends actions or legislation that may affect the environment, the agency must prepare an environmental impact statement. Which of the following is not required in the environmental impact statement?
a. A description of the source of funds to accomplish the action without harming the environment.
b. An examination of alternate methods of achieving the goals of the proposed actions or legislation.
c. A description in detail of the proposed actions or legislation on the environment.
d. A description of any unavoidable adverse consequences.
43. Which of the following is (are) possible when a company violates the Clean Air Act?
I. The company can be assessed a criminal fine.
II. Officers of the company can be imprisoned.
III. The Environmental Protection Agency may assess a civil penalty equal to the savings of costs by the company for noncompliance.
a. I only.
b. I or II only.
c. III only.
d. I, II or III.
44. Green, a former owner of Circle Plant, caused hazardous waste pollution at the Circle Plant site two years ago. Sason purchased the plant and caused more hazardous waste pollution. It can be shown that 20% of the problem was caused by Green and that 80% of the problem was caused by Sason. Sason went bankrupt recently. The government wishes to clean up the site and hold Green liable. Which of the following is true?
a. The most Green can be held liable for is 20%.
b. Green is not liable for any of the cleanup costs since the site was sold.
c. Green is not liable for any of the cleanup costs because Green was responsible for less than half of the problem.
d. Green can be held liable for all the cleanup costs even if Sason has some funds.
Q. Anti-Trust Laws
45. Which of the following would be a horizontal agreement to fix prices and thus be illegal per se under Section 1 of the Sherman Act?
I. An agreement between several sellers of lumber to no longer sell on credit to purchasers.
II. An agreement between two sellers of lumber to set a maximum price for what they will charge for lumber.
III. An agreement between a lumber wholesaler and a lumber retailer that the retailer will charge at least $8.00 for a particular piece of lumber.
a. I only.
b. I and II only.
c. I, II, and III.
d. None of these agreements is illegal per se.
46. Loop Corp. has made a major breakthrough in the development of a micropencil. Loop has patented the product and is seeking to maximize the profit potential. In this effort, Loop can legally
a. Require its retailers to sell only Loop’s products, including the micropencils, and not sell similar competing products.
b. Require its retailers to take stipulated quantities of its other products in addition to the micropencils.
c. Sell the product at whatever price the traffic will bear even though Loop has a monopoly.
d. Cut the price Loop is charging to retailers below its cost anytime a competitor attempts to compete against Loop’s micropencil.
S. Robinson-Patman Act of 1936
47. Robinson’s pricing policies have come under attack by several of its retailers. In fact, one of those retailers, Patman, has instigated legal action against Robinson alleging that Robinson charges other favored retailers prices for its products which are lower than those charged to it. Patman’s legal action against Robinson
a. Will fail unless Patman can show that there has been an injury to competition.
b. Will be sufficient if the complaint alleges that Robinson charged different prices to different customers and there is a reasonable possibility that competition may be adversely affected.
c. Is groundless since one has the legal right to sell at whatever price one wishes as long as the price is determined unilaterally.
d. Is to be tested under the Rule of Reason and if the different prices charged are found to be reasonable, the complaint will be dismissed.
Multiple-Choice Answers and Explanations
Answers
Explanations
1. (b) Taxes payable under the Federal Unemployment Tax Act (FUTA) are used to provide unemployment compensation benefits to workers who lose jobs and cannot find replacement work. These taxes paid are deductible by the employer as a business expense for federal income tax purposes. Therefore, answer (b) is correct. Answer (c) is incorrect because only those employers who paid wages of $1,500 or more during any calendar quarter or who employed at least one employee for at least one day a week for twenty weeks must pay FUTA taxes. Answer (d) is incorrect because it is the employer, not the employee, who pays the taxes. Answer (a) is incorrect because the taxes payable under the FUTA are calculated as a fixed percentage of only the first $7,000 of wages of each employee.
2. (a) Unemployment compensation is intended for workers who lose jobs through no fault of their own and cannot find replacement work. Answer (a) is correct because a CPA fired as a result of the employer’s business reversals is entitled to receive unemployment compensation. Answer (b) is incorrect because an accountant who refuses to accept replacement work offered him/her would not receive unemployment compensation. Answers (c) and (d) are incorrect because unemployment compensation is not intended for an employee whose actions led to his/her loss of a job.
3. (b) Directors’ fees are generally treated as self-employment income and thus are subject to social security self-employment tax. Answer (a) is incorrect because directors’ fees are not usually viewed as employee compensation; rather it is treated as self-employment income. Answers (c) and (d) are incorrect because director’s fees are treated as self-employment income.
4. (a) Answer (a) is correct since the nondeduction of the FICA tax and the payment of it by the employer effectively raises the income of the employee. Answer (d) is not correct because although the employer is required to withhold tax on wages and is liable for payment of such tax whether or not it is collected, the employer’s liability can be relieved after showing the employee’s related income tax liability has been paid. Therefore, since the employer has paid the taxes, the employer is not subject to penalty. Answer (c) is not correct since no mention is made of a gift. Answer (b) is not correct since no reference is made to wages not being an ordinary and necessary business expense.
5. (d) Social security benefits may include payments to spouses, including divorced spouses in some cases, and to children. It may also include Medicare payments but not Medicaid payments.
6. (b) Earned income in excess of the annual limitation will cause a reduction in a retired person’s social security benefits. Answer (b) is therefore correct, since “director’s fees” are considered earned income. Answers (a), (c), and (d) are incorrect because proceeds from an annuity, pension payments, and stock dividends are not considered earned income.
7. (d) Unemployment insurance tax must be paid by the employer if the employer employs one or more persons covered by the act. Payments for unemployment insurance are not deducted from employees’ salaries. Workers’ compensation is a form of strict liability whereby the employer is liable to the employee for injuries or diseases sustained by the employee which arise out of and in the course of employment. The insurance is paid by the employer and the cost is passed on as an expense of doing business. Thus, worker’s compensation insurance also is not paid by the employee.
8. (c) Social security tax applies to wages, defined as all compensation for employment. Employment compensation does not have to be in the form of cash to be included in wages taxed under the Federal Insurance Contributions Act (FICA). Therefore, a car received as a productivity award is considered employment compensation subject to the social security tax and answers (a), (b), and (d) are incorrect, because these are not wages.
9. (a) Both a failure to supply taxpayer identification numbers and a failure to make timely FICA deposits would be violations of the Act. As all employees are required to participate in Social Security, their identification numbers must be supplied in order to track employment and cumulative FICA tax paid to the government. The Act also explicitly states that an employer’s failure to collect and deposit taxes in a timely manner subjects him/her to penalties and interest.
10. (d) Workers’ compensation benefits arise out of a type of strict liability whereby employers are liable for injuries or diseases sustained by employees which arise from the scope of the employment. Temporary office workers are usually either independent contractors or are employees of a separate employment agency. Answer (a) is incorrect because the employment laws are especially meant to protect minors. Answer (b) is incorrect because truck drivers are not exempted. Answer (c) is incorrect because union affiliation does not create an exemption.
11. (b) Under workers’ compensation laws, any employee injured during the course of employment is entitled to workers’ compensation benefits regardless of fault, as long as the injury is not self-inflicted, and not the result of a fight or intoxication. However, acceptance of benefits under workers’ compensation laws precludes an employee from suing the employer for damages in a civil court.
12. (d) Workers’ compensation is a form of strict liability in which an employer is liable to employees for injuries or diseases sustained in the course of employment, without regard to fault. Answer (a) is incorrect because the injured employee is not required to establish employer negligence to recover a workers’ compensation action. Answer (b) is incorrect because contributory negligence of the employee is not a valid defense in workers’ compensation cases. The workers’ compensation act removes the employer’s common law defense of negligence of a fellow employee, therefore answer (c) is incorrect.
13. (a) Workers’ Compensation Acts require an employer to provide coverage for all eligible employees. Furthermore, the employer is required to cover the cost of injuries to employees, and no amount is deducted from the employees’ wages. Therefore, answer (b) is incorrect. Answer (c) is incorrect because under workers’ compensation, the disability benefit payments are usually a percentage of weekly earnings. The employer does not have to make up the difference between the benefit payments and the employee’s salary. Answer (d) is incorrect because a business covered under workers’ compensation laws may be self-insured but it must show proof of financial responsibility to carry this risk.
14. (b) Most workers’ compensation laws provide that the employer is strictly liable to an employee without regard to negligence of the employer or employee. Therefore, answers (a) and (c) are incorrect. Answer (d) is incorrect because worker’s compensation awards may or may not be payable for life; it depends on the type of injury suffered.
15. (b) The following are some examples of workers’ compensation benefits: burial expenses, the cost of prosthetic devices, monthly payments to surviving dependent children, and partial wage continuation during disability.
16. (a) Both occupational disease and employment aggravated preexisting disease are covered by the statutes in that all consequences of an injury on the job, regardless of whether such injury was actually caused by an accident, are deemed to be “accidental” injuries resulting from employment. If any conditions in the workplace could have possibly contributed to or aggravated consequences, the doctrine of strict employer liability applies.
17. (c) OSHA investigates complaints and makes inspections of the workplace. Employers can require that OSHA obtain a search warrant in most cases to conduct the search. Probable cause is needed to obtain a search warrant and complaints by employees can provide the needed probable cause. Answer (a) is incorrect because the employer can allow the search or give permission, in which cases, search warrants are not needed. Answer (b) is incorrect because inspections can be made during working hours. In fact, this may be the only or most effective time to conduct the inspection. Answer (d) is incorrect because there is no requirement that OSHA give the employers advance notice of the inspections. Such a requirement would make many inspections less effective.
18. (a) Under the Equal Pay Act, employers cannot pay some employees less money than that paid to employees of the opposite sex when equal work is performed. Under Title VII of the Civil Rights Act, employers cannot discriminate against a prospective employee on the basis of race, color, national origin, religion, or sex.
19. (c) The Age Discrimination in Employment Act does not specifically use the term “back pay” but the Act provides equitable relief as deemed appropriate and otherwise authorizes back pay. The Act does provide for employment reinstatement or promotion, but does not provide for early retirement.
20. (b) The Age Discrimination in Employment Act generally prohibits mandatory retirement under age seventy. Answers (a) and (c) are incorrect because the Act generally applies to individuals over forty years old. Answer (d) is incorrect because forced retirement under the age of seventy is generally prohibited under the Act.
21. (a) The Americans With Disabilities Act of 1990 prohibits all businesses with fifteen employees or more from considering a person’s handicap when making a hiring decision. Also, the act requires businesses to make special accommodations available to handicapped employees and customers, unless the cost is too burdensome. Therefore, answer (a) is correct as the act covers both public transportation and privately operated public accommodations.
22. (b) The Americans With Disabilities Act provides the disabled with better access to employment, public accommodations, and transportation. The Act requires companies to make reasonable accommodations for the disabled unless this would cause undue hardship for the business. The Act does not require companies to set up a hiring plan. Additionally, the ADA only applies to businesses with 15 or more employees.
23. (c) The Americans With Disabilities Act requires most companies and entities to not discriminate against qualified individuals with disabilities who can perform the essential functions of the job either with or without reasonable accommodation, unless the company can show undue hardship. Reasonable accommodation may include purchasing new equipment, modifying facilities, or modifying work schedules.
24. (a) A covered employee has the right to a leave from work for specified reasons for twelve workweeks in a twelve-month period but typically receives leave without pay. Answer (b) is incorrect because it mentions one of the specified reasons allowed for a leave. Answer (c) is incorrect because an important right under the Act is to get back the same or similar position upon returning. Answer (d) is an incorrect response because not all employees are covered. To be covered employees must have worked for twelve months, for at least 1,250 hours in those twelve months, and be one of at least fifty employees.
25. (c) The Act provides for up to twelve workweeks of unpaid leave for the employee to care for serious health problems of his or her parent, spouse, or child. It also provides the same right to care for his or her newborn baby. Note that (d) is incorrect because it provides for paid leave to care for his or her spouse who is seriously ill.
26. (a) The Fair Labor Standards Act allows employees to be paid on a piecework basis or salary. Workers must receive at least the equivalent of the minimum hourly rate, but the basis on which the workers are paid can be hourly, weekly, or monthly.
27. (b) The Fair Labor Standards Act requires overtime pay to be paid when hours worked in any given week exceed forty hours. Therefore, the additional five hours and two hours worked in the first two weeks constitute overtime.
28. (d) Among other fringe benefits, sick pay and vacation pay are subjects for collective bargaining. Therefore, sick pay and vacation pay are not exempt from the provisions of the National Labor Relations Act.
29. (d) Under the Federal Consolidated Budget Reconciliation Act of 1985 (COBRA), a former employee may retain group health coverage under the employer for him/herself and his/her spouse at the former employee’s expense for at least eighteen months after leaving the company. Answer (a) is incorrect because the former employee and spouse may retain the coverage for at least eighteen months. Answers (b) and (c) are incorrect because not only the former employee but also the spouse may retain the coverage for eighteen months at the former employee’s expense.
30. (a) If a pension plan is established, employee contributions to the pension plan vest immediately. In addition, standards on investment of funds are set up to avoid mismanagement.
31. (b) The Employee Retirement Income Security Act of 1974 (ERISA) does not require an employer to establish a pension plan. Therefore, answer (a) is incorrect. If the employer does set up a plan, it must meet certain standards. These standards prevent employers from unduly delaying an employee’s participation in a pension plan. Therefore, answer (b) is correct. Standards are also set up for the investment of funds to avoid mismanagement. However, employers are able to manage the retirement plans. Therefore, answer (c) is incorrect. Answer (d) is incorrect because ERISA provisions do not require that the employees make the investment decisions. This is a function of the particular company’s plan.
32. (d) CERCLA imposes environmental liability on a broad group of potentially responsible parties. The courts have included the following classes: (1) current owners and operators, (2) owners and operators at the time of waste disposal, (3) generators of hazardous waste, (4) transporters of hazardous waste, and (5) lenders who finance borrowers’ hazardous waste sites.
33. (a) The Clean Water Act regulates the dredging or filling of wetlands. Without a permit, these are generally prohibited. The discharging of heated water by nuclear power plants is also regulated.
34. (d) All of the purposes listed are reasons to have an Environmental Compliance Audit. Since the environmental laws and regulations can be complex and may result in both criminal violations and civil liability, both statements I and II are correct. Statement III is also correct because problems with the environmental laws can be significant under the federal securities laws.
35. (d) The Federal Insecticide, Fungicide, and Rodenticide Act does have all three of the provisions. Herbicides and pesticides are required to be registered before they can be sold. Furthermore, they need to be used only for the purposes certified. Also, when used on food crops, the amount that can be used is limited.
36. (c) The provisions of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) as amended is very broad in scope. If the EPA cleans up the hazardous chemicals, it can recover the costs from any responsible party including present owners of the facility and any person who arranged for the disposal of the hazardous substance.
37. (d) The National Environmental Policy Act is centered around requiring the federal government and its agencies to consider the effects of its actions on the environment. It does not provide tax breaks to companies to accomplish environmental goals. Answer (a) is not chosen because it correctly states that the Act applies to all federal agencies. Answer (b) is not chosen because it is also correct. The Act does require an environmental impact statement if the environment may be significantly hurt. Answer (c) is not chosen because private litigation is the main way this Act is enforced.
38. (a) The Clean Water Act regulates the dredging of both coastal and freshwater wetlands. The Safe Drinking Water act regulates the safety of water supplied by public water systems to homes.
39. (d) The Clean Air Act regulates emissions into the air from automobiles, factories, and nuclear power plants. Note that emissions from the nuclear power plant are handled by the Clean Air Act rather than the Nuclear Waste Policy Act. The latter creates a national plan to dispose of highly radioactive nuclear waste.
40. (c) The Clean Air Act sets air quality standards for mobile sources such as autos, and for stationary sources such as power plants. The federal government has ways to encourage and require compliance, such as requiring manufacturers to recall vehicles that violate emission standards. The Act also allows private citizens to sue violators to enforce compliance.
41. (b) The Environmental Protection Agency (EPA) is an administrative agency designed to aid the federal government in national environmental policy. When citizens have private lawsuits about the environment, they would typically seek remedies by resorting to common law or statutory remedies. The Environmental Protection Agency was not set up to help in this manner. This agency does, however, adopt regulations on the environment. Therefore answer (a) is not chosen. Answers (c) and (d) are not chosen because the EPA does refer both criminal and civil cases over to the Department of Justice.
42. (a) The environmental impact statement is not designed to show the cost or source of the funds for the actions or legislation being proposed. Answers (b), (c), and (d) are all not chosen because these are all required as part of the environmental impact statement.
43. (d) The Clean Air Act provides for both criminal and civil penalties against violators. For criminal violations, both fines and prison are possible. Civil penalties can also be assessed by the EPA including an amount equal to any benefits in costs for not complying.
44. (d) Green as a part owner is one of the parties that has joint and several liability for the cleanup costs. Even though Sason also has joint and several liability, Green can be held liable for any portion or all of the cleanup costs without regard to percent of responsibility. Answer (a) is incorrect because Green, having joint and several liability, can be held liable for all of the cleanup costs. Answer (b) is incorrect because past as well as present owners have potential liability. Answer (c) is incorrect because there is no such defense as having less than half of the responsibility.
45. (b) A horizontal agreement is an agreement between competitors. I and II satisfy that requirement; III is a vertical agreement between a wholesaler and a retailer. Additionally, vertical price fixing is not illegal per se. Agreements to fix prices include agreements that directly affect price, such as a refusal to provide credit. Horizontal price fixing is illegal per se, regardless of whether the agreement is to set a minimum price or a maximum price.
46. (c) Government creation of monopoly status through a patent is permissible under the antitrust laws as long as no other anticompetitive conduct is involved. Loop Corporation is, therefore, entitled to sell the micropencil at a price determined by the normal competitive forces of supply and demand. A patent grants the holder a twenty-year exclusive right to market the product. The twenty years starts at the application date. For design patents, the period is fourteen years. Answer (a) is incorrect because prohibiting the retailers from selling competing products is an exclusive dealing agreement which is illegal where the effect is to substantially lessen competition in that market. By not allowing retailers to sell competing products, Loop is effectively raising barriers to entry into the market and that illegally maintains a monopoly. (The fact that Loop has a patent is evidence of monopoly power.) Answer (b) is incorrect because tying agreements involving patented products are illegal per se if a substantial amount of business is involved. Answer (d) is incorrect because below cost pricing to keep competitors out of the market is known as predatory pricing and is evidence of trying to maintain a monopoly.
47. (b) The Robinson-Patman Act prohibits price discrimination in interstate commerce of commodities of like grade and quality. A violation of the Act exists if the effect of the price discrimination may be to substantially lessen competition or tend to create a monopoly. Therefore, all that Patman must do to maintain a sufficient legal action is to allege that due to Robinson’s pricing activities there is a reasonable possibility that competition may be adversely affected. Answer (a) is incorrect because Patman does not have to show actual injury to competition; Patman must show that such discrimination may substantially lessen competition. Answer (c) is incorrect because Congress purposely adopted the Robinson-Patman Act to prevent unilateral price determination which has the resultant effect of lessening competition or tending to create a monopoly. Answer (d) is incorrect because the reasonableness of the prices charged is irrelevant. The issue is whether the price discrimination may substantially lessen competition or tend to create a monopoly.
Simulation
Task-Based Simulation 1
For each of the numbered items, indicate: Yes, this item is considered to be wages under the Social Security Act, or No, this item is not considered to be wages under the Social Security Act.
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Yes |
No |
| 1. Wages, paid in money, to a construction worker. |
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| 2. Reimbursed normal travel expenses of a salesperson. |
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| 3. Compensation not paid in cash. |
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| 4. Commissions of a salesperson. |
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| 5. Bonuses paid to employees. |
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| 6. Employee insurance premiums paid by the employer. |
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| 7. Wages paid to a secretary who is working part-time. |
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| 8. Vacation allowance pay given to employees who are working full-time. |
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| 9. Wages paid to a full-time secretary who wishes to elect not to be covered under the Social Security Act. |
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| 10. Tips of a waitress. |
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Simulation Solution
Task-Based Simulation 1
| |
Yes |
No |
| 1. Wages, paid in money, to a construction worker. |
 |
|
| 2. Reimbursed normal travel expenses of a salesperson. |
|
|
| 3. Compensation not paid in cash. |
|
|
| 4. Commissions of a salesperson. |
|
|
| 5. Bonuses paid to employees. |
|
|
| 6. Employee insurance premiums paid by the employer. |
|
|
| 7. Wages paid to a secretary who is working part-time. |
|
|
| 8. Vacation allowance pay given to employees who are working full-time. |
|
|
| 9. Wages paid to a full-time secretary who wishes to elect not to be covered under the Social Security Act. |
|
|
| 10. Tips of a waitress. |
|
|
Explanations
1. (Y) Under the Social Security Act, money wages are considered wages.
2. (N) Reimbursed travel expenses are generally excluded from wages.
3. (Y) Compensation whether in cash or not is generally considered to be wages.
4. (Y) Commissions are a method of compensation.
5. (Y) Bonuses are a method of compensation.
6. (N) Insurance premiums paid by employers for employees generally are excluded from wages.
7. (Y) Part-time employees are covered under this law.
8. (Y) Vacation allowance pay is another form of compensation.
9. (Y) Qualifying employees may not elect to avoid the Social Security Act.
10. (Y) Tips are another form of wages.
