Limiting Hidden RisksLimiting Hidden Risks

Presented by: James L. Catanzaro, Jr. Presented by: James L. Catanzaro, Jr.

Minor, Bell & Neal, P.C.Minor, Bell & Neal, P.C.

Minor, Bell & Neal P.C.

Many businesses commonly engage Many businesses commonly engage in practices that are, unknowingly, in practices that are, unknowingly, fraught with risk. Attention to three fraught with risk. Attention to three areas, however, can help businesses areas, however, can help businesses significantly reduce the impact of significantly reduce the impact of risk.risk.

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I.I. Choice of Business or Joint Choice of Business or Joint Venture VehicleVenture Vehicle

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Why is legal formation with the state Why is legal formation with the state preferred? preferred?

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Associations of individuals or Associations of individuals or businesses operating commercial businesses operating commercial enterprises incur “partnership like” enterprises incur “partnership like” liability whether the arrangement is liability whether the arrangement is called a partnership or not.called a partnership or not.

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For instance, partners may be held For instance, partners may be held liable personally for the contracts or liable personally for the contracts or acts or omissions of a “partner.” acts or omissions of a “partner.”

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Under the law, where individuals or Under the law, where individuals or parties share net revenues, there is parties share net revenues, there is a good chance that a partnership a good chance that a partnership will be found.will be found.

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Even business entities working Even business entities working together, may be deemed a together, may be deemed a partnership or joint venture and be partnership or joint venture and be subject to vicarious liability. subject to vicarious liability.

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Formation with the State provides Formation with the State provides for more orderly succession, for more orderly succession, liquidation or dissolution.liquidation or dissolution.

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II.II. Use of independent contractors. Use of independent contractors.

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Extension of liability: Respondeat Extension of liability: Respondeat SuperiorSuperior

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Respondeat Superior is a legal Respondeat Superior is a legal doctrine that states an employer doctrine that states an employer may be liable for the actions of an may be liable for the actions of an employee when the actions take employee when the actions take place within the scope of place within the scope of employment.employment.

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Many businesses attempt to use Many businesses attempt to use independent contractors. However, independent contractors. However, independent contractor relationships independent contractor relationships can easily be converted to can easily be converted to employment like relationships for employment like relationships for liability purposes.liability purposes.

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Factors in determining whether a Factors in determining whether a contractor becomes an employee:contractor becomes an employee:

• Control over method and manner vs. end resultControl over method and manner vs. end result• Manner of paymentManner of payment• Otherwise treat like an employee Otherwise treat like an employee

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Example: Toyota uses “independent Example: Toyota uses “independent contractor” mechanics. If contractor” mechanics. If consumers reasonably believe that consumers reasonably believe that these mechanics are employees, these mechanics are employees, Toyota may be bound by statements Toyota may be bound by statements or representations of or notice to or representations of or notice to such mechanics.such mechanics.

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III. Apparent authority.III. Apparent authority.

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Businesses may inadvertently Businesses may inadvertently “cloth” their agents (whether “cloth” their agents (whether employees or contractors) with employees or contractors) with authority that binds them to authority that binds them to contracts or representations (even if contracts or representations (even if the employee or agent is not the employee or agent is not otherwise expressly authorized to do otherwise expressly authorized to do so).so).

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A business that “holds out” an A business that “holds out” an employee or contractor such that a employee or contractor such that a third party would reasonably believe third party would reasonably believe that such person had authority to that such person had authority to engage in certain acts, is bound by engage in certain acts, is bound by the acts or statements of such the acts or statements of such employee or agent.employee or agent.

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Holding out may include failing to Holding out may include failing to make clear in questionable make clear in questionable circumstances limitations of circumstances limitations of authority or accepting benefits of authority or accepting benefits of the acts or statements of such the acts or statements of such employee or agent.employee or agent.