NEWSLETTER - BUSINESS LAW

Businesses Subject to OSHA

The Occupational Safety and Health Act (OSHA) applies to most businesses. The Act covers all employers and their employees throughout the United States and its territories either through the Occupational Safety and Health Administration or through a state program approved by the Occupational Safety and Health Administration. However, there are some exemptions from OSHA.

Any business with employees is likely to be covered by OSHA unless the business is in a specific category exempted from application of the Act. There is a partial exemption for businesses with ten or fewer employees in the sense that such businesses are not subject to programmed inspections if they are in certain low-hazard industries and are not subject to injury and illness reporting. The low-hazard industries include businesses such as galleries and museums, offices for real estate or securities agents or brokers, retail stores and banks, auto dealerships and gas stations, and restaurants and bars.

Otherwise, businesses or employers excluded from application of OSHA include only:

• self-employed persons;
• family farms without employees from outside the immediate family;
• churches;
• federal and state governments and their political subdivisions;
• businesses with no connection such as use of telephones or the mail to a broadly defined interstate commerce; and
• businesses with working conditions regulated under other federal statutes, such as mining or nuclear power companies.

Businesses which employ persons, as indicated by payment of wages, power to control the actions of the employee, and ability to fire the employee, are subject to OSHA. In a situation in which several businesses at one job site may share authority or control over employees, the employer considered responsible for meeting OSHA obligations is likely to be determined by which employer is considered by the employers and the employee as responsible for controlling and having the power to control the employee.

 

CORPORATE DIRECTORS - AN OVERVIEW OF FIDUCIARY RESPONSIBILITIES

Corporate directors have a fiduciary relationship with the corporation2 that requires the utmost trust and confidence. The directors must always act in good faith, use their best judgment, and do their utmost to promote the corporation's interests. Some states' corporation statutes may not allude to or define the director's relationship as that of a fiduciary, but a director's dealings with a corporation have been and continue to be the subject to "rigorous" judicial scrutiny. Where state statutes do not address the relationship or delineate the fiduciary duties owed by a director to the corporation, case law fills the gap.

The fiduciary responsibilities apply to all corporate transactions or events, regardless of whether they are mundane or extraordinary. Indeed, the fiduciary duties may be heightened in more unusual or important circumstances. Even figurehead directors who have no discernible responsibilities must uphold their fiduciary duties to the corporation. De facto directors who have not been formally bestowed with the title but who function fully as corporate directors also have a fiduciary relationship with the corporation.

The scope of the fiduciary relationship is limited, however. The fiduciary duty can terminate upon resignation or removal. The director does not have a fiduciary duty to employees or other directors or officers. A director's fiduciary duty extends to all shareholders collectively, not to any individual shareholders.

There is no uniformity amongst the states as to the liability of directors and officers. Generally, states acknowledge that directors and officers owe the corporation the duty of loyalty, the duty of care, and the duty of obedience. The duty of loyalty precludes self-dealing and requires the director to act in the corporation's best interest. The duty of care (also referred to as the duty of diligence) requires the director to carry out his duties as would any ordinarily prudent person in similar circumstances, in good faith, and with the reasonable belief that the corporation's best interest is being served. The duty of obedience requires directors and officers to act within the scope of the powers bestowed upon them by the corporate articles of incorporation, bylaws, statutes, and regulations. These fiduciary duties are discussed in greater detail in separate articles.

1 Although this article refers to directors only, many courts recognize that the fiduciary relationship and fiduciary duties extend to corporate officers.

2 Delaware takes the view that directors have a fiduciary relationship with the corporation and the shareholders.

 

Investment Manager Reports To Be Filed With the Securities and Exchange Commission

Institutional investment managers must report to the Securities and Exchange Commission on Form 13F those securities registered under Section 13(f) of the Securities Act of 1933 over which the investment managers exercise discretion.

For purposes of Form 13K, institutional investment managers are considered any entity that buy or sells securities for its own account and any person or entity that exercises discretion over the securities account of any other person or entity. Entities considered institutional investment managers have included insurance companies, banks, brokers and dealers, pension funds, and investment advisers. Securities that must be included within Form 13K reports include stocks traded on national stock exchanges such as the New York and American Stock Exchanges and inter-dealer quotation systems such as Nasdaq.

Securities that must be included also may include all other types of securities such as options, closed-end investment company shares, preferred shares, and convertible bonds. Open-end investment company shares, also known as mutual fund shares, are not included within the types of securities that must be reported on Form 13F.

The Securities and Exchange Commission maintains an Official List of Section 13(f) Securities. The list is published quarterly and identifies all of the securities that investment managers on which investment managers must report.

In filing 13F Reports, investment managers must provide the names and classes of the securities they manage. They also must report the number and total market value of the shares they manage. Filed 13F Reports are made publicly available through the EDGAR database of the Securities and Exchange Commission. The database is accessible and searchable through the Internet.

Employees' Duty of Loyalty

Generally, an employee owes a duty of undivided loyalty to his or her employer. Courts take varying approaches to the issue of an employee's duty of loyalty. Some jurisdictions do not acknowledge a separate cause of action for an employee's breach of loyalty unless there is a fiduciary relationship between the employer and the employee. The claim is usually pleaded as a breach of a fiduciary duty. Some jurisdictions recognize a separate claim for an employee's breach of the duty of loyalty but also acknowledge its relationship to a fiduciary breach. A common thread in all jurisdictions is that employees who occupy a position of trust and confidence owe their employers a higher duty of loyalty than lower-level employees. The scope of the duty of loyalty depends on the particular fact circumstances and the nature of the employment relationship.

A claim for breach of the duty of loyalty can encompass misappropriation of property, business opportunities, and trade secrets. The claim can also involve direct competition with an employer's business competitor or rendering substantial assistance to the employer's business competitors. For example, a New Jersey Supreme Court case stands for the proposition that an employee may breach the duty of loyalty if he does not tell the employer of his plans to start up a personal business that could compete with the employer's business. The duty of disclosure increases commensurate with the potential for conflict with the employer's business. Employees may also be vulnerable to breach of loyalty claims if supplemental second jobs interfere with the employer's business.

An employer has the right to be concerned about an employee's personal conflicts of interest and is "not required to retain an employee while awaiting the commission of a tort." Whether an employee's personal activities outside the business justify termination depends on the facts of each case. Courts typically afford some deference to managerial decisions in this regard. For example, the California Court of Appeals upheld an employer's termination of managers who had access to confidential company information and who had taken active steps to establish a business that competed with their employer's business.

The Restatement (Second) of Agency states that an "agent is entitled to no compensation for conduct which is disobedient or which is a breach of his duty of loyalty." The employer may be entitled to legal or equitable relief depending on the facts of the case and the egregiousness of the breach. An agent is also liable for the principal's loss that is caused by a breach of the duty of loyalty. When a breach is established, an employer is entitled to recover any money or profits reaped by the employee or diverted from the employer's business as a result of the breach. The employer has the burden to prove damages to the business and also must establish that those damages were proximately caused by the employee's breach.

 

Securities Trading Halts, Delays, and Suspensions

The Securities and Exchange Commission may suspend trading in a security for up to ten days. Securities exchanges such as the New York and American Stock Exchanges and Nasdaq may delay trading in a security at the beginning of a trading day or halt trading in a security during the trading day.

Suspensions

The Securities and Exchange Commission may decide to halt trading in a company's securities for up to ten days. Following the suspension, the Commission may continue to investigate the company and may file an enforcement action against the company. However, trading in the security resumes if the security is traded on an exchange or Nasdaq. For other securities that are traded in the over-the-counter market through entities such as the Bulletin Board and the Pink Sheets, broker-dealers are barred by Commission regulations from publishing quotes for a company's securities following a suspension without first determining that the company has provided current and accurate financial statements.

Suspensions may be ordered by the Commission if it has questions about a company's financial information or its assets or operations. The Commission may suspend trading in the company's securities if public information about the company is inaccurate or inadequate or is not current.

Trading Delays and Halts

Exchanges and Nasdaq may call a trading delay (also termed a delayed opening) at the beginning of the trading day for a security on which there is an imbalance between buy and sell orders or if important news is expected for the company that issued the security. The exchanges and Nasdaq also may call a halt to trading in a security during the trading day, usually for no more than an hour, to allow specialists to correct a significant imbalance in buy and sell orders or to allow the market to absorb news about the company that issued the security.

Delays or halts due to impending company news are considered regulatory delays or halts. Delays or halts due to questions arising about continued ability of a security to meet listing requirements also are termed regulatory delays or halts. On the other hand, delays or halts due to trading imbalances are termed non-regulatory.

Copyright 2009 LexisNexis, a division of Reed Elsevier Inc.