Legal and Ethical Issues: Three Companies Review

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Table of Contents

Facts
Legal Issue
Analysis
Conclusion
References

Facts

Justin occupies the position of a mid-level manager in a temporary employment agency located in Houston, Texas. The agency is called Agencies, Inc. (AI), and being one of the largest companies of the kind in the area, AI offers employment services to the people who are ready to work for short periods of time at different positions. Thus, the needs of employees seeking situational jobs are satisfied, and the necessity of companies to temporarily fill the gaps in their staff is covered as well.

The experience Justin says that AI is what he has always been looking for as the working environment, staff, and work benefits satisfy his demands. Having worked for another company for a year, Justin found the position in AI and is happy to offer to the company what it needs, i. e. energy, proper conduct of employees, and their commitment to the company’s goals.

Justin’s fiancé Abbey works as a real estate agent and deals with personal investments in real estate as well. On Abbey’s advice, Justin bought a house in the area near to his work so that they could celebrate their wedding party in it.

During the last week’s warming party at their new house, Abbey and Justin met a lot of their old friends, among whom was Justin’s college friend Brent who asked Justin to help him be employed by AI as his position in another company did not satisfy him.

Being glad to help, Justin agreed, contacted the AI director, brought Brent’s resume and recommendation letter to him, and told the director that employing Brent will benefit AI greatly as Brent had all the qualities AI looks for.

After getting the consent of the AI officials, Brent went through the interview and was offered a position to start working the next week. He called Justin to thank him and invited him to the pub. There, Brent told Justin about the ticking bomb he had in his previous company, meaning that the latter was going to merge with Fun Systems, Inc. and implement staff downsizing after the merger.

Justin became disappointed as Brent came to know about the merger during his night party with his colleagues from the accountant department. Moreover, Justin soon found out that Brent had been previously arrested for check fraud, and this made Justin think of the consequences of his help to Brent. In his resume, Brent did not mention his arrest or any other legal issues.

Abbey’s former business partner Kent called her and informed them that one of the companies Abbey had worked with planned making up an incorporated business dealing with e-learning techniques for real estate services. Kent was the deals promoter. Abbey agreed to set up a partnership with that company.

Following the agreement, Abbey found the property costing $300, 000 and settled all details of its purchase within 24 hours. According to the agreement reached, the closing was in two weeks, and in case if the buyer fails to close within this term, legal actions should be started against him. The only way to avoid legal actions was to make the non-refundable deposit of $2, 000.

On the necessity, the company promoted by Kent failed to make that deposit, and Abbey did not find money either.

Moreover, two days after the passing of the closing date, Kent called Abbey, told that his investors failed to supply him with necessary funds, and stated that any legal actions against the buyers would concern Abbey only as she signed the agreement and the official registration of the partnership had not occurred and he, as a promoter, had no legal liability in the case.

Legal Issue

Can the planned partnership between the company Kent promoted and Abbey be called a corporation given the case facts? Can Kent legally ignore the responsibility for the failing activities of the planned corporation he promoted?

Applicable Laws

A business is incorporated when the articles of incorporation are prepared and certified by the Secretary of State in which the business incorporation is planned (Emerson, 2003). The incorporators must sign and authenticate the incorporation articles, file them with the Secretary of State, and pay fees that range from $50 to $300 (Whisenant, 2004). Finally, the corporation is officially registered when the Secretary of State issues the incorporation certificate and the Board’s initial organizational meeting takes place to adopt the corporation’s bylaws, officers, etc (Whisenant, 2004).

A party that has not currently run a business but intends to set up a corporation is called a promoter (Whisenant, 2004). It offers ideas and basic directions of the business incorporation but cannot claim any benefit in case if these ideas are used by the corporation without its participation (Whisenant, 2004).

The promoter has the responsibility for the corporation, as he must inform the corporation of any profit he makes based on the activities the corporation deals with (Whisenant, 2004).

The corporation has no responsibility for the promoter and has no liabilities for him either (Whisenant, 2004). Thus, the income that the corporation might retrieve from the ideas or business initiatives offered by the promoter is not subjected to sharing by the corporation (Whisenant, 2004).

The corporation cannot be set up in an oral form without any legalization procedures carried out by the Secretary of State and incorporators, and the rules of concluding an oral contract are not eligible for incorporation of businesses (Whisenant, 2004).

Oral contract (for goods, services, etc.) is considered valid under the circumstances when the valid offer, valid acceptance, and valid consideration are observed (Emerson, 2003).

An offer is valid if it is officially made and accepted by another party to the oral contract (Emerson, 2003).

An acceptance is valid when the offer is examined by another party to the contract and accepted for consideration (Emerson, 2003).

A consideration is valid when one of the parties to the contract promises, according to the contract, to do something that has not been stipulated by its charter before, or not to do something that was stipulated by the charter before the contract conclusion (Emerson, 2003).

Application of Facts to the Legal Issue

Kent called Abbey and offered to set up a partnership with the company he promoted and further register it as a corporation dealing with real estate operations. No actual official steps for the incorporation of the company promoted by Kent and Abbey’s business were taken; so there is no legal reason to speak of a corporation set up by the two (Whisenant, 2004).

Abbey based her further activities on the oral agreement with the company promoted by Kent and concluded the contract for property purchase amounting to $300, 000. Again, no official incorporation activities took place between the company promoted by Kent and Abbey’s businesses, so Abbey concluded the agreement for property purchase based on Kent’s promise that the company will fund the deal (Whisenant, 2004).

When the closing date of the contract passed, Kent refused to provide the necessary funds for the deal explaining it by the failure of his investors, i. e. the company he promoted, to provide those funds to him. However, later Kent stated that the contract was not of his concern as the corporation with Abbey had not yet been set up and any legal actions taken by the seller should touch only Abbey as the person who concluded the contract (Paul and Elder, 2006). Thus, Kent ignored responsibility for failures of the intended corporation as far as he had no legal liability to participate in closing or legal actions taken up by the sellers based on the fact that no corporation was officially set up and he acted as a promoted but not a party to the contract (Whisenant, 2004). Accordingly, the partnership between the company promoted by Kent and Abbey was based on oral agreement and cannot be considered a corporation (Whisenant, 2004).

Concerning the oral agreement between the company promoted by Kent and Abbey, it cannot be considered valid either (Emerson, 2003). An oral contract demands, valid offer, acceptance, and consideration to become legally binding. Moreover, they should be concluded by businesses or private persons interested in the business. Kent made an offer on behalf of the company beings its promoter in the deal and Abbey made a valid acceptance of the initially invalid offer. But there was no valid consideration from any of the parties as well. Kent promised to fund the property purchase deal on behalf of the company but this cannot be called a consideration as it was made by the promoter not by the company as such, and this promise cannot be considered a valid consideration. Abbey promised to find the property and conclude the contract, but this was also the typical activity of hers, so no consideration occurred here either (Emerson, 2003).

Conclusion of Legal Issue

The corporation that the company promoted by Kent and Abbey planned to set up cannot be legally considered a corporation as it was based on invalid oral agreements and promises and lacked any obligatory steps for business incorporation. Drawing from this, Kent can legally ignore the responsibility for the failures of the planned corporation as the latter was not established, which means that the parties have no responsibilities for its activities. Moreover, even if the corporation was established, Kent as only a promoter of one of the parties to the deal is not responsible, especially in the financial sense, for the failures of incorporated businesses.

Ethical Issue

Is it ethical for Justin to disclose to the director of his company AI that Brent, his friend and newly employed worker of the AI concealed the information about his arrest and other legal issues while filling in the application form for the AI position?

Analysis

Ethical issues are traditionally analyzed through the utilitarian theory of ethics. The essence of this theory lies in the idea that people base their decisions concerning their activities on the potential consequences of the latter (Ghillyer, 2006). Moreover, the utilitarian theory of ethics claims that people choose to act with the greatest benefit possible to the largest number of people (Ghillyer, 2006). In other words, if several people will be harmed by activity but a larger amount of people will benefit from it, such an activity is considered ethical by utilitarianism.

The world of business has somewhat different ideas about ethics, but utilitarianism can also be applied to it (Ghillyer, 2006). The potential consequences of Justin’s silence about Brent’s legal issues might affect great numbers of people employed by AI and the clients of the company.

If Justin chooses to disclose the information, this step will affect Brent and Justin, especially his psychological state. On the other hand, if Justin conceals the information, Brent might commit another illegal activity in his new workplace in AI, which might lead to the damaged image of the company among the customers and the distorted idea of other employees about the principles of loyalty and commitment to AI.

If Justin, based on his AI Company loyalty and understanding of the importance of such step, chooses to disclose the information he possesses about Brent’s being arrested Justin will prevent the possibility of further illegal activities of Brent in the new workplace. For example, if Brent concealed the information about his arrest as potentially harmful to his employment opportunities, he could also hide any failure of his in the workplace in fear of being punished, fined, or fired for it (Ghillyer, 2006). This might lead to the damage of AI activities, while Justin can prevent it by disclosing the information he possesses.

Justin will support the development of the organizational culture and organizational values of the AI Company. For instance, if another employee witnesses the illegal activity committed by Brent in the workplace, he or she might consider this activity to be acceptable for the company and copy it (Ghillyer, 2006). Step by step, this might undermine the value system of AI and lead the company to decline. If Justin discloses the truth, numbers of people will be safe from potential unemployment resulting from AI decline.

Moreover, if other employees come to know about the criminal record Brent, their respect and overall committed attitude towards the company might be undermined. If employees do not believe in the values of the company they work for, their work cannot be actually beneficial to the company (Ghillyer, 2006). Thus, Justin’s decision to disclose the truth about Brent’s past will benefit the great amounts of people employed by AI and the company’s management.

Justin will protect the company’s image from being distorted or seriously damaged (Ghillyer, 2006). In case, if Brent commits an illegal activity in the workplace, this might affect the public perception of the whole company and reduce the customer base.

Moreover, if the fact that AI employs a person with a criminal record becomes public, it might undermine the permutation of AI among its partners and the trust of customers in it (Ghillyer, 2006). Justin’s decision to disclose the information will not allow Brent to be employed, but it will benefit a much larger amount of people.

If, however, Justin decides to base his actions on his friendship considerations and understanding of Brent’s need for work and not to disclose the truth he knows Brent will benefit from such a decision of Justin first of all. Brent experiences the strong need for the new job as far as he is concerned about the coming merger of his company with Fun Systems, Inc. and the staff downsizing the latter might bring. Having been arrested, Brent can hope only for this friendly help by Justin as in any other company the non-biased person would definitely check Brent’s criminal record and find out the arrest information. This is why Brent addressed Justin for help, and Justin’s decision not to disclose the truth will be beneficial for Brent (Ghillyer, 2006).

As well, Justin will benefit himself by deciding not to disclose the information about Brent. The point is that Brent is a friend of Justin’s and the ethics of human communication does not praise harm done to any human being, especially one’s friend. Thus, if Justin discloses the truth, his consciousness will not allow him to live happily after this deed (Ghillyer, 2006). On the contrary, deciding not to disclose the information, Justin benefits himself by being completely honest to his friend.

Drawing from the aforesaid facts, Justin’s decision to disclose the information about the arrest that Brent has had in the past will definitely bring benefit to a larger amount of people (Ghillyer, 2006). The employees, managers, customers, and partners of the AI Company will definitely benefit from the fact that Justin protects their company from damaging its image and potential development (Ghillyer, 2006). Accordingly, the decision to disclose the truth about Brent is in complete conformity with the basic principles of the utilitarian theory of ethics as this decision will allow a greater amount of people to benefit (Ghillyer, 2006).

On the other hand, the decision to conceal the truth and allow Brent to work for the AI Company will definitely benefit both Justin and Brent. But compared to the scope of the benefit that the opposite decision might bring, the benefit of this decision is insufficient (Ghillyer, 2006). Therefore, according to the utilitarian theory of ethics, the decision to conceal the information about the arrest Brent had in the past is not ethical and rational as it might harm much more people than it might bring benefit to (Ghillyer, 2006).

Conclusion

It is ethical for Justin to disclose the information about Brent’s arrest, which he concealed while filling in the application form for employment in AI Company. The utilitarian theory of ethics states that those activities are ethical that benefit the largest number of people possible, and Justin’s disclosure of the information about Brent’s arrest will be ethical according to this theory.

References

Emerson, JD. Robert W. Business Law. Barron’s Educational Series; 4 edition, 2003.
Ghillyer, Andrew. Business Ethics: A Real World Approach. Career Education; 1 edition, 2006.
Paul, Richard and Linda Elder. “The Miniature Guide to Critical Thinking (Concepts and Tools).” The Foundation for Critical Thinking, 2006.
Whisenant, J. D. “The Corporation – Formation.” Mediaweb. 2004. Academic.

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