Partnerships & Employer Negligence - Essay Example

Partnerships & Employer Negligence Part A. Employer Negligence The possibility of being sued for negligence is an ever-present threat for the professional individual. Negligence is often termed unprofessional conduct. An employer has a duty of care towards his or her employees. The employee has also responsibilities towards the employer. However, an employer can be held legally accountable for the actions of their employees. In this paper I will explain the three levels of negligence and with some handpicked defenses an employer can use in court. I will also discuss the conditions in which the contract of employment can influence the employer’s liability and finalize with an overall summation. The most frequent term that is applied to explain the foundation to which an employer can be held legally accountable for the actions of their employees is “vicarious liability”. This is a principle in the English law of Tort that compels a strict liability for the wrong doings by employees on their employers. In General an employer will be held legally responsible for any wrong doing committed while the employee is doing his or her duties. This responsibility was expanded in the latest years after the ruling in Lister v. Hesley Hall Ltd [2001] UKHL 22 which covered torts of intent like deceit and sexual assault. It was ruled that the most deliberate torts were not the lines of normal employment even though latest case laws propose that the actions were linked with the duties of employees hence the employer was vicariously responsible. Besides the employers have a responsibility to take relevant insurance covers for their employees to cover them on personal injuries or from claims for negligence from third parties. Under the UK law of tort the Employers liability to employees is covered under Liability Insurance Act 1969. The concept of negligence is lack of duty to exercise due care which might result into injury. The court has a duty to establish whether the employer had a duty of care to the employee. It has been tested and verified that no one can sufficiently deal with all kinds and examples of cases in employment. Therefore, historical examinations that revolved around establishing the control amid the alleged employer and his or her employee in the relationship of master and servant. This can be found in Yewens v. Noakes (1881) 6 QBD 530 where it was stated that: "...a servant is a person who is subject to the command of his master as to the manner in which he shall do his work." (Buxton, 2009; p. 67) It will also be established whether the harm caused was rationally predictable relying on how usual the individual would predict it. In Bourhill v Young [1943] AC 92 the issue of how general a person’s duty is to ascertain that others are not injured by their actions. The case established vital boundaries on the degree of recovery of third parties or the people not involved in the physical injury. A woman experienced psychiatric harm and a miscarriage after walking to an accident scene, she was ruled not to be a predictable victim having previously not exposed to the imminent risk of harm (Kidner, 2008; p. 20). The second challenge is to establish whether there exists enough propinquity between the defendant and the claimant. This is commonly known as “the principle of neighborhood” given that for vicarious liability to stand in court there should be a physical lawful association or connection between the parties involved. In Donoghue v Stevenson (1932) UKHL Mrs. Donoghue who was taking a bottle of ginger beer in Paisley café found a dead snail in the bottle. She sued the ginger beer producer Mr. Stevenson for the snail found in the bottle. However, the House of Lords ruled that the manufacturer had a duty of care towards her which was violated since it was rationally predictable that failure to guarantee the safety of the products would likely result into injury or harm to the consumers of the products (Lunney & Oliphant, 2010; p. 54). Nonetheless in Griffiths v. Lindsay (1998) the question of whether it was necessary to impose a duty of care was reviewed. It was found that a taxi driver was not obliged to offer a duty of care to a passenger who was drunk after being run over while he was getting out of the taxi. The third challenge which must be assessed by the court is to establish whether there was actually a breach of duty. There are particular elements to be taken into consideration for the obligation of duty of care to be violated. First the court has to determine the extent of possibility to injury to the petitioner. For example, in Miller v Jackson [1977] QB 966 the court took into account whether the defendant the Local cricket club chairman was responsible in negligence or nuisance on behalf of the members when a cricket ball went over the boundary into the neighbors’ property the petitioner Mr. and Mrs. Miller. It was observed that the court did rule that hosting cricket tournament on the playfield was negligent as alleged. There was distinct negligent actions 3every time the ball went above the ground. Hence it was not clear why making attempts to hit the ball for six was considered as negligent given that it was one of the objectives of paying cricket (Horsley et al., 2009; p. 39). In addition, in Paris v. Stepney Borough Council [1951] AC 367 the House of Lords ruled that the petitioner had sight in one of the eye based on the injury he sustained during war. It was held that the extent of care was directly influenced by the extent of risk hence an individual carrying a candle through a powder magazine had an obligation to exercise due care compared to one walking via a damp cellar (Luntz and Hasmbly (2006; p. 227). The employer had a duty to supply the plaintiff with safety goggles and the degree of care went below the standard that was needed. It is considered essential for employers to provide relevant precautions to avert harm being caused and assume necessary procedures to ensure that employees’ safety is paramount. Consequential Damage The last factor is to provide evidence that negligence if there was some form of damage like individual harm or property damage. Recuperation for wholesome economic loss which arises from negligence has been constrained traditionally. The losses that is wholly economic is covered under the Fatal accidents Act of 1976 and for misstatement negligent as in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 the court established that the connection between the parties was enough proximate as to constitute a duty to care. It was rational for the parties to have had the idea the facts that they had provided would probably have been depended upon into getting into the contract of some kind. This would compel the court to a specific relationship where the defendant would have to assume efficient care in providing advice to prevent liability to negligence. Nonetheless, on the information the disclaimer was established to be good enough to fulfill any duty established by the actions of Heller. There were no orders for damages that were created. This decision was also reflected in Candler V Crane, Christmas & Co [1951] 2 KB 164 (Giliker, 2005; p. 71). In Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] 1 QB 27 the factory sued for three damages caused by lack of electricity which included physical damage to the factory furnaces and the metal, profit loss on the metal damaged and on the metal not melted after the cable was negligently damaged. The court observed that the loss was direct and predictable effect of negligence by the defendant and hence must be recovered. It was also stated clearly that there existed two forms of economic loss; the economic loss consequential on the physical damage to property and pure economic loss due to the damage. Hence the consequential economic loss to physical damage was recoverable. However the second form pure economic loss was not recoverable as noted in Weller & Co v Foot and Mouth Disease Research institute [1966] 1 QB 569 and in Electrochrome Ltd v. Welsh Plastics Ltd [1968] 2 All ER 205 (Weinrib, 2005; p. 147). Part B. Partnerships Agreements Jane and Cherry who run a successful Enjoyspan have attracted more clients and have a healthy profit margin. Their wish to expand the business in employee size and locations has made them to contemplate whether to start a limited company or remain as a partnership. The two individuals must under that a standard partnership is defined according to Partnership Act 1980 as two or more business individuals conducting business activities with a mutual view to profit (City Law School, 2008; p. 28). On the other hand, all limited companies must be established and registered under the Companies Act 2006. The main differentiating factor is that all companies are a legal separate entity liable for its own liabilities. On the contrary the partnership agreement and company is established on the structure and scope (City Law School, 2008; p. 28). The preference of legal state for their business is multifaceted one and is reliant in various legal, tax and commercial contemplations which affect the business for a long period to come. The decision of whether to operate the business as partnership or Limited Company it is vital to take an option relevant to the type of business which will accomplish the various issues such as future succession and tax of the many factors in business. While it is assumed that incorporation results into substantial tax gains and higher financial protection to the directors, this is not often the case for partnerships form of business. As a mater of fact, for some business operations, operating a partnership business can be more efficient and beneficial. In fact selecting an efficient route of operation for the organization is part of the business planning but the major differences of operating a partnership and limited companies include among others. A limited liability company is a legal entity, which is operated and organized by directors and owned by the shareholders who are normally the same kind of people. Every company is obliged to publish its yearly accounts, even though small enterprises are required to offer only basic financial summation for the enterprises with turnover below £5.6 million per year where no audit is needed. On the contrary, partnerships are run and owned by individual partners who are individually and mutually accountable for the activities and actions of their counterparts. This partly provides accountability for the significance of a partnership deed. The partnerships are not required to publish or audit their books of accounts, even though there is a shift towards a transparent way of accountability through auditing. There are also some people or entrepreneurs who run limited Liability Company alongside the Partnership business to which various types of operations are directed. In this case, maximum flexibility is afforded which enables the business to be protected. It might also be an important way of ensuring succession as partners exiting partnership can lead into dissolution whilst the company can continue to run even as the directors exit the company or retire. Most businesses are taking consideration the possibility of a Limited Liability Partnership which has become available since 2001 June 6th. This is business that runs as a traditional partnership and a modern limited Liability company. Since the associates have limited Liability, the security of those operating an LLP provides that the LLP sustains and keeps accounting statements, prepares and produces audited yearly accounts to the company registrar as well submit a yearly return in similar manner to firms. The need to Limit Liability or Not The type of business operation that will be taken into account or the portfolio of the client will also determine whether or not to have a limited liability or to have a partnership. Fundamentally in case the partners over usual or frequent foreign operations or work with a huge number of corporate clients, the incorporation might be relevant from the point of view of commerce. Nonetheless, Limited Liabilities do not require protecting the entire proprietors for example the individual assurance might be needed in case loans or other financial obligations are needed. In any case insurance must at all time be taken into account cover for the possible liabilities. The members of the shareholders of the company are not personally liable for the outstanding debts of the corporation in a Limited Liability Company. For example, in Salomon v A Salomon & Co Ltd [1897] AC 22 while a firm experiencing challenges with the debtors, it was ruled by the House of Lords that Salomon was not personally liable for the debts given that the firm had its own spate legal entity. The principle of corporate individuality was held as determined in the Companies Act 1862 hence the creditors had no potential to sue the shareholders of the company to meet the outstanding debts of the company. There is also a mutual conduct among the limited liability firms where the shareholders forming the corporation will be identified as directors with equal number of shares in the corporation. For example in Macaura v Northern Assurance Co Ltd [1925] AC 619 where the principle of lifting the corporate veil was put to test. The House of Lords held that insurance company was not responsible on the agreement, hence since the timber that got damaged in the fire was not owned by Mr. Macaura who held the insurance cover. Thus the property to the company was not covered by the personal insurance cover held by Macaura (Gotti & Williams, 2010; p. 162). The Amount the Partners Wish to Take Out of the Business In general reasoning if one plans to exit or re-venture money into the operations of the business, the incorporation can provide benefits as profits left in the firm has corporate tax attached to them at a reduced rates compared to income tax. The top most corporate tax rate of about 30% is charged on profits that exceeds £ 1.5 million. On the contrary, the partners are required to pay income tax of up to 40% on the entire profits made regardless of drawing or not drawing the profits. While the rates of income tax for the partners and directors are similar, the investors of a limited Liability company are charged national insurance contribution which is usually at a higher rate compared to the partners in partnership business. This therefore adds extra cost to the personal tax bill and the company’s tax bill. In fact for company’s directors to be paid £65,030 net the firm will have to 14.3% more profit compared to the equivalent amount to the partnership. This means that if a limited company pays to the state £49,272 the partnership will pay only £34,970 (Davies, 2010; p. 3). Nonetheless, in case directors take a salary cut and reinvest into the business the Limited liability Company might have to provide financial benefits. In summary, the different stages of profitability establish a unique financial image and nay choice in connection to the structure demand cautious consideration of the current and future goals of the partners. Most firms also enjoy considerable flexibility to systematize an effective reward package, extensively due to the duties and obligation of the investors and directors which are distorted in owner operated business. Profits might thus be extracted via a blend of salaries, pensions, bonuses, dividends and other returns to establish a tax efficiency package. The latest legal case of Arctic Systems Ltd established a risky precedent for corporations where a husband and wife exist as shareholders. Through the case, the HMRC (HM Revenue & Customs) have the ability to contend for the paid dividends to the spouse who is involved actively in the business operation and look to evaluate the income of the spouse as part of the other party’s income and finally resolve itself a higher rate liability (Gotti & Williams, 2010; p. 162). Ownership of the Business Conventional share ownership was viewed as giving flexibility to the shareholders of a corporation. For instance, ownership can be elongated to children, spouses who might be often paid very effectively in terms of dividends. Moreover, the investors of a company can enhance senior staff to director position as a way of giving incentives without necessarily dissolving the business ownership. The opportunities for planning are constrained as it is in the case of Arctic Systems mentioned above. Spreading ownership in a partnership form of business is difficult even though provision for a salaried partner can be created as well as equity partners. However, the partnership has to be dissolved first before a new owner is introduced into the business (Davies, 2010; p. 3). Bibliography Books Cited Buxton, Richard (2009). How the common law gets made: Hedley Byrne and other cautionary tales. Law quarterly Review. Sweet & Maxwell. 125 (1): 60–78. City Law School (London, England). (2008). Company law in practice. Oxford: Oxford University Press. Davies, P. L. (2010). Introduction to company law. Oxford: Oxford University Press. Giliker, P. (2005). Revisiting pure economic loss: lessons to be learnt from the Supreme Court of Canada? Legal Studies 25: 49–71. Gotti, M., & Williams, C. (2010). Legal discourse across languages and cultures. Bern: Peter Lang. Horsley K. et al. (2009). Tort Law, Oxford University Press Publishers. Kidner, Richard (2008). Casebook on Torts. Oxford University: Oxford University Press. Kidner, p. 20 Lunney, Mark & Oliphant, Ken (2010). Tort Law: Text and Materials (4 Ed.). Oxford University Press. Luntz and Hasmbly (2006). Torts - Cases and Commentary. LexisNexis Butterworth’s p. 227 Weinrib, E. J. (2005) "The disintegration of duty", in Madden, M. S. Exploring Tort Law, London: Cambridge University Press, pp143-272 Cited Legal Cases Bourhill v Young [1943] AC 92 Candler V Crane, Christmas & Co [1951] 2 KB 164 Donoghue v Stevenson (1932) UKHL Electrochrome Ltd v. Welsh Plastics Ltd [1968] 2 All ER 205 Griffiths v. Lindsay (1998 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 Lister v. Hesley hall Ltd [2001] UKHL 22 Macaura v Northern Assurance Co Ltd [1925] AC 619 Miller v Jackson [1977] QB 966 Paris v. Stepney Borough Council [1951] AC 367 Salomon v A Salomon & Co Ltd [1897] AC 22 Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] 1 QB 27 Weller & Co v Foot and Mouth Disease Research institute [1966] 1 QB 569 Yewens v. Noakes (1881) 6 QBD 530 Laws or Acts cited Companies Act 2006 Fatal accidents Act of 1976 Liability Insurance Act 1969 Partnership Act 1980 Read More