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Canada (162,164)
LAW 122 (625)
Stan Benda (71)
Chapter 1


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Law and Business
LAW 122
Stan Benda

LAW 122 - Chapter 1 Risk Management Is the process of identifying, evaluating, and responding to the possibility of harmful events; there are 3 steps: identify, evaluate, and respond to the legal risks involved Identification: If you accuse your ex-employee of theft, she may sue you for defamation because your statement would cause a reasonable person to think less of her. More surprisingly, if you unreasonably refuse to write a letter, or if you write an unreasonably brief letter, you may be held liable for reducing the ex-employees job prospects. You need to be concerned about liability, about being held legally responsible and to be concerned about the possibility of being sued. Evaluation: Having identified the risk of being sued for defamation, you may decide that a candid letter would nevertheless be legally acceptable. Your allegations may be true. Even if they are not, you may be justified in sharing your suspicions with the other company. Response: Finally, having identified and evaluated the risks, you need to formulate a response. You have several options. You can refuse to write a letter or you can write a letter that does not mention your suspicion or you can write a letter that accuses your former employee of theft. Risk Avoidance: Some risks are so serious that they should be avoided altogether. An automobile that regularly explodes upon impact should be removed from the market. Apart from issues of morality, the financial costs of being held liable will probably outweigh any sales profits. Risk Reduction: Some risks can be reduced to an acceptable level through precautions. For example, a bank that lends $500,000 to a manufacturer realizes that the loan may not be repaid if the economy goes into recession. The bank can, however, protect itself by requiring the business to grant a mortgage over its factory. In that case, if the bank does not get its money, it may at least get the property. Risk Shifting: Even if the risk cannot be avoided or reduced, it may be shifted onto another party. We will very shortly introduce two exceptionally important strategies for shifting risks: insurance and exclusion clauses. Suppose, for example, that a construction company requires the temporary use of a crane. It has two options. First, it may rent a crane and have it operated by one of its own employees. Second, it may rent a crane and hire an independent contractor to operate it. An independent contractor is a person who performs services on behalf of a company, but who is not a regular employee of that company. A company is vicariously liable for the actions of its employees, but its not liable for an independent contractor. Risk Acceptance: It is sometimes appropriate to simply accept a risk. It sometimes is possible to deal with individual problems as they arise. Many of the most effective forms of risk management, however, apply more broadly. Businesses should ensure that employees are carefully selected and properly trained. Insurance: Insurance is a contract in which one party agrees, in exchange for a price, to pay a certain amount of money if another party suffers a loss. Liability insurance provides a benefit if the purchaser is held liable for doing something wrong. Property insurance provides a benefit if the purchasers property is damaged, lost, or destroyed. Exclusion and Limitation Clauses: Many businesses make money by selling goods or services. Those sales are created by contracts and those contracts very often contain exclusion or limitation clauses. Such a clause is a contractual term that changes the usual rules of liability. The clause may attempt to exclude all risk of liability, or it may exclude liability for certain types of acts or certain types of losses, or it may limit the amount of compensation that is available. Incorporation: There are many ways to conduct business. An individual who chooses to act in a personal capacity may be held personally liable for any debts for liabilities incurred by the business. To avoid some of those risks, many businesses are set up as corporations or companies. The most significant benefit of incorporation is limited liability. That means that it is usually only the company itself, and not the directors or shareholders, that may be liable for debts. The company may be lost, but the people behind it will be safe. It is important to realize, however, that the idea of limited liability does not protect individuals from all risks. Employees, directors, and officers may be held liable for the personal torts they commit. An Introduction to the Legal System The Nature of Law Law is a rule that can be enforced by the courts. Depending on the precise nature of the legal obligation, a court might put me in jail or require me to compensate the victims family for his death. Moral issues may arise even if a rule is identical as a law. A Map of the Law Civil law systems trace their history to ancient Rome. Since the Roman Empire covered most of Europe, most countries on that continent are still civilian. The only civil law jurisdiction in Canada, however, is Quebec, which initially borrowed its law from France. Jurisdiction is a geographical area that uses the same set of laws. Common law systems trace their history to England. Consequently, most jurisdictions that were settled by English colonists continue to use the common law. Since there are significant differences between civil law systems and common law systems, there are also significant differences between the laws that apply in Quebec.Public Law Public law is concerned with governments and the ways in which they deal with their citizens. It includes: Constitutional law Administrative law Criminal law Tax law Constitutional law provides the basic rules of our political and legal systems. It determines who is entitled to create and enforce laws, and it establishes the fundamental rights and freedoms that Canadians enjoy. To manage the workload, governments regularly delegate or assign responsibility to a variety of agencies, boards, commissions and tribunals. Administrative law is concerned with the creation and operation of those bodies. It has a profound impact on business. For instance, a human rights tribunal may decide that a corporation discriminated against women by paying them less than it paid men for work of similar value. Criminal law deals with offenses against the state. In other words, it is concerned with people who break rules that are designed to protect society as a whole. For instance, if you punch me, you have committed a tort because you have done something wrong to me personally. However, you have also committed a crime because you have done something wrong to the entire community. Even if I am not particularly u
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