Legal and Ethical Scenarios: Mug & Bean Coffee Shop

Mug & Bean currently operates as a general partnership. However, to accommodate the
growth the business has experienced recently, a new type of business entity is needed. Three
possible entities are examined, and one is recommended. Meanwhile, several legal and ethical
scenarios that could affect the restaurant are also discussed. At the end of the paper,
recommendations are made on how the restaurant could avoid such scenarios.

Scenario 1: Business Organizations

Types of legal entities the owners of Mug & Bean could consider for their existing
restaurant include a limited partnership, a limited liability company (LLC), and a corporation. A
limited partnership has two categories of partners: general and limited (Michigan Small Business
Development Center, 2018). General partners are responsible for the day-to-day running of the
business and are fully liable for any debts the business may incur. Limited partners are not
involved in the business’s daily operations, and their personal liability is limited to the proportion
of their capital contribution to the business. Compared to a general partnership, a major
advantage of a limited partnership is that it suits partners who, for one reason or another, prefer
not to be involved in the daily operations of the business. A major disadvantage is that more
paperwork is involved.
A limited liability company (LLC) combines the advantages of partnerships and
corporations by affording business owners the limited liability of a corporation and the pass-
through tax advantages of partnerships. Its major disadvantage is the presence of more complex
start-up stipulations.
Being a separate legal entity with its own liabilities, privileges, and rights, the
shareholders of a corporation enjoy limited liability. Its main disadvantages include more

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complex and costly start-up procedures and operating formalities, close regulation by state and
federal governments, and double taxation of shareholders. Based on its major advantages and
relatively few shortcomings, the LLC is recommended for the owners of Mug & Bean.

Scenario 2: Employment Discrimination

If Juanita can prove that at least one other candidate for the shift manager position who
lacked managerial experience like herself was hired for the position, she might leverage
discrimination on the grounds of race and color, national origin, sex, and age to sue Mug & Bean
(Jackson Lewis P. C., 2021; Borstein, 2021).
Race and color: Being a racial minority (a LatinX) working in the U.S., Juanita may argue that
she was discriminated against because of her race and color. Her argument would be stronger if
the candidate hired for the position without managerial experience were White. Mug & Bean
could counter that claim by showing that even though the candidate hired for the position was
White, its workforce of nineteen is racially diverse.
National origin: Again, if Juanita can prove that the candidate who was hired for the position
despite lacking managerial experience is a native, she may claim that she was discriminated
against on the grounds of her national origin. Mug & Bean could counter that claim easily if it
has, among its staff, people with different national origins.
Sex: Juanita could claim that she was discriminated against based on her sex if her hired rival
was a male. However, the restaurant could counter that by showing that it has, among its
managers, women.
Age: Because she is over 40, Juanita could claim that she was discriminated against because of
her age, especially if her hired rival was under 40. Mug & Bean could counter that by showing
that it has, among its managers, at least one woman who is aged 40 or older.

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If the restaurant had 12 employees, Juanita might not have been able to sue it because the
Equal Employment Opportunity Act (EEOA) applies only to employers with 15 or more
employees (Borstein, 2021).

Scenario 4: Insurance and Agency

Because Dylan got involved in an accident while on the job (he was delivering his
employer’s orders), he would likely not be held liable; he may not be held financially responsible
for damages sustained by Vickie’s car (Marler Law Partners, 2021). On the other hand, had
Dylan been involved in the accident with his employer’s vehicle while driving to work or
heading home from work (that is, off the job), he may have been held personally liable for
damage(s) to Vickie’s car, especially if it could be determined that he was negligent. It is also
worth noting that, in some cases like these, employers have settled damages and then sought to
recover them from their concerned employees.
Still, Dylan may not be off the hook just because he got involved in the accident while on
the job. In determining whether he, his employer, or Vickie should be held liable, several other
factors would have to be determined, including who between Dylan and Vickie was at fault;
whether either Dylan or Vickie violated any traffic laws and caused the accident; and whether
Dylan was impaired (Abraham & Rabin, 2019). In addition, the state law(s) relating to liability in
accidents involving company vehicles would influence the determination.
This scenario also raises the question of whether a principal (employer) is liable for
damage(s) resulting from an automobile accident caused by an agent (employee) while on
official business. This is a question courts have considered severally over the years and
consistently determined that as long as the agent was not under the influence of intoxicants at the
time of the accident, the liability falls on the principal (Tommasi & Weinschelbaum, 2007).

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Scenario 6: Liability of Negotiable Instruments

Both Carlson and Swanson could sue Mug & Bean for failure to disclose their prices in
advance by publishing them on the menus. They would do so under the Federal Trade
Commission Act and specifically under the Commission’s Full Disclosure Policy Statement. The
policy statement requires all businesses to fully disclose all the information pertinent to a
consumer purchase decision, including the product’s price (Porat, 2020). In bringing a lawsuit
against the restaurant, Carlson and Swanson could argue that by failing to publish a menu(s),
Mug & Bean has violated their consumer rights and failed to comply with the FTC’s 4Ps of full
disclosure: prominence, presentation, placement, and proximity (Fair, 2014). Prominence
requires that the menu(s) be designed and printed in font sizes that consumers can easily read and
comprehend. Presentation requires that the menu(s) be worded so that consumers can easily
understand. Placement ensures that customers can access the menus ready; this often means
placing them on dining table tops in the restaurant. Proximity is about a restaurant delivering, as
closely as possible, what it promises in the menu(s).
If Carlson and Swanson bring a lawsuit against Mug & Bean, they are likely to win. As
part of the FTC’s Operation Full Disclosure, the Commission has issued warning letters to at
least 60 companies. While the warnings have mostly been about advertising, the Full Disclosure
Policy Statement applies to all businesses in the country.

Recommendations

Based on its major advantages of limited liability and pass-through taxation for business
owners, it is recommended that the owners of Mug & Bean transition from a general partnership
to an LLC. Meanwhile, the company should take the following measures to avoid the legal and

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ethical scenarios discussed above. To avoid employment discrimination-related lawsuits, Mug &
Bean should work toward becoming an equal opportunity employer, in word and deed. To avoid
issues related to insurance liability, the restaurant should vet its drivers carefully and only
employ drivers with a record of safe driving and who have no records of substance abuse.
Nevertheless, if a driver gets involved in an accident with a company vehicle and the driver is
found to have caused the accident due to human error (rather than a gross violation of traffic
laws), the restaurant should act honorably and in good faith and settle any damage, possibly
through its insurer, instead of requiring the driver to do so. Finally, to avoid liabilities on
negotiable instruments, Mug & Bean should start publishing its prices in a menu(s).

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References

Abraham, K. S., & Rabin, R. L. (2019). Automated vehicles and manufacturer responsibility for
accidents: A new legal regime for a new era. Virginia Law Review, 105, 1-51.
Borstein, S. (2021). Disclosing Discrimination. Boston University Law Review, 101(287), 287-
358.
Fair, L. (2014, September 23). Full disclosure. Federal Trade Commission.
https://www.ftc.gov/business-guidance/blog/2014/09/full-disclosure
Jackson Lewis P. C. (2021). Employment law overview: USA 2019-2020. New York: Jackson
Lewis P. C.
Marler Law Partners. (2021, August 31). Who is liable in a company vehicle accident? Marler
Law Partners. https://marlerlawpartners.com/personal-injury/who-is-liable-in-a-company-
vehicle-accident/
Michigan Small Business Development Center. (2018). Guide to starting and operating a small
business. Lansing: Michigan Small Business Development Center.
Porat, H. (2020). Consumer protection and disclosure rules in the age of algorithmic behavior-
based pricing. Cambridge: Harvard Law School.
Tommasi, M., & Weinschelbaum, F. (2007). Principal-agent contracts under the threat of
insurance. Journal of Institutional and Theoretical Economics, 163(3),