Contract Law Case Study Questions

Assignment Questions
Part A: Contracts Law Question
• Read the Contracts Law question below.

• Your references must be listed in a Reference list at the end of the Part A question.
Joey Joystick is a computer programmer. While he was in his final year of university studies,
he worked as an intern with a local electronic games producer, Great Games Pty Ltd. Joey
impressed his supervisors with his insightful comments and other input on design work. They
were so impressed with his work on one design, Crypt Force, that they gave him part credit
for it and paid him a general bonus for it. Crypt Force ultimately won an industry award and
proved to be a big seller for the company.

After Joey’s university graduation ceremony, he was ushered aside by a Great Games
executive who showed him a document and said:
“We’re very impressed by your work, Joey. We’d like you to join us permanently—
we’re sure you’ll be happy with the deal we can offer you.”
The document was a contract of employment which contained the following clauses:

The duration of the contract is three (3) years.

The employee (Joey) agrees that he will not for the duration of the employment
contract or for a period of one year after the conclusion of the employment
undertake design activities in Australia for the purposes of the production of
electronic games or any other form of entertainment.
The starting salary under the contract was that normally paid to a senior designer, which was
a position a new designer would not usually attain until he or she had worked with Great
Games for three years. Joey happily signed the agreement.
After two years with Great Games, Joey was approached by a film production company,
Computer Animated Films Inc (CAN). Joey agreed with CAN that, for a salary five times what
he was getting paid by Great Games, he would immediately start work as part of a team
producing Cosmic Armada, a feature-length computer animated film. As part of the deal, Joey
would also work on a spin-off Cosmic Armada electronic game.
Advise Great Games whether it can prevent Joey from working for CAN.
In answering this question, you are expected to draw on legal rules, principles and cases
discussed in the lectures from Weeks 1 to 4 and the corresponding chapters from the
prescribed textbook.
Page 5 of 7
HI6027 Business and Corporate Law Group Assignment 2020

Part B: Business Structures question
• Read the questions below on Business Structures.

You have graduated from Holmes Institute with a Master’s Degree in Professional Accounting,
and you’re employed as an accountant/financial advisor, for an accounting firm called Big
Business Accountants.
Harry is a client, and he has made an appointment to see you. Harry is keen in starting a
business. This business he is proposing to start is a bakery. Harry has qualifications in bakery
which includes making cakes, bread, pastries.
Harry, has saved up his money and he has about $50,000.00 in cash. He hasn’t bought any
equipment but he has found a shop which he is considering leasing where his bakery business
will be operating from.
Harry has always been an employee and now he would like to know what type of business
structure he should have for his bakery.
Your task is to write a report to Harry about the types of business structures that you consider would be suitable for Harry to Consider

Hint and Approach

Part A

Issue

The primary issue, in this case, is whether Great Games may stop Joey from joining CAN. In these cases, there is an employment contract between Joey and Great Games.

Also, Joey agreed that he would not undertake design activities in Australia for the contract period. Great Games offered Joey a high salary compared to that which a typical fresh graduate may get.

However, Can offer a better opportunity than that of the Great Games. Joey agreed to work for CAN due to the five times payment as compared to that provided to him by Great Games. Ideally, Joey is likely to be on a high demand following the fact that his design got an award.

By agreeing to work with CAN, Joey has not honored his contract obligation. Therefore, Great Games should apply relevant laws to mitigate the damages that would be associated with the breach of contract.

Rule

In Australia, employees may have a written or unwritten contract agreement with employers. The contract agreement specifies the terms and conditions that will guide the relationship between the employer and the employees.

The duration of the employment contract is one of the contents of a contract agreement. The Fair Work Act of 2009 outlines the rules that govern many Australian employees.

In Australia, unwritten employment contracts are not common (Commission, 2018). However, all employees should be provided with a copy of the Fair Work Information Statement to guide their practice. Under the Fair Work Act 2009, the contract agreement may include any information that bans the employee from holding another job.

In the case, Bril v Rex Australia Ltd (2015) FWC 884, an employee was fired after the employer found that he was doing another job. The High Court held that the driver had acted against the employment agreement, which stated that he was not entitled to engage in another form of employment with another company.

Even though there was no conflict of interest between the driver and his other job, the Fair Work Commission found that the driver acted against the employment contract.

Conflict of interest plays an essential role in a circumstance where an employee decided to work for another employer offering similar products and services (Australian Master Human Resources Guide 2010, 2010).

In such cases, the Australian common law holds that an employment contract may contain a prohibition for working for another company. One of the factors that may be considered in such agreements is the conflict of interest. The Fair Work Commission outlines the measures that should be taken by employees when an employee breaches the employment contract.

The Australian Common Law also prohibits employees from soliciting the customers of the employers to another business. According to the Fair Work Act 2009, employees should not undertake any appointment of work position in another company that is a competitor with their current employer (“Termination of employment » Australian Workplace Lawyers,” n.d.).

Also, the employee should avoid engaging in activities that will affect the reputation of their current employers. In this regard, employees should comply with the provisions of the Fair Work Act 2009 as well as the employment contract. The employment agreement should outline the rules that may ban or allow an employee to leave the company for another opportunity.

The employee should be aware of his obligation as far as noticing the employer is concerned. Employees should provide an employment termination notice to the employer within a reasonable time. Based on the provisions of the law, reasonable time refers to the period specifies in the Act or any other legal document used in Australia.

Under the National Employment Standards, employees should give employers a minimum period of contract termination. The grace period is allowed to enable the employer to figure out the mitigating factors for the expected damages. The law holds that employees have a contractual duty as stipulated in the employment contract.

In the case Cuncut Pty Ltd v Worrell [2001] 49 AILR 4-436, the Australian High Court held that the employer used the company’s employment materials for his benefit; hence the High Court declared him guilty for terminating the employment contract (“Welcome to the Fair Work Ombudsman website,” n.d.). Employees are entitled to act on the interest of the employer considering the employment contract, specifically the agreement made between the two parties.

Analysis

Based on the agreement made between Joey and Great Games, he was not allowed to engage in any employment contract. Joey also agreed that he would not engage in any design work in Australia to protect the reputation of the Great Games. Additionally, the contract agreement was made in writing; thus, it would be easy to retrieve.

Since CAN offered similar services as Great Games, a conflict of interest would arise. Joey is likely to affect the reputation of the Great Games by working with CAN. Since the award was recorded in the name of the Great Games, working with CAN will significantly affect the status of the Great Games. As a result, Joey may design other games that would win an award for CAN.

The employment contract between Joey and Great Games was to last for three years. The agreement would be subject to renewal, depending on his performance. Additionally, Great Games gave Joey to showcase his skills during the internship period. If Great Games could not have allowed Joey to be an intern at their company, he may not have attracted many employers.

By considering the employment agreement, Joey signed that he would refrain from working with any other company that offers similar design work in Australia. Even though the contract was offered as an award, the provisions of the Fair Work Act 2009 still applies.

Conclusion

Based on the analysis, Great Games can ban Joey from working with CAN. The decision made by the Australian High Court in the case of Cuncut Pty Ltd v Worrell [2001] 49 AILR 4-436 may apply. By agreeing to join CAN, Joey acted against the employment contract that he had signed. Joey had promised not to do any design work in Australia.

Part B       

When an entrepreneur wants to start a business, there are several decisions to be made.  It takes a creative mind to come up with a business idea. The choices on the source of capital and the type of business structure are vital decisions that should be made at the conception of business.

A business structure is chosen depending on the size of the business, the taxes that a business is capable of paying, and the amount of capital required.

The structure determines the legal implications of the company, for example, the license that is required. Harry needs to start a business and is going to evaluate different types of business structures. Sole proprietorship and partnership are the business structures that can suit Harry’s business.

Harry has the freedom to change the business structure when the business expands and requires adjustment. This is because a business structure determines the control one has over the market, and the costs involved, for example, the sole proprietorship is less expensive compared to a company.

I will advise Harry to choose a business structure depending on how he wants to run it, for example, if Harry wants full control of the business, then I will advise him to choose sole proprietorship. The amount of capital that Harry has will determine the business structure to choose (Corporations Act 2001, 2018).

Sole proprietorship

 A sole proprietorship is a business structure that I would advise Harry to select. This business structure is less expensive and is not difficult to set up as it is the simplest way a person can start a business. Harry being the sole trader, will be required to be responsible for the losses that the business will make and to pay for the debts of the company.

Harry will realize all the profits and losses in the business. A sole proprietorship is a business that gives an entrepreneur the control that he needs over the business. Harry being an expert in baking, can take full control of the bakery because he has the skills.

 I will advise Harry to select a sole proprietorship because it has numerous advantages. One of the benefits is that the business structure allows the business owner to have full control of the business.

Harry will be able to make relevant decisions regarding the company without having to consult many people. The firm does not have to create a different account in the bank, but I will advise Harry to create a separate account to enable easy tracking of the business records.

The owner of the business can pay the taxes using his Tax File Number.  Harry will have the ability to hire people as a sole proprietor, and if he does not retain any employees, he will be under the compliance of workers’ compensation insurance.

 A sole proprietorship is the business structure that is adopted by many entrepreneurs because it does not have many requirements. Low costs are required at the beginning of the business. Capital can be sourced in different ways, for example, borrowing a loan from the bank.

If the money that Harry has will not be enough to start up the business, he can get more funds through borrowing from friends, family, and banks.

Harry has 50000 dollars to start the business, and he can borrow additional funds from the bank. I will advise Harry to set up a budget for all the assets needed and the stock to be purchased. This will enable Harry to know if the money he has is enough and, if not, should source for other funds (Business structures and types, 2020).

Partnership

Another business structure that is suitable for Harry’s business is a partnership. This structure is made up of two or more people who will share the losses and incomes from the business.

General partnership, incorporated limited partnership and limited partnership are the several types of partnership. I will advise Harry to select a general partnership to help him in raising the capital and managing the business.

When two or more people come together to start a business, a more significant business is established. The partners will be responsible for maintaining the business and sharing the debts and obligations.

My advice to Harry about the partnership will be based on some of the merits that partnership possesses. The business structure is simple to set up and is not expensive to manage because it is shared among the partners. In Australia, an entrepreneur interested in the partnership must apply for an Australian business number to use it for all the activities in the business.

The partners don’t pay taxes on the worldwide income earned but instead pays based on the profits shared. A partnership is of more significant advantage because two people are better than one; a combination of their skills will result in better performance (Dickfos, Brown, & Wilson, 2017).

The number of partners that Harry will involve in the business will depend on financial needs. Harry will determine how many people he wants to form a partnership with. It is important for Harry to choose the right partners for the business and should be competent for the business.

For example, Harry should choose a partner who is an expert in financial issues so that he can complement the skills that Harry doesn’t have.

From the above discussion, Harry can either start a sole proprietorship business or partnership, depending on the size of the company he wants to start. It is convenient for Harry to be a manager of his own business because he has been an employee for a long time.

Conclusion

 In conclusion, at the conception of any business idea, the entrepreneur should decide on the business structure to adopt. The choice of the business structure will depend on several factors, for example, the capital available, the taxes to be paid, the formal requirements of the business to be formed, and the skills of the entrepreneur.

Any person who wants to start a business should consult an expert, for example, a finance expert or a lawyer to get the necessary advice on which business structure to choose.