This paper examines the legal environment in which modern businesses operate, covering the interaction between ethics and law, litigation processes, and alternate dispute resolution. It compares real, personal, and intangible property rights and analyzes how tort and criminal law affect business operations. The paper also explores employment regulation, the employment-at-will doctrine and its exceptions, the impact of collective bargaining, and the application of agency principles in business contexts. Drawing on Reed et al. (2005) and related sources, the paper provides a broad survey of the legal frameworks business managers must navigate to ensure compliance and minimize risk.
Modern businesses must operate under a variety of laws and regulations. Business managers must ensure that all federal and state mandated laws are followed in order to avoid litigation and penalties. In addition to the laws on the books, businesses must also be sensitive to public opinion and ethics. Some ethical issues are covered by law, but others may relate to a company's public image and can be of equal importance to some businesses.
As ethics and law increasingly become interwoven, it grows more and more difficult to draw a clear distinction between the two. Both ethics and law deal with right and wrong, and both lay down rules for social cooperation and business conduct. Ethics practiced by society are often incorporated into the law through legislation or court decisions and are thus followed as part of the law (Reed et al., 2005).
Ethics are learned from society and are often imposed on an individual by that society's norms. What constitutes permissible ethical behavior is determined by society — the family, the company, or even the law, which incorporates societal ethics into legislation. The motivation to follow ethics that are not part of the law comes from within the individual. Even when the law addresses a matter we may also consider ethically correct, the motivation to follow the law comes from outside the individual, in the form of compliance with state law. Most people knew that slavery was unethical, but because it had not been sanctioned as illegal, it continued until it was declared so.
Our morals inform our ethics. As was known then as it is now, discrimination on the grounds of race, color, sex, and religion in business transactions is ethically incorrect, but the force of law was required to curb the selfishness present in human nature. As Justice Holmes observed, "A bad man who cares nothing for an ethical rule which is believed and practiced by his neighbors is likely nevertheless to care a good deal to avoid being made to pay money, and will want to keep out of jail if he can" (Reed et al., 2005).
The legal system attempts to set a basic minimum standard, while ethics may demand more. The logic behind an ethical approach in business is sometimes divided into two categories: formalism and consequentialism. Formalism advocates absolute morality — a particular act is wrong regardless of the justification. A formalist would consider lying to be wrong under any circumstances. A consequentialist, by contrast, focuses on the outcomes of actions: lying itself is not inherently unethical; rather, it is the loss of trust or the harm caused by lying that is unethical (Reed et al., 2005).
The consequentialist definition can appear overly flexible. If accepted without limits, it could justify many questionable actions — for example, paying bribes to win an international contract on the grounds that doing so creates jobs and does not harm national interests. Because this kind of reasoning has been exploited in practice, businesses must be bound by a variety of laws to enforce good business conduct. Reed et al. (2005) identify four sources that influence business ethics:
One of the most important factors pressing businesses to be more aware of the ethical dimensions of their decisions is the role of media in exposing gross violations of business ethics. Businesses that move their production to sweatshops in Southeast Asia risk exposure and damaging press coverage — Nike's handling of journalists investigating foreign sweatshops is a well-known example of how such exposure can backfire. Companies like Enron and WorldCom have demonstrated that wrongdoing cannot easily be hidden. Even undue favoritism in awarding government contracts in distant countries is readily exposed in today's media environment.
Business ethics are critically important in today's economy, and a strong legal framework is equally essential to compel companies to follow the norms of decent business practice.
Companies must comply with an array of laws governing their operations, including labor laws, environmental laws, tax laws, and a variety of other laws specific to their industries. Businesses operating across national boundaries must also follow the laws applicable in each country of operation. The risks involved in running a business extend beyond economic conditions and everyday market factors. Businesses must protect themselves against litigation arising from the full spectrum of their operations — accidents, poor product quality, labor disputes, discrimination claims, unfair dismissal, contract violations, and more.
Involvement in litigation is rarely welcome for a business manager, but it is sometimes the only available avenue for resolving a dispute through an impartial party: the courts. An understanding of the litigation process is essential not only for working effectively with the company's legal counsel, but also for appreciating that a lawsuit represents an immense waste of time, money, and energy for all involved.
Litigation, or a "lawsuit," is initiated by a plaintiff, who files a complaint with the court. The complaint must state the reason for the lawsuit and the damages or relief sought. The party being sued — the defendant — is then served notice by the court and asked to respond and submit objections. After the defendant's response, the parties enter a discovery phase, during which both sides assess each other's evidence. Discovery often results in a settlement, as one party may find its case to be weak.
The trial begins after discovery and proceeds before a jury or a judge alone. The plaintiff bears the "burden of proof" and must prove the case. The defendant bears the burden of proof for affirmative defenses. After the trial, a decision is announced in favor of one party, and the losing party may appeal to a higher court if they can demonstrate that the prior decision involved an improper interpretation of the facts. The parties may also settle out of court at any point in exchange for promises or other considerations.
Beyond traditional court proceedings, other forums may be considered. Small claims courts may be appropriate for eligible disputes. A class action is another option, in which one or two plaintiffs pursue a case on behalf of a larger group. Cases involving environmental impact, securities fraud, or airliner crashes are often conducted as class actions, allowing the pooling of resources and combining of many individual cases into a single proceeding. Businesses can sometimes face class actions as defendants from groups of people affected by their operations.
"Property rights, tort liability, and criminal law in business"
"At-will employment, exceptions, and collective bargaining"
"Agent authority, duties, and principal responsibility"
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