Chapter 1 Introduction to Law
Learning Objectives
After reading this chapter, you should be able to understand the nature and sources of law, and the concept of the rule of law and how it affects business. At the conclusion of this chapter, you should be able to answer the following questions:
What is the law?
Where does our law come from?
What is a rule of law?
How is the law relevant to business?
How does the study of the legal environment of business create a foundation for future business courses?
You might be wondering what the law has to do with you. You try to follow the rules. You don’t get into any trouble. You want to engage in honest dealings in business. Besides, you can always hire an attorney if you need legal help.
Here’s how. The law dictates virtually every aspect of a business’s operations, including its creation and operations, its treatment of workers, and its duties to consumers, the environment, and society. Moreover, the law also provides avenues for those with real or imagined claims against the business to proceed against it. As a businessperson, minimizing liability exposure—both of the business and personally—is essential. A solid understanding of the legal environment can help you minimize liability exposure, and prepare you to navigate the regulatory environment of your particular industry. While it is true that you can always hire an attorney to help with legal issues, it is quite impracticable to have an attorney’s input on every decision that must be made.
Besides the basic considerations of the need to operate lawfully, knowledge about resolving legal disputes, the best ways to minimize liability exposure, and the effects of their business practices on others are important for businesspeople to possess. Sometimes having a legal answer to a problem isn’t enough. Additionally, we also want to consider what it means to do business fairly. Fair to whom? Fair to shareholders? Fair to employees? Fair to the consumers who will purchase a business’s products? Through which ethical lens will these issues be contemplated? Of course, trade-offs are a part of business. To increase shareholder profits, for example, labor costs may need to be reduced by using cheaper labor. If employees are paid less, they may be less well-off, but shareholders may be happier. Often in business, just acting in accordance with the law isn’t enough to satisfy the notion of fairness. For that reason, it’s important to consider not just what the law says, but why the law exists. This inquiry leads us to consider associated public policy. Questions of fairness also lead businesspersons to consider the perceptions of their business practices that others might have. A good perception can help a business succeed in the long-term, but a bad perception might invite scorn, exclusion, or even litigation.
One recent example of a collision of law, public policy, fairness, and questions of perception can be seen in business responses to marriage equality, both before and after marriage equality was recognized as a civil right by the U.S. Supreme Court. Before the U.S. Supreme Court issued this significant opinion, several states recognized that same-sex marriage was lawful, and prohibited discrimination based upon sexual orientation. Regardless of this fact, some businesses that operated within those states decided to discriminate by withholding services from same-sex couples who attempted to hire them including florists, wedding cake decorators, and photographers. Those businesses discovered, however, that discrimination is unlawful, and such unlawful behavior can carry stiff financial penalties.
In these cases, we see legal positions that clash: Some argued that businesses that operated in accordance with their owners’ religious beliefs wherein the religion did not agree with same-sex marriages should be permitted to refuse to engage with customers who were hiring them for services. Others argued that their free speech rights were infringed upon if they were not permitted to refuse service. In a nutshell, these cases raised conflicts between ostensible First Amendment rights (e.g. freedom to exercise religion, free speech) and basic civil rights.
Reflect on how these conflicts might arise in your chosen field or industry. How can you create business practices and policies that do not conflict with law, are not perceived by others as unfair or abusive, and permit your business to move forward as a well-regarded entity in the community? To answer these questions, you need to have an understanding of what it means to have a right, as well as who or what has those rights. The study of law can help you understand what that means. Civil rights are intertwined with the legal environment of business.
Reflect on the legal recognition of marriage equality as a civil right. If a business violates a person’s civil rights—regardless of whether that person is an employee or a customer—our legal system provides a forum and process to redress that harm. Moreover, public opinion about a business that violates a person’s civil rights is likely to be poor, and that will have very real consequences for that business.
On the other hand, a business that operates within the boundaries of law and operates with a strong commitment to ethics is likely to be unimpeded by legal and public image problems that are easy to avoid.
Additionally, learning about law can help you recognize the reach and limits of our legal system. In other words, a person studied in law will be able to recognize when the government has overreached, because a person who understands the structure of our system of government and the sources from which it draws its authority will be able to identify what it is our lawmakers are permitted to do as a legitimate exercise of power, and what types of things lie outside of those powers. The exercise of government power through lawmaking is also a participatory process, wherein people can and do make their voices heard.
As you think about these questions and the many other questions that will arise during your study of the legal environment of business, try to set aside any fixed ideas that you have already formulated about law and the legal system. Many students who are new to the study of law find themselves sharply swayed by a particular type of fiction that has grown around the legal system. Specifically, many students find that they harbor a sense of repugnance to law or suspicions about the legal system, because they have heard that frivolous lawsuits are brought by a litigious public waiting to pounce at the smallest slight, along with money-grubbing attorneys waiting to cash in. We ask that you set aside those and any other preconceived notions that you may harbor about the law and the legal system. The law is a dynamic, sophisticated field. Frivolous lawsuits are not permitted to advance in our legal system, and most attorneys are committed to justice and fairness. They work hard to protect their clients’ legal interests and simply do not have the desire or the time to pursue frivolous claims. Indeed, there is no incentive for them to pursue such claims, because our legal system does not reward such behavior. Often, people form their opinions about the law and the legal system from various mass media sources. However, keep in mind that our media outlets are in the business to make money. Often, they will focus on a particular fact of a case and sensationalize it, rather than diligently relay all known facts and the legal questions presented by those facts. Why? Because the first approach sells, but the latter approach is generally too technical to hold the interest of large numbers of people. So, if you have learned about the legal system from “the news,” or from surfing the Internet, then remember that you have only glimpsed a small, often distorted, piece of the puzzle.
Most people want to conduct themselves and their business dealings within the parameters of the law. Even if we are very cynical, barring any other compunction to behave well, we can see that it makes the most economic sense to do so. Following the rules of the game saves us money, time, and aggravation, and it preserves our individual and professional reputations.
So if most people recognize that they have an incentive not to run afoul of the law, why are there so many legal disputes? There are many reasons for this, such as the fact that many of our laws are ambiguous, and reasonable people may disagree about what is “right.” Additionally, legal injuries happen even under the best of conditions, and the aggrieved parties need a method to press their claims to be compensated for their damages.
A common theme in the study of the legal environment is responsibility. Much of our legal wrangling seeks to answer the questions, “Who is responsible, and what should be done about this injury?” Additionally, and perhaps more importantly for business, is the concern of how to limit liability exposure in the first place. A solid understanding of the legal environment of business should help limit the risk of liability and thus avoid legal disputes. Moreover, it should help you recognize when you need to contact your attorney for assistance in defining the contours of the law, which are the rules of the game. The law provides continuity and a reasonable expectation of how things will be, based on how they have been in the past. It provides predictability and stability.
This book does not teach you how to practice law or to conduct legal research. That is the work of attorneys. Legal research is a sophisticated method of research that seeks to determine the current state of the law regarding narrowly defined legal issues. Legal research helps guide our behavior to help us comply with the rules of the game. When you need an answer regarding a specific legal issue, you will contact your attorney, who will research the issue, inform you of the results of that research, and advise you of the decisions you must make with respect to that issue.
The goals of this book are practical. Try to conceptualize your study of the legal environment of business as a map by which you must navigate your business dealings. We want to teach you how to read this map so that you are able to understand the law and how it affects your business and your life. An understanding of the law can help you to avoid serious missteps, which can prospectively and proactively limit your legal liability. This is far better than being in constant reactionary mode. Simply stated, planning can avoid or minimize liability exposure. Simply reacting to legal issues after they have arisen can be costly. As you have probably heard, ignorance of the law is no defense for violating the law.
This chapter provides an overview of the legal system. We begin with a discussion of what the law is, and then we turn our attention to the sources of law, the rule of law, the reasons why rule of law is important to business, and how law affects business disciplines such as management, marketing, finance, and accounting. The chapter concludes with a discussion of the link between rule of law and economic prosperity.
Key Takeaway
Law is a dynamic and ever-changing field that affects everyone, both in their individual capacities as people and in their business interactions. Studying the legal environment of business helps us understand how to reduce liability risks, identify legal problems that require an attorney’s assistance, and identify the links between business and the law.