Business Education: Basics of Business Law and Ethics

Ethical Issues

Conflicts of Interest
A conflict of interest occurs when a person has two adversary interests, one of which might not be best for his or her business. An example is an employee of a general contractor who is making a decision on which of five bidding subcontractors to choose. If one of the subcontractors is his brother, he will have a conflict of interest because he might want to choose his brother, who might not be the best choice. He might choose his brother over someone better qualified. There are many instances of conflicts of interest in business. Oftentimes they are related to money. A person may accept gifts in exchange for a contract, for example. It is unethical to do something bad for the company because of personal interests.
The employee should try to avoid this if possible. For instance, the person who works for the general contractor may ask someone else to make the decision so he doesn't have to choose between his brother and the company.

Privacy of Employees
There are a variety of ethical issues regarding the privacy of employees. Some of it stems from the monitoring of communications.
Businesses can monitor employees' business calls, such as when a customer service agent is providing service to a customer, but it is murkier if employees are on personal calls. If employees are not supposed to be making personal calls at work, then employers may have the right to listen. Some people feel that it is not ethical, but then it is also not ethical for employees to spend time on personal matters when they should be working. Most companies monitor internet usage. Again, some people may worry about the ethical issues with privacy, but if it is on company time with company resources, the business could be liable for the employee's actions. A lot of companies perform background checks and drug testing, which is allowed, although there are guidelines in place that must be followed. They must be reasonable. Most companies fulfill ethical duties by getting consent before performing the checks. It is very important for employers to keep records about the employees confidential.

Compensation
Wages should be fair. It is important that one employee not make more or less for the wrong reasons. For instance, it is ethical for a company to pay more to an employee with more experience, but it is not ethical to pay more to a man than a woman solely because of gender. Still, this often happens, as does pay disparity among races, religions, and other categories.
Sometimes advocates call out companies in which the top people make an exorbitant amount of money and the lower employees do very poorly. Ethical issues arise when people do not make a living wage. It is important to ensure pay disparity among workers is not occurring for the wrong reasons.

Insider Trading
Illegal insider trading occurs when someone makes a trade while having 'insider' information that makes it unfair to other investors.
This can occur when a corporate officer discovers something significant about a company and makes a trade because of that information. For instance, an employee may learn of a big problem about to occur and get rid of the stock before the price plummets. Insider trading can also be committed by employee friends, family, and acquaintances; government employees; law or banking employees who deal with a company; or just anyone who manages to obtain the illegal information. It is unethical because it makes it unfair to investors who have to trade without this information. Insider trading is taken very seriously by the US Securities and Exchange Commission and has serious consequences.

Business' Social Responsibility
Businesses have a social responsibility to their customers, employees, investors, and society in general. To their employees they should have fair labor practices. Employees should be treated fairly and without discrimination.
Those companies that deal with international business have a responsibility to make sure laborers involved in their business are also treated fairly. They also have a responsibility to investors to try to build their money (in socially acceptable ways). To customers they should be fair, putting out quality products without deception. Business practices and tactics should be fair and not deceptive—they should not badmouth a competitor, for instance.
There are different ways to be socially responsible to society as a whole.
Businesses should have practices that do not harm the environment or animals or create unsafe waste. Many companies also give to charity. Some use fair trade products or sustainably grown and processed products. When companies show socially responsible practices, people take notice and may give them more business. Corporate social responsibility is the business' responsibility to both make money and act in a socially responsible way. This can include economic responsibility, legal responsibility, ethical responsibility and philanthropic responsibility.

Criminal and Civil Law
Criminal law involves someone accused of a crime. The individual broke a law and did something detrimental to society. Although it might involve a victim, that victim does not have to be the one to bring the case to life; the government (in the form of prosecution) will. There doesn't have to be a victim such as if someone was caught driving under the influence but did not hurt anyone. If the person is found guilty, he may have to pay money, could be sentenced to prison, or (in rare cases) executed. A civil case is a dispute between two parties. They are brought by one party against another because of a failure of a legal duty. The plaintiff may ask for compensation or for the party to fulfill the duty, but the defendant cannot be sentenced to prison or death. They both can occur in local or federal courts. Lawyers can be used for both, but are guaranteed for criminal defendants. Because of the seriousness of criminal law, defendants are presumed innocent and the state must prove the charges beyond a reasonable doubt. It is less difficult to prove guilt in civil cases.

Case, Administrative, Statutory, Constitutional, and Tort Law
Criminal law deals with crimes that are committed. Case law refers to the verdicts of courts that can now be used in new court cases to help plead cases and define the law. Statutory law refers to codes and statutes the legislative bodies have enacted. Administrative law refers to the procedures that administrative agencies create. It is very technical. Different agencies have different procedures and these must be fulfilled before a lawsuit can be brought. Constitutional law refers to how the United States Constitution is interpreted and implemented. Tort law refers to civil claims that one party brings against another. A plaintiff claims that a defendant harmed him in a way that constitutes a legal liability.
Some attorneys specialize in one type of law while others practice a broader range.

Lawsuits
A lawsuit occurs when one party brings a case against another party in a court of law. This is also known as a civil action. The plaintiff makes the complaint that the other party (defendant) did something for which they are legally liable. Unlike criminal cases, a person's freedom is not in jeopardy—there is no prison sentence. The person may not have broken a law to have a lawsuit brought against him (or her). It can also involve negligence. The plaintiff may ask for compensatory damages, which compensate the plaintiff for the money he may have lost, as well as pain and suffering.
There might also be punitive damages, which is like a punishment for being malicious, reckless, or grossly negligent. One person files the suit, followed by discovery, any pre-trial motions, and oftentimes discussions of settlement.
If it doesn't get settled, then it will go to a trial and the judgment.
Finally, one party can appeal. Sometimes, parties will come together to make a lawsuit as a group, which can appear much stronger because of the amount of people. This is called a class action lawsuit.

Court Systems
There are many different court systems in the United States, including a federal court system and state courts. State court systems consist of many different tiers. State trial courts may consist of county courts, circuit courts, and city or municipal courts, among others. Trial courts may have limited jurisdiction, hearing lower criminal charges, cases involving juveniles, traffic issues, and some civil cases. More serious cases, such as those with more serious crimes or higher stakes civil cases, may go to a court of general jurisdiction. These may include circuit courts, superior courts, or courts of common pleas. There are specialized courts in many states. These include courts such as family courts and juvenile courts. States usually also have a supreme court where cases that have worked their way up the lower courts can be heard. Federal courts are generally divided into circuits and districts, with at least one per state. Many federal lawsuits are heard in those. The highest court is the US Supreme Court, which shapes many laws. It hears a small number of very important cases.

Due Process, Liability, Damages, Burden of Proof, and Negligence
Due process refers to a person's right to have the state respect his legal rights. It is about providing fairness to those involved in legal matters such as by providing a notice of rights. Liability refers to a party's legal responsibility for behaviors, actions, or inactions. If someone does not meet his (or her) duty, he could have a lawsuit brought against him.
Damages refer to the money that may be given to the plaintiff from the defendant during a lawsuit. The plaintiff with a civil lawsuit has the responsibility of providing the burden of proof, which means he must bring a "preponderance of evidence" or a "weight of evidence" to show that he has enough facts to win the case. In criminal cases, the burden of proof refers to a prosecutor needing to show that the defendant is guilty 'beyond a reasonable doubt.' Negligence is when a party does not show a reasonable amount of care. Though negligence can be accidental, a reasonable person would have acted differently. One can be liable for this.

Laws and Regulations That Affect Business
There are a wide variety of laws and regulations that affect businesses. Business or corporate law refers to the laws surrounding how corporations are formed, dissolved, and run. Labor laws deal with many aspects of the relationship between employer and employee such as working conditions, wages, and discrimination. Tax law deals with the taxes that businesses owe. Contract laws govern the contracts that many businesses enter into on a regular basis. Property law governs how property is owned, commonly seen in business. Antitrust law strives to keep a competitive marketplace by not allowing mergers that would form monopolies and other antitrust activities. The Uniform Commercial Code (UCC) helps make transactions easier between states by helping make uniformity in commercial laws. Companies are also subject to accounting and financial management laws, as well as laws regarding their insurance and credit.

FTC
Formed in 1914, the Federal Trade Commission (FTC) protects consumers by stopping businesses from performing deceptive, unfair, and anticompetitive practices. It strives to stop fraud and other types of deception and keep competition fair by stopping anticompetitive mergers. It is a federal agency that has competition jurisdiction and consumer protection jurisdiction. It helps make policies and shares information with the legislature and government agencies. When wrongdoing is suspected, the FTC will investigate and, at times, sue to stop it. They accept complaints about businesses regarding many matters including identity theft, deceptive advertising, and data security. They pass the information along to law enforcement agencies when appropriate. They also work to prevent mergers that would create anticompetitive organizations such as monopolies. They have had a large impact on the marketplace.

SEC
The United States Securities and Exchange Commission (SEC) plays a large role in protecting investors, maintaining the integrity of the market, and aiding in the forming of capital. It works to keep a fair market without unfair practices that would be detrimental to investors. It makes, investigates, and enforces requirements of fair disclosure of information so that one party does not have insider information that would compromise the market's fairness. Companies are required to disclose information on a regular basis so that investors can make informed decisions.
It also investigates evidence of fraud. If the SEC finds a violation such as insider trading, a company purposely providing false information, or accounting fraud, it will bring a civil enforcement action against the party. It is led by five commissioners who are appointed by the president. Its main functions include making sure that federal securities laws are enforced; making rules; making sure brokers, securities firms, ratings agencies and investment advisors are inspected; watching private regulatory organizations; and working with authorities to coordinate United States securities regulations.

Sarbanes-Oxley Act and Bankruptcy Reform Act of 2005
Two acts that played a large part in business were the Sarbanes-Oxley Act and the Bankruptcy Reform Act of 2005. The Sarbanes-Oxley
Act was signed by President George W. Bush in 2002 and increased corporate responsibility and financial disclosure while fighting accounting and corporate fraud. It included new or improved standards for management firms, public accounting firms, and United States public company boards. It also led to the creation of the Public Company Accounting Oversight Board (PCAOB), which oversees auditing professionals. It was created in an effort to prevent corporate scandals at a time when such scandals were becoming common. It also made some types of misconduct crimes. The Bankruptcy Reform Act of 2005 was created to lower Bankruptcy Code filings. Parties filing for bankruptcy would now need to get financial counseling first. In addition, they would have to undergo a 'means test' to see if they qualified. Filers had to wait eight years before using Chapter 7 bankruptcy again. In addition, it created a limit of $125,000 for homestead exemptions if the property was acquired within three years and a weakened automatic stay for multiple filers. This made it more difficult for people to file for Chapter 7 bankruptcy.

Consumer Protection Laws
There are a number of consumer protection laws that safeguard individuals from unscrupulous business practices. Many of these laws are related to food safety and sanitation. Food must be handled, stored, and prepared in certain ways to prevent health hazards. For instance, meat must be stored at certain temperatures and can only stay out for a certain amount of time. The Food and Drug Administration (FDA), Department of Agriculture (USDA) and Food Safety and Inspection Service (FSIS) all play a part in administering these laws. There are also laws about credit and warranties. For instance, the Federal Warranty Law covers written and implied warranties. There are a number of laws about credit that the Federal Trade Commission enforces such as the Truth in Lending Act (TILA), Fair Credit Reporting Act (FCRA), and Fair Debt
Collection Practices Act (FDCPA). Additionally, unfair trade practices, such as misrepresentation and fraud, are banned. Many states have enacted laws against these, and consumers can complain to the appropriate consumer protection agency.

Agencies Related to Consumer Protection
The Federal Trade Commission is a national agency that protects consumers by taking complaints about unfair practices and stopping forbidden acts such as anticompetitive mergers. There are a wide variety of state, regional, and local agencies that provide the same services on a more local basis. These are often in the attorney general's office. They accept complaints, investigate claims, and take action as necessary. Another agency that provides consumer services is the Better Business Bureau (BBB). The BBB keeps records on companies and list complaints. When people make a complaint, the BBB will contact the company and try to get it resolved.
Businesses that have a good record with the BBB can use it to their advantage.
Many consumers look up companies on the BBB website before doing business, thus many companies strive to keep good records. Sometimes consumers have a choice of several agencies from which to choose when making complaints.

Product Testing and Safety

Laws
The Consumer Product Safety Act (1972) and the subsequent Consumer Product Safety Improvement Act address safety in toys, chemicals in products, and more. The government tests products, makes safety standards, and bans products it deems unsafe. There are numerous product labeling laws as well.
The Fair Packaging and Labeling Act (FPLA) requires commodity producers to label the name of the product, the identity and source of the manufacturer, the distributor or packer, and the net quantity. It strives to help consumers understand what they are getting. There are laws that specifically regard food standards, like federal grading of meat products. As a result of the Federal
Food, Drug, and Cosmetic Act, the US Food and Drug Administration (FDA) requires testing on drugs to ensure their safety and efficacy. They also monitor food and food additives for safety. Many agencies and laws help ensure product safety.

Federal Agencies
Part of the US Department of Health and Human Services, the Food and Drug Administration plays a large part in protecting consumers by overseeing the safety of food, drugs, and medical devices. They require extensive testing on drugs to ensure both efficacy and safety. They regulate food and labeling and give guidelines for the conditions in which food is prepared. They inform the public on related issues. The US Department of Agriculture (USDA) creates and executes policies in the fields of agriculture, farming, food, and forestry. They help rural communities, assist with conservation efforts, make rules regarding food and nutrition, make rules and standards for products labeled organic, and play many other roles. They have had a large impact throughout the years.

Government Agencies and Laws Concerning Environmental Protection
The Environmental Protection Agency (EPA) strives to safeguard the environment. Its roles include reducing the environmental impact of business practices; providing information; creating regulations and national standards based on laws from Congress; giving grants to non-profit organizations, state environmental programs, and schools; and performing research into environmental concerns. The EPA was formed in 1970, and its main headquarters is in Washington, D.C. It has many programs based on specific issues such as fuel economy, air quality, and oil pollution, among others. There are a wide variety of laws to protect the environment in the United States such as the Clean Air Act, Clean Water Act, and Endangered Species Act. The EPA administers these and many more. Many of these also relate to business. The laws in other countries vary greatly, and many countries do not have the same environmental protections. Many international business agreements address these concerns.