Chapter 1 Introduction to Law

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. It also provides avenues for those with claims against the business to proceed against it. As a businessperson, minimizing exposure to legal liability—both of the business and personally—is essential. A solid understanding of the legal environment can help you minimize this 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 impractical and cost prohibitive to have an attorney’s input on every decision that must be made. To avoid unnecessary problems, businesspeople must know how to operate their businesses lawfully. But they also must know about how to resolve legal disputes, how to minimize liability exposure, and what the effects of their business practices are on others.

In today’s business climate, sometimes having a legal answer to a problem isn’t enough. For example, we may 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?  A study of business ethics can help answer these types of questions. One common dilemma, for example, involves tradeoffs. To increase shareholder profits, 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. Should labor costs be reduced? 

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 relatively 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 same-sex marriage as lawful, and prohibited discrimination based upon sexual orientation. Regardless of this fact, some businesses that operated within those states discriminated by withholding services from same-sex couples who attempted to hire them, including florists, wedding cake decorators, and photographers. Some of those businesses discovered, however, that discrimination is unlawful, and such unlawful behavior can carry stiff financial penalties. However, in at least one case of this nature, “the state’s overt hostility to the sincerely held religious beliefs of the defendant ran afoul of the First Amendment.” State laws must remain neutral, rather than hostile to religion.

In these cases, we see legal positions that clash: Some argued that businesses that operated in accordance with their owners’ religious beliefs should be permitted to refuse to engage with customers who were hiring them for services. Others argued that their free speech rights were infringed if they were not permitted to refuse service. These cases raised conflicts between First Amendment rights (e.g., freedom to exercise religion, free speech) and other 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, and how not to infringe upon those rights. The study of law can help you understand what that means. 

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.

Learning about law can help you recognize the reach and limits of our legal system. 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 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. For example, 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.

In reality, 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. But 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. The first approach sells, but the latter approach is generally too technical to hold the public’s interest. 

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 behavior, to ensure compliance and steer clear of avoidable legal trouble. 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. Think about 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.