After reviewing this week’s chapters, prepare a 600-word synopsis of the legal, ethical, and social concepts and issues discussed in the chapter.Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
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ElEvEnth Edition
Business
its lEgal, Ethical, and global EnvironmEnt
Marianne Moody Jennings
Arizona State University
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
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Business: Its Legal, Ethical, and
Global Environment , 11e
Marianne Moody Jennings
Vice President, General Manager,
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Brief Contents
Part 1
Part 4
1
Business: Its Legal, Ethical,
and Judicial Environment 1
553
Business Management and Governance 553
16 Management of Employee Conduct: Agency 554
1 Introduction to Law 2
2 Business Ethics and Social Responsibility 24
17 Governance and Structure: Forms of Doing
Business 592
3 The Judicial System 72
18 Governance and Regulation: Securities Law 634
4 Managing Disputes: Alternative Dispute
Resolution and Litigation Strategies 102
19 Management of Employee Welfare 680
Part 2
20 Management: Employment Discrimination 728
139
Business: Its Regulatory Environment 139
5 Business and the Constitution 140
6 Administrative Law 178
7 International Law 218
A
B
C
D
E
8 Business Crime 248
F
G
H
9 Business Torts 294
10 Environmental Regulation and
Sustainability 328
Part 3
Appendices A-1
I
363
Business Sales, Contracts, and
Competition 363
11 Contracts and Sales: Introduction and
Formation 366
The United States Constitution A-1
The Foreign Corrupt Practices Act (Excerpts) A-12
The Uniform Commercial Code (Excerpts)* A-15
Dodd-Frank (Wall Street Reform and Consumer
Financial Protection Act) Key Provisions A-20
The Securities Act of 1933 and the Securities Exchange
Act of 1934 (Excerpts) A-23
Sarbanes-Oxley Key Provisions (Excerpts) A-28
The Copyright Act (as Amended) (Excerpts) A-31
Title VII and the Civil Rights Act (Employment
Provisions) (Excerpts) A-34
The Americans with Disabilities Act (Excerpts) A-37
Glossary G-1
Table of Cases T-1
Table of Products, People, and Companies T-11
Index I-1
12 Contracts and Sales: Performance, Remedies, and
Collection 410
13 Product Advertising and Liability 448
14 Business Competition: Antitrust 486
15 Business and Intellectual Property Law 520
iii
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Contents
Preface xv
About the Author xxvi
Acknowledgments xxviii
Part
1
Business: Its Legal, Ethical, and Judicial Environment 1
1
Introduction to Law 2
1-1 Definition of Law 3
1-2 Classifications of Law 3
1-2a
1-2b
1-2c
1-2d
1-2e
Public versus Private Law 3
Criminal versus Civil Law 4
Substantive versus Procedural Law 4
Common versus Statutory Law 4
Law versus Equity 5
1-3 Purposes of Law 6
1-3a
1-3b
1-3c
1-3d
1-3e
Keeping Order 6
Influencing Conduct 6
Honoring Expectations 6
Promoting Equality 6
Law as the Great Compromiser 7
1-4 Characteristics of Law 7
1-4a Flexibility 7
1-4b Consistency 7
1-4c Pervasiveness 7
1-5 The Theory of Law: Jurisprudence 12
1-5a The Theory of Law: Positive Law 12
1-5b The Theory of Law: Natural Law 12
1-5c The Theory of Law: The Protection of
Individuals and Relationships 12
1-5d The Theory of Law: The Social Contract 12
1-6 Sources of Law 13
iv
1-6a Constitutional Law 13
1-6b Statutory Law at the Federal Level 14
1-6c Statutory Law at the State Level 15
1-6d Local Laws of Cities, Counties, and
Townships 16
1-6e Private Laws 16
1-6f Court Decisions 16
1-7 Introduction to International Law 17
1-7a Custom 17
1-7b Treaties 18
1-7c Private Law in International
Transactions 18
1-7d International Organizations 18
1-7e The Doctrines of International Law 18
1-7f Trade Law and Policies 18
1-7g Uniform International Laws 19
1-7h The European Union 19
Summary 20
Questions and Problems 21
2
Business Ethics and Social
Responsibility 24
2-1 What Is Ethics? 26
2-1a “It’s Just Not Right!” 26
2-1b Normative Standards: How We Behave to
Keep Order 26
2-1c Line-Cutting and Ethics 27
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v
Contents
2-2 What Is Business Ethics? 28
2-2a
2-2b
2-2c
2-2d
Ethical Standards: Positive Law and Ethics 29
Ethical Standards: Natural Law and Ethics 31
Ethical Standards: Moral Relativism and Ethics 31
Ethical Standards: Religion and Ethics 31
2-3 What Are the Categories of Ethical
Dilemmas? 31
2-3a
2-3b
2-3c
2-3d
Taking Things That Don’t Belong to You 31
Saying Things You Know Are Not True 32
Giving or Allowing False Impressions 32
Buying Influence or Engaging in Conflict of
Interest 33
2-3e Hiding or Divulging Information 34
2-3f Taking Unfair Advantage 34
2-3g Committing Acts of Personal Decadence 35
2-3h Perpetrating Interpersonal Abuse 35
2-3i Permitting Organizational Abuse 35
2-3j Violating Rules 36
2-3k Condoning Unethical Actions 36
2-3l Balancing Ethical Dilemmas 36
2-4 Resolution of Business Ethical Dilemmas 37
2-4a
2-4b
2-4c
2-4d
2-4e
Blanchard and Peale 37
The Front-Page-of-the-Newspaper Test 38
Laura Nash and Perspective 38
The Wall Street Journal Model 39
Other Models 39
2-5 Why We Fail to Reach Good Decisions
in Ethical Dilemmas 39
2-5a
2-5b
2-5c
2-5d
“Everybody Else Does It” 39
“If We Don’t Do It, Someone Else Will” 39
“That’s the Way It Has Always Been Done” 40
“We’ll Wait until the Lawyers Tell Us It’s
Wrong” 40
2-5e “It Doesn’t Really Hurt Anyone” 41
2-5f “The System Is Unfair” 41
2-5g “I Was Just Following Orders” 41
2-5h “You Think This Is Bad, You Should
Have Seen . . .” 42
2-5i “It’s a Gray Area” 42
2-6 Social Responsibility: Another Layer of
Business Ethics 43
2-6a Ethical Postures for Social Responsibility 43
2-7 Why Business Ethics? 45
2-7a Personal Accountability and Comfort: Business
Ethics for Personal Reasons 45
2-8 Importance of Ethics in Business Success and
the Costs of Unethical Conduct 51
2-8a Ethics as a Strategy 53
2-8b The Value of a Good Reputation 55
2-8c Leadership’s Role in Ethical Choices 56
2-9 Creation of an Ethical Culture in Business 58
2-9a The Tone at the Top and an Ethical Culture 58
2-9b Dodd-Frank, Sarbanes-Oxley, Sentencing, and
an Ethical Culture 58
2-9c Reporting Lines: An Anonymous Ethics Line
for an Ethical Culture 59
2-9d Developing an Ethics Stance 59
2-9e Being Careful about Pressure and Signals 61
2-10 Ethical Issues in International Business 61
Summary 68
Questions and Problems 69
3
The Judicial System 72
3-1 Types of Courts 73
3-1a Trial Courts 73
3-1b Appellate Courts 73
3-2 How Courts Make Decisions 73
3-2a The Process of Judicial Review 73
3-2b The Doctrine of Stare Decisis 75
3-3 Parties in the Judicial System (Civil Cases) 77
3-3a
3-3b
3-3c
3-3d
3-3e
Plaintiffs 77
Defendants 77
Lawyers 77
Judges 79
Name Changes on Appeal 79
3-4 The Concept of Jurisdiction 79
3-5 Subject Matter Jurisdiction of Courts:
The Authority over Content 80
3-5a
3-5b
3-5c
3-5d
The Federal Court System 80
The State Court Systems 86
Judicial Opinions 88
Venue 88
3-6 In Personam Jurisdiction of Courts:
The Authority over Persons 90
3-6a
3-6b
3-6c
3-6d
Ownership of Property within the State 90
Volunteer Jurisdiction 90
Presence in the State 90
Internet Companies and Long-Arm
Jurisdiction 94
3-7 The International Courts 95
3-7a Jurisdictional Issues in International Law 96
3-7b Conflicts of Law in International Disputes 96
Summary 98
Questions and Problems 99
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
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vi
Contents
4
4-3 Resolution of International Disputes 110
Managing Disputes: Alternative
Dispute Resolution
and Litigation Strategies 102
4-1 What Is Alternative Dispute
Resolution? 103
4-2 Types of Alternative Dispute
Resolution 103
4-2a
4-2b
4-2c
4-2d
4-2e
4-2f
4-2g
4-2h
4-2i
Arbitration 103
Arbitration Procedures 106
Mediation 108
Medarb 108
The Minitrial 108
Rent-a-Judge 109
Summary Jury Trials 109
Early Neutral Evaluation 109
Peer Review 110
Part
4-4 Litigation versus ADR: The Issues
and Costs 111
4-4a
4-4b
4-4c
4-4d
4-4e
Speed and Cost 111
Protection of Privacy 111
Creative Remedies 111
Judge and Jury Unknowns 112
Absence of Technicalities 113
4-5 When You Are in Litigation 113
4-5a
4-5b
4-5c
4-5d
4-5e
4-5f
4-5g
How Does a Lawsuit Start? 113
The Complaint (Petition) 115
The Summons 117
The Answer 119
Seeking Timely Resolution of the Case 119
How a Lawsuit Progresses: Discovery 121
Resolution of a Lawsuit: The Trial 125
4-6 Issues in International Litigation 131
Summary 134
Questions and Problems 134
2
Business: Its Regulatory Environment 139
5
5-4 State versus Federal Regulation of Business—
Constitutional Conflicts: Preemption and the
Supremacy Clause 152
Business and the Constitution 140
5-1 The U.S. Constitution 141
5-1a An Overview of the U.S. Constitution 141
5-1b Articles I, II, and III—the Framework for
Separation of Powers 141
5-1c Other Articles 142
5-1d The Bill of Rights 143
5-2 The Role of Judicial Review and the
Constitution 143
5-3 Constitutional Limitations of Economic
Regulations 143
5-3a The Commerce Clause 143
5-3b Constitutional Standards for Taxation of
Business 149
5-5 Application of the Bill of Rights to Business 156
5-5a Commercial Speech and the First Amendment 156
5-5b First Amendment Protection for Advertising 156
5-5c First Amendment Rights and Profits from
Sensationalism 158
5-5d First Amendment Rights and Corporate Political
Speech 159
5-5e Eminent Domain: The Takings Clause 164
5-5f Procedural Due Process 169
5-5g Substantive Due Process 170
5-5h Equal Protection Rights for Business 171
5-6 The Role of Constitutions in International Law 171
Summary 173
Questions and Problems 173
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
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vii
Contents
6
7-2 Trust, Corruption, Trade, and Economics 227
7-2a Foreign Corrupt Practices Act (FCPA) 227
Administrative Law 178
6-1 What Are Administrative Agencies? 179
6-2 Roles of Administrative Agencies 180
6-2a
6-2b
6-2c
6-2d
6-2e
Specialization 180
Protection for Small Business 182
Faster Relief 182
Due Process 182
Social Goals 183
6-3 Laws Governing Administrative Agencies 183
6-3a
6-3b
6-3c
6-3d
6-3e
Administrative Procedures Act 183
Freedom of Information Act 183
Federal Privacy Act 184
Government in the Sunshine Act 185
Federal Register Act 186
6-4 The Functions of Administrative Agencies
and Business Interaction 186
6-4a Providing Input When Agencies Are
Promulgating Regulations 186
6-4b Formal Rulemaking 186
6-4c Proactive Business Strategies in Regulation 204
6-4d Informal Rulemaking 204
6-5 Business Rights in Agency Enforcement
Action 205
6-5a
6-5b
6-5c
6-5d
6-5e
6-5f
Licensing and Inspections 205
Prosecution of Businesses 207
Beginning Enforcement Steps 207
Consent Decrees 207
Hearings 207
Administrative Law of Appeals 209
6-6 The Role of Administrative Agencies in the
International Market 210
Summary 212
Questions and Problems 213
7
7-4 Principles of International Law 232
7-4a Act of State Doctrine 232
7-4b Sovereign Immunity 232
7-4c Protections for U.S. Property and Investment
Abroad 235
7-4d Repatriation 237
7-4e Forum Non Conveniens, or “You Have the Wrong
Court” 237
7-4f Conflicts of Law 237
7-5 Protections in International Competition 238
7-5a The International Marketplace and Monetary
Issues: The Disclosure Role of Banks 238
7-5b Antitrust Laws in the International
Marketplace 240
7-5c Protections for Intellectual Property 242
7-5d Criminal Law Protections 242
Summary 244
Questions and Problems 244
8
Business Crime 248
8-1 What Is Business Crime? The Crimes
within a Corporation 249
8-1a Financial Fraud: Employees Manipulating
Earnings Numbers 249
8-1b Marketing Missteps: Sales Zeal and
Crimes 250
8-1c Friendly Fire: Employee Theft 250
8-2 What Is Business Crime? The Crimes against
a Corporation 252
8-3 Who Is Liable for Business Crime? 253
8-4 Federal Laws Targeting Officers and Directors
for Criminal Accountability 254
International Law 218
7-1 Sources of International Law 219
7-1a
7-1b
7-1c
7-1d
7-3 Resolution of International Disputes 232
International Law Systems 219
Nonstatutory Sources of International Law 220
Statutory Sources of International Law 221
Treaties, Trade Organizations, and Controls
on International Trade 222
8-4a
8-4b
8-4c
8-4d
8-4e
White-Collar Crime’s Origins and History 254
Sarbanes–Oxley (SOX) 255
Honest Services Fraud 256
Financial Services Crimes and Reforms 256
Other Business Crimes and White-Collar
Liability 257
8-5 The Penalties for Business Crime 257
8-5a New Penalties and New Processes 257
8-5b Corporate Integrity Agreements (CIAs) 257
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Contents
8-5c
Criminal Indictments of Corporations on
Common Law Crimes 259
8-5d Shame Punishment 259
8-5e New and Higher Penalties for Corporate
Crime 262
8-5f Corporate Sentencing Guidelines: An Ounce of
Prevention Means a Reduced Sentence 262
8-5g Corporate Board Criminal Responsibility 263
8-6 Elements of Business Crime 265
8-6a Mens Rea, Scienter, or Criminal Intent 265
8-6b Mens Rea, Conscious Avoidance, and Corporate
Officers 267
8-6c Actus Reus 268
8-7 Examples of Business Crimes 268
8-7a
8-7b
8-7c
8-7d
8-7e
8-7f
8-7g
Theft and Embezzlement 268
Obstruction of Justice 268
Computer Crime 269
Internet Crime 271
Criminal Fraud 274
Commercial Bribery 274
Racketeer Influenced and Corrupt
Organizations (RICO) Act 275
8-7h Business Crime and the USA Patriot Act 277
8-7i Additional Federal Crimes 279
8-7j State Crimes 279
8-8 Procedural Rights for Business Criminals 279
8-8a Fourth Amendment Rights for Businesses 279
8-8b Exceptions to the Warrant Requirement 281
8-8c Fifth Amendment Rights for Businesses 283
8-9 Business Crime and International Business 287
Summary 289
Questions and Problems 290
9
Business Torts 294
9-1 What Is a Tort? Roots of Law
and Commerce 295
9-1a Tort Versus Crime 295
9-1b Types of Torts 295
9-2 The Intentional Torts 296
9-2a
9-2b
9-2c
9-2d
9-2e
Defamation 296
Contract Interference 304
False Imprisonment 304
Intentional Infliction of Emotional Distress 305
Invasion of Privacy 305
9-3 Negligence 308
9-3a
9-3b
9-3c
9-3d
9-3e
9-3f
Element One: The Duty 308
Element Two: Breach of Duty 311
Element Three: Causation 314
Element Four: Proximate Cause 315
Element Five: Damages 319
Defenses to Negligence 319
9-4 New Verdicts on Tort Reform 321
9-4a Strict Liability 322
Summary 323
Questions and Problems 324
10
Environmental Regulation and
Sustainability 328
10-1 Common Law Remedies and
the Environment 329
10-1a Nuisances 329
10-1b NIMBYs and Nuisances 329
10-2 Statutory Environmental Laws: Air Pollution
Regulation 332
10-2a Early Legislation 333
10-2b 1970 Amendments to the Clean Air Act:
New Standards 333
10-2c 1977 and 1990 Amendments 333
10-2d New Forms of Control: EPA Expansion
Through Administrative Procedures 333
10-2e New Forms of Control: EPA and Climate
Change, Nee Global Warming 334
10-2f New Forms of Control: EPA and Small
Businesses 335
10-2g New Forms of Control: EPA and Economic
Forces 336
10-3 Statutory Environmental Law: Water Pollution
Regulation 336
10-3a Early Legislation 336
10-3b Present Legislation 336
10-3c Other Water Legislation 337
10-4 Statutory Environmental Law: Solid
Waste Disposal Regulation 338
10-4a
10-4b
10-4c
10-4d
Early Regulation 338
CERCLA and the Superfund 339
New Developments Under CERCLA 343
CERCLA and Brownfields 344
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Contents
10-5 Statutory Law: Environmental Quality
Regulation 345
10-6 Statutory Law: Other Federal Environmental
Regulations 347
10-6a
10-6b
10-6c
10-6d
10-6e
10-6f
10-6g
10-6h
Surface Mining 347
The Fracking Issue 347
Noise Control 347
Pesticide Control 347
OSHA 347
Asbestos 347
Endangered Species 348
State Environmental Laws 351
Part
10-7 Enforcement of Environmental Laws 352
10-7a Parties Responsible for Enforcement 352
10-7b Criminal Sanctions and Penalties for
Violations 352
10-7c Group Suits: The Effect of Environmentalists 356
10-8 International Environmental Issues 356
10-8a The EU and Environmentalism 356
10-8b ISO 14000 356
10-8c LEED Certification 357
Summary 359
Questions and Problems 359
3
Business Sales, Contracts, and Competition 363
11
Contracts and Sales: Introduction
and Formation 366
11-1 What Is a Contract? 367
11-2 Sources of Contract Law 367
11-2a Common Law 368
11-2b The Uniform Commercial Code 368
11-3 Types of Contracts 372
11-3a Bilateral Versus Unilateral Contracts 372
11-3b Express Versus Implied Contracts
(Quasi Contracts) 372
11-3c Void and Voidable Contracts 374
11-3d Unenforceable Contracts 374
11-3e Executed Versus Executory Contracts 374
11-4 Consumer Credit Contracts 375
11-4a
11-4b
11-4c
11-4d
Discrimination in Credit Contracts 375
Subprime or Predatory Lending 376
Credit Disclosures 377
Controlling Credit Card Contracts 377
11-5 Formation of Contracts 378
11-5a Offer 378
11-5b Acceptance: The Offeree’s Response 390
11-5c E-Commerce and Contract Formation 391
11-5d Consideration 394
11-5e Contract Form: When a Record Is Required 395
11-5f Writing and E-Commerce: The Uniform
Electronic Transactions Act 398
11-6 Issues in Formation of International
Contracts 402
11-6a CISG—UCC for the World 402
11-6b The Payment Issues in International
Contracts 403
11-6c Risk in International Contract Performance:
Force Majeure 405
Summary 406
Questions and Problems 407
12
Contracts and Sales: Performance,
Remedies, and Collection 410
12-1 Defenses in Contract Formation 411
12-1a
12-1b
12-1c
12-1d
Capacity 411
Misrepresentation 414
Fraud or Fraudulent Misrepresentation 415
Consumer Credit Contracts and Rescission
Rights 417
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Contents
12-1e Subprime Lending Representations and
Disclosures 419
12-1f Duress 419
12-1g Undue Influence 419
12-1h Illegality and Public Policy 420
12-2 Contract Performance 426
12-2a When Performance Is Due 426
12-2b Standards for Performance 428
12-2c E-Commerce: Payment Performance Has
Changed 429
12-2d When Performance Is Excused 429
12-2e Finding a Way to End Obligations Under the
Contract 433
12-3 Nonperformance and Nonpayment—The
Collection Remedies 433
12-3a Making Sure the Billing Is Accurate 433
12-3b Collection—Fair Standards for Obtaining
Payment 434
12-3c Suits for Enforcement of Debts 437
12-3d The End of the Line on Enforcement of Debts:
Bankruptcy 437
12-3e Is There a Cost to Breaching a Contract:
Creditor Reports on Nonpaying
Debtors 438
12-4 Contract Remedies for Nonperformance 441
12-5 Third-Party Rights in Contracts 442
12-6 International Issues in Contract
Performance 443
12-6a Assuring Payment 443
12-6b Assuring Performance: International
Peculiarities 443
Summary 444
Questions and Problems 445
13
13-2c Content Control and Accuracy 453
13-2d FTC Control of Performance Claims 454
13-2e FTC Control of Celebrity
Endorsements 456
13-2f FTC Control of Bait and Switch 458
13-2g FTC Control of Product Comparisons 458
13-2h FTC Remedies 460
13-2i Ad Regulation by the FDA and Other Federal
Agencies 460
13-2j Professional Ads 460
13-3 Contract Product Liability Theories:
Implied Warranties 460
13-3a The Implied Warranty of
Merchantability 461
13-3b The Implied Warranty of Fitness for a
Particular Purpose 464
13-3c Eliminating Warranty Liability by
Disclaimers 464
13-3d Privity Standards for UCC Recovery 466
13-4 Strict Tort Liability: Product Liability Under
Section 402A 466
13-4a The Requirement of Unreasonably Dangerous
Defective Condition 467
13-4b Reaching the Buyer in the Same
Condition 471
13-4c The Requirement of a Seller Engaged in a
Business 473
13-4d Negligence: A Second Tort for Product
Liability 473
13-4e Privity Issues in Tort Theories of Product
Liability 473
13-5 Defenses to Product Liability Torts 474
13-5a Misuse or Abnormal Use of a
Product 474
13-5b Contributory Negligence 475
13-5c Assumption of Risk 475
13-6 Product Liability Reform 478
Product Advertising and
Liability 448
13-1 Development of Product Liability 449
13-2 Advertising as a Contract Basis
for Product Liability 449
13-2a Express Warranties 449
13-2b Federal Regulation of Warranties and
Advertising 453
13-7 Federal Standards for Product
Liability 478
13-7a Consumer Product Safety
Commission 478
13-8 International Issues in Product
Liability 479
Summary 481
Questions and Problems 481
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Contents
14
15-2 Patents 521
Business Competition:
Antitrust 486
14-1 What Interferes with Competition? Covenants
Not to Compete 487
14-2 What Interferes with Competition?
An Overview of the Federal Statutory Scheme
on Restraint of Trade 491
14-2a What Types of Activities Do the Federal Laws
Regulate? 492
14-3 Horizontal Restraints of Trade 493
14-3a
14-3b
14-3c
14-3d
14-3e
14-3f
Monopolization 493
Price-Fixing 496
Divvying Up the Markets 501
Group Boycotts and Refusals to Deal 502
Free Speech and Anticompetitive Behavior 502
Subtle Anticompetitive Behavior: Interlocking
Directorates 503
14-3g Merging Competitors and the Effect on
Competition 503
14-4 Vertical Trade Restraints 503
14-4a
14-4b
14-4c
14-4d
14-4e
14-4f
14-4g
Resale Price Maintenance 504
Monopsony 508
Sole Outlets and Exclusive Distributorships 508
Customer and Territorial Restrictions 509
Tying Arrangements 509
Price Discrimination 511
Vertical Mergers 513
14-5 What Are the Penalties and Remedies for
Anticompetitive Behavior? 513
14-5a Criminal Penalties 513
14-5b Equitable Remedies 514
14-5c Private Actions for Damages 514
14-6 Antitrust Issues in International Competition 514
Summary 516
Questions and Problems 516
15
Business and Intellectual
Property Law 520
15-2a
15-2b
15-2c
15-2d
15-2e
The Types and Length of Patents 522
What You Can Patent: Patentability 522
The Patent Process 523
What a Patent Does 523
The Remedies for Patent Infringement 524
15-3 Copyrights 525
15-3a What Is a Copyright and What Does It
Protect? 525
15-3b The Rights of Copyright Holders Against
Third-Party Infringers 526
15-3c How Long Does a Copyright Run? 528
15-3d Rights of a Copyright Holder 529
15-4 Trademarks 533
15-4a What Are Trademarks? 533
15-4b What Are the Legal Protections for
Trademarks? 534
15-4c Enforcing Trademarks and the Risk of
Going Generic 534
15-4d Trade Names 535
15-4e What Are the Rights When a Trademark or
Trade Name Is Misused? 535
15-4f Trade Dress 538
15-4g Cyber Infringement 538
15-5 Trade Secrets 540
15-5a What are Trade Secrets? 540
15-5b How are Trade Secrets Protected? 541
15-5c Criminal Penalties for Theft of Trade
Secrets 541
15-6 International Intellectual Property
Issues 542
15-6a Patent Protection 542
15-6b Trademark Protection 542
15-6c Copyrights in International
Business 543
15-6d Differing International Standards 543
15-7 Enforcing Business Property Rights 544
15-7a Product Disparagement 544
15-7b Palming Off 545
15-7c Misappropriation 545
Summary 548
Questions and Problems 548
15-1 What Can a Business Own? Intangible
Property Rights 521
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Contents
Part
4
Business Management and Governance 553
16
Management of Employee
Conduct: Agency 554
16-1 Names and Roles: Agency Terminology 555
16-1a
16-1b
16-1c
16-1d
161e
16-1f
Agency 555
Principals 555
Agents 556
Employers and Employees: Master–Servant
Relationships 556
Independent Contractors 556
Agency Law 556
16-2 Creation of the Agency Relationship 557
16-2a
16-2b
16-2c
16-2d
16-2e
16-2f
Express Authority 557
The Record 557
Capacity 557
Implied Authority 558
Apparent Authority 559
Ratification 561
17
Governance and Structure: Forms
of Doing Business 592
17-1 Sole Proprietorships 593
17-1a
17-1b
17-1c
17-1d
17-1e
17-1f
17-2 Partnerships 594
17-2a
17-2b
17-2c
17-2d
17-2e
17-2f
17-2g
16-3 The Principal–Agent Relationship 562
16-3a The Agent’s Rights and Responsibilities 562
16-3b The Principal’s Rights and
Responsibilities 569
16-4 Liability of Principals for Agents’ Conduct: The
Relationship with Third Parties 570
16-4a Contract Liability 570
16-4b Liability of Principals for Agents’ Torts 572
16-5 Termination of the Agency Relationship 577
16-6 Termination of Agents under Employment at
Will 577
16-6a The Implied Contract 578
16-6b The Public Policy Exception 580
16-6c Handling Employee Termination
Disputes 584
16-7 Agency Relationships in International Law 585
Summary 588
Questions and Problems 588
Formation 593
Sources of Funding 593
Liability 593
Tax Consequences 594
Management and Control 594
Transferability of Interest 594
Formation 594
Sources of Funding 599
Partner Liability 600
Tax Consequences in Partnerships 601
Management and Control 601
Transferability of Interests 603
Dissolution and Termination of the
Partnership 603
17-3 Limited Partnerships 604
17-3a
17-3b
17-3c
17-3d
17-3e
17-3f
17-3g
Formation 604
Sources of Funding 605
Liability 605
Tax Consequences 606
Management and Control 606
Transferability of Interests 606
Dissolution and Termination of a Limited
Partnership 607
17-4 Corporations 607
17-4a
17-4b
17-4c
17-4d
17-4e
17-4f
17-4g
Types of Corporations 607
The Law of Corporations 608
Formation 608
Capital and Sources of Corporate Funds 610
Liability Issues 611
Corporate Tax Consequences 613
Corporate Management and Control:
Directors and Officers 614
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17-4h Corporate Management and Control:
Shareholders 621
17-4i The Dissolution of a Corporation 624
17-5 Limited Liability Companies 625
17-5a
17-5b
17-5c
17-5d
17-5e
17-5f
17-5g
Formation 625
Sources of Funding 625
Liability 625
Tax Consequences 627
Management and Control 627
Transferability of Interest 627
Dissolution and Termination 628
17-6 Limited Liability Partnerships 628
17-6a
17-6b
17-6c
17-6d
17-6e
17-6f
17-6g
Formation 629
Sources of Funding 629
Liability 629
Tax Consequences 629
Management and Control 629
Transferability 629
Dissolution and Termination 629
17-7 International Issues in Business Structure 629
Summary 630
Questions and Problems 631
18
Governance and Regulation:
Securities Law 634
18-1 History of Securities Law 635
18-2 Primary Offering Regulation: The 1933
Securities Act 635
18-2a What Is a Security? 635
18-2b Regulating Primary Offerings:
Registration 636
18-2c Regulating Primary Offerings:
Exemptions 637
18-2d What Must Be Filed: Documents and
Information for Registration 642
18-2e Violations of the 1933 Act 643
18-3 The Securities Exchange Act of 1934 654
18-3a Securities Registration 654
18-3b Emerging Growth Companies (EGCs) and
1934 Act Exemption 654
18-3c Periodic Filing Under the 1934 Act:
Those Alphabet Reports 654
18-3d The 1934 Act Antifraud Provision: 10(b) 655
18-3e Insider Trading and Short-Swing Profits 665
18-3f Regulating Voting Information 666
xiii
18-3g Shareholder Rights in Takeovers, Mergers,
and Consolidations 668
18-4 State Securities Laws 671
18-5 International Issues in Securities Laws 673
Summary 675
Questions and Problems 676
19
Management of Employee
Welfare 680
19-1 Wage and Hours Protection 681
19-1a The Fair Labor Standards Act 681
19-1b The Equal Pay Act of 1963 688
19-2 Workplace Safety 688
19-2a The Occupational Safety and Health Act 688
19-2b OSHA Responsibilities 688
19-2c Employee Impairment and Testing Issues 690
19-3 Employee Pensions, Retirement, and
Social Security 690
19-3a Social Security 690
19-3b Private Retirement Plans 692
19-3c Unemployment Compensation 693
19-4 Workers’ Compensation Laws 695
19-4a
19-4b
19-4c
19-4d
Employee Injuries 695
Causation and Worker’s Compensation 696
Fault Is Immaterial 696
Employees versus Independent
Contractors 696
19-4e Benefits 696
19-4f Forfeiture of the Right of Suit 697
19-4g Third-Party Suits 697
19-4h Administrative Agency 697
19-4i Insurance 697
19-4j Problems in Workers’ Compensation
Systems 699
19-5 Statutory Protections of Employees Through
Labor Unions 700
19-5a The Norris–LaGuardia Act of 1932 700
19-5b The Wagner Act 700
19-5c The Taft–Hartley Act: The Labor-Management
Relations Act of 1947 700
19-5d The Landrum–Griffin Act: The LaborManagement Reporting and Disclosure Act of
1959 700
19-5e Union Organizing Efforts and Social Media 701
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Contents
19-5f
19-5g
19-5h
19-5I
19-5j
19-5k
19-5l
19-5m
19-5n
19-5o
19-5p
Employers Are Accountable for Employee
Electronic Content 701
Employer Monitoring: What is Legal? 701
Employers’ Right of Access to
Employee E-Mails 704
E-Mail and NLRA Issues 705
The Unionization Process 706
Union Contract Negotiations 710
Protected Concerted Activities 711
Unfair Employee Practices 711
Employer Rights 712
Right-to-Work Laws 712
Economic Weapons of Employers 713
20-6 The Defenses to a Title VII Charge 751
20-6a
20-6b
20-6c
20-6d
20-7 Enforcement of Title VII 755
20-7a Steps in an EEOC Case 755
20-7b Remedies Available Under Title VII 756
20-8 Other Antidiscrimination Laws 756
20-8a Age Discrimination in Employment Act
of 1967 756
20-8b Equal Pay Act of 1963 758
20-8c Communicable Diseases in the
Workplace 758
20-8d Rehabilitation Act of 1973 759
20-8e Americans with Disabilities Act 759
20-8f The Family and Medical Leave Act 760
19-6 International Issues in Labor 715
19-6a Immigration Laws 715
19-6b Working Conditions and International Labor
Law 718
19-6c Sample International Standards 718
19-6d The Risks of International Suppliers 719
19-6e New Trends in Managing International Wage
and Safety Standards 720
Summary 722
Questions and Problems 724
20
Management: Employment
Discrimination 728
20-1 History of Employment Discrimination Law 729
20-2 Employment Discrimination: Title VII of
the Civil Rights Act 731
20-2a Application of Title VII 731
20-2b Employment Procedures Covered 731
20-9 The Global Workforce 761
Summary 764
Questions and Problems 764
Appendices A-1
A
The United States Constitution A-1
B
The Foreign Corrupt Practices Act
(Excerpts) A-12
C
The Uniform Commercial Code
(Excerpts)* A-15
D
Dodd-Frank (Wall Street Reform and
Consumer Financial Protection Act) Key
Provisions A-20
E
The Securities Act of 1933 and the
Securities Exchange Act of 1934
(Excerpts) A-23
F
Sarbanes-Oxley Key Provisions
(Excerpts) A-28
G
The Copyright Act (as Amended)
(Excerpts) A-31
H
Title VII and the Civil Rights Act (Employment
Provisions) (Excerpts) A-34
I
The Americans with Disabilities Act
(Excerpts) A-37
20-3 Theories of Discrimination Under Title VII 731
20-3a Disparate Treatment 731
20-3b Disparate Impact 734
20-3c Pattern or Practice of Discrimination 737
20-4 Specific Applications of Title VII 738
20-4a Sex Discrimination 738
20-4b Religious Discrimination 746
20-4c Racial Discrimination 749
20-5 Antidiscrimination Laws and Affirmative
Action 749
20-5a What Is Affirmative Action? 750
20-5b Who Is Required to Have Affirmative Action
Programs? 750
20-5c Affirmative Action Backlash: The Theory of
Reverse Discrimination 750
Bona Fide Occupational Qualification 751
Seniority or Merit Systems 752
Aptitude and Other Tests 752
Misconduct 752
Glossary G-1
Table of Cases T-1
Table of Products, People, and Companies T-11
Index I-1
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Preface
A Different World, but the Same Issues
The seventh edition of this book was published amidst the fallout from the legal,
ethical, and, too often, financial collapses of Enron, WorldCom, Adelphia, HealthSouth, Parmalat, Arthur Andersen, Kmart, and others. With Sarbanes–Oxley on
the books and new regulatory demands on corporations, we thought perhaps we
had turned the corner. But the eighth edition was published as Wall Street and the
economy were reeling from the fallout of a subprime mortgage market operating
under regulatory radar without a great deal of disclosure on portfolio risk. When
the ninth edition was published, the SEC had just settled a civil suit it brought
against Goldman Sachs for allegedly selling securities to clients it was betting
against as a short-seller in a scheme that saw its profits reach double-digit billions.
Goldman paid a fine of $550 million. In late 2009, Goldman’s CEO, Lloyd Blankfein, uttered the same words that Jeffrey Skilling did in 2000: “We are doing God’s
work.” At press time of the tenth edition, there were questions about the fairness
of the scrutiny of taxpayers by an administrative agency, the Internal Revenue
Service, and the Justice Department’s tapping of phones of news corporations.
Book publishers signed antitrust consent decrees for agreeing to fix prices in order
to compete with Amazon. A factory in Bangladesh, that produced clothing for
U.S. retailers, collapsed, killing over 600 employees, a collapse that was caused by
noncompliance with safety and code standards. Now, as this 11th edition is published the EPA has tightened regulations so much that two major coal companies
have gone out of business. The Veterans Administration is trying to recover from
a program that was designed to reduce queue times for patients but resulted in
patients dying. A pharmaceutical company raised its prices on one prescription
drug by 5,000%, and Apple has a monitor because it was found guilty of being the
master mind behind publishers fixing prices on their electronic books. The raisin
farmers had a major victory in the U.S. Supreme Court that will change forever
government price and supplies controls on raisin. And insider trading remains in
the news, for both convictions and the reversals of those convictions as courts sort
through the question, “When exactly does insider trading occur?”
The patterns of business behavior that push the envelope of law and ethics
continue. Two of the leaders in the New York legislature were convicted on corruption charges, companies from Embrauer to GlaxoSmithKline, and even FIFA
faced charges and investigations under the Foreign Corrupt Practices Act. Charges
against FedEx for alleged shipping of controlled substances were dismissed
because there was no proof that anyone knew what was in the packages. Blue Bell
ice cream was shut down for four months because of the presence of listeria in its
plants. The FCC was deluged with comments on a proposed rule that would have
allowed cell phone use on airplanes. In response to the outcry from flight attendants, passengers, and pilots, the FCC did not promulgate the rule. The issues of
law and ethics are still at the forefront of business, sports, and government. It has
become a tall order just to keep up with all the events!
xv
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Preface
These companies and organizations and their employees and executives
certainly could have benefited from understanding and keeping at the forefront of their decision processes the basics of law and ethics! The legal and ethical environments of business are center stage. Several editions ago, Congress
made massive regulatory reform a reality with the passage of the Sarbanes–
Oxley legislation on corporate governance, accounting regulation, and criminal penalties. But the SEC missed some large market schemes, so Congress
passed Dodd-Frank with new directives to the SEC on financial reports, disclosures, and primary offerings. The continuing reliance on new credit mechanisms resulted in a central agency, the Consumer Protection Bureau, handling
all forms of consumer credit. Business is even more international, and changes,
such as Brexit (Great Britain’s decision to withdraw from the EU), mean more
changes in trade, regulation, and tariffs. FCPA cases have expanded and there is
increasing cooperation among countries to address money-laundering schemes
and the problems of world leaders hiding funds in accounts around the world.
The world and business continue to change and grow, but law and ethics
have retained their role and importance. In fact, now more than ever, we need
to understand the legal and ethical issues that affect our businesses and our
lives. The knowledge base and even the questions in law and ethics remain the
same, but the underlying facts have changed. For example, we still debate the
social responsibility role of business. Now we raise that issue in the context of
whether companies should use inversions, or reverse acquisitions, by foreign
companies to reduce their effective tax rates. We continue to delve into the pros
and cons of sending production to other countries. We still have the question
of when a contract is formed, but now we face that question with “point and
click” technology rather than faxes and letters. We continue to be concerned
about our privacy as consumers, but now we wonder who really has access
to our Facebook page. We still wonder about the extent of copyright law. The
file-sharing programs have never quite gone away and the film industry now
litigates the downloading of copyrighted films. The world is different, but law
and ethics form the constant framework into which we fit the issues of the day.
In the materials that follow, you have the chance to understand the marvelous
stability of this framework and the ease with which you can apply it to this
very different world. Be sure to look for descriptions of the new structure as
well as the continuing features in the book, such as the “Consider” tutorials,
the ethics issues, and the Business Strategy application exercises.
Building the Bridge:Applying Legal and
Ethical Reasoning to Business Analysis
I gave my students a midterm exam—a review of Netflix and its various business
issues, including the cost of rights, issues in film production, and problems with
obtaining subscriptions. These students are in the second year of their master’s
degree studies. They have been trained in economics, marketing, management,
and finance. But as they completed their analysis of this fast-growing darling of
the stock market, they had an epiphany. A company can get the finance issues
right, have the right brand appeal and great offerings, and even yield terrific
subscription sales. However, it can all fall apart over the legal issues. What if the
estimates on subscriptions released with earnings reports are overly optimistic?
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xvii
What if something goes wrong in shooting one of their original production films?
Does insurance cover them? Who pays the costs of a late finish on those promised
films? What about international copyrights? What happens when copyright holders do not want their films licensed internationally? They are very capable business students. However, they did not realize until this midterm exam how much
of business turns on anticipating the legal issues and getting them resolved correctly. And they also realized that all of our discussions of ethics and social responsibility had a role in doing business. TANSTAAFL—“there ain’t no such thing as
a free lunch” when it comes to international business. There are costs associated
with tapping into a seemingly boundless market of subscribers. And those costs
come from legal issues, which, if handled poorly, can affect a company’s value and
tarnish its brand name.
Why couldn’t these students see the interconnection and critical roles of law
and ethics in business until this case for their midterm? It was not for lack of exposure to the law. I taught my course “by the book,” so to speak. Students could recite
the components of a valid contract, rattle off the requirements for bankruptcy, and
recall from memory the antitrust statutes. Yet, I was coming to realize, this rote
knowledge was not enough. One of my best former students, who had gone on
to medical school, came to me perplexed about her office lease. She said that the
complex in which she wanted to open her practice had a “no advertising” policy.
In fact, she said that when she toured the premises with a leasing agent, the leasing
agent turned to her and said, “You’re not one of those doctors who advertises, are
you? Because if you are, we can’t lease to you. We have a policy against it.” One
of my best students, who knew the antitrust statutes well, could not apply them
to her everyday business. Worse, perhaps, she could not recognize when to apply
these statutes: She did not see the antitrust implications of the agent’s statements
nor the problems with the physicians in the complex taking such an approach to
screening tenants.
I have reached the conclusion that there have always been shortcomings in the
standard approach to teaching business students law and ethics. Students were
not ignorant of the law; rather, they simply lacked the necessary skills to recognize
legal and ethical issues and to apply their knowledge of law and ethics to business
decision making. As instructors, we were not integrating legal and ethical reasoning with business analysis. My conclusion led me to develop my own materials
for classroom use and eventually led to the publication of the first edition of this
book. Now in its eleventh edition, Business: Its Legal, Ethical, and Global Environment
brings to the classroom the most integrated approach to learning law and ethics
available in the market today. Throughout every chapter and in every feature, students and instructors are continually reminded of how various legal and ethical
principles apply in business contexts. For all areas of law and ethics, this book
answers the question: How does this concept affect a business? This book builds
a bridge for the student between knowledge of law and ethics and application
of both in business. My 39 years of teaching law and ethics finally brought this
realization: Business ethics is not easily grasped nor practiced in business because
we depersonalize ethical issues. If we just allow the company or organization to
make the decision, our ethics are not in question; the companies’ are. The ethical
issues in the book require students to bring ethical issues into their lives, their circumstances, their world. This feature also forces them to answer this question in a
wide variety of contexts: “If it were you, and you were faced with the dilemma and
required to make a decision, what would you do?”
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Preface
Strengthening the Bridge: New Content,
Business Applications, and Learning Aids
For the eleventh edition, Business: Its Legal, Ethical, and Global Environment has
undergone further refinement. New content has been added, outdated content has
been removed, new business applications have been integrated into every chapter,
and the learning aids have been modified and refocused to help students understand and apply legal and ethical concepts.
New Content
The eleventh edition of Business: Its Legal, Ethical, and Global Environment continues
to meet its goal of helping students with their understanding of how law and ethics
apply to the business world. The organizational structure, based on feedback from
those who use the text, has been changed. The four parts remain, but there is a new
mix of topics and chapters in those four parts. Part 1 offers the student an overview
of the legal, ethical, and judicial environments of business. Part 2 covers the regulatory environments of business, including environmental regulation and sustainability. Part 3 covers all aspects of sales, contracts, and competition. Part 4 covers
business management and corporate governance, and this newly restructured section covers all issues related to employees, boards, agents, and how to keep all of
these groups coordinated while taking legal and ethical actions. Cyber law is now
integrated into every chapter so that it can be covered in contracts (formation),
employment (right of employee privacy in e-mails), and criminal law (everything
from industrial espionage to spamming).
Ethics
Business Ethics and Social Responsibility (Chapter 2) offers new examples and
insights on the application of ethics to business decision making. Chapter 2 is
chock full of the examples the last two years have netted—including GM’s engine
switch guilty plea and VW’s use of emissions defeating software. A new biography focuses on Captain Sullenberger who landed an airplane safely in a river and
offers his perspectives on how we know the right thing to do in moments of pressure. Ethics coverage is also integrated throughout all chapters.
Business Applications
Biography
Each chapter contains a biography. Biographies provide students with business
history through the study of individuals and companies involved with the area
of law and ethics covered in the chapter. For example, Chapter 1 has a biography
on Uber, the company that shook up the world of cab transportation. Chapter 4
has a new biography on a legal battle between a small business and its production
of parts for another company’s tabletop game including the tools used in that
litigation, and the pro bono work of lawyers in helping a small business in Games
Workshop v. Chapterhouse. Chapter 19 provides the story of the death of an orca
whale trainer at Sea World and the resulting investigations and backlash that Sea
World experienced. Chapter 15 gives a biography of Mattel and its Bratz dolls and
its long intellectual property battle over who had the idea for the dolls.
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For the Manager’s Desk
Each chapter also contains at least one “For the Manager’s Desk” feature. These
readings provide students the opportunity to see how business interrelates with
ethics and law. The readings feature topics tackled by publications such as Wall
Street Journal, Harvard Business Review, Corporate Finance Review, and the American
Business Law Journal. This feature offers the latest best practices as well as data
from academic studies and insights from that research. For example, the Chapter 8
“For the Manager’s Desk” discusses who ends up going to prison for business
crimes and how long their sentences last. Chapter 19’s feature deals with the recent
series of cases brought by interns for lack of pay and excessive hours as well as the
Department of Labor’s proposed responses. Chapter 13 discusses how to manage
celebrity tweets when they are your spokesperson, i.e., what can Kim Kardashian
tweet about an anti-nausea drug she was using during her pregnancy that will not
run afoul of FDA restrictions? Chapter 15’s Manager’s Desk discusses the problems with a trademark or trade name that is offensive.
Learning Aids
. . . and the Law
Each chapter contains a popular feature to further integrate law and ethics with the
other “silos” of business. The “. . . and the Law” feature puts law and ethics in the
context of economics, human resources, public policy, strategy, finance, and other
areas to illustrate the ways knowledge of the where and how for the fit of law and ethics can help make better managers and better decisions. For example, Chapter 20’s
“HR and the Law” discusses the dangers and conflicts office romances produce
and how managers can deal with those issues. Chapter 1 includes a discussion of
the FIFA corruption scandal how the issues were investigated and the problems
involved in an NGO. Chapter 8’s “Strategy and the Law” takes a look at what
corporations charged with a crime should do and the options for pleas available
with the Justice Department. Chapter 14’s “Social Responsibility and the Law”
discusses the possible anticompetitive effects of organizations such as Common
Code for the Coffee Community and the Bioplastic Feedstock Alliance. These
features apply the principles from business disciplines to understand more fully
the depth and breadth of management issues.
Case Headlines
Every court case has a case headline that summarizes what issues are involved
in the case. Chapter 7 has a new case on the actions of the Russian tax authorities
involving Yukos, an international oil company, and the resulting impact in the market and has this title, “When Putin Affects the Value of Oil Stock.” In Chapter 8, a
new case on criminal intent, whether the owner of a salvage yard was aware of his
contamination of water, has this intriguing case title, “Mordechay’s Sump Pump
and Mens Rea. In Chapter 6, the case Hornbeck Offshore Services, L.L.C. et al. v Salazar
deals with an issue of whether agency action was arbitrary and capricious in issuing a moratorium on offshore drilling, and the case title is “Drilling Down to the
Facts Supporting a Rule.” The vivid one-line description and colorful facts of the
case, a common thread throughout the case choices in the text, help students internalize the rules and lessons about not destroying evidence for a potential lawsuit.
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Preface
Chapter Openings and the “Consider. . . “ Feature
Chapters begin with an opening problem, titled “Consider. . .”, which presents a
legal dilemma relevant to the chapter’s discussion and similar to those business
managers need to handle. These are revisited and answered in the body of the
chapter. For example, Chapter 6 has a new chapter opening “Consider. . . “on a
proposed regulation on the use of cell phones on airplanes and then walks that
issue through the full regulatory process. In addition to this Consider problem
opening, each chapter also has quotes, data, humor, or insights to pique reader
interest about the chapter topics.
Chapter Summary
Each chapter concludes with a summary that reinforces the major concepts of the
chapter. Each summary is constructed around the key questions introduced at the
start of the chapter and key terms presented throughout the chapter.
Business Strategy Applications
Each chapter has a business strategy connection designed to help students
understand where law and ethics fit in developing effective business strategies. For example, in Chapter 13 there is a new business strategy on the
problems with highway guard rails and the litigation brought about by a
competitor who reported changes in the guard rail design that had not been
cleared with the federal government. Chapter 5 has a strategy feature that discusses who gives money in politics, how much, and why. Chapter 8’s strategy
feature discusses the components of an effective compliance program. The
Chapter 12 strategy deals with how restaurants are coping with no-shows in
their reservations and their contract rights when someone makes a reservation but never shows up.
Organization and Features:A Structure to
Guide Students to Reasoning and Analysis
The classic features have been updated and strengthened. The organization has
been retained to continue to meet student needs in the classroom.
Organization
The four parts in the book serve to organize the materials around four basic areas:
(1) understanding the legal environment, (2) understanding the regulatory environment, (3) dealing with sales, contracts and competition, and (4) management
and governance. Every chapter integrates international and ethical topics.
Part 1
In four chapters, Part 1 offers an introduction to law, an introduction to business
ethics and the judicial system, and a discussion of litigation and alternative dispute
resolution. Part 1 provides students with a foundation in law and ethics as well
as legal and ethical reasoning, necessary for the areas of law in the chapters that
follow. By being brief (four chapters), Part 1 offers instructors an early and logical
break for exams.
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xxi
Part 2
In six chapters, Part 2 covers the regulatory environment of business, including
the following topics: constitutional law, administrative and international law, business crimes and business torts, and environmental regulation. At the completion of
Parts 1 and 2, students have a grasp of the legal system, ethical boundaries, and the
laws that affect business operational decisions.
Part 3
The five chapters in Part 3 present students with the legal and ethical issues surrounding contracts, sales, and competition. Part 3 includes the following topics:
contract formation and performance (including coverage of consumer issues);
product liability; intellectual property; trade restraints; and business competition
and antitrust. From the negotiation of price to the collection of accounts, this segment of the book covers all aspects of selling business products and services. This
section is structured so that the contracts discussion precedes the complexities of
property and competition.
Part 4
The five chapters in Part 4 discuss business management and governance. Topics
include the management of employees, from agency law to employment regulation
to employee rights to issues in discrimination. Part 4 also includes the governance
issues of business structure and management, including financing and securities
law issues. This section covers the issues of running, managing, and financing a
business.
Woven throughout all the chapters are cyber law issues, as marked by margin
icons, and featuring discussions of everything from e-mail privacy to the problems
of hacking.
Features
Court Cases
Edited court language cases provide in-depth points of law, and many cases include
dissenting and concurring opinions. Case questions follow to help students understand the points of law in the case and think critically about the decision. The courts
have been active since the last edition, and many 2015–2016 case decisions are presented throughout the book. Students will be able to study Donald Trump’s claim for
defamation when a writer misstated his net worth. Can a company avoid Foreign Corrupt Practices Act violations when it has its agent appointed a government official in
another country? What happens when a young man saves his Pepsi points to claim a
Harrier Jet that he sees in a Pepsi spoof ad for “Pepsi stuff”? Does he get his jet?
Consider . . .
“Consider . . .” problems, along with “Ethical Issues” and “Business Planning Tips,”
have been a part of every chapter since the first edition. The “Consider . . .” features,
often based on real court cases, ask students to evaluate and analyze the legal and
ethical issues discussed in the preceding text. Because these issues are integrated
into the text, students must address and think critically about these issues as
they encounter them. Through interactive problems, students learn to judge case
facts and determine the consequences. Moreover, answers to all of these opening
“Consider. . .” features are referenced in the text and clearly marked. There are more
“Consider. . . “ features throughout each chapter. Chapter 3 has a new “Consider . . . “
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xxii
Preface
on whether Katy Perry could be sued in Missouri for her alleged infringement of a
Missouri songwriter’s song. Chapter 12 has a new consider on whether a mistake
on the total square footage in a property is grounds for setting aside a contract for
purchase of that property.
“Consider . . . ” brings the most current topics into the book and the classroom.
Thinking, Applying, and Answering: “Consider . . . ” Tutorials—A
Guide for Reasoning
One “Consider . . . ” per chapter is solved for the students in a methodical walkthrough that helps them understand how to apply the legal principles or case precedent that they have just studied. The facts of the case or hypothetical are presented
and the students are asked to recall what they have just learned. Next, students are
walked through applying those principles to the current facts. Finally, they are given
the answer and the reason that answer is consistent with their thinking and applying.
Ethical Issues
The “Ethical Issues” feature appears in every chapter and presents real-world ethical
problems for students to grapple with. “Ethical Issues” help integrate coverage of
ethics into every chapter. The ethical issues also include personal and real-life examples that help students relate to the pervasive nature of ethical dilemmas that they
do and will continue to face. Chapter 6 includes the U.S. Supreme Court case reversing the bribery conviction of former Virginia governor Bob McDonnell and his wife,
followed by an ethics issue that asks students to review whether their taking of vacations, a Rolex, clothing, and help with a wedding from a donor crossed ethical lines.
Chapter 12 includes an ethical issue that asks students to evaluate students who accept
an employment offer and then renege because a better one came along.
Business Planning Tips
Students are given sound business and legal advice through “Business Planning
Tips.” With these tips, students not only know the law but also know how to anticipate issues and ensure compliance. How to make your property safer, how to
conduct an interview without violating the Americans with Disabilities Act, and
how to train employees to preserve documents and potential evidence if customers make claims.
Cyberlaw
Cyberlaw has been integrated throughout the book. Most chapters also include
a segment on cyberlaw. These chapter-by-chapter materials, marked by an icon,
give students the chance to see how new technology fits into the existing legal
framework.
Exhibits
Exhibits include charts, figures, and business and legal documents that help
highlight or summarize legal and ethical issues from the chapter. With the credit
and financial market reforms, securities law reforms on stock offerings, and the
changes in criminal penalties, many of the charts are either new or updated.
End-of-Chapter Problems
Many end-of-chapter problems have been updated and now focus more on actual
cases. There are new chapter problems throughout the book of varied lengths for
different instructor needs.
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Preface
xxiii
The Informed Manager: Who Should
Use This Book?
With its comprehensive treatment of the law, integrated business applications, and
full-color design, Business: Its Legal, Ethical, and Global Environment is well suited
for both undergraduate and MBA students. The book is used extensively in undergraduate education programs around the country. In addition, this edition has
been class-tested with MBA students, and it is appropriate for MBA and executive
education programs.
A Note on AACSB Standards
The strong presence of ethics, social responsibility, international law and issues,
and the integration of other business disciplines make the book an ideal fit for
meeting AACSB standards and curriculum requirements. The AACSB standards
emphasize the need for students to have an understanding of ethical and global
issues. The eleventh edition continues with its separate chapter on ethics as well
as ethical issues and dilemmas for student discussion and resolution in every
chapter. The separate chapter on international law continues its expanded coverage from the last edition, and each chapter has a segment devoted to international
law issues. The eleventh edition includes readings on expanded international law
enforcement cooperation, the challenges of ethics and law in international business, the role of lawyers in other countries, and attitudes outside the United States
on insider trading and antitrust laws.
This edition presents students with the legal foundation necessary for business operations and sales but also affords the students the opportunities to
analyze critically the social and political environments in which the laws are made
and in which businesses must operate. An examination of the lists of companies
and individuals covered in the biographies, and of the publications from which the
“For the Manager’s Desk” readings are based on, demonstrates the depth of background the eleventh edition offers in those areas noted as critical by the AACSB.
The materials provide a balanced look at regulation, free enterprise, and the new
global economy.
Supplements
Business: Its Legal, Ethical, and Global Environment offers a comprehensive and wellcrafted supplements package for both students and instructors.
MindTap
MindTap™ is a fully online, highly personalized learning experience combining
readings, multimedia, activities, and assessments into a singular Learning Path.
Instructors can personalize the Learning Path by customizing Cengage Learning
resources and adding their own content via apps that integrate into the MindTap
framework seamlessly with Learning Management Systems.
We have heard that business law instructors want to help students Prepare for
class, Engage with the course concepts to reinforce learning, Apply these concepts
in real-world scenarios, and use legal reasoning and critical thinking to Analyze
business law content. Accordingly, our MindTap product provides a four-step
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xxiv
Preface
Learning Path designed to meet these critical needs while also allowing instructors
to measure skills and outcomes with ease.
• Prepare: Business Law Ebook and Worksheets – help students prepare
for class with interactive guided reading & chapter review questions
that can be completed prior to class so that class time can be spent
applying the concepts.
• Engage: Video Activities – engage students using real-world scenarios that
bring business law to life and help students make connections with real work
situations. Includes comprehension questions for practice and assignable
gradeable homework.
• Apply: Brief Hypothetical Scenarios – These short fictional scenarios, help
students spot the issue and apply the law and concepts that they’ve learned.
These are great questions for exam preparation.
• Analyze: Legal Reasoning – Promote deeper critical thinking and legal
reasoning by using these case problem questions to help improve critical
thinking skills.
Every item in the Learning Path is assignable and gradable. This gives
instructors the knowledge of class standings and concepts that students may be
finding difficult. Additionally, students gain knowledge about where they stand—
both individually and compared to the highest performers in class.
To view a demo video and learn more about MindTap, please visit
www.cengage.com/mindtap.
Case Collection
Now, within MindTap, instructors can search Case Collection—a library of cases
from previous editions of different Cengage textbooks—by relevant criteria and
then incorporate those cases in the learning path for students.
This exciting repository allows instructors to personalize their course and truly
engage students, helping them to reach higher levels of critical thinking.
• Easily search by topic, and then refine the search by subtopic, to find case
examples of a specific legal concept.
• Search by court or state to bring a local flavor or interest to the classroom.
• Enjoy over 1500 cases at your fingertips. All new edition omitted cases will be
added every year, allowing the archive to continually grow.
Mix and match cases from all textbooks, whether you are currently using it in
class or not. This allows you to provide longer cases with more information from
other resources, which is especially helpful if your text didn’t show the court’s
decision.
Weekly Ethics and Law Updates. Available at mariannejennings.com, the weekly
updates contributed by the author offer at least 12 current events per month for
discussion and analysis. The update features new decisions, new statutes, new regulations, new ethical dilemmas, and a host of examples and cites to current periodicals. The eleventh edition includes references to these updates in the text.
Instructor’s Manual. The Instructor’s Manual, written by the author, provides
the following for each chapter: a detailed outline; answers to “Considers . . . ”,
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Preface
xxv
“Ethical Issues,” case problems, and the end-of-chapter Questions and Problems;
briefs of all cases; summaries of key features; supplemental readings; and interactive/cooperative learning exercises.
PowerPoint® Lecture Review Slides. Developed by the author, these PowerPoint
slides consist of lecture outlines and select tables and figures used in the book. The
slides are available for use by students as an aid to note taking, and by instructors
for enhancing their lectures.
Test Bank. The Test Bank for instructors includes more than 2,000 questions in
true/false, multiple-choice, and essay format. The questions vary in levels of difficulty, and meet a full range of tagging requirements, including AACSB standards.
Cognero. Cengage Learning Testing Powered by Cognero is a flexible, online
system that allows you to:
• author, edit, and manage Test Bank content from multiple Cengage Learning
solutions
• create multiple test versions in an instant
• deliver tests from your LMS, your classroom or wherever you want
Start right away!
Cengage Learning Testing Powered by Cognero works on any operating
system or browser.
• No special installs or downloads needed
• Create tests from school, home, the coffee shop—anywhere with Internet
access
What will you find?
• Simplicity at every step. A desktop-inspired interface features drop-down
menus and familiar, intuitive tools that take you through content creation
and management with ease.
• Full-featured test generator. Create ideal assessments with your choice of
15 question types (including true/false, multiple choice, opinion scale/
likert, and essay). Multi-language support, an equation editor, and unlimited metadata help ensure your tests are complete and compliant.
• Cross-compatible capability. Import and export content into other
systems.
KnowNOW Blog. Included inside MindTap, this is a professor ’s dream—a
daily blog on eye-catching legal issues that allow students the opportunity to
engage in discussion and really master concepts because of the nature of the
subject matter. Insider trading is something that may not grab their attention
until you share with them the story of the famous Notre Dame football player,
Rudy, who settled pump-and-dump charges by the SEC. And a breached sale
of fabric contract sounds like a dull session unless you are able to use the
Lululemon problem—the company made thousands of yoga pants with the fabric only to discover through customer complaints that the fabric was see-through
and those customers wanted their money back. Even antitrust law comes to life
when you use the merger of Corona with Bud Light to cover market share and
monopoly power.
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About the Author
Professor Marianne Jennings is an emeritus professor of legal and ethical studies
in business from the W.P. Carey School of Business at Arizona State University. She
was named professor of the year in the College of Business in 1981, 1987, 2000, and
2010 and was the recipient of a Burlington Northern teaching excellence award in
1985. She served as director of the Joan and David Lincoln Center for Applied Ethics at ASU from 1995–1999. From 2006–2007, she served as the faculty director for
the MBA Executive Program. She continues to teach graduate courses in business
ethics and ethical culture at ASU and other colleges around the country.
Professor Jennings has authored hundreds of articles in academic, professional
and trade journals. She was given best article awards by the institute of Internal
Auditors and the Association of Government Accountants in 2001 and 2004. In
2006, her article, “Ethics and Investment Management: True Reform,” was selected
by the United Kingdom’s Emerald Management Review from 15,000 articles in 400
journals as one of the top 50 articles in 2005. She was named one of the Top 100
Thought Leaders by Trust Across America in 2010. In 2012 she was named one of
the 100 Most Influential People in Business Ethics by Ethisphere magazine. She
served on the board of directors for Arizona Public Service (now Pinnacle West
Capital Corporation), the owner of the Palo Verde Nuclear Station, from 1987
through 2000. She served on the boards of Zealous Capital Corporation from 19961998 and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She served as chair of the Bonneville International Advisory
Board for KHTC/KIDR from 1994-199. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004. In 2015 she was named
an affiliated scholar with the Center for the Study of Economic Liberty at Arizona
State University.
Currently she has six textbooks and monographs in circulation. The ninth edition of her textbook, Case Studies in Business Ethics, and the eleventh edition of her
textbook, Business: lts Legal, Ethical and Global Environment will be published in
January 2017. Her first textbook, Real Estate Law, had its 11th edition published
in January 2016. Her text, Anderson’s Business and the Legal Environment had its 23rd
edition published in January 2016.
Her book, Business Strategy for the Political Arena, was selected in 1985 by
Library Journal as one of its recommended books in business/government relations. A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a
fable about business ethics, was chosen by Library Journal in 2004 as its business
book of the year. A Business Tale was also a finalist for two other literary awards for
2004. In 2000, her book on corporate governance was published by the New York
Times MBA Pocket Series. Professor Jennings’ book on long-term success, Building
a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a
Century of Dividends, was published in October 2002 and has been used by Booz,
Allen, Hamilton for its work on business longevity. Her book, The Seven Signs of
Ethical Collapse is used by auditors in advance detection of fraud and is a primer on corporate culture, including analysis of board efficacy. Her books have been translated into
five languages.
xxvi
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About the Author
xxvii
She is a contributing editor for the Real Estate Law Journal and New Perspectives.
She served on the Board of Editors for the Financial Analysts Journal from 2007–
2012. She served as editor-in-chief of the Journal of Legal Studies Education during
2003–2004. During 1984-85, she served as then-Governor Bruce Babbitt’s appointee to the Arizona Corporation Commission. In 1999 she was appointed by thenGovernor Jane Dee Hull to the Arizona Commission on Character.
Her columns have been syndicated around the country, and her work has
appeared in the Wall Street Journal, the Chicago Tribune, the New York Times,
Washington Post, and the Reader’s Digest. A collection of her essays, Nobody Fixes
Real Carrot Sticks Anymore, first published in 1994 is still being published. She was
given an Arizona Press Club award in 1994 for her work as a feature columnist. She
has been a commentator on business issues on All Things Considered for National
Public Radio. She served as chair of the Bonneville International Advisory Board
for KHTC/KIDR from 1994–1997 and was a weekly commentator on KGLE during
1998. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS
Evening News.
Professor Jennings earned her undergraduate degree in finance and her J. D.
from Brigham Young University. She has done consulting work for law firms,
government agencies, businesses and professional groups including AES, AICPA,
Allstate, Amgen, AstraZeneca, Bell Helicopter, Blue Cross Blue Shield, Boeing,
Bristol-Myers Squibb, Certified Financial Analysts Institute, CoBank, Coca-Cola,
Department of Energy, Department of Interior, Dial Corporation, DuPont, Hy-Vee
Foods, IBM, Institute of Internal Auditors, Mattel, Motorola, Southern California
Edison, Pfizer, Raytheon, Tenet, Toyota, U.S. Navy, Veterans Administration, and
VIAD.
Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s
Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late
Claire and Hannah Jennings.
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Acknowledgments
By its eleventh edition, a book has evolved to a point of trademark characteristics.
This book is known for its hands-on examples and readings for business managers. That trademark evolves because of the efforts of many. They are the reviewers
and adopters of the text who provide ideas, cases, and suggestions for improvement and inclusion, and I thank them all.
Any edition of a book bears the mark of the editors who work to design, refine,
market, and produce it. Seven editions ago, Rob Dewey saw potential for the book
and applied his enthusiasm and market insights to mold a somewhat ugly duckling into a four-color swan. The book also carries the imprimatur of Steve Silverstein, who confronted me with a profound question, “Why can’t those in business
see these ethical dilemmas when they are in the midst of them?” His question
forced me back to the drawing board and resulted in the more personal ethical
dilemmas. Vicky True, now in Rob’s role, understands the needs of instructors
because of her intense road schedule, holds a keen sense of market direction, and
offers the insights of both to help to shape this new edition. Kristen Meere, new
as the editor for this edition, came into the work with little lead time and picked
up the baton and ran with me as we worked through a tight schedule. Kris Tabor
has been with me since the first edition, helping with word processing, IMs, study
guides, test banks, and venting. We mark 30 years of a terrific partnership with
this edition.
This book also carries the unmistakable liveliness of an author who shares her
life with helpful and delightful children and one tolerant husband. Since the first
edition of this book, I have added four children to our first, witnessed two graduate from college, one from law school, grieved over the loss of two, and seen the
others grow up all too quickly in a household in which these words, “Mom, the
UPS guy is here with page proofs,” made up their first sentences. They now simply witness me hovering over my computer from dawn’s light until I fall asleep
on the keyboard. My children and my husband, collectively my family, are the
most charming people I know. They have brought me stories, pop culture, and
good sense with their, “Uh-oh, here we go!” when their mother finds outrage in
yet another ethical lapse in business. Even from their now–globally dispersed positions, they call and ask, “How’s the writing going?” Their vibrancy is found in the
color and charm of these pages. I am grateful for their unanimous and unwavering
support for my work. Finally, I am grateful to my parents who taught me through
their words and examples of the importance and rewards of ethics and hard work.
Marianne Moody Jennings
xxviii
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Part
1
Business: Its Legal, Ethical,
and Judicial Environment
S
imply stated, you cannot run a successful business without knowing
the law. What is legal? Where can I find the laws I need to know? How
do I make decisions about legal conduct that is ethically troublesome
to me? What if I have a disagreement with a customer, employee, or
shareholder? How and where can I resolve our differences?
This portion of the book explains what law is, where it can be found,
how it is applied, and how legal disputes are resolved. But beyond
the legal environment of a business, there are the ethical issues. Just
because what you are doing is legal does not mean it is ethical. And
why should a manager make ethical choices and behave honorably in
business? Law and ethics are inextricably intertwined. A commitment to
both is part of a sustainable business model.
1
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1
Chapter
Introduction to Law
M
ost people understand the law through personal experiences. Some are
exposed to law through traffic tickets. Others encounter the law when a
problem arises with a landlord or lease. Many wonder about their rights when
search engines and other Internet companies gather information about them
without their realizing such efforts were ongoing. Facing income reductions in
tough economic times, many wonder what their rights are when collectors call
or file suit. Their understanding of the law may be limited by the anger they feel
about an annoying collection agent, their e-mail being scanned or a traffic ticket. However, without traffic laws, the roads would be a study in survival of the
fittest. The law is your source of assurance that you have rights when it comes
to collection agency actions. Each day businesses find and face legal and ethical
issues in everything from privacy rights on Facebook to proper documentation of
employees’ citizenship.
The types of laws and the penalties for violating them vary from state to state
and from city to city, but, however much they vary, laws exist everywhere and
at every level of government. Indeed, law is a universal, necessary foundation of
an orderly society. Law helps maintain order, imposing on us certain minimum
standards of conduct. When we fall short of those standards, we risk penalties.
Law is made up of rules that control people’s conduct and their interrelationships.
Traffic laws control not only our conduct when we are driving but also our relationships with other drivers using the roads. In some instances, traffic laws give
other drivers a right-of-way, and we are liable to them for any injuries we cause
by not following those laws.
This chapter offers an introduction to law. How is law defined? What types
of laws are there? What are the purposes and characteristics of law? Where are
laws found, and who enacts them?
Update
For up-to-date legal news, go to
mariannejennings.com
2
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This country’s planted thick with
laws from coast to coast . . .
and if you cut them down . . .
d’you really think you could
stand upright in the winds that
would blow then?
A M An
for
A ll S eASonS , A ct I
Consider . . .
John Yates, a commercial fisherman, caught undersized
red grouper in federal waters in the Gulf of Mexico. To
prevent federal authorities from confirming that he had
harvested undersized fish, Yates ordered a crew member
to toss the suspect fish into the sea. Yates was charged
with, and convicted of, violating 18 U.S.C. § 1519,
“Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any
record, document, or tangible object with the intent to
impede, obstruct, or influence the investigation . . . or
1-1
1.1
any case filed . . . or in relation to or contemplation of
any such matter or case, shall be fined under this title,
imprisoned not more than 20 years, or both.”
Mr. Yates says that the statute applies to financial
records and not fish. The statute was passed after Enron
collapsed and its financial records and audit papers had
been shredded to deter such actions by businesses.
Who decides whether the law applies to hurling fish
overboard? What should the court decide?
Definition of Law
Philosophers and scholars throughout history have offered definitions of law.
Aristotle, the early Greek philosopher, wrote that “the law is reason unaffected by
desire” and “law is a form of order, and good law must necessarily mean good
order.” Oliver Wendell Holmes Jr., a U.S. Supreme Court justice of the early twentieth century, said, “[L]aw embodies the story of a nation’s development through
many centuries.” Sir William Blackstone, the English philosopher and legal
scholar, observed that law was “that rule of action which is prescribed by some
superior and which the inferior is bound to obey.” Black’s Law Dictionary defines
law as “a body of rules of action or conduct prescribed by the controlling authority,
and having legal binding force.”1 Law has been defined at least once by every philosopher, statesman, and police officer.
Law is simply the body of rules governing individuals and their relationships.
Most of these rules become law through a recognized governmental authority. Laws
give us basic freedoms, rights, and protections. Law also offers a model of conduct
for members of society in their business and personal lives and gives them certainty
of expectation. Plans, businesses, contracts, and property ownership are based on
the expectation that the law will provide consistent protection of rights. Without
such constancy in legal boundaries, society would be a mass of chaos and confusion.
1-2
1-2a
Classifications of Law
public versus private Law
Public law includes those laws enacted by some authorized governmental body.
State and federal constitutions and statutes are all examples of public laws, as are
the state incorporation and partnership procedures, county taxation statutes, and
local zoning laws.
3
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4
part 1
Business: Its Legal, Ethical, and Judicial Environment
Private law, on the other hand, is developed between two individuals. For example, landlords usually have regulations for their tenants, and these regulations are
private laws. Homeowners’ associations have developed an important body of private law that regulates everything from the type of landscaping for homes in a subdivision to whether homeowners can erect basketball hoops in their driveways. The
terms of a contract are a form of private law for the contracting parties. Although the
requirements for forming and the means for enforcing that contract may be a matter
of public law, the terms for performance are the private law the parties agree to as
the rules for governing their relationships. Employer rules in a corporation are also
examples of private law; as long as those rules do not infringe any public rights or
violate any statutory or constitutional protections, those rules define a private law
relationship between employer and employee. For example, most companies now
have Twitter and Facebook policies that limit the type of information and comments
employees can post about their employers in social media outlets. Interestingly, both
state legislatures and the U.S. Congress have proposed legislation that would control employer restrictions on employees’ posts. Public law is being changed to reflect
technological areas that are not yet addressed in employment law.
1-2b
Criminal versus Civil Law
A violation of a criminal law is a wrong against society. A violation of a civil law
is a wrong against another person or persons. Criminal violations have penalties
such as fines and imprisonment. When you run a red light, you have committed a
criminal violation and owe society a penalty, such as a fine or imprisonment. Violations of civil laws, on the other hand, require restitution: someone who violates
a civil law must compensate the harmed party. If you do run a red light and strike
and injure a pedestrian, your criminal case is society’s remedy. The civil wrong in
the same action requires you to pay damages to that pedestrian.
If you drive while intoxicated, you are breaking a criminal law and are subject
to a fine, jail term, or license suspension. If you have an accident while driving
intoxicated, you commit a civil wrong against anyone you injure. People who are
injured as a result of your driving while intoxicated can file a civil suit against you
to recover for injuries to their persons and property (cars).
Other differences also distinguish civil laws from criminal laws and their
enforcement. For example, different rights and procedures are used in the trials of
criminal cases (see Chapter 8 for more details).
1-2c
Substantive versus procedural Law
Substantive laws are those that give rights and responsibilities. Procedural laws
provide the means for enforcing substantive rights. For example, if Zeta Corporation has breached its contract to buy 3,000 microchips from Yerba Corporation,
Yerba has the substantive right to expect performance and may be able to collect
damages for breach of contract by bringing suit. The laws governing how Yerba’s
suit is brought and the trial process are procedural laws. Procedural laws are also
used in criminal cases, such as grand jury proceedings or arraignments and pleas
(see Chapter 8 for more information).
1-2d
Common versus Statutory Law
The term common law has been in existence since 1066, when the Normans conquered England and William the Conqueror sought one common set of laws for
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Chapter 1
Introduction to Law
5
governing a then-divided England. The various customs of each locality were conglomerated so that all fiefdoms could operate under a “common” system of law.
The common law came about as judges in different areas settled disputes in similar
ways by consulting their fellow judges on their previous decisions before making
decisions. This principle of following other decisions is referred to as stare decisis,
meaning “let the decision stand.” This process of legal reasoning is still followed
today. The courts use the judicial decisions of the past in making their judgments
in order to provide the consistency and constancy of the law.
As much of an improvement as it was, the common law was still just uncodified law. Because of increased trade, population, and complexities, the common
law needed to be supplemented. As a result, statutory law, which is passed by
some governmental body and written in some form, was created.
Today, in the United States, we have common law and statutory law. Some of
our common law still consists of principles from the original English common law.
For example, how we own and pass title to real property are areas largely developed from English common law. The body of common law continues to grow,
however: the judicial system’s decisions constitute a form of common law that is
used in the process of stare decisis. Courts throughout the country look to other
courts’ decisions when confronted with similar cases.
Statutory law exists at all levels of government—federal, state, county, city,
borough, and town. Our statutory law varies throughout our nation because of
the cultural heritages of various regions. For example, the southwestern states
have marital property rights statutes—often referred to as community property
laws—that were influenced by the Spanish legal system implemented in Mexico.
The northeastern states have different marital property laws that were influenced
by English laws on property ownership. Louisiana’s contract laws are based on
French principles because of the early French settlements there.
1-2e
Law versus equity
Equity is a body of law that attempts to do justice when the law does not provide
a remedy, when the remedy is inadequate, or when the application of the law is
terribly unfair. Equity, which originated in England, came into being because the
technicalities of the common law often resulted in unresolved disputes or unfair
resolutions. The monarchy allowed its chancellor to hear those cases that could not
be resolved in the common law courts; eventually, a separate set of equity courts
developed that were not bound by rigid common law rules. These courts could
get more easily to the heart of a dispute. Over time, they developed remedies not
available under common law. Common law, for example, usually permitted only
the recovery of monetary damages. Courts of equity, on the other hand, could issue
orders, known as injunctions, prohibiting certain conduct or ordering certain acts.
The equitable remedies available in the courts of chancery were gradually combined with the legal remedies of the common law courts so that now parties can
have their legal and equitable remedies determined by the same court.
Today’s courts award equitable remedies when the legal remedy of money
damages would be inadequate. For example, the copyright infringement cases
brought by the recording and motion picture industries sought injunctions against
the individuals and companies that provided the technological means for making
unauthorized individual copies of movies and songs. The record companies, the
movie producers, and the artists could never be adequately compensated with
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6
part 1
Business: Its Legal, Ethical, and Judicial Environment
money for these forms of infringement because the continued activity caused
the loss of their exclusive copyrights. The remedy that they sought and were
given were injunctions that, within certain parameters, ordered a halt to the
sites and programs that facilitated the unauthorized downloading of copyrighted materials.
1-3
1-3a
Purposes of Law
Keeping Order
Laws carry some form of penalty for their violation. Violations of securities laws
carry a fine or imprisonment or both. Violations of civil laws also carry sanctions.
If an employer discriminates against you by refusing to give you a raise or promotion because of your age, gender, or race, you can seek money damages. A driver
who injures another while driving intoxicated can be prosecuted but must also
pay for the damages and the costs of the injuries the other person experiences.
These civil and criminal penalties for violations of laws prevent feuds and the use
of primitive methods for settling disputes, such as force.
During the summer of 2016, a number of U.S. cities experienced protests and
riots because of concerns about particular police officers’ conduct. These cities
imposed curfews in order to bring quiet to the city streets as well as preventing
damages to and looting of businesses. A simple curfew law helped to bring order
to those cities.
1-3b
Influencing Conduct
Laws also influence conduct in a society. For example, securities laws require companies to make certain disclosures about those securities before they can be sold
to the public. The antitrust laws passed in the early twentieth century prohibited
some methods of competition, such as price fixing, and limited others, such as
mergers (see Chapter 14). These types of laws continue to change the way businesses operate. For example, Google recently agreed to stop restricting its advertisers from working with other search engines.
1-3c
Honoring expectations
Businesses commit resources, people, and time to ventures, expansion, and product
development with the expectation that the contracts for those commitments will
be honored and enforced according to existing law. Investors buy stock with the
knowledge that they will enjoy some protection of that investment through the
laws that regulate both the securities themselves and the companies in which
they have invested. Laws allow prior planning based on the protections inherent
in the law.
1-3d
promoting equality
Laws have been used to achieve equality in those aspects of life in which equality
is not a reality. For example, the equal-right-to-employment acts (see Chapter 20)
were passed to bring greater equality to the job market. The social welfare programs of state and federal governments were created to further the cause of economic justice. The antitrust laws attempt to level the playing field for the free
enterprise system to operate efficiently.
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Chapter 1
1-3e
Introduction to Law
7
Law as the Great Compromiser
A final and important purpose of law is to act as the great compromiser. Few
people, groups, or businesses agree philosophically on how society, business, or
government should be run. Law serves to mesh different views into one united
view so that all parties are at least partially satisfied. When disputes occur, the
courts apply the law to the parties’ situation in an attempt to strike a compromise
between two opposing views. The U.S. Supreme Court has provided compromises
for the rights of businesses to be involved in the political process and make donations to candidates (see Chapter 5). In the relationship between freedom of speech
and advertising regulation, the law serves as the mediator.
1-4
1-4a
Characteristics of Law
Flexibility
As society changes, the law must change with it. When the United States was an
agricultural nation, the issues of antitrust, employment discrimination, and securities fraud rarely arose. However, as the United States became an industrialized
nation, those areas of law expanded, and they continue to expand today. As the
United States further evolves into a technological and information-based society,
still more areas of law will be created and developed. Comp…
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