Legal Environment of Business
When commerce is transacted, several areas of business law are affected. Depending on the type of business you manage, there could be many regulations and legal obligations you must comply with in order to operate the company. Businesses can be impacted by statutes in different disciplines, such as tax laws, material handling laws, and employment laws. Most businesses either have attorneys on staff or retain firms to handle issues surrounding the law. As a manager, however, you may be required to know some basic legal requirements.
Whether you are establishing a business organization, protecting proprietary information, shipping products across state lines, or managing employees, certain business laws affect all companies. The following areas cover companies in most industries:
Ø tax laws;
Ø environmental laws;
Ø consumer protection laws;
Ø employment and labor laws;
Ø antitrust/fair competition laws;
Ø interstate commerce laws;
Ø license and permitting laws;
Ø contract laws;
Ø intellectual property laws;
Ø financial regulation laws;
Ø bankruptcy laws.
Now let us look at some key areas most business managers should be aware of.
When employees are under a management or control structure, they are protected against offenses committed by the company and provided rights as a consequence of employment. The following sections provide an overview of protections for all employees.
Harassment: Sexual Harassment, Intimidation, Offensive Acts
Civil Rights Violations: Discriminatory Hiring, Unfair Employment Practices
America's workers are a diverse group. Businesses are required to provide equal opportunities in their practices and policies. The EEOC oversees this area of regulation. Under U.S. law, employers must not discriminate against individuals either during hiring activities or while employed. Title VII of the Civil Rights Act of 1964 prevents discrimination based on age, gender, race, color, religion, or national origin, whereas the Equal Pay Act of 1963 ensures fair pay practices for men and women who perform a substantially similar job. In 1990, the government enacted the Americans with Disabilities Act to protected disabled Americans in the workplace.
Unfair Labor Practices: Workplace Safety, Wage and Benefit Protection, Minimum Age Standards
The U.S. Department of Labor oversees business activities as they relate to employees. The agency monitors pay, benefits, retirement accounts, and other practices under the Fair Labor Standards Act (FLSA), enacted in 1938. This law mandates workplace safety, regulated by the Occupational Safety and Health Administration (OSHA), and restrictions against employment of minors. Retirement benefits are preserved for employees. Minimum wage requirements also fall under the DOL's jurisdiction, as does the protection of rights for military veterans.
Loss From Injuries or Work Stoppage: Workers' Compensation, Unemployment Compensation, Collective Bargaining
Employees are provided monetary awards in the event they are injured while on the job or if they are terminated from employment. The Federal Workers' Compensation Act requires employers to compensate injured employees or their dependents if they are accidentally disabled or killed while performing job duties. The Social Security Act of 1935 mandates that employers contribute to a combined federal and state program that provides income for a defined period to workers losing their job through no fault of their own. Employers dealing with contracts for groups of employees (such as labor unions) must conduct collective bargaining activities that adhere to the National Labor Relations Act.
As the 21st century begins, business managers must contend with increasing regulations affecting the company's place in the natural world. Environmental laws have been commonplace since the early 1970s. The 1962 publication of a book titled Silent Spring, which detailed the effects of pesticides on wildlife, led to a proliferation of federal and state environmental regulations protecting plants, animals, and human beings. Many have a direct impact on how businesses operate.
The Environmental Protection Agency (EPA) oversees U.S. regulations that businesses must adhere to. The agency has enacted laws such as the Clean Water Act and Clean Air Act that restrict polluting activities largely committed by manufacturing industries. For example, in 1979, President Jimmy Carter signed into law the so-called Superfund provision, which allocates federal money to cleaning up hazardous waste. Since then, the balance between economic growth and environmental protection has been a hotly debated topic.
When a sale is made, a contract is born. Depending on the transaction, a number of laws could impact the result of that sale. At the heart of business is the contract; therefore, contract law governs nearly every commercial endeavor. The days of the handshake agreement are long gone, and business managers must now execute written agreements reviewed by attorneys. Not all transactions require a written contract, such as selling goods valued at less than $500 or temporary activities; however, protections exist that cover those who compensate others in exchange for goods or services.
For those managers involved in dealing with American consumers, several areas of activity are governed by federal statutes. Product liability laws hold manufacturers, wholesalers, distributors, and vendors accountable for damages caused by the goods they deliver to consumers. Causes can occur because of a design flaw, a manufacturing defect, or a failure to warn consumers about a dangerous or unhealthy condition. These laws vary from state to state as to whether the buyer or seller is at fault, and cases can be argued on the basis of negligence, strict liability, or breach of warranty.
The Federal Trade Commission oversees commercial activities in an effort to "prohibit unfair and deceptive actions or practices in commerce" (15 U.S.C. §45, United States Code, chapter 15, section 45). Violations of the laws the agency monitors occur as a result of misrepresentation; advertising only the maximum output of a product, such as "28 miles per gallon" for a vehicle; oversized packaging or inappropriately filled products; or a failure to notify consumers about required information like an expiration date.
Fair competition is a cornerstone of the American economy, and led to two significant laws enacted on either side of the dawn of the 20th century. The oldest antitrust law in the country is the Sherman Act, enacted in 1890 to prohibit unfair development of monopolies that restrict competition. Its "sister" law is the Clayton Act of 1914, which gives those injured because of unfair competition practices the ability to sue the offending party. This legislation prohibits price fixing and conditional sales that limit fair competition and makes controlling competing businesses illegal.
At the heart of every successful business that employs more than one person is effective personnel management. Whether it is scheduling, payroll, benefits, promotion, or firing, business managers must deal with personnel issues constantly. Even small businesses with fewer than 10 employees face the challenge of routinely managing various employment factors.
Managing employment-related activities, traditionally called human resources, can require a full-time position. With the national recognition of civil rights during the late 1950s and early 1960s, employee rights' legislation has increased dramatically. From protecting hired help against discrimination to preserving employee privacy, U.S. laws regulate many areas of employment. Business managers must develop defined policies and offer privileges, such as a 30-minute break for meals when an employee works eight hours or more. Even when the working relationship involves a temporary contract-for-hire or a subcontract status, a manager must handle each situation in accordance with national and local laws.
Human resource management (HRM) involves designing and implementing company policies, procedures, and tracking systems in the following areas:
Selection process: employment marketing and advertising; interview process; employment conditions, whether full or part time and travel requirements; résumé review process; etc.
Work time management: personnel records, payroll functions, labor records, benefits management, etc.
Staffing requirements: scheduling, workforce planning, training, education, etc.
Compliance issues: employment laws, safety regulations, employee manuals, financial reporting, etc.
Termination process: employee release procedures, payroll and benefit administration, etc.
Documentation is important when managing workers. Each time an action is taken that involves an employee, there usually must be a record included in the personnel files. U.S. laws require fairness at the workplace, and accurate records establish that employee rights are preserved. Disclosure of company standards and procedures must usually be granted either prior to hiring or shortly thereafter.
Once an offer of employment has been accepted, the personnel manager guides the new worker through an orientation process, during which the employee will learn about company policies, standards and expectations, benefit offerings, and workplace conditions and procedures. Many businesses distribute job descriptions that clearly define an employee's responsibilities and obligations. In some industries, including health care, there are regulations requiring employees to sign documents acknowledging that they have received certain information prior to working for the company. Once oriented, the new hire must abide by all company policies throughout employment.
Human resource professionals are educated in the following areas:
Workforce diversity: Maintaining fairness and equality among job groups and ensuring an absence of discrimination at work are vital responsibilities. Managers must deal with issues like an aging workforce or different cultural behaviors and values. Mid-size to large U.S. companies are required to educate their workforce about diversity in the workplace.
Workplace safety: Also important is providing a safe environment for workers through education, ergonomics, and prevention standards. Policies on drug and alcohol consumption, protective equipment use, workplace violence, and hazardous communications, among others, are required under federal and state guidelines.
Communications and record-keeping: Certain disclosures, announcements, and warnings are required in several industries. Human resources managers also must record disciplinary actions, performance evaluations, termination activities, work time, payroll and benefit earnings, and hiring documents.
Employee performance and retention: Companies develop programs to measure and reward employee performance through productivity standards. In addition, incentive and benefit programs enable businesses to keep the high-producing employees.
On the other hand, contractual employment is in effect when the worker enters an agreement for a defined period at a specified payment. Labor expenses can be paid regularly or at specified intervals. When companies engage workers who are considered to be independent subcontractors, control is more limited and the subcontractor is therefore responsible for managing his or her duties and reporting job-related income to authorities.
During the course of employment, a personnel manager may need to coach, punish, and praise a worker in order to meet the company's productivity standards. In multilayered organizations, a supervisor will typically provide feedback to the employee through a formal process, with the human resources department managing the process. In smaller operations, these functions may be done informally by the owner.
When a manager recognizes achievement, it can have an immediate impact, so the timing of praise delivery is also important. Giving praise can also help prevent hurt feelings if a worker requires discipline. Use praise only when it is truly warranted or remarkable; avoid constant recognition, as that may dilute its effectiveness.
Encouragement is viewed as the manager's best tool for increased employee performance. By delivering positive, meaningful, and authentic support and positive reinforcement, a manager can maintain a high level of productivity. From coaching individuals to hosting off-site gatherings, encouragement can take different forms. Especially important is giving leaders encouragement and positive feedback; having these workers encourage others can help the manager out immensely. Experts remind managers that, like praise or recognition, encouragement should be specific, timely, and delivered appropriately.
When managers decide to terminate an employee, they carry a risk of legal action being taken against them. Contracted employees or subcontractors can sue under breach of contract or wrongful termination provisions if they can prove the firing was contractually protected.
Experts note that firing for business purposes is legitimate. If termination is not as a result of a business decision, then management must prove that, based on the offense, the "punishment fits the crime." Was the offending activity justified? Does the employee have a reasonable explanation for her or his behavior? Is the decision to terminate premature? These and similar questions should be answered prior to termination, or the action could be seen by a third-party as being an unfair dismissal.
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