Business Law 5 parts

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4.1 Ethics and the Law By de�inition, law concerns itself with issues of right and wrong and the administration of justice. Those who help shape the law need valid ethical reference points to steer the law in the direction of the common good.

Philosophy of Ethics

Ethics is the branch of philosophy that is concerned with the study of morality. Ethical inquiry centers on concepts such as good and evil and right and wrong. Thousands of years of philosophical inquiry into the �ield of ethics have produced numerous con�licting theories by noted classical and contemporary philosophers. Not surprisingly, however, no consensus has emerged as to which theory is the most valid. While this may not be surprising, it is troubling, since law is closely tied to the fragile, ephemeral principles that are at the heart of ethics.

Legislators, judges, presidents, governors, and regular citizens who help to shape the law through their of�icial capacity or at the ballot box may not consciously engage in the study of ethics in shaping their views on what constitutes justice or how to best promote the common good. Nevertheless, most of us act in accordance with certain principles that we may commonly refer to as our values. Whether we acknowledge it or not, the guiding principles by which we steer our lives and which form the basis for our core ideas about right and wrong are an expression of our ethical philosophy. The names of the ethical systems we adhere to, and the notable philosophers who espouse them, are not as important as the views themselves, which help shape our government and mold our laws.

Philosophical Theories

The quest to discover ethical truths has led Western philosophers on some very different paths throughout the past 2,500 years. Law inevitably re�lects a society’s ethical views and values. Therefore, even a brief glimpse at some of the core principles that underlie various systems of ethics can be very useful. This study will enhance our understanding of the common thread of ethics that runs through every nation’s system of jurisprudence.

Ethical Absolutism

Ethical absolutism is an ethical philosophy with many diverse branches all tied in to the central idea that there are certain universal standards by which to measure morality. Under this philosophy, concepts such as good and evil, right and wrong, and justice have a separate objective existence that can be discovered and understood by human beings through philosophical inquiry and introspection. Right and wrong are concepts that stand on their own and do not change based on circumstances or on the outcome of a person’s actions. If stealing is wrong, then it is always wrong, regardless of the circumstances surrounding it. Thus, stealing is always morally wrong, whether it is done out of greed, for sport, or to feed a hungry child. Proponents of this broad branch of ethics represent a wide range of schools of thought that often include diametrically opposed worldviews.

Religious Fundamentalism

Like ethical absolutism, religious fundamentalism as a theory of ethics relies on the existence of certain immutable truths. Unlike ethical absolutism, however, which requires that these values be discovered through philosophical inquiry and introspection, ethical norms under religious fundamentalism can be found by studying the lives and writings of prophets or by consulting holy scriptures. Under this philosophy, living a moral life depends upon strict adherence to religious principles and values. Also, its proponents often view theocracy (a state governed by divinely revealed principles) as the most just form of government.

Utilitarianism

Utilitarianism has as its ethical basis the assignment of value to actions based on their outcome. Under utilitarianism, the ultimate good is de�ined as actions intended to bring about the greatest utility (or greatest good) for the greatest number of people. Thus, moral action under utilitarianism requires the constant evaluation of actions based on their intended result. Actions that bring about the greatest good to the greatest number of people are ethical, or good, whereas actions that fall short of that goal are unethical, or wrong. Put another way, utilitarianism does not recognize an intrinsic value to actions but rather assigns a positive or negative moral judgment to actions only in view of their intended consequences.

Deontology

Deontology is a duty-based ethical theory that focuses on individual rights and good intentions. In this school of thought, an act’s morality depends on the actor’s motive, and the only unconditionally good motive is duty. Therefore, for an act to be moral or good, it must be undertaken out of a sense of duty. Unlike utilitarianism, in deontology, the rights of the individual are very important and there are some things one should not do, even if they would bene�it a large number of people.

Ethical Relativism

Like utilitarianism, ethical relativism denies the existence of absolute moral values. Also known as situational ethics, this system of thought holds that moral judgments cannot be made in a vacuum. Unlike utilitarianism, however, the yardstick by which to measure the morality of an act is not the common good but rather the circumstances that surrounded the person committing an act at the time it was committed. It is a precept of this philosophy that a person’s actions cannot be judged other than by placing oneself in the same situation that the actor faced at that point in time. So, stealing to feed one’s

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hungry child, for example, is not necessarily wrong. On a societal level, ethical relativism acknowledges differences among cultures (cultural relativism) in the de�inition of right and wrong, which means that what is considered wrong or even hateful in one culture may be acceptable in another.

Nihilism

Nihilism is a philosophy that denies the existence of any ethical standards. Derived from the Latin word for nothing, nihilism originated as a German philosophical movement that was popularized in 19th-century Russia and that is central to the political philosophy of anarchists, who reject all centralized authority. In nihilism, we �ind the ultimate rejection of order, absolute codes of behavior, or the existence of any transcendent truths. Assuming that each individual’s will, guided by the individual’s conscience, can dictate what is right or wrong, then centralized government with its "arbitrary" laws and sanctions represents an illegitimate, oppressive restraint on individual freedom.

Virtue Ethics

Virtue ethics looks at the basic values one needs to develop to have a good moral character. We develop these traits by making personal commitments and practicing them in our lives. Some of the virtues we can encourage are honesty, truth, trust, tolerance, kindness, diligence, and self-restraint. We can learn as well as absorb these qualities from our parents, religion, and schools or consciously choose to strive to be virtuous persons. This philosophy has practical application in the business world because we can model, encourage, and reward these traits among our employees and within our companies.

Justice Ethics

Justice ethics is based on the concept of fairness. This theory is closely related to deontology and the rights of the individual. The U.S. legal system has a strong grounding in procedural justice and is focused on judicial process. Many of our constitutional rights protect the integrity of the legal process and ensure that all people are treated fairly in the courts. We also �ind this philosophy in the procedures and consistent rules that businesses create for their employees and other stakeholders. In a similar fashion, appellate judges decide cases that set precedents that apply to all of us. They must balance doing justice for the individuals involved in the case with the rami�ications of how decisions will affect future case law and society as a whole.

Ethics and Political Systems

The different ethical systems described above all have important political implications. Whether by design or by default, the ethical values held by political leaders and lawmakers invariably become a part of the political system and are re�lected in the legal system. Ethical systems have profoundly in�luenced both public policy and the politics of nations. For example, the in�luence of religious fundamentalism can readily be seen today in a number of countries, including the United States. Taken to their logical conclusion, absolutist ideals can be used to justify totalitarianism. If there are certain knowable, immutable truths that are valid for all time, then the only moral form of government, the argument goes, is one that educates (or indoctrinates) the people to recognize those truths and ensures that they conform to the moral conduct that those truths dictate. Ethical absolutism is also readily observable in its secular (or atheistic) form in 20th-century, nonreligious totalitarian regimes. Totalitarian regimes, be they Marxist, communist, or fascist in nature, are usually based on principles of ethical absolutism.

If totalitarian regimes are based on ethical absolutism or religious fundamentalism, it is clear that democratic systems lean toward nonfundamentalist ethical principles. The assumption that a variety of plausible views exists, even on essential ethical principles, is central to a democratic form of government. The principles of representative government and majority rule inevitably lead to the adoption of some type of moral relativism as the guiding ethical principle. The very notion that issues of great import are subject to debate and can ultimately be decided by a vote, and the democratic tolerance for opposing viewpoints, institutionalize a kind of ethical relativism. Laws are subject to change and do, in fact, undergo change slowly over time, re�lecting the changing values of their society. Individuals in democracies are free to reject ethical relativism, and many do. They can lobby their government for change, arguing for the adoption of their point of view. But a pluralistic democratic system that completely abandons ethical relativism cannot remain a democracy for long. Ultimately, questions of ethics come down to personal belief. The strength of a democracy rests in its ability to incorporate differing points of view and to obtain functional compromise on a host of issues.

Ethics and Legal Systems

It can be argued that the ethical principles of a society are re�lected even in the type of legal system it chooses. The civil law system that we �ind in most of Europe, with its detailed codes that carefully prescribe individual rights and responsibilities, its swift administration of justice, and its limited power of judicial interpretation, tends to reinforce an absolutist or deontological ethical philosophy. In effect, governments with such systems demand strict adherence to set codes of behavior and leave relatively little room for their citizens to deviate from the established norm.

Common law systems such as ours, on the other hand, leave the judiciary wide latitude for interpreting governmental edicts found in legislative enactments. Such systems provide a multilayered structure of appellate courts to further review trial courts’ application of the law, with the determinations of fact usually left to the interpretation of juries. (See also Chapter 1, The Civil Law and Common Law Traditions (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/sec1.1#sec1.1) .)

In short, the civil law leaves little room for arguing the validity or meaning of the law, while the common law allows great latitude to litigants to argue both. Criminal law is largely based on prohibiting and punishing antisocial behavior; as such, criminal law inevitably re�lects society’s ethical standards and attempts to discourage behavior that society deems immoral. (See Chapter 6 (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/ch06#ch06) for further discussion.)

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James Nielsen/Stringer/Getty Images

The Sarbanes–Oxley Act of 2002 (SOX) was passed in response to the Enron scandal and other incidences of corporate misconduct.

4.2 The Regulatory Environment of Business The ethical accountability of business is one of the areas in which government has tried to legislate ethical conduct. These policies have been vigorously debated over the years. Many people today believe that businesses have a duty to society to act in a responsible manner and to work for the betterment of society as the price for being allowed to do business and make a pro�it. Others hold that the sole social responsibility of business is to obey the law and turn a pro�it for investors. Although the issue is by no means settled, the trend over time—especially since the mid-20th century—has been to increase the amount of government regulation of business, both at the federal and state levels. Primarily through the establishment of administrative agencies (see Chapter 5 (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/sec5.3#sec5.3) ), federal and state governments have put in place far-reaching regulations to ensure that business is conducted responsibly. Notably, the federal government actively regulates business through antitrust laws, securities laws, and regulations (see Chapter 31 (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/ch31#ch31) ); labor laws (see Chapter 21 (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/sec21.3#sec21.3) ); tax incentives; and consumer protection. The federal government has responded to business scandals by passing regulatory legislation.

Sarbanes–Oxley Act of 2002

The Sarbanes–Oxley Act of 2002 (SOX) was passed by Congress in response to the Enron scandal and other corporate misconduct. The act holds CEOs and CFOs of U.S. public companies, international companies that have registered equity or debt securities with the Security and Exchange Commission, and all accounting �irms that provide auditing services to them personally liable for the accuracy of their �inancial reports. It also requires that companies have their internal control systems audited by an external auditor at the same time that their �inancial statements are being audited. The main goal of SOX is to instill in companies a culture of careful, responsible, and transparent �inancial reporting and corporate governance. That goal does come at a price, however. Since the passage of the bill, businesses have spent millions of dollars per year complying with the act’s strict accounting requirements. (For more on this law, see Chapter 31, Federal Securities and Antitrust Laws (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/ch31#ch31) .)

Most corporate law is state rather than federal. The regulation of privately held and close corporations is speci�ic to the states in which they are registered or doing business; thus, the standards may differ from state to state and from the federal rules in SOX. However, the SOX requirements can provide a model of good practice that exempt companies can use to create more transparent and accountable processes.

A Closer Look: The Enron Scandal

The downfall of energy giant Enron in 2001 led to the government enactment of sweeping legislation to regulate the accounting practices of business: the Sarbanes–Oxley Act of 2002. Operating in a newly deregulated energy industry, in the 1990s Enron had made enormous pro�its from trading electricity and natural gas resources to state utility companies. However, its increasingly unethical business culture created a complex web of subterfuges and deception.

In November 2001, Enron lost the vast majority of its $11 billion value. Investigated by the Securities and Exchange Commission, it was discovered that the �irm was hiding billions of dollars in debt under the cover of shell companies, from which its executives were pro�iting richly. The company routinely destroyed, altered, or fabricated �inancial documents to hide its true actions. The scandal also led to the dissolution of accounting �irm Arthur Andersen, one of the largest auditing �irms worldwide at that time, which was found guilty in federal court for its negligent oversight of Enron’s �inances. Several Enron company executives received jail sentences for their role in the scandal. The enactment of Sarbanes–Oxley was intended to require transparency from public companies and to prevent �inancial fraud from happening again on such a vast scale. According to the authors of The Smartest Guys in the Room, "The Enron scandal grew out of a steady accumulation of habits and values and actions that began years before and �inally spiraled out of control." For a description of the unfolding events, see the 2002 Time article "Enron: Who’s Accountable? (http://www.time.com/time/magazine/article/0,9171,1001636,00.html) "

Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010

In 2010, unethical acts by business organizations again triggered new regulation. In response to the 2008 �inancial crisis, Congress passed the Dodd–Frank Wall Street Reform and Consumer Protection Act. This act was intended to increase oversight of the �inancial industry and prevent the types of risk- taking and deceptive practices (in subprime mortgage lending, for example) that were blamed for the failure of several large �inancial service �irms, the housing market collapse, and the subsequent recession. It also created a Consumer Financial Protection Bureau (CFPB) to enforce federal consumer protection laws. CFPB has a mandate to educate and inform consumers so they can understand the terms of the agreements they make with �inancial

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companies, such as credit card issuers. (For a brief, 16-page summary, see the U.S. Senate Banking Committee website (http://banking.senate.gov/public/_�iles/070110_Dodd_Frank_Wall_Street_Reform_comprehensive_summary_Final.pdf) .)

Dodd–Frank also strengthened federal protections for whistleblowers (many states have similar laws) and promised �inancial rewards for individuals who come forward with information about unlawful business acts. The act aims to protect workers who come forward with potentially incriminating information from retaliation and �iring.

International Business

Legislatures and the courts (both state and federal) have also addressed ethical concerns about U.S. companies doing business abroad that are trying to skirt U.S. regulations or evade taxes. Conduct that was once seen as acceptable, such as the bribery of foreign of�icials in the regular course of business in some foreign countries, can now bring criminal penalties. In 1977, in response to an international scandal involving U.S. companies bribing foreign of�icials to receive contracts, Congress passed the Foreign Corrupt Practices Act (FCPA). This act makes it unlawful for American companies to make payments to foreign governments and of�icials to assist in obtaining or retaining business. It has also been amended to make it so that foreign of�icials who facilitate these bribes in the United States can be held criminally liable. Companies have paid hundreds of thousands of dollars in �ines for violating this act—perhaps they consider this just another cost of doing business.

A debate has also been taking place for years about the responsibility of American �irms that are selling products in foreign countries that cannot be sold in the United States (because it would violate health and safety regulations) but whose sale is not prohibited in foreign countries. This battle is likely to be fought largely in civil courts in the United States and abroad, as foreign nationals sue American companies for selling allegedly unsafe products. In the past, such claims have been made with regard to a wide range of products, including baby formula, pharmaceutical products, and pesticides. Thus, there is often a chasm between what is legal and what is right.

In an attempt to set a higher standard for the world’s businesses, the United Nations has created the U.N. Global Compact, a set of 10 principles to be voluntarily used by businesses to guide their global enterprises:

Support and respect the protection of internationally proclaimed human rights;

Ensure that businesses are not complicit in human rights abuses;

Uphold the freedom of association and the right to collective bargaining;

Work toward the elimination of forced and compulsory labor;

Work toward the abolition of child labor;

Eliminate discrimination in employment and occupation;

Support a precautionary approach to environmental challenges;

Undertake initiatives toward greater environmental responsibility;

Work toward the development and diffusion of environmentally friendly technologies; and

Resist corruption of all forms, including extortion and bribery.

Regulating From Within

In the wake of the many highly publicized corporate lapses of good ethical judgment by key players at companies such as WorldCom, Enron, and Arthur Andersen, companies rushed to implement codes of ethics, ethical training, and other processes. These measures were meant to help make employees more aware of ethical issues and provide them with practical tools for resolving potential ethical problems when they arise. While these were steps in the right direction, they cannot merely be public relations maneuvers or schemes to avoid litigation for poor risk management.

Perhaps the best way to ensure ethical conduct from corporate citizens is to hire, promote, and retain ethical leaders. The most effective training model for ethics in any company is to have its leaders—from boards of directors to line supervisors—model ethical behavior. In such a company, leaders consistently act ethically and make it clear that they expect the same of their subordinates. In an ideal company, individuals are not rewarded for unethical behavior that is pro�itable but reprimanded for ethical behavior that hurts the bottom line. People who work for these organizations will not only consistently act in an ethical manner but will likely feel positive about themselves and the company for which they work.

Often, the law reactively seeks to address well-publicized ethical lapses by imposing new and stiffer penalties for ethical violations and corporate mismanagement of corporate directors and of�icers. In turn, corporations struggle to implement processes to show their stakeholders that they are "doing something" about the problem. Instead, they might ask themselves the following questions:

Are existing policies or procedures encouraging unethical behavior in their employees?

Are they appropriately screening current and prospective employees for ethical competency and integrity?

Are employees who lie on their résumés �ired if the lie is discovered?

Is adherence to ethical standards a criterion evaluated during periodic performance reviews?

Can subordinates trust the word and motives of supervisors and executives at all levels?

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Are principled leaders, who take personal responsibility for the failure of those they lead and share credit for the success that others have made possible, promoted and retained? Do people at all levels feel valued for their contributions and proud to go to work every day?

If the answer to these and similar questions is no, then ethical training and implementation programs will be seen for what they are by employees and stakeholders in a company—mere window dressing.

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4.3 Social Responsibility of Businesses In the 1960s, when academia began to see business ethics as a separate topic worthy of study, the term corporate social responsibility was coined. The role of the organization as a corporate citizen that has great power to affect the whole of society became a serious topic for discussion.

Some scholars �irmly contend that the corporation’s one and only responsibility is to be a lawfully run, pro�itable business. This point of view has many good arguments. A pro�itable company provides valuable goods and services, jobs, tax revenues, and return on investments by shareholders and venture capitalists. A successful economy depends on thriving businesses. However, while this is true, some people feel it does not go far enough.

There is an old saying that "with great power comes great responsibility." Business in the United States is very powerful, and the decisions and actions of businesses have a great in�luence on society, so their responsibility goes further than just making a pro�it and doing what is legally required of them. Rather, corporations should use their wealth and power to take on voluntary roles to support social good. One way to be socially responsible is through charitable giving. Many arts and social programs in the United States are supported by funds from corporate sponsors. Some entrepreneurs see opportunities to solve social problems while nurturing a viable business venture. They are using their skills to start new companies and projects in which they can be innovative, creative, and socially responsible and make a good living at the same time. This is often referred to as "enlightened self-interest." For example, if you have a strong personal commitment to improving the environment, you might start a business that provides recycling for rural areas not covered by a municipal recycling program, thereby helping the environmental cause and making money at the same time. In his book Stirring It Up: How to Make Money and Save the World (Hyperion, 2008), Gary Hirshberg describes how he built a $300-million-per-year business (Stony�ield Farm) using environmentally sound practices to manufacture organic yogurt.

All businesses employ skilled individuals that can bene�it society in many ways. For example, an engineering �irm or a company that has many scientists on staff could give their employees release time to work with children in their local schools to interest them in science. An accounting �irm could volunteer time to audit the books of local nonpro�its. Many companies now pride themselves in their commitment to improving (or at least not harming) the environment through responsible business practices. Companies that contribute to their communities create goodwill and make their employees proud to work for them, which is a potent motivator.

Companies should approach planning for social responsibility like any other business strategy. Possible steps to achieve this goal are as follows:

Look at the core competencies of your organization and see what skills you have to offer;

Look for unmet needs in the community that your employees would be proud to be involved in;

Ask your employees for ideas and projects;

Find partners you can work with. For example, a TV station could launch a yearly coat drive and team up with a dry-cleaning company to provide clean, mended coats to people in need;

Assign someone the responsibility of implementing and following through. You may need to form a committee to make decisions and do planning;

Make a timeline, set goals, and determine a budget;

If charitable giving is what you feel would be best, set a �inancial limit and determine the criteria for distribution. For example, decide on a goal to fund special projects for the public schools;

Carry through with your plan;

Assess the success of your efforts; and

Make improvements if necessary.

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4.4 How to Create an Ethical Company: Lessons From the Field of Business Ethics

In the almost 50 years of studying business ethics, several important speci�ic lessons have been learned:

1. Ethical businesses are more successful. 2. It is crucial to have the commitment of the leadership of the company to create an ethical organization. 3. The values and ethics of the corporate culture from the top to the bottom of a company are vitally important and dif�icult to change. 4. It is important to hire good people, but that isn’t enough. Companies need to train people on how to handle the speci�ic issues that may arise in their work and how to think through dif�icult ethical choices. 5. Businesspeople need to be able to "voice their values" and be heard. 6. Ethics must be implemented like any other strategic business decision.

Let’s discuss these key principles in more detail.

Ethical Businesses Are More Successful

Although not all businesses practice ethical integrity, research shows that ethical businesses are more �inancially successful ("2010 World’s Most Ethical Companies," 2010, Ethisphere (http://ethisphere.com/past-wme-honorees/wme2010) ). A study of companies that had been consistently successful for more than 100 years revealed that greater than 80% of them shared some interesting common characteristics. They all had a highly focused strategy based on their reputation, concentrated on good relationships with customers, valued long-term employees, and held to strong core values that had been passed on through the years by the company’s leaders (TenHagen, 2008).

Many other reasons account for the success of ethical organizations:

A good reputation is crucial: All stakeholders, customers, suppliers, bankers, and others in the mercantile community need to trust a company and want to do business with it. For example, investors don’t want to invest in companies they cannot trust to handle their funds.

Employees want to be proud of where they work. Employee commitment and satisfaction are crucial for productivity.

An ethical workplace where people are making good decisions and clearly understand their job responsibilities increases ef�iciency in daily operations. In contrast, placing unrealistic expectations on employees may make them feel so pressured that they make bad decisions and cut corners. According to Fraedrich and Ferrell (1992, pp. 243–252), approximately 60% of the unethical behavior in companies is not motivated by personal greed but comes from pressure to reach business goals.

Ethical disasters large and small are costly to companies. Even the publicity of a minor ethical mistake can adversely affect share prices for up to six months. O. C. Ferrell, a respected scholar of business ethics, refers to "ethical tsunamis" that can damage a company as badly as any natural disaster can wreak havoc on a city. We have seen large, famous companies fail completely after an ethical disaster. Businesses that are found guilty of crimes often pay huge �ines and have their reputations permanently tarnished (Brewer, Chandler, & Ferrell, 2006).

Ethical thinking is strategic, holistic thinking: the ability to look at the big picture and determine consequences large and small. Ethical thinking requires planning, looking at alternatives, and making wise choices. It also thrives on awareness, analysis, and action, just like any other sound business decision making.

Creating an Ethical Corporate Culture

Corporate culture refers to the values, goals, and character of the organization. You learn these by osmosis—by being part of the organization, from your leaders and peers. We have all started a new job and worried whether we are dressed correctly and what we need to learn to �it in, know how things are done, and what to expect. We proceed to learn how to dress, behave, and communicate from being part of a group. The culture of a business enterprise is unique. A company’s character and goals may have been set up by its founders and are imbedded in the day-to-day life of the company. If one is lucky, it is an ethical culture, and in that case, all that is needed is to reinforce the existing culture or bring it up to date. However, if ethical problems are endemic to an organization, changing that established culture can be dif�icult and will take time and effort to achieve.

To create an ethical corporate culture, it is crucial to have the commitment of company leadership, which sets the direction and tone of the business. Strategic planning, overall goals, and commitment of resources are decided at the top. Further, leaders are the role models for their employees and the organization’s values. Boards of directors who hire CEOs are well served to look for individuals of good character who can do the kind of holistic thinking that is needed to make both good business decisions and ethical decisions. Being the best in business certainly requires making a pro�it, but it also requires making a commitment to all your stakeholders. An exemplary business is fair to its employees, pays its bills on time, makes useful and safe products, operates with transparency, and is a good neighbor and citizen.

Guidelines and Codes of Conduct

Leaders have the resources to implement the steps to create an ethical environment in their companies. They also know that companies and managers can be held liable for the illegal and unethical behavior of their employees. However, these guidelines and laws won’t be effective if they are just a super�icial

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way to create better public opinion and avoid legal �ines. Creating an ethical corporate culture takes a deeper commitment by leadership and must become part of the everyday thinking and action of the individuals throughout the organization.

In 1991, Congress passed the Federal Sentencing Guidelines (FSG), which encourage employers to adopt ethics and compliance programs. Because employers can be held liable for their employees’ conduct, the FSG gives organizations incentives to put into place organizational structures that build up ethical cultures. Its seven requirements are as follows:

1. The organization must develop and disseminate a code of conduct that communicates the required standards and risk areas. 2. High-ranking personnel who are known to abide by the law must have oversight of the program. 3. No one with a known tendency to engage in misconduct should be put in a position of authority. 4. A communications system for disseminating standards and procedures must be put in place. 5. Organizations must create a way for employees to report ethical issues without fear of retaliation. Monitoring and auditing systems to detect misconduct must also be developed. 6. If misconduct is detected, then the �irm must take appropriate and fair disciplinary action. 7. After misconduct has been discovered, the organization must take steps to prevent similar offenses in the future.

Companies that have implemented these voluntary guidelines can reduce their liability and penalties when one of their employees commits a crime. As a result, many companies have done at least the basics necessary to comply with them.

Many organizations have developed a code of conduct and a mission and value statement. A good value statement is speci�ic to your company, meaningful for your work, and something all your employees can aspire to achieve. However, creating it and posting it on your website or on the wall is not enough. This may meet the minimum standards of the FSG, but without a more active commitment, it will not be effective at creating a truly ethical corporate culture. These values must be a priority, modeled by managers, and integrated into the thinking and actions of the company. Deep-seated ethical goals should be included in the strategic planning of the company and measured like any other corporate goal for effectiveness. These general goals are important, but the company must also �ind practical ways to affect all employees and send this message to every corner of the enterprise.

Protecting Whistleblowers

The whistleblower provisions of Dodd–Frank have been criticized for encouraging individuals to go outside the organization before using the internal procedures to solve the problem. This gives companies even more incentive to make sure they are really listening to employees. Many companies are hiring independent contractors to act as ombudspersons who enable individuals to make anonymous reports of ethical violations without fear of reprisal. Again, this works only if it is done well with real follow-up on information and if anonymity is actually maintained.

Ethical "Risk Management"

One crucial �irst step toward instilling an ethical culture in an organization is identifying the speci�ic ethical risks your employees will be facing and developing a training program to directly address these risks. For example, a bank may have different ethical pitfalls than a company dealing largely in sales and marketing. A buyer may face different ethical questions than an engineer. The issues one faces in business may differ from those faced in everyday life. A person may be prepared to handle the ethical dilemmas in everyday life but not so much the dif�icult and complex issues that arise in a business setting. Hiring good people is a good start, but managers must also make sure that new hires have the tools to make decisions speci�ic to their work.

Cross-Cultural Business Ethics

Many American companies, large and small, are now doing business internationally. So they need to address the ethical and legal issues they will face doing business in other countries. Companies should not assume that the laws or codes of ethics that work well in the United States can simply be imposed on their expatriate employees and foreign subsidiaries. Creating realistic policies and procedures that are sensitive to the particular locales in which one is doing business is crucial. This doesn’t mean simply following the ethical standards of another country and jettisoning one’s own. Businesspeople must be careful to address the cultural standards in each country in a way that supports their own ethical commitments but does not offend others. Having clear guidelines protects employees and gives them solid guidance on how to address problems they encounter far from home.

Monitoring Ethics Policies

Lastly, it isn’t enough for companies to put policies into effect and assume they work. Like all business actions, they must go back and evaluate effectiveness, not once but regularly, and act to correct and improve what has been put into place. Some companies are even hiring independent specialists to do "ethics audits." For the truly committed company, these audits can give new insight from an impartial source.

How Managers Can Create an Ethical Environment

As a manager or future manager, you also have great input in creating an ethical environment for the people you supervise and work with. Although a manager’s company leadership is vitally important in this effort, you will have daily contact with the people you supervise. Managers hire, �ire, reward, discipline, train, and lead. You are the person who will be primarily responsible for the ethical decisions of your employees. Shared values that you want all your employees to possess might include honesty, respect, responsibility, fairness, kindness, compassion, commitment, and trustworthiness.

Hiring Good People

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Hiring good people is the �irst step in the process. When you advertise for an open position, be clear that you are looking for an individual with not just great business skills but also one possessing sound character. Clearly state the values you expect your employees to have. When interviewing, ask situational or hypothetical questions that may be ethically challenging. It will be important to see how the candidate responds. Check references and, if people are willing to tell you, don’t just �ind out about their job skills but also about their character.

Train your new employees on the issues that are likely to come up in their job that may be ethically and legally challenging. This is an ongoing process. As you learn and read, pass your wisdom along and become a teacher and a supporter. Businesspeople tend to be very results oriented. One of the worst messages they can send to their employees is "Just get it done; I don’t care how." Instead, they must reward not just results but also process. It does matter how one gets the job done. Nothing is more demoralizing to employees than seeing someone of bad character rewarded. If managers reward good results achieved the wrong way, they are encouraging unethical behavior.

Applying Discipline

On the �lip side, business leaders must also apply appropriate sanctions for bad or illegal behavior. It is important that companies have clear procedures and policies to guide managers in the area of discipline. But it is equally important for managers to be very professional and consistent in applying these procedures and following the policies. Violating the code of ethics or conduct is just as serious as not having the skills for the job.

Setting the Tone

A manager can create a microculture within the larger culture of the organization. The tone you set for your employees and your example are extremely important. The old saying "Do as I say, not as I do" doesn’t work any better in the workplace than it does with children. Your employees will be taking their cues from you. Most people would prefer and feel most comfortable doing the ethical thing. Keep in mind that the majority of your employees will basically follow company policies or simply go along with what is happening in their work group. So the culture of the company and the culture you create for your employees both count.

Your employees need to feel comfortable coming to you with their most dif�icult problems. Keep your door open. Send the message "If there is a problem, I want to hear about it." Don’t just say it; back it up with your actions, which speak louder than words. If you have a tendency to "shoot the messenger," the messages will stop coming, or worse, will ambush you when you least expect it. Your employees need your input when faced with issues about which they are unsure. Hearing bad news in time to deal with it isn’t easy, but it is a lot easier than cleaning up the mess later. Even with the best training and preparation, you and your employees will face situations you have not anticipated. Something that is clearly wrong is easy to spot, but not all business decisions are black and white. These are the times that communication and discussion, gathering information with careful analysis of possible consequences, and considering business alternatives are essential. Here you can fall back on your values statement, training, and if necessary, your legal department to determine what is right and proceed accordingly.

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4.5 Ethical Con�lict Management Here is a broad de�inition of con�lict: "Con�lict is when we have a different idea than someone else." Often we may have a different idea of what is ethical than someone else. This becomes most dif�icult when someone in an organization is told to do something by a superior that the employee feels is wrong. This can happen in many circumstances. The CEO could be asked by the board of directors to do something he or she is not comfortable with, a manager may be asked by a superior, or a worker by a supervisor. Thus, we have the making of con�lict. The most commonly cited �igure is that managers spend up to 42% of their time resolving con�lict (Watson & Hoffman, 1996). For more on structured forms of legal con�lict resolution, such as ADR, negotiation, and arbitration, see Chapter 3 (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/ch03#ch03) .

Conflict Can Be Positive

Many of us think of con�lict as negative and angry. However, con�lict is a fact of life, and how we handle it is the crucial part. Con�lict in an organization doesn’t always result from bad management; rather, it is often a sign that people care about what happens and are invested in ideas they believe to be worthwhile. Contrary to most of our �irst reactions, con�lict can even be positive. Con�lict can spark great conversations and stimulate our creativity. People with two or more different ideas can work together and often come up with a creative solution no one would have thought of individually. In business, we often work in teams, and being able to solve problems together can strengthen relationships. Ethical dilemmas solved through cooperation can help us learn and grow and be better equipped to handle the next problem that crops up.

Handled calmly, competently, and professionally, con�lict can be the seed of growth. However, handled badly, it can lead to poor communication and polarization within the workplace, decrease productivity, and damage people’s trust in one another. Unethical decisions that are forced on employees can propel them to leave for other jobs or even be �ired.

Principled Negotiation

One of the best ways to handle the discussion of con�lict is to use the skills of principled negotiation from Fisher and Ury’s classic book, Getting to Yes (2011). This method assumes that the vast majority of people with whom we negotiate also have a continuing relationship with us. The goals of principled negotiation are to improve, but at least not damage, relationships; reach a fair conclusion; and do this ef�iciently, without wasting time, money, or emotional energy.

Be Hard on the Problem but Soft on the People

The �irst step in principled negotiation is to be hard on the problem but soft on the people. An ethical question is a problem that needs to be worked on together to come up with an answer. This is not the time to blame or point �ingers. Working together to solve a problem, rather than approaching the problem as an adversarial situation with different sides, brings people together. This is the time to understand the other person’s point of view and to communicate clearly what each one sees as the problem.

De�ine Your Interests, Not Positions

The second step is to de�ine your interests, not positions. This is where you work to communicate your goals. What is the outcome you need in this situation? Fisher and Ury use the excellent example of two people sitting at a table in the library. One person gets up and opens the window by the table they are sitting at. The other person gets up and closes it. The librarian, sensing a problem, goes over to the table and asks what is going on. One person takes the position that he wants the window open, and the other says she wants it closed. The librarian, in order to discover their goals and their interests, asks each, "Why?" He says it is stuffy, and she says she doesn’t like a draft blowing on her. The librarian walks over to a nearby table and opens a window. She has solved the con�lict by looking at the goals they wanted to achieve and solved the problem with a solution neither had thought of. When dealing with con�lict, if you dig in your heels instead of looking at the goal you want to achieve, you don’t leave room to solve your problem.

Invent Options for Mutual Gain

The third step is to invent options for mutual gain. This is the time to look at all the different ways to reach your goals. If someone takes the position that the only way to make a pro�it is to cheat, that no doubt limits your options. By brainstorming and coming up with a variety of ethical ways to make a pro�it, you can look at alternatives and pick a better, more ethical way to handle something. Don’t sti�le your creativity and leave your values behind by assuming only one way to handle the situation.

Looking for mutual gain means starting your discussion by looking for shared interests. For example, you might say, "I know we both want what is best for our company" or, "Finding a good solution to this problem is going to help us all." Start out by practicing agreement rather than emphasizing areas of con�lict.

Use Objective Criteria

The fourth step in principled negotiation is to use objective criteria. Support your options with real data and information. Look at the pros and cons, the cost and bene�its. Employ the tools at hand, which include online resources, business and legal libraries, and statistical data, to reinforce your decisions.

Yield Only to Principle

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Fisher and Ury leave us with some �inal advice. Never yield to pressure but only to principle. Make your decisions based on real information and using your best values and character. In order to do this, be open to listen and be persuaded to do the right thing. Good ethical decisions, like all sound business decisions, come from careful thinking and planning and accurate information. Look at the possible consequences of different options and the whole picture of what is happening.

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4.6 Making Ethical Decisions In section 4.1 (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/sec4.1#sec4.1) , Ethics and the Law, we discussed personal philosophies. Making good decisions also means knowing and understanding what makes us tick. We all have to consciously decide what kind of person we want to be. Living with the guilt and stress of acting unlawfully or unethically can take its toll, and most of us want to do the right thing and are happier being our best self.

Failing to Act

In a study done by Yale professor Mary Gentile, and as discussed in her book Giving Voice to Values (2010, p. 214), the author found a profound difference between people who chose to do the right thing and those who did not. The people who did the right thing weren’t smarter, stronger, or better businesspeople than those who did not choose the ethical course. The difference was in how they posed the question they needed to answer. The people who chose not to act asked, "What are the risks of doing something?" The people who made the ethical choice asked, "What are the risks of doing nothing?"

The people who acted by doing the ethical thing looked at the consequences of failing to act. They took a broad, holistic look at the possible consequences to their company and themselves instead of what might happen to them now. This way of approaching a problem �its well into our discussion of ethical thinking as good business and strategic thinking: We need to project the results of our decisions into the future and base our decisions on real facts and information that rest on our principles and values.

Many people look only at the immediate risks of a decision. The greatest fear of an employee may be the ultimate consequence of losing a job or facing retaliation. This is a serious and real fear because we all know that not all managers are open to discussion and not all companies act on the values to which they pay lip service. Here are some suggestions for approaching a superior about an ethical problem:

1. "I need to talk." 2. "I need your help." 3. "Can we work on this together?"

As discussed in section 4.1 (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/sec4.1#sec4.1) , Ethical Con�lict Management, go into a discussion prepared with a good ethical and business argument. Have facts and �igures to support your concerns. Be ready with ethical alternatives that will allow you to reach the same goal. Be ready to be persuasive, not accusatory, and remain professional, calm, and con�ident.

Avoiding Liability

If you do something illegal in your workplace, you will be held individually responsible. (See also the discussion of respondeat superior in Chapter 21 (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/ch21#ch21) , Establishing the Employment Relationship.) The law does not accept the defense of "But they told me to do it!" If you did the act and intended to do it, you will be held personally liable. Sometimes you have to say no. You must use your instincts and values to determine whether, in some situations, you just can’t do what is asked.

Giving Voice to Your Values

According to Gentile, you need to give voice to your values. This becomes easier with practice. Be open when interviewing for a job about your values, and make good character what you practice every day—not just on the day you need to talk to someone about a speci�ic problem. Be comfortable with yourself and treat value discussions like any other open conversation. You are much less likely to be asked to do something wrong if you live by your values every day. Be brave: You may have to make some hard choices to stay true to yourself.

We all make mistakes, but the great thing about being human is that we have choices. Sometimes we can’t change the past, but we can forgive ourselves, learn to live with the consequences, and strive to do better next time. It is never too late to be proud of the person you are. Doing the right thing is not always easy, but hopefully this chapter has given you some tools you can use both as a manager and an employee to reach ethical decisions.

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Key Terms

Click on each key term to see the de�inition.

anarchist (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

A person who rebels against any authority, established order, or ruling power.

business ethics (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

The application of moral codes or values to problems faced by companies or managers in their work.

civil law system (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Found in most of Europe, a form of government that includes detailed legal codes prescribing individual rights and responsibilities, swiftly administers justice, and limits the power of judicial interpretation. This system tends toward an absolutist or deontological ethical philosophy.

common law system (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

A form of government that leaves the judiciary with latitude for interpreting the governmental edicts found in legislative enactments and provides a system of appellate courts to review trial courts’ application of the law; determinations of fact are usually left to juries. This system adapts to the local customs, traditions, and needs of a people.

Consumer Financial Protection Bureau (CFPB) (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Agency created by the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 to enforce federal consumer protection laws. It also has a mandate to educate and inform consumers about terms of the agreements they make with �inancial companies.

corporate culture (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

The values, goals, and character of an organization.

corporate social responsibility (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

The role of the organization as a corporate citizen rather than merely a pro�it-making enterprise; the notion that corporations should use their wealth and power to take on voluntary roles to support social good.

criminal law (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

An area of the legal system that tries to prohibit and punish antisocial behavior; it re�lects society’s ethical standards and attempts to discourage behavior that society deems immoral.

deontology (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

A duty-based ethical theory that emphasizes individual rights and good intentions.

Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Legislation that increased oversight of the �inancial industry and sought to prevent the types of risk-taking and deceptive practices that led to the 2008 �inancial crisis.

ethical absolutism (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

An ethical philosophy tied in to the central idea that there are certain universal standards by which to measure morality and justice.

ethical philosophy (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

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A set of beliefs about right and wrong that guides decision making both in individuals and in societies at large.

ethical relativism (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

A system of thought that denies the existence of absolute moral values. Also known as "situational ethics."

ethics (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

The branch of philosophy concerned with the study of morality.

Federal Sentencing Guidelines (FSG) (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Voluntary parameters that companies can implement to reduce their liability and penalties if one of their employees commits a crime; the guidelines encourage employers to adopt ethics and compliance programs.

Foreign Corrupt Practices Act (FCPA) (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

An act that made it unlawful for American companies to make payments to foreign governments and of�icials to assist in obtaining or retaining business.

justice ethics (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

A philosophical system based on the concept of fairness guiding actions.

nihilism (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Derived from the Latin word for nothing, a philosophy that denies the existence of any ethical standards.

principled negotiation (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

A system of principled business negotiation that aims to improve, and at least not damage, relationships; reach a fair conclusion; and avoid wasting time, money, or emotional energy.

religious fundamentalism (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

A theory of ethics that relies on the existence of certain immutable truths. Ethical norms can be found by studying the lives and writings of prophets or by consulting holy scriptures.

Sarbanes–Oxley Act of 2002 (SOX) (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Legislation passed by Congress in response to the Enron scandal. It makes CEOs and CFOs personally liable for the accuracy of their �inancial reports and requires that companies have their internal control systems audited by an external auditor at the same time that their �inancial statements are being audited. Its goal is to instill in companies a culture of careful, responsible, and transparent �inancial reporting and corporate governance.

utilitarianism (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

The assignment of value to actions based upon their outcome. De�ines the ultimate good as actions to bring about the greatest utility (or greatest good) for the greatest number of people.

values (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Core, underlying, or guiding principles that form the basis for one’s ideas about right and wrong and are an expression of an ethical philosophy.

virtue ethics (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

A philosophical theory that looks at the basic values one needs to develop to have a good moral character.

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whistleblowers (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Individuals who come forward with information about unlawful business acts. Both federal and many state laws protect these people from recriminations, retaliation, and �iring.

Chapter 4 Flashcards

Critical Thinking and Discussion Questions

1. How does ethical absolutism differ from utilitarianism?

2. "You cannot judge a man until you have walked a mile in his shoes" is a statement that is best linked to which philosophy of ethics?

3. What area of law most clearly involves a society’s effort to "legislate morality"? Do you believe this is an effective way to change behavior?

4. Where foreign countries do not yet regulate the safety of consumer products or the workplace, what ethical responsibility do U.S. companies working abroad have to their foreign customers and workers?

5. In your view, what is the best way for a company to promote ethical conduct among its employees?

6. Explain the steps of principled negotiation. What part of this process do you �ind most useful? What would be the hardest to do?

7. Some argue that government needs to increase its regulation of business for the good of society as a whole, while others believe that the marketplace is self-regulating and that government intervention through needless regulation places an unfair, costly burden on businesses generally and small businesses in particular. What role do you believe government regulation should play to ensure ethical conduct by businesses?

8. XYZ Pharmaceuticals develops a new drug that causes the abortion of female fetuses up to the �irst trimester of pregnancy but does not affect male fetuses. The drug has no known side effects for women who take it and seems perfectly safe to use. While awaiting FDA approval of the drug, a process that takes several years, the company receives very negative publicity, and numerous groups call for a boycott of the manufacturer. Because of the negative reaction to the drug by the general public, the manufacturer decides to scrap plans to produce the drug in the United States but wants to market it abroad in a number of countries, where it expects the drug to be well received. There is nothing in U.S. law or in the laws of the countries where it intends to market the drug to prevent its sale. Make an ethical argument either for or against the drug’s sale abroad. Justify your argument with sound reasoning.

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Chapter 5

Administrative Law Administrative law governs and de�ines the powers of government agencies. A number of political and technological factors have led to an explosion in the growth of government since the turn of the 20th century, at both the federal and state levels. Even though these bureaucracies fall under the executive or legislative branch, their rapid growth has given rise to what is commonly referred to as the "fourth branch of government": administrative agencies.

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Comstock/Thinkstock

The Internal Revenue Service is one example of an agency created by the federal government to expand its regulatory power.

5.1 What Is the Purpose of an Administrative Agency? Beginning in the 1930s, the federal government has been steadily expanding its regulatory powers over business and individuals through the creation of agencies such as the Federal Trade Commission, Internal Revenue Service, and Food and Drug Administration. Under the U.S. Supreme Court's broad interpretation of the Commerce Clause, Congress has the power to regulate nearly any matter that has an impact on interstate commerce. However, the 535 men and women that make up the 112th Congress have neither the time nor the expertise to become involved in the speci�ics of drafting regulatory rules for each federal agency. What Congress has done instead is to create administrative agencies to oversee or carry out speci�ic governmental functions and then empower those agencies to create the rules by which they will operate. The same holds true for the executive branch of government, where the president uses administrative agencies to help carry out the responsibilities of the of�ice.

When an agency is created, Congress gives the agency the power to draft its own agency rules—the guidelines under which the agency operates and that must be followed by persons over whom the agency is given regulatory powers. When federal agencies enact rules, they must follow the guidelines set forth in the Administrative Procedure Act (APA), which speci�ies the procedures agencies must follow in promulgating new rules. As long as an agency creates rules in accordance to the Administrative Procedure Act, such rules have the force of law.

Agencies have two main purposes: assisting in carrying out vital government functions and exerting regulatory control. They are the instruments through which Congress and the president institute policies and implement government regulation. As both government and government regulation have steadily grown, starting in the �irst half of the 20th century, agencies, as the instrumentality of that growth, have likewise swelled in size and power. While the titular seat of power may rest with legislative and executive branches of government, it is administrative agencies that carry out the day-to- day operation of governmental regulatory and service functions, and they often take on a life of their own.

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5.2 The Administrative Procedure Act An independent federal agency is created through an act of Congress that establishes the agency and empowers it to perform whatever duties Congress speci�ically delegates to the agency. The actual creation of the agency and the scope of its authority are detailed in the enabling legislation—the act of Congress that creates the agency. The details of the agency's operation are left to the agency, which creates its own rules in accordance with the guidelines set forth in the 1946 Administrative Procedure Act (APA). The APA gives agencies broad rulemaking powers, as long as they act within the guidelines that the APA provides. Federal executive agencies are usually created by presidential order. Like independent agencies, executive agencies are also subject to the guidelines of the APA.

What relevance does this have to you as a businessperson? One effect could be that if an act by an administrative agency exceeds the powers given to it by its enabling legislation, and this impacts your business, then the act by the administrative agency is unenforceable.

Rulemaking Requirements

Under the Administrative Procedure Act, agencies have the power to create rules that have the force of law provided that the guidelines of the APA are observed. The basic requirements that all federal agencies must observe in rulemaking are as follows:

Giving notice to the general public that a new rule or rule change is being considered by publication of the proposed rule in the Federal Register

Providing an opportunity for all interested parties to participate in the rulemaking process by conducting public hearings and giving all interested parties a reasonable opportunity to voice their views on the proposed new rule or rule change

Publishing in the Federal Register a draft containing the essential factors relating to the proposed rule and its purpose at least 30 days before the rule is to take effect

Once the requirements of the APA have been met, the proposed rule takes effect on its proposed effective date and has the force of law.

Limits on Administrative Agencies

As previously noted, federal agencies have far-reaching powers within the areas that they oversee. A congressional grant of authority to an agency often includes the ability to carry out investigations, create rules that are the functional equivalent of statutes, hold hearings to adjudicate alleged violation of agency rules, and assess punishment (usually by way of �ines) to those adjudicated to be in violation of the agency's rules. Agencies with such powers, such as the Internal Revenue Service, can act as legislator, police, judge, and jury.

While this concentration of power leads to the swift administration of justice, the average citizen facing an administrative hearing may take comfort in the knowledge that both agency rules and most agency decisions are subject to judicial review on any of the following grounds:

The agency acted beyond the scope of its authority under the agency's enabling act; The agency misinterpreted federal law (including its enabling act) in its rulemaking

or in the adjudication of any matter before the agency; Agency action violates the U.S. Constitution or any federal law; or Agency rules or the �indings of administrative law judges are arbitrary or capricious.

Agency rules and procedures, as well as the adjudications by administrative law judges of agency hearings conducted as informal trials, are upheld by the courts as long as they meet the noted requirements.

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Pablo Martinez Monsivais/Associated Press

Members of the president's cabinet direct executive agencies such as the Departments of State, Justice, and Homeland Security.

5.3 Types of Administrative Agencies Federal agencies fall into two basic categories: independent and executive. Independent agencies are created by Congress to assist it in exerting regulatory control or to carry out governmental administration. Once created, these agencies are headed by a director who is appointed by the president and con�irmed by the Senate. In order to distance these agencies from the political process, independent agency directors serve for set terms that are staggered so as to prevent any given administration from having too great an impact on such agencies through presidential appointments.

Independent Federal Agencies

Independent federal agencies can wield tremendous power. Congress often imbues these agencies with quasi-judicial, quasi-legislative, and quasi-executive powers: they create their own rules (a legislative power), enforce these rules and conduct investigations (executive powers), and adjudicate disputes relating to these rules or their applications in administrative hearings similar to trials (a judicial power). Administrative law judges (ALJs) preside over hearings, rule on issues of evidence, decide the outcome of cases, and write opinions. Independent agency directors are appointed by the president and con�irmed by the Senate.

Independent agencies perform a vital function in areas where speci�ic expertise is a requirement in order to perform a governmental function or regulate a speci�ic business. They include the Central Intelligence Agency, the Environmental Protection Agency, the Equal Employment Opportunity Commission, the Federal Communications Commission, the Interstate Commerce Commission, the Federal Trade Commission, the Nuclear Regulatory Commission (NRC), and the Securities and Exchange Commission, among many others. Although Congress may have the right to regulate aviation (because of aviation's impact on interstate and international commerce), the civilian and military use of nuclear energy, and intelligence gathering, few senators or representatives have the highly specialized knowledge necessary to effectively regulate any of these areas. Rather than regulating these areas directly, Congress can set up agencies staffed with experts who can promulgate rules by relying on their superior knowledge of the �ields they regulate or operate in, with appropriate congressional oversight. Consider the following examples.

1. The Nuclear Regulatory Commission (NRC), concerned about safety in the nation's nuclear power generating stations, wishes to impose new safety regulations affecting such power-generating plants. After issuing a notice to the general public that it is considering safety rule changes, the agency conducts hearings from interested persons in the industry as well as from the general public for a period of 60 days. At the conclusion of these hearings, it decides that it would be in the best interest of the industry to ban the sale of alcoholic beverages in counties where nuclear generating plants are located. It then publishes a copy of the proposed regulation as well as a general statement of the need for such regulation in the Federal Register 30 days before the regulations are to take effect. After the effective date of the regulations, it is challenged in a federal district court of appeals by liquor store owners in affected counties. What is the result?

2. In the last example, assume that the NRC followed the same procedure and promulgated a rule that forbade nuclear generating plant workers from working with a blood alcohol level of .05%, subjecting violators to a �ine of $5,000. Is such a regulation likely to be upheld if it is challenged in court? Explain.

3. The Federal Communications Commission, concerned with the increasing violence and hatred depicted in the popular media, decides to consider new rules affecting the broadcasting of material of a violent, sexual, or hateful nature. After following the established procedures for rulemaking under the APA, it promulgates the following new rules:

A. Material of a violent or sexual nature can be broadcast only between the hours of 12:00 a.m. and 6:00 a.m.;

B. Music that advocates physical violence, the degradation of women, or racial bigotry cannot be broadcast at any time.

Will these two regulations withstand court challenges? Explain.

Executive Agencies

Federal agencies have also been created to assist the executive branch in carrying out its responsibilities. Notable executive branch agencies include the Federal Bureau of Investigation (Justice Department), the U.S. Customs Service (Treasury Department), the Food and Drug Administration (Health and Human Services Department), the Bureau of Indian Affairs (Interior Department), the Immigration and Naturalization Service (Justice Department), the Secret Service (Treasury Department), the Federal Aviation Administration (Transportation Department), and the Social Security Administration (Health and Human Services Department), to name only a few. Consider the following example.

The Federal Aviation Administration wants to institute new safety regulations relating to the use of drugs and alcohol by pilots in civil aviation. After conducting a study, the agency decides that it would be in the best interest of the general public to begin weekly random drug testing of all airline pilots effective immediately. At the direction of the agency

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director, the FAA sends out notices to all airlines that a new drug testing program is now in effect. Is this regulation valid under the facts given? Explain.

Unlike independent agencies, executive agencies are under the control of the president, who can appoint and remove their directors at will. Executive agency directors, including members of the president's cabinet, serve at the pleasure of the president. These agencies are, therefore, much more responsive to political issues and subject to the winds of political change, at least at the top levels. Nonetheless, most agency workers are civil servants, not political appointees, and enjoy the relative job security that status conveys. Thus, while the heads of executive agencies may come and go with changing administrations, the bureaucracy itself is well entrenched and grows yearly as new agencies are created and existing agencies expanded to help implement government goals and programs.

State Agencies

Agencies are used not only by the federal government but also by state governments. State administrative agencies are set up to assist the executive and legislative branches to carry out their responsibilities. States use agencies to assist with such matters as the administration of workers' compensation, social services, tax collection, and the regulation of business. For example, each state has a tax division that not only oversees the collection of state taxes but also has a component with hearing boards that hold "trials" or hearings presided over by government ALJs. There is also an appeals component wherein the loser can take the tax issue to another level in the same agency. The decisions of the hearings are published and become stare decisis for further hearings. Businesses can easily consult these matters to see the current state of the law.

Workers' Compensation Boards

Because workers' compensation is such an important business-related topic, this section will focus on a "typical" workers' compensation board and how it makes law, but keep in mind that each state creates its own workers' compensation law, so the rules discussed next vary throughout the United States. If you want to view your own state's workers' compensation rules and procedures, search the words "workers' compensation State C." The Colorado workers' compensation can be found here (http://www.colorado.gov/cs/Satellite/CDLE-WorkComp/CDLE/1240336932511) ; Utah at laborcommission.utah.gov; and so on. Each state's website is detailed and provides information unique to its systems and rules. For an overview, the U.S. Small Business Administration website sets out links for business managers looking for workers' compensation information throughout the states found here (http://www.sba.gov/content/workers- compensation) .

How Workers' Compensation Boards Make Law

In the early 1900s, when the United States had a large industrial base, many employees who were injured or killed at work, or their families, could not pay their medical expenses and often lost their jobs if their injuries were serious. Workers' compensation laws serve an important social and political purpose in that they force employers to pay into an insurance fund to guarantee that employees will have medical and hospital coverage for injuries or death on the job. The trade-off is that the employee cannot sue the employer for negligence, a proceeding that would most likely result in much larger monetary compensation for the employee than the awards available through workers' compensation.

When an employee is injured at work, the employee submits any medical bills to the employer and the bills are then paid. On occasion, an employer may refuse to pay an injured employee's claim. Suppose, for example, that an employee suffers a heart attack at work. The employer may argue that the injury is not work related, and thus the employer is not liable. The employee, on the other hand, may disagree, contending that the job caused his heart attack, making him eligible for bene�its. Such a workers' compensation claim is deemed controverted. When this occurs, the employee may request a hearing before a workers' compensation administrative judge. At the hearing there will be doctors, the employer, the employee, and the judge, who will listen to the "testimony" and render a decision about whether or not the employee is entitled to payment. Thus, the hearing resembles a trial in which there are witnesses and testimony and a decision by a judge. Because the hearing is "like a trial" but does not have all the formalities of a trial, it is called quasi- judicial. The judge's decisions are written down and can serve as precedent, thereby providing some predictability. In this way, workers' compensation hearings "make law." The following case excerpt (with citations omitted) is an example of a controverted matter before the New York Workers' Compensation Board.

Cases to Consider: Richman v. Workers' Compensation Board

Richman v. Workers' Compensation Board, 936 N.Y.S. 2d 722 (Jan. 2012)

Appeal from a decision of the Workers' Compensation Board, �iled August 18, 2010, which ruled that claimant sustained a compensable injury and awarded workers' compensation bene�its.

On August 10, 2007, claimant, a court reporter, was found unconscious at her workplace and rushed to a local hospital, where she was diagnosed with a subarachnoid hemorrhage caused by a ruptured basilar artery aneurysm. Although claimant survived, she apparently remains unable to communicate. A workers' compensation claim subsequently was �iled on her behalf, and the employer and its workers' compensation carrier (hereinafter collectively referred to as the employer) controverted the claim, asserting that the ruptured aneurism was not related to claimant's employment. Following a hearing, a Workers' Compensation Law Judge (hereinafter WCLJ) found that the employer did not overcome the presumption of compensability set forth in Workers' Compensation Law § 21 (1). The Workers' Compensation Board af�irmed the WCLJ's decision, prompting this appeal by the employer.

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We af�irm. Pursuant to Workers' Compensation Law § 21 (1) a presumption of compensability exists where, as here, an unwitnessed or unexplained injury occurs during the course of the affected worker's employment. "The employer may overcome the presumption by presenting substantial evidence to the contrary."

Here, we �ind no basis upon which to disturb the Board's conclusion that the employer did not present suf�icient evidence to overcome the presumption. The record establishes that, prior to claimant's collapse, she was under considerable stress at work and her workplace was loud and overheated. While the employer's expert opined that claimant's ruptured aneurysm was unrelated to her employment, the Board agreed with the WCLJ that the expert's report and testimony were not credible—in large measure because he was evasive when questioned as to whether workinduced stress could raise a person's blood pressure high enough to cause an aneurysm to rupture. Notably, the expert acknowledged that high blood pressure could be a factor in the rupture of an aneurysm and conceded that he did not know what claimant's blood pressure was at the time the rupture occurred. Contrary to the employer's argument, the Board, which "is the sole arbiter of witness credibility" was not required to wholly credit the expert's opinion on this point simply because it was the only expert proof presented. The employer's remaining arguments on this point, to the extent not speci�ically addressed, have been examined and found to be lacking in merit.

ORDERED that the decision is af�irmed, without costs.

Read the full text of the case here (http://law.justia.com/cases/new-york/appellate-division-third-department/2012/512356.html) .

Questions to Consider

1. What did the court mean by a "presumption of compensability"? What does this mean?

2. How does the employer overcome this presumption? Did the employer succeed in this case? Why or why not?

How Workers' Compensation Boards Determine Payment

When an employee is injured on the job, the next step in the process is for that employee to receive medical attention. The doctor will make a determination about the extent of the injury, deeming it either temporary or permanent. For example, if the worker suffered a broken arm, the injury is temporary; if the worker suffered a spinal injury, the injury may be permanent. In the case of permanent injuries, the doctor (or doctors) will make an assignment of the percentage of injury, for example, 32% permanent partial disability. That number will then be converted using the state's permanent partial disability schedules to an actual dollar amount. For example, a right index �inger under the schedule might be worth $2,500. The complexities of determining a workers' compensation award are illustrated in the excerpts from the following case, which shows the ways in which claimants are classi�ied and paid:

Cases to Consider: Schmidt v. Falls Dodge, Inc.

Schmidt v. Falls Dodge, Inc. New York State Court of Appeals (2012)

Workers' Compensation Law §15(6) provides that compensation for any disability, partial or total, shall not exceed a �ixed maximum per week. At issue in this case is the application of the cap when an employee has received several awards for different injuries, at least one of which is a so-called "schedule loss of use" award being paid periodically pursuant to the pre–2009 version of Workers' Compensation Law §25. We hold that in such cases an employee's total weekly payment may not exceed the cap. The schedule award is not nulli�ied by the other awards, but must be deferred until the time comes when the cap will not be exceeded.

I

Plaintiff worked as a collision shop technician, repairing automobiles. He suffered several injuries on the job, of which three, all occurring in 2005, are relevant to this appeal. On February 21, he slipped on ice, injuring his hip and back. On March 18, he suffered a lower back sprain. He left his job on June 27, and later reported hearing loss beginning on that date, attributable to loud noise at his place of work. He applied for and received workers' compensation bene�its for all three injuries.

For the hip and back injuries, the workers' compensation carrier for claimant's employer was directed, in separate awards, to pay claimant a total of $400 per week—the maximum allowed, at the relevant time. . . . Though the disabilities caused by the hip and back injuries were designated as "temporary," nothing in the record indicates that these $400 weekly payments have ever been discontinued.

On September 21, 2007, a Workers' Compensation Law Judge made an award for the hearing loss claim. Claimant was found to have a permanent partial disability, entitling him to a schedule loss of use award under Workers' Compensation Law §15. . . .

The Judge in this case found that claimant's hearing loss entitled him to 32.145 weeks of bene�its at the rate of $400 per week; the award speci�ied a period from September 27, 2005 (the "date of disablement" found by the Judge) to May 10, 2006. After considering the carrier's objections, the Judge concluded on November 23, 2007 that the schedule award was "currently payable in full," notwithstanding the fact that claimant had received during the period in question, and was still receiving, $400 per week for his other claims. The Judge found the issue to be controlled by Matter of Miller v. North Syracuse Cent. School Dist. in which the Appellate Division held that because a schedule award "is not allocable to any particular period," it "cannot be deemed to overlap with" a temporary total disability award.

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II

Workers' Compensation Law § 15(6)(a) says, in relevant part:

Compensation for permanent or temporary partial disability, or for permanent or temporary total disability due to an accident or disablement resulting from an occupational disease that occurs . . . on or after July �irst, nineteen hundred ninety two [and before July one, two thousand seven], shall not exceed four hundred dollars per week.

The Board and the Appellate Division have held in this case that claimant was entitled to receive $800 per week for a period of roughly 32 weeks. That result cannot be squared with the cap imposed by section 15(6). The Appellate Division's decision in Miller, which upheld a similar award, is incorrect and should not be followed.

We therefore hold that periodic payments of a schedule loss of use award must be deferred to the extent that those payments, when combined with payments of another disability award, would exceed the cap imposed by Workers' Compensation Law § 15(6). We hold no more than this, and do not decide what implications, if any, our holding may or may not have for cases governed by the 2009 amendment to section 25(b): that section, as amended, now says that schedule loss of use awards "shall be payable in one lump sum, without commutation to present value upon the request of the injured employee."

Accordingly, the order of the Appellate Division should be reversed, with costs, and the case remitted to the Appellate Division with directions to remand it to the Workers' Compensation Board for further proceedings in accordance with this opinion.

Read the full text of the case here (http://www.nycourts.gov/ctapps/Decisions/2012/May12/76opn12.pdf) .

Questions to Consider

1. What different injuries did this employee suffer at work, and what were his workers' compensation awards for each?

2. This case is concerned with the cap that a worker may receive for workers' compensation. Why does the state impose a cap? And what possible effect does this have on an employee?

Workers' Compensation as the Exclusive Remedy

As mentioned above, workers' compensation serves an important social function by guaranteeing that workers hurt on the job are taken care of medically and that their bills are paid. There is a trade-off for this guarantee, however. Employees are not allowed to sue their employers for injuries on the job that are a result of the employer's negligence. Thus, we say that workers' compensation is the exclusive remedy, meaning it is the only remedy available to an injured worker against an employer. If an employer does not put up an adequate guard around a machine and an employee is seriously maimed, the employee's monetary award is limited to workers' compensation rather than a lawsuit in court. (However, the employee in such a situation could sue the manufacturer of the machine, who, of course, is not the employer.) (See Chapter 8, Negligence, Strict Liability, and Product Liability (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/sec8.1#sec8.1) .) This is the maximum amount that an employee could recover under workers' compensation, whereas in a tort lawsuit, the same injury might be worth millions of dollars, �iguring in punitive damages, compensation for emotional distress, and so forth. There is usually no choice; workers' compensation is the only remedy afforded to employees against employers, except in rare exceptions.

One of those exceptions is if the employer intentionally injured the worker, as discussed in the Washington State case Brame v. Western State Hospital, excerpted here with citations omitted:

Cases to Consider: Brame v. Western State Hosp.

Brame v. Western State Hosp., 136 Wash. App. 740, 150 P.3d 637 (2007)

In 1911, the legislature passed the Industrial Insurance Act, which provided injured workers a system of certain, no-fault compensation for injuries on the job while granting employers immunity from civil suits by workers. The act generally bars employee lawsuits against employers for on-the-job injuries.

This bar is subject to a limited exception when an employer intentionally injures an employee:

If injury results to a worker from the deliberate intention of his or her employer to produce such injury, the worker or bene�iciary of the worker shall have the privilege to take under this title and also have cause of action against the employer as if this title had not been enacted, for any damages in excess of compensation and bene�its paid or payable under this title.

This exception prevents employers who engage in egregious conduct from burdening the industrial insurance risk pool. We interpret the deliberate intention exception narrowly. Neither gross negligence nor failure to observe safety laws or procedures rise to the level of deliberate intention. Even an act that has a substantial certainty of producing injury is insuf�icient to show a deliberate intent to injure.

The Birklid Test

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Until 1995, courts found deliberate intention only in cases where an employer or its agent physically assaulted an employee. But in Birklid our Supreme Court interpreted the exception to include conduct other than physical assaults. In that case, the plaintiffs alleged that a supervisor reported to management that fumes from a new product were making employees sick; management denied a request for improved ventilation before increasing use of the product; workers became ill after the product went into full production; and Boeing knew that the symptoms were the result of exposure to the product. The court, �inding that the employees had alleged suf�icient facts to �ind deliberate intent on the part of Boeing to injure them, held that deliberate intention exists where the employer (1) has actual knowledge that an injury is certain to occur and (2) willfully disregards that knowledge.

***

Since Birklid, the Supreme Court continues to emphasize the need to show actual, not substantial, certainty. For example, in Vallandigham employees alleged that the school district deliberately intended to injure them because it willfully disregarded its knowledge that a severely disabled special education student would injure them. The employees alleged that over the course of a school year the student had injured staff and other students about 96 times, resulting in 7 workers' compensation claims. The school district had taken numerous steps to try to modify the student's behavior, including implementing a behavior plan, hiring a one-on-one aide, and creating an isolation space. The court rejected the employees' claims, holding that they met neither prong of the Birklid test.

The court emphasized that the �irst prong "can be met in only very limited circumstances where continued injury is not only substantially certain [to occur] but certain to occur." Foreseeability is not enough to establish deliberate intent to injure an employee, nor is an admission that injury would probably occur. And the plaintiffs' case could not meet this test because "the behavior of a child with special needs is far from predictable"; no one knew that the violent behavior would not stop as quickly as it began. This was unlike Birklid where the employer knew that continued exposure to the chemical would make employees sick absent increased ventilation.

In addressing the second prong of the test, the court disapproved of two Court of Appeals cases that considered whether the steps the employer took to prevent injury were reasonable and whether they were effective. These tests, according to the court, adopted, at least in part, a negligence standard; the court again emphasized that the deliberate intent exception does not apply in cases of negligence, even gross negligence.

The Employees contend that the trial court erred in granting the Hospital summary judgment because issues of material fact exist as to whether the Hospital deliberately intended to injure them. They argue that the Hospital knew with certainty that patients would assault staff and that it willfully disregarded this knowledge. They point to the history of patient assaults on staff as proof that the Hospital knew with certainty that patients would assault staff in the future. And they assert that the Hospital willfully disregarded this knowledge because it did not effectively train staff in defending themselves against patient assaults and instead implemented a non-violence initiative aimed at eliminating the use of physical restraint of patients.

Even taking the facts in the light most favorable to the Employees, they cannot meet the stringent requirements of the Birklid test. The Employees do not contend that the Hospital knew that any speci�ic assault would occur. They rely instead on the history of patient-to-staff assaults. But past patient-to-staff assaults demonstrate, at the most, that such assaults are foreseeable, not that they are certain. Foreseeability is not suf�icient to establish deliberate intent to injure an employee. In Vallandigham, 96 prior assaults by one student were not suf�icient to predict with absolute certainty any particular future assault. Similarly, here the past assaults of hospital patients on hospital staff are not suf�icient to create a certainty that any individual patient will assault any individual staff member.

Read the full text of the case here (http://caselaw.�indlaw.com/wa-court-of-appeals/1432625.html) .

Questions to Consider

1. Under what circumstances may an employee sue his or her employer for injuries sustained at work under this court's theory?

2. Why does this court make an exception to the rule, allowing employees to sue their employers? Do you agree with this policy shift?

Employers' Duties Under Workers' Compensation Law

Employers have many responsibilities under workers' compensation too numerous to list here. Among the most important requirements, however, are that the employer must have in place insurance, either through a private carrier or through the state fund. In New York, for example, an employer's failure to provide workers' compensation coverage is a crime, punishable by �ines and/or criminal prosecution. If an employer does not have coverage and an employee �iles for workers' compensation, the employer will be liable for the actual cost of medical care and compensation payments, in addition to penalties. If a corporation has failed to secure workers' compensation coverage, the president, secretary, and treasurer of the corporation are personally liable for the medical care, compensation payments, penalties, and possible criminal prosecution. This applies to situations in which employers might hire someone "under the table." If that person is injured and is not listed on the books, there are numerous workers' compensation violations associated with such conduct, some of them criminal.

Workers' compensation rules are detailed, but each state has a website devoted to the issue. On it, the responsibilities of the employer are clearly spelled out.

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Key Terms

Click on each key term to see the de�inition.

administrative agencies (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

State and federal governmental entities set up to assist with the smooth operating of areas of business and industry and to provide special expertise.

administrative law judge (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Government employee (state or federal) who presides over agency hearings and writes opinions upon the conclusion of the hearing that resemble a judicial decision and are therefore quasi-judicial.

Administrative Procedure Act (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Speci�ies the procedures that administrative agencies must follow in promulgating new rules.

agency rules (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Guidelines under which an agency operates and that must be followed by persons over whom the agency is given regulatory powers.

controverted (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Refers to a workers' compensation case in which the employer refuses to pay following a worker's injury or death.

exclusive remedy (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

The concept that employees may not sue their employers for injuries or death on the job but can seek a remedy only through the workers' compensation process.

executive agencies (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Agencies that have been created to assist the executive branch in carrying out its responsibilities.

independent federal agencies (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

Agencies created by Congress to assist it in exerting regulatory control or to carry out governmental administration.

permanent partial disability (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

A determination in workers' compensation that the disability suffered by the employee covers part of the body but will be permanent, thereby converting it to a "schedule loss of use award." The injury is given a �ixed number of lost weeks' compensation according to the bodily member injured.

private insurance carrier (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

An insurance carrier for an employer to cover matters like workers' compensation claims.

state fund (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

A general statewide fund to which employers contribute and which then pays out workers' compensation claims.

workers' compensation board (http://content.thuzelearning.com/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/sections/fm/books/AUBUS670.12.2/section

A state administrative agency that adjudicates cases requesting compensation to workers for death or injury on the job.