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Business Law

Principles and Practices

Goldman, A., & Sigismond, W. (2014). Business Law: Principles and Practices (9th ed.). South- Western Cengage Learning.

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PRINCIPLES AND PRACTICES

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Understanding Your Legal Environment

CHAPTER 1 Foundations of Law and the Role of Ethics in Business 4

CHAPTER 2 The Legal System in the United States and Its Constitutional Foundation 25

CHAPTER 3 Personal, Business, Cyber Crimes and the American Criminal Justice System 49

CHAPTER 4 Tort Law: Traditional Torts and Cyber Torts 77

CHAPTER 5 Litigation and Alternatives for Settling Civil Disputes 103

After studying Part 1, you should be able to:

1. Name and explain the four functions of law. 6 2. Demonstrate knowledge of the primary sources of law in the United States. 9

3. Realize the impact of unethical behavior in the workplace. 16

4. Outline the structure of the federal and state court systems in the United States. 29

5. Demonstrate a knowledge of selected personal, business, and cyber crimes and the steps in the criminal justice system faced by a person accused of committing a crime. 51

6. Demonstrate an understanding of wrongful acts called torts and the legal rights of victims against whom a tort has been committed. 79

7. Outline the steps in a civil law suit and the several alternatives for settling legal disputes outside the courtroom. 109

Foundations of Law and the Role of Ethics in Business CHAPTER PREVIEW

Why Laws Are Important

The Nature of Law

The Legitimate Functions of Law Settlement of Disputes Protection of the Individual and Society Protection of Property Promotion of Worthwhile Social Objectives

Development of Law Roman Law Common Law

Sources of Law in the United States Constitutions Statutes Court Decisions Administrative Regulations

Civil Law Versus Criminal Law

Uniform Laws

The Impact of Unethical Behavior in the Workplace

Business Ethics The Role of Ethics in a Business Setting

Ethical Challenges in the Workplace Role of Managers Ethical Issues Faced by Managers Building Sound Ethical Practices Development of Business Codes of Ethics The Role of the Legal System in Ethical

Disputes

4

rn m N A BUSINESS

SETTING

This opening chapter focuses on law and ethics. It describes what law is, why

it is needed, where it came from, and what functions it serves. This chapter

also points out that although the modern emphasis in the United States is on

statutory law, Americans also rely heavily on case law and rules of

administrative agencies to protect a right or to correct a wrong. Civil law,

which protects individuals from harm by other individuals, is discussed

in contrast to criminal law, which protects society from harmful acts of

individuals. The second half of the chapter focuses on business ethics

and the impact of ethical behavior on the workplace.

Ramega, a key employee in a large corporation in a large city, favored a particular candidate for mayor of that city. The employee on her own time actively supported this candidate by making speeches to people in many neighborhoods, had people to her house with the candidate present to meet these neighbors, and made political contributions to this candidate's campaign. The employee's candidate won the election . Shortly after taking office, the new major awarded a very lucrative contract for the purchase of office equipment to this employee's company. Is awarding of this contract by the new mayor ethically correct?

Questions 1. What is the meaning of the term ethics? 2. What are reasons for unethical behavior in the workplace? 3. Is it important to a corporation to be seen as ethical by consumers of its

products? 4. Are legal standards the same as ethical standards? 5. Is it okay for a company manager to use her position to determine what

is ethically right or wrong when it comes to workplace issues that arise on the job?

hy Laws Are Important

LEARNING OBJECTIVE~ Identify reasons why laws

are important.

Living in the twenty-first century is not easy, especially when it comes to under - standing why we cannot do our own thing rather than obey regulations imposed on us at all levels of government. Throughout history, violence by individuals and groups has been used as a way to resolve disputes. People's individual feel - ings or biases have caused them to take action that has resulted in terror, loss of life , and destruction of property. Clearly, then, we must have laws to regulate human behavior. Otherwise, anything goes. The law provides a guarantee that justice will be carried out according to rules established by federal and state courts and the judiciary and not as the result of individuals' feelings or biases. Those who obey the law will be protected, and those who do not will be punished. The following instances of violent crimes demonstrate that violence by individu- als and groups has indeed been used as a way to resolve disputes.

On the evening of April 4, 1968, while standing on the balcony of his hotel room in Memphis, Tennessee, where he had led a nonviolent protest march, Martin Luther King Jr., leader of an organization that was involved in the burgeoning civil rights movement, was assassinated. In July 1994, Megan Kanka, a seven-year-old girl living in New Jersey, was raped and murdered by a twice-convicted sex offender who lived across the street from her home. Dr. Barnett Slepian was murdered in his home near Buffalo, New York, in October 1998 by a sniper because he per- fo rmed abortions. James Brady, press secretary to former President Ronald Reagan,

The Nature of Law

LEARNING OBJECTIVE ~ Verbalize the meaning

of the term law.

law: enforceable set of rules of conduct

was seriously injured in an assassination attempt on the president in March 1981 These instances of violent crimes serve as reminders that, throughout history, vio- lence by individuals and groups has been used as a way to resolve disputes.

It has therefore become obvious that the only alternative to violence is some system of rules of order (laws) for society's members. The federal government re- sponded to these acts of violence by passing legislation such as Megan's Laws an the Brady Law. Megan's Laws require local law enforcement agencies and t he public to be notified when known sex offenders move into their communities. The Brady Law establishes a five -day waiting period and a criminal background check on individuals who purchase handguns from firearms dealers. Witho ut these laws and other protective laws, living in a modern society would parallel living in a primitive society where lawlessness prevailed.

As individuals living in the United States, we are guided by the rule of law. Law- can be defined as rules established and enforceable by a government-federal state, or local- to regulate the conduct of individuals and groups in a society. No person or institution is above the law. Just as there are rules for playing a game, so there are rules for living with other people in society, whether that society is a neighborhood, a town, a city, a state, a nation, or the entire world. The rules that make up law are actually legal duties that are imposed on people and that require them to act in a certain way. When people do not follow these rules, they violate the law. Through the courts, individuals injured by those who violate the law are provided with legal remedies, such as requiring the wrongdoer either to pay money damages go to prison, or in some cases both. Keep in mind that the objec t of any legal rule is justice, or fairness. Can we therefore say that when a court provides a remedy to an injured party because someone violated his or her rights this decision is fair? Theoretically, yes; in our practical world, however, the word fair is often challenged based on people's perception of fairness. Take the O.J. Simpson murder trial. As you may recall, Simpson, a national football hero, wa s acquitted by a jury of murdering his ex-wife and her friend in June 1994. How- ever, poll after poll taken after the trial revealed people's disagreement with this jury verdict. They said it was unfair. Although the legal process was followed in determining Simpson's not-guilty status, people's perception that the not-guilty verdict was unfair may have had merit. Thus, the saying "justice always prevails " may mean to many only that the process of bringing a court case to a legal con- clusion was followed, not that the outcome was necessarily fair. Although abso- lute justice is therefore unattainable in every case that is brought before a court, the legal process is the best rule that could be devised under the circumstances.

The Legitimate Functions of Law

LEARNING OBJECTIVE ~ Summarize the legitimate

functions of a legal system.

We concluded that if people are to live together peacefully, law must be an im- portant part of their lives. Be aware, however, that this need for law presents a dilemma. Every time a law is created, a person's freedom to act is in some way restricted; at the same time, trying to settle disputes without resorting to law will produce chaos. Given this dilemma, what functions can law legitimately serve without unduly restricting a person's freedom? There are four functions, as illus- trated in Figure 1.1:

Settlement of disputes Protection of the individual and society Protection of property Promotion of worthwhile social objectives

FIGURE 1.1 Legitimate Functions of Law

Settlement of Disputes People in a society do not all behave in the same manner, and sometimes it is hard to tell where one person's rights end and another's begin. There needs to be a peaceful way to settle disputes between individuals. Suppose that you start playing your stereo too loudly or have an all -night party on your patio with guests making a lot of noise, and these acts are disturbing to your neighbor. You feel that you have a right to do these things. Your neighbor doesn't feel the same way. The result could be that you fight it out with words or fists, or even guns. Your neighbor, instead, could call the police and file a complaint against you for disturbing the peace. According to law, as you may know, this is allowed because you violated the neighbor's right to peace and quiet. While calling the police may be distasteful to you, the police officer who arrives on the scene may settle the dispute between yo ur neighbor and you, and if you insist that you were within your rights, the officer could exercise his or her right under the law to either ar- rest you or order you to appear in court at a later date.

Law thus serves to protect the rights of each individual and to regulate con- duct between persons in a society. Law provides stability, allowing people to develop their own interests without infringing on the rights of others.

Protection of the Individual and Society One of the major reasons for the development of law was to protect the individual. Freedom to live without fear-fear that someone will commit a crime against you, such as stealing from you or killing a family member-is so important that a perpetrator of crimes will be punished and also may be sued by their victims for money damages. Many laws that are designed to protect the individual also protect society by keeping our cities and towns safe places to live and work. For example, society needs protection from thieves, muggers, murderers, vandals, and others who violate all individuals' rights when they commit harmful acts. As another example, without orderly plans for the development of land, it would be possible for shopping malls, condominiums, parking lots, or hotels to crop up in the middle of residential areas.

Protection of Property Law protects property as well as people. Our society places much value on the importance of property and the need to protect it. Our laws protect property in many ways. Those who destroy or damage property may be punished or may

Development of Law

LEARNING OBJECTIVE ~ Describe the influences of Roman law and especially

the English common law on the development of law in

the United States.

common law: unwritten law based on local English customs

have to compensate the injured party. The government may not take private property for public use without just compensation. Governments may tax prop- erty but only if the tax is fair and reasonable. Those who own property may upon dying, pass it on to other persons, subject only to reasonable rules.

Promotion of Worthwhile Social Objectives Law is not limited to regulating conduct between individuals or between indi- viduals and their society. Law may also be used as a positive force to promote worthwhile social objectives. The Social Security system is a good example. The system was established by the Congress of the United States to aid the aged, the poor, and the disabled. Through a system of contributions and salary deduc- tions required by law, the government helps those who need some form of pub- lic assistance.

Promoting good health and educational opportunities is another example of using law to promote worthwhile objectives. Congress has enacted many laws establishing and financing medical centers and research facilities. Grants are given each yea r for extensive medical research, treatment programs, and immu- nization. Both federal and state governments assist education through legislation. Tax dollars help support many colleges, and many students receive government scholarships to study in the United States and in other countries. Many states help pay for the high cost of education by giving tax deductions for educationa l expenses.

Promoting commerce is also an important goal. Our society believes that law should not be limited to regulating competition in promoting trade. It should also be used to assist in other ways. One example is the use of tax dollars for research to improve trade and develop new products. Another example is the us e of public funds to finance businesses and business expansion. By providing direct loans or insuring private loans, government enables many small businesses to get started and to expand as the need arises.

Although many societies and nations have contributed to the development of law, Roman law and English common law are the most important influences on law as we know it today.

Roman Law Prior to the Romans, most law was oral. Decisions were made by judges or juries but a written record of those decisions was not kept. Instead, the decisions were passed on by word of mouth from generation to generation. The Romans devel- oped the concept of written codes that everyone could know and understand. These codes, or laws, were to be so complete that they would guide almost every aspect of life. During the reign of the Emperor Justinian (A.D. 527-565), a gre at body of law was developed and written. It eventually became known as the Justinian Code. When this code was revised by Napoleon I of France in 1804, it became known as the Napoleonic Code. The Napoleonic Code is the basis of much of the law of Europe today as well as the laws of China, Japan, some Sout h American countries, Mexico, and the state of Louisiana. Louisiana state law is based on the Roman law because the state was settled primarily by people of French descent.

Common Law The second great influence on the development of law was the English system of law. Developed in England following the Norman conquest of A.D. 1066, t he English system of law is called common law. Common law refers to the body of legal decisions made by English court judges, under the authority of the

precedent: example or standard for deciding subsequent cases involving the same or similar facts

stare decisis: practice by wh ich judges follow precedents in previously decided cases

king, over a period of many years. Unlike the written Roman law, the common law in its early stages was oral. English judges traveled to various communities in their locality to hold court and try cases . They made legally binding decisions based on local customs and traditions but did not write down those decisions. As a result, common law is often referred to as the "unwritten law." Each case produced a new oral law that served as a precedent, an example or standard for deciding subsequent cases involving the same or similar facts. This practice of judges following the precedents established by previously decided cases evolved into a doctrine called stare decisis, which means "to stand by a decision which was previously decided." The doctrine generally demands that a prior decision be followed, but it can be overturned and a new rule established if there is a good reason to do so. For example, societal changes can determine that a prec- edent is no longer applicable, or a court may decide that a precedent is simply incorrect.

When Henry II became king in 1154, he institutionalized common law by organizing it into a unified body of law. He did this by incorporating and elevating local customs to the national level, thereby ending local enforcement of the unwritten customs dealing with criminal and civil matters. Laws were put in writing, arbitrary remedies (e.g., trial by having the accused snatch a stone from a hot fire) were eliminated, and the jury system was sworn on oath to decide criminal and civil cases rather than using an informal group of com- munity members. One of the first printed books containing important deci- sions of English court judges was Blackstone's Commentaries, published in several volumes from 1765 to 1769. Today, decided cases are printed in books called reporters.

The English common law system became the model for the legal system of the United States after its independence from England.

Sources of Law in the United States

LEARNING OBJECTIVE ~ Classify and explain the sources

of law in the United States.

co nstitutional law: law derived ·om the U.S. Constitution and the :onstitution of the individual states

Although much of our law originated in English common law, we also rely on other sources of law to meet the changing needs of our society. Our primary sources of law in the United States are constitutions, statutes, administrative reg - ulations, and court decisions (see Figure 1.2).

Constitutions A constitution is the fundamental written law of a state (e.g., the state in which you live) or nation (e.g., the United States). It defines the individual's rights and duties and describes the government's structure and functions, its powers and limitations, and the relationship between the government and individual citizens.

There are fifty-one constitutions in the United States: the federal or U.S. Constitution and one for each of the fifty states. Constitutional law is the law stated in these constitutions. Most state constitutions are modeled after the U.S. Constitution. The U.S. Constitution, the supreme law of the land, takes precedence over all state constitutions. No law, whether enacted by Congress or by a state legislature, may conflict with the basic principles of the U.S. Constitution. If it does, a court may declare the law invalid or "unconstitu- tional" and thus unenforceable. Each state has its own constitution, which is the supreme law within its boundaries. If a state or local government passes a law that conflicts with the state constitution, that law may also be declared invalid by a court of law.

Constitutional law evolves primarily from judicial interpretation of the meaning of the Constitution as issues arise. Because the Constitution is written in broad, general terms, interpretations are necessary to allow for unanticipated

statute: law passed by legislative bodies rather than by the courts

act: law passed by Congress

ordinance: law passed by local governments such as cities, towns, and villages

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FIGURE 1.2

decisions including court interpretations of federal and state statutes and

Sources of Law in the United States

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Administrative Regulations

circumstances. For example, the Fourth Amendment to the Constitution protecL people from unreasonable searches; the term reasonable search, however, is nor spelled out. In a landmark case, the U.S. Supreme Court interpreted this amend- ment. The interpretation stated that if a lawful custodial arrest has taken place. a full search of the person is permitted and is considered a "reasonable" search under the amendment (United States v. Robinson, 414 U.S. 218).

Statutes Statutes, also called legislation, are laws that appear in specific written form. having been formally passed by legislative bodies rather than stated as opinion by judges in court cases. Legislative bodies exist at all levels of government. At the federal level, legislation passed by Congress is called acts. At the state level this same legislation passed by the legislatures of the fifty states is referred to as statutes. Legislation passed by local governments (cities, towns, and villages) is called ordinances (zoning laws, for example). In contrast to common law cou rt cases, which are written as opinions of judges explaining court decisions and are called holdings, statutes are written in textbook form. Statute law is frequently referred to as the written law.

The modern emphasis is on statutory law, especially on its more specialized subfields, such as bankruptcy laws, workers' compensation laws, consumer pro- tection laws, marriage and divorce laws, security regulations, and laws dealing with the sale of goods. One reason that statutory law is emphasized is that legis- latures usually take the initiative in identifying and acting on issues that result from the numerous technological, social, and economic innovations in our society. The laws legislatures make can be sweeping and comprehensive and, if necessary, can be enacted rapidly. In contrast, the courts deal only with issues that arise in

case law: law arrive,d--at through court dec isions

actual cases brought before them by individuals and businesses. The journey of a case through the courts is often slow, and the issues the case focuses on are generally narrow in scope. Changes in the law that result from such cases are usually small and are limited to a specific situation.

Congress has the power to pass laws that have national importance. Such ar- eas as national defense, commerce between the states, and postal regulations are all within the power of Congress to regulate. As stated earlier, these federal laws take precedence over any state laws. State and local governments may pass laws involving matters over which Congress does not exercise control. For example, state and local governments have enacted laws and regulations covering such matters as marriage and divorce, zoning, vehicle and traffic control, and taxation for local purposes. Just as state laws may not conflict with federal law, local laws may not conflict with state or federal law.

Court Decisions Although the modern emphasis is on statutory law, still a substantial portion of U.S. law is created through decisions that judges and juries hand down in court cases. This law is known as case law, a modern version of the common law of England. Consequently, common law doctrine and principles are still an important part of the U.S.legal system. In some court cases, no statute may exist governing the dispute. Or if a statute does exist, it could be interpreted in different ways because of the language used by our lawmakers. In such cases, federal and state courts must decide what the law is. The meaning is left in question until it becomes the subject of litigation. A court will then decide the matter and set forth in a written opinion the rule or principle on which its decision was based.

These court decisions produce precedents that have the force of law. Other courts will follow these precedents when they decide similar cases in the future. The advantage of the stare decisis concept (the practice of following previous decisions) is predictability; it enables people to act in a certain way, knowing that they can rely on established law. Judges very seldom overrule previous precedents because the risks of a new opinion being overturned by a higher court are substantially increased. Sometimes there is no existing precedent, as with emerging cases dealing with disputes in cyberspace (the Internet). Under these circumstances, a judge's written opinion, which ultimately becomes the decision in a case, must contain a solid legal argument justifying the decision. This decision may in turn become a standard precedent for judges to use in deciding later cases.

You can see that although legislatures are primarily responsible for passing laws, courts in effect pass laws by interpreting or modifying existing laws or by making decisions that create new precedents. These precedents are as effective as laws passed by the U.S. Congress or by state legislatures.

A classic example of case law is Robinson v. California, decided by the Supreme Court in 1962 (370 U.S. 660). Robinson's conviction by the Municipal Court of Los Angeles as a narcotic addict was based on a California statute mak- ing it a criminal offense (punishable by a jail sentence) for a person to "use, or be under the influence, or be addicted to the use of narcotics." A higher state court affirmed the lower court's decision. Upon appeal to the U.S. Supreme Court, the decision was reversed on the theory that being "addicted to the use of narcotics" was an illness. The court reasoned that a statute (law) that made a criminal offense (punishable by a jail sentence) of that or any other illness-such as insan- ity, leprosy, or venereal disease-is unconstitutional because it would be an infliction of cruel and unusual punishment and would thus violate the Eighth and Fourteenth Amendments to the Constitution. The significance of Robinson v. California is that it is now a precedent case: The high court's decision-namely, that narcotics addiction is no longer punishable as a crime-represents case law

administrative regulation: rule made by administrative agencies that has the same force and effect as statutes and court decisions

in the United States. It should be noted at this point that as the resu lt oi .=: trial court case decided in 1997 (Korczak v. the United States, 124 F. :,_ Fed. Cir.), U.S. Supreme Court cases are valid as precedents regardless o: -· of the cases until overruled by the Court itself, by a constitutional ame;:;.C--=_ or by Congress.

The Internet has caused courts to expand the term precedent to inc.~ some cases) unpublished opinions. Unpublished opinions are now aYaL.: free legal databases to any person who is curious about the law or i- - legal help. Even attorneys frequent these databases . At first, courts did n- - unpublished opinions as precedents nor were attorneys allowed to refe r : - - opinions at trial. In 2006, however, the U.S. Supreme Court allowed ar:u_ . to refer to unpublished federal judicial opinions in all federal courts b~ in 2007.

Administrative Regulations It is impossible for legislatures to make all the necessary rules or fo r cou.::: handle all of the cases. Consequently, a great deal of the regulation of indr als and businesses in the United States today is done by administrative age.:::..:r:._ at the federal , state, and local levels. These agencies have been delegate..: -· power to make rules called administrative regulations, which have t he force and effect as statutes and court decisions. In addition to making these agencies can also take legal action against violators of their rule s in the same way that courts do. Agencies often begin their legal action after ;.- conducting an investigation of individual's or organization's records and a- - documents , either through a subpoena or by going on-site by first obtai ning search warrant.

The federal agencies are created by Congress. The Federal Trade Commi~ is an agency created by Congress to regulate commercial activities and pre'-e-- unfair trade practices . The Federal Communications Commission regulates vari forms of communication, including radio and television. Protecting the em·ir .. - - ment from abuse is the task assigned to the Environmental Protection Agency.

State administrative agencies are created by state legislatures. The Burea u -- Motor Vehicles, one such agency, develops rules and regulations for the opera- tion of motor vehicles within each state.

Local administrative agencies are created by gty councils or by town or Y!l- lage boards. A zoning board, one ex ample of a local agency, regulates the heigh:. size, uses, and suitability for partic ular purposes of residential and commercia land and buildings.

Although administrative regulations have the same force and effect as stat- utes and court decisions, these rules can be challenged in the courts. A business or an individual may challenge them on the basis that they are unconstitutiona:. vague, or beyond the power granted to the agency.

Over the years, administrative agencies have grown rapidly. A major re a- son for this growth is that many laws needed to deal with social and econo m i issues in the United States today- such issues as unsafe automobiles, pollution of the environment, unfair competition, and emp loyee discrimination-cannot be addressed by legislatures in the traditional manner of passing laws. Leg is- latures have neither the technical expertise possessed by the staff of a particu- lar adm inistrative agency nor the necessary time to devote to the specialized problems that continually emerge in certain fields such as space exploration atomic energy, and air and water pollution and that often require new or changed legislation. Furthermore, the courts are already overburdened. Give n these conditions, an administrative agency's ability to make rules and regul a- tions that have the same force and effect as statutes and court decisions offers a viable alternative for individuals and businesses that wish to recover a right or correct a wrong.

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Civil Law Versus Criminal Law

LEARNING OBJECTIVE ~ Differenti ate between civil

and criminal law.

civ il law: law dealing with the ·e atio nships between individuals

cri minal law : laws that deal wi th the ·e ationships between individuals and society and that maintain order

equ ity : nonmonetary relief granted : co urts when money damages are -adequate

Miller was driving home from shopping on a winter afternoon when he saw a snowball coming toward his car. The snowball, which contained a rock, hit the hood of his car with a thump. Miller stopped the car, got out, and discovered a large dent in his hood caused by the snowball. When Miller spotted Blackman hiding behind a nearby parked car and confronted him, Blackman admitted to throwing the snowball.

In this case, Miller has two causes of action against Blackman resulting from the snowball-throwing incident; a civil action and a criminal action. However, before discussing this case, let us make a distinction between civil law and crim- inal law. The distinction between the two is a very important concept in our le- ga l system.

In the United States, all law can be divided into two broad categories: civil law and criminal law. All law other than criminal law is known as civil law. The differences between these two categories of law are significant because in our le- gal system, civil cases are completely separate from criminal cases. Separate laws govern each type of case, and each seeks a different remedy.

Civil law establishes rules that protect the rights and property of individu- als from harmful acts by other individuals. The person who is harmed because another person violated civil law may initiate a civil action (lawsuit) against that person seeking compensation (money damages) for the harm caused. An exam- ple of a case title indicating a civil action is Roberts v. Radcliff Civil actions may be brought, for example, for child support, contract violations, injuries or damage caused by automobile accidents, divorce, libel, invasion of privacy, and violations of property rights . Violations of civil law are discussed in detail in Chapter 4. ·

Criminal law establishes rules to protect society from acts of individuals that are considered so dangerous, or potentially so, that they threaten peace and order within a society. A person accused of committing a crime is subject to arrest and, if convicted, punishment. It is for this reason that in criminal cases the govern- ment (state or federal) brings the proceeding against the accused individual. An example of a case title indicating a criminal action by the state is State of Ohio v. Albertson, and an example of a case title indicating a crime against the federal government is United States v. Blackman. Crimes include such acts as stealing, murder, home invasion, forging a person's signature on a check, and violating some traffic laws.

Although a person may be the subject of a criminal prosecution for the commission of a crime, he or she may, in certain cases, be the subject of a civil lawsuit brought by the victim of the crime. A comparison of civil and criminal law is made in Table 1.1. In the Miller case, Miller could bring a civil suit against Blackman for intentionally destroying property. When Blackman threw the snowball containing a rock, he damaged Miller's car, and Miller is entitled to money damages. The state could bring a criminal action against Blackman for intentionally destroying property. Blackman's act of throwing the snowball was not only an act against Miller, it was also an act against society, and Blackman should be punished for his wrongdoing.

As noted earlier, in a civil lawsuit courts generally are confined just to awarding money damages as relief to the injured party. Money damages, though, are not always suitable or adequate for certain violations of rights . In such cases, our legal system recognizes the principle of equity, or nonmonetary relief. This remedy dates back to medieval England. Equity grants relief in accordance with principles considered fair and just. For example, if a lawsuit arises and money damages are an unsuitable remedy, a court of equity may allow the injured

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Protects

Provides

Requires

Type of w rong addre ssed

Required to w in

An individual's rights and property from the harmfu l acts of other individuals, such as slander or trespass, or from a person's breach of contract.

Money damages (compensation) or equitable relief to a person who is harmed by the wrongful conduct or breach of contract of another person. Equ itable relief consists of ordering a person to perform a certain act (specific performance) or to cease carrying on certain conduct (injunction).

A civil lawsuit by the person harmed (plaintiff) so as to recover.

Private (individual versus individual). An example of a case title indicating a civil action is Ramirez v. Ames.

Preponderance of the evidence (one party presenting more convincing evidence to the jury tha n the other party).

Society fro m the h armfu l acts of ind1 such as theft, murder, or d riving wh intoxicated.

Pun ishment in th e fo rm of capital pu imprisonment , or fines imp osed on a ;-- w ho is fo und guilt y of viol ating t he :a

Prosecution (criminal action) by gove (federal or state) acti ng for society (plain~rt against the accused person .

Public (society vers us individual). Exam,. .• case titles indicat ing a criminal action ar United States v. Mo ll (fe deral) and State , Nevada v. Martin (state) .

Determination of guilt beyond a reasona dou bt (jury entirely convinced of guilt .

party to seek specific performance (carrying out a contractual ag reeme- - cording to its original terms) or an injunction (order the other party to:-~ from certain conduct).

Although judges hear equity cases today, virtually no states have spew uity courts (often called chancery courts). A judge hears the case of a ;-~­ seeking a remedy in equity in the same court where other cases are also (For centuries, common law and equity were a~ministered in Engla nd b:· separate sets of courts.) Some basic distinctions between law and equity described in Table 1.2.

Differences Between Law and Equity

~~-~- ·-··-· · - · ·· Law Equity

Begin a proceed ing

Parties

Rem edy sought by the injured p arty

Reason remedy is sought

Decision on the re medy is m ade

Legal name for the decision

Remedy enforced

Initiate a lawsuit .

Plaintiff and defendant.

Sum of money for damages to compensate for the loss sustained.

Money adequately repays the injured party for a loss.

By a judge or jury.

Judgment/Order.

Execution of a judgment initiated by the plaintiff.

File a pet ition.

Petitioner and respondent .

Enforcement of a right (specific perfo rman · or the prevention of further violation of a right (inju nction ).

Da mages are d ifficult to measure in mone term s; therefore, an awa rd of money to an injured party wo uld be unfair.

Solely by a judge (with an advisory jur y in some state s).

Decree/Order.

Contempt proceed ings initiated by the plaintiff if the defendant fa ils to perfor m.

RYou t eac

Uniform Laws

LEARNING OBJECTIVE ~ Explai n why uniform laws were introduced into our

legal system.

A certain large city in the United States was caught up in civil unrest involving over 1 ,000 people. Violence broke out in several neighborhoods. People were firing guns into the air, and others, in an intoxicated state, were running up and down streets, yelling, screaming, cursing, smashing windows, looting stores, and stealing food from restaurants; still others were terrorizing people who lived in the various apartment buildings on these streets. Police admitted that the situation was out of control for several hours, but with the help of the riot squad, officers were able to made several arrests of individuals thought to be key leaders of the unrest. The individuals arrested were loaded into police vans and driven to various surrounding police precincts where they were booked on various charges .

Questions 1. Could a society exist without law? 2. What are the legitimate functions of law and were they violated in th is example? 3. In this example, were most individuals charged under civil or criminal statutes?

Much of our laws of business developed from the early merchants and traders in England who administered these laws through merchant courts, which were sep - arate from the regular courts. These laws were known as the law merchant. The law merchant became a part of English common law. As the United States devel- oped, each state passed its own statutes to govern most commercial transactions. As interstate business increased in the United States, greater uniformity of law was needed. Consequently, the National Conference of Commissioners on Uniform State Laws, made up of lawyers chosen by the states, was formed upon the recommendation of the American Bar Association to oversee the preparation of uniform laws. "Uniform" means that laws on a particular subject will be the same throughout the country. States are encouraged to adopt these uniform laws, but it is not mandatory. The commissioners have approved several uniform laws, and various states have adopted one or more of them. For example, the Uniform Commercial Code (UCC), which is a codification (compilation) of commercial common law principles, has been adopted in all fifty states (Louisiana has adopted only portions of it), the District of Columbia, and the Virgin Islands. The UCC, which plays a major role in the area of commercial law, will be discussed in some detail in Parts 3 and 4 of the text.

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Select the best answer from those given . 1. Unwritten law based on previous court decisions is known as: (a) statute law,

(b) common law, (c) moral law, (d) constitutional law. 2. Laws passed by cities, towns, and villages are called: (a) decrees, (b) ordinances,

(c) acts, (d) moral laws . 3. The fundamenta l written law of a state or nation that defines the rights and

duties of individuals and describes the powers and limitations of government is called: (a) business law, (b) common law, (c) constitutional law, (d) an ordinance.

4. Laws that protect the rights and property of individuals from harm by other individuals and that provide remedies for any harm caused are ca lled: (a) civil laws, (b) criminal laws, (c) constitutional laws, (d) administrative laws.

5. The type of action indicated by the case title William Beebe v. Katherine Coyle is: (a) civil , (b) criminal, (c) punitive, (d) bankruptcy.

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The Impact of Unethical Behavior in the Workplace

LEARNING OBJECTIVE ~ Discuss the impact of unethical

behavior in the workplace.

ethics: inquiry into the moral judgments people make in deciding what is right or wrong

business ethics: branch of ethics that relates to what is right or good in business settings

This section focuses on business ethics and the impact of unethical behavior in the workplace. There is a discussion of the role of ethics in a business setting, eth- ical challenges in the workplace, and what businesses should do to establish a strong ethical foundation. Unfortunately, some businesses, especially large corporations, have steered away from properly implementing strong ethical prac- tices within their organization, and as a result, their managers and directors have made unethical decisions that have led to their day in court dealing with a serious civil or criminal matter. The debacle of the Enron Corporation (a large energy company no longer in existence) is one good case study in unethical behavior by upper-level management interested in making a quick profit. Their selfish and irresponsible behavior toppled Enron, resulting in one of the largest bankruptcies in U.S. history. The result was that millions of stockholders (many of them employees of the company) lost billions of dollars. Employees of the company who were also stockholders, were prompted by top management to buy more stock in Enron while top managers were selling their shares. The value of the stock dropped to almost nothing. Employees lost their money and their jobs. In another case, Bernard Madoff, a former owner of an investment securities firm , was convicted of a scheme that defrauded thousands of his client investors (many whom were retirees) out of billions of dollars through false investments over a forty-year period . It is considered to be the largest financial fraud in U.S. history. In 2009, Madoff was sentenced to 150 years in federal prison.

Unethical behavior in business is not new. It actually dates back to the very beginning of business and commerce. Today, however, ethical challenges seem pervasive and more challenging. Consequently, ethics is playing an even greater role in reshaping today's business world, and businesses are being asked to com- ply with ethical standards as never before. Corporate scandals involving ethical violations that have evolved in recent years (e.g., the Enron and Madoff cases) have especially outraged public investors who, as the result of deceptive, unfair, and manipulative practices by large corporations, lacked good solid informa- tion when buying and selling securities (e.g., stocks). In response, Congress passed the Sarbanes-Oxley Act of 2002. A key provision imposes stricter disclo- sure requirements to the Securities and Exchange Commission by corporate CEOs and CFOs and also imposes harsh penalties for failure to do so. Corpo- rate officers must personally certify that the information reported accurately represents the financial condition of the business. The idea is to stop deceptive accounting practices such as those that caused stockholders of the Enron Cor- poration and investors in the Madoff scheme to lose billions of dollars. The American Recovery and Reinvestment Tax Act was passed by Congress in 2009 due to public outrage concerning huge bonuses (millions of dollars) paid to executives by companies operating at a loss. To add insult to injury, some of the companies were paying these bonuses at a time when they (the companies) were receiving bailout money from the federal government (i.e., taxpayer money). A provision in the congressional act now restricts the bonuses that can be paid by companies that receive bailout funds.

Business Ethics Ethics is the inquiry into the moral judgment people make in deciding what is right or good as they live each day. People are moved to deal with others because of their own ideas of what is right and wrong. Often their conscience is their guide, and they act based on human ex periences, religious upbringing, and family customs and traditions .

Business ethics is the branch of ethics that focuses on what is right, just, and fair in the world of business based on the decisions businesspersons make in their daily activities in the workplace .

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Jacobs was the CEO of a large Wall Street firm. The chief financial officer informed Jacobs that even though the firm was profitable, no bonuses could be paid to the top executives at the end of their fiscal year because the funds were needed to cover the firm's physical plant expansion program. Jacobs made the decision, with board of directors' approval, to lay off 100 lower-level personnel to cover the cost of the bonuses.

In this example, while Jacobs did nothing illegal, what he did may be consid- ered unethical.

Historically, businesspersons needed to consider only the law in making de - cisions. The proposition that what is legal is also ethical prevailed. Consequently, compliance with the law was also the moral minimum standard. Profit maximi - zation for the benefit of its owners was a major goal in most business organiza- tions. Ethical considerations did not factor into decision making. In other words, a business's social and moral obligations to its customers, its creditors, its employees, and its competitors were not of utmost importance. Furthermore, there was a bias by state legislatures and the courts in favor of profitable business practices and a reluctance to stifle business decisions made by business owners and managers on the theory that outsiders should not second-guess the business judgment of people who were presumed to know what they were doing. This profit mentality still exists today.

The following case is a good example of an unreasonably dangerous product (the gas tank of a car could explode, causing death to the person or persons in the car if and when an accident occurred) placed on the market based on man- agement's belief that there was a responsibility to ensure that the company made a profit, regardless of safety factors . Nevertheless, what the company did was perfectly legal.

The Johnson Motor Company ordered the production of a new-model car knowing that the fuel tank designed to be located behind the rear axle could explode in an accident. Nevertheless, the president of the company, faced with serious competition from overseas firms in the manufacture of a similar make and model and with the potential for increased costs to modify the location of the fuel tank, ordered production of this model as quickly as possible. His decision to begin production was further influenced by the result of four crash tests-one was successful, with no explosion occurring-plus the finding of the federal agency overseeing safety standards that the location of the fuel tank met its minimum standards.

In another case, a company reduced its employee costs so as to position itself to remain profitable without regard for the welfare of the employees.

The board of directors of Cutler's, a large corporation that manufactures electric window wiper motors for certain makes and models of cars, was confronted with a decreasing market share and consequently declining sales. The board voted to cut the highest-paid employees with the most seniority from the workforce and retain the less experienced employees on the lower end of the salary scale.

Cutler's board of directors asserted that the board's responsibility was to ensure that the corporation made a profit for the firm's shareholders and that this obligation overrode any ethical responsibility to the discharged employees regardless of their status in the company. The shareholders in the corporation, like those of any large corporation that was no longer profitable, would most likely welcome the board's move if they were assured that the corporation could main- tain its same level of productivity with the lower-paid workers and still make a profit. The point here is that, although the board's decision was legally correct (as long as it did not violate the union contract), it was unethical because it

showed little concern for the discharged employees, who were "p uni- their seniority.

There are many disturbing examples of unethical practices in unfair hiring and termination policies on the part of employers, employe __ to employees about company business policies, employer violations of - obligations with employees, and executives of a company secretly getting . the expense of employees. Other examples are customers who buy mer,- only to discover that the manufacturer produced an unsafe product tha- easily cause an injury through normal use, customers who were cheate unscrupulous salesperson into purchasing inferior merchandise, and cus: who "fell for" a product because of deceptive advertising. In addition is the honesty of business executives in their dealings with a company's ere~ - Executives may lie about the financial health of the business when attemp- - borrow money to pay for inventory or to meet the company payroll. T he but powerful examples point out what avenues businesspeople will som take to maximize profit.

From all the publicity that has occurred over the last few years, it wo uld - that violations of business ethics occur only in large corporations; keep in however, that ethical violations may occur in other forms of business enterp--- especially partnerships. Often, one or more partners violate their duty of '" faith and loyalty to the other partners and act in their own best interests. ~ could occur, for example, when in the course of business a partner fails to acco to the other partners for profits derived from a transaction or transaction- - ducted on behalf of the partnership. Take the case of a managing partner in a r-- estate business who collects fees from property leased to several individua l deliberately does not report the entire amount collected to the partners. r:- action by the partner is unethical and, of course, illegal.

The Role of Ethics in a Business Setting Nobody will argue that the primary responsibility of business owners of sm companies as well as boards of directors of large corporations is to ensure th- - the business remains profitable, and nobody will argue that profit does enable business to survive. On the other hand, it can be argued that concentrating o profit maximization often leads to conflict with ethical issues that arise withi:::: the concept of business practices . In the short term, for example, a company wi-;.. a popular product (e .g., tires) that is defective may continue to have high sa les and cash in on profits. However, over the long term, the company may be inun- dated with lawsuits and develop a high level of bad publicity, causing profits r drop considerably. And of course, because of the company's unethical conduct, i: will most likely lose the good will of the general public. This one incident couple with others that the company may become involved with could be a pathway to disaster for the company. An extreme but realistic repercussion might be that a business is forced to shut down even though it is making a profit. Less severe bu serious consequences may be that owners and managers are constantly chal- lenged to do the right thing by employees, consumers, suppliers, and the general public. Studies show, for example, that consumers have few qualms about aveng- ing what they believe is a breach of corporate trust. If a company fails to respond quickly to an ethical crisis, it will likely experience the wrath of court challenges government intervention, consumer boycotts of a company's products, their defection to other brands, and their initiation of strongly worded letters to top management officials. This public distrust and negative publicity are especially true in sensitive areas such as employee relationships (e.g., wrongfully discharg- ing employees and dishonestly carrying out contractual obligations); consumer rights issues (e.g., product safety and deceptive advertising); finance -related issues, notably those related to Wall Street (e.g., insider trading) and large corpo- rations (e.g., corporate takeovers); and what constitutes a livable environment (e.g., controlling pollution and offshore drilling for natural resources).

Price was a director in the Langley Corporation, which produced gaming equipment for casinos. Langley's stock was much in demand because its value and dividend distributions were on the rise, the company was well respected on Wall Street, and the stock was reasonably priced. The board of directors of Langley decided to order a stock split in a ratio of 2:1-that is, two shares for every one share held by a stockholder as of a certain future date. In advance of any public notice, Price telephoned several of his friends who were not stockholders and suggested that they purchase shares of Langley stock so as to gain the benefit of the stock split. As a result of Price's notification, some of his friends did so and benefited from the increased number of shares that were distributed to stockholders (at a lower price) through the stock split.

In this example, not considering that Price subjected himself to an illegal transaction called insider trading, it could be argued that this kind of activity is unethical because it precludes equal access to the new market information possessed by an insider to all public investors. As a director of the Langley Cor- poration and an insider, Price had a tremendous informational advantage. Any outsider not a friend of Price who wished to invest could not legally acquire access to what Price knew until that information became public. The conse - quences for the Langley Corporation if Pr ice's actions are revealed to the public may be negative publicity, a loss of customers (especially those concerned with ethical issues), and ultimately, a loss of profits from the sale of stock followed by a drop in the stock's price. As a practical matter, then, business owners and managers need to consider both the ethical and legal aspects of a situation when making decisions. The answer to the question " Is it ethical?" is as important as the answers to the questions "Is it profitable?" and "Is it legal?"

Ethical Challenges in the Workplace

LEARNING OBJECTIVE ~ Describe the ethical challenges

that arise in the workplace.

Role of Managers Managers serve at all levels of an organization. High-level managers make key decisions about policy and strategy. At this higher level, a manager's attitude to - ward creating an ethical environment within his or her organization is crucial. Just as managers need to make good economic decisions resulting in profitability of the business, they must also make good decisions to prevent ethical miscon- duct that could be costly to the company. Managers show total commitment to an ethical work environment by personally acting ethically on a daily basis. For example, if employees see their manager lying on his or her time sheet about the use of vacation or personal time or cheating on business miles traveled, it will en- courage employees to "follow the leader."

Ethical Issues Faced by Managers Business owners and managers face many ethical issues in the ordinary course of their work. Ethical issues in business are often tied to those issues most often taken up by the courts, written about in the newspapers, argued over in Congress and state legislatures, and complained about by the general public. Some issues of major concern involve the following:

1. Invasion of privacy. The supervisory role now entails monitoring the work of employees, such as eavesdropping on their telephone conversations, viewing the input and output that appear on their computer terminals, maintaining hidden cameras to spy on them during the workday, and requiring psychological testing in areas measuring other than job -related abilities, such as testing to determine trouble-making potential and dishonesty.

2. Restrictions placed on employees while under an employment contract. A restriction is often placed on an employee who invents and patents a product while employed. Many companies require its employees to sign an agreement to turn over this and all other patent rights to the employer even though the invention is beyond the scope of the company business and even though the patent was developed on the employee's own time.

3. Sexual harassment on the job. Improper sexual conduct in the workplace i not uncommon. A supervisor may deny employment or promotions to a subordinate unless that employee grants the supervisor sexual favors or may make the employee uncomfortable in the work environment unless he or she succumbs to the supervisor's sexual advances.

4. Sphere of influence. It is true that a firm has a legitimate interest in employee behavior if this behavior significantly influences work performance. This sphere of influence could apply to off-the-job activities in some cases. However, what constitutes a significant influence is not always clear. Sometimes employers cross the line and attempt to fire an employee for what he or she is doing off the job that fails to meet the sphere of influence test. For example, Mary, a manager of a popular department store who receives excellent performance evaluations from her supervisor, was being watched by store security for the after -hours company she kept and was fired because her supervisor didn't like her friends. Her behavior did not significantly influence her work performance. Firing Mary is only inviting legal problems for the manager and the department store. On the other hand, Mark, an excellent customer service supervisor who is fired after being arrested and given probation for making several obscene phone calls to various women from his home in the evening or on weekends, might lose in court. Mark must prove that his behavior had no significant effect on his future work performance.

5. Management style. The manager of a company or a public entity who uses his or her position to determine what is right or wrong when it comes to workplace issues, including ethical issues that arise on the job, often creates bad working conditions. The employee either goes along with it and is miserable or quits. The very bright police lieutenant who cannot make captain after coming in first on the promotion test because she won't play the political games promoted by the police chief doesn't have much of a choice. Think of what you would do if you were in this position with a family to support, two children in college, and the possibility of obtaining another comparable position elsewhere is slim. Unethical behavior also arises when a company gives raises to those employees who help make the company profitable by using unethical tactics. An example would be the chief financial officer of a company requiring you, as the person in the accounting department filling out the papers to secure a company loan, to exaggerate the value of the company's assets.

Unethical issues such as those described here have no place in any business organization that wishes to foster ethical conduct. The next section discusses the first and perhaps the only program that some companies implement to deal with unethical conduct.

Building Sound Ethical Practices Ethics in the workplace is a compelling force today. A company that maintains strong ethical practices within the company from bottom to top and demonstrates its commitment to ethical decision making will definitely experience positive growth in all aspects of its business operations, including sales, profits from sales, customer satisfaction, employee fulfillment and retention, and, of course, the company's repu- tation in the community. It can also mean the difference between success and failure.

A large corporation's positive growth can be felt nationwide and even worldwide. To build a strong business ethic within a company means to incorporate ethical concepts into daily business decision making. This approach is part of what is called the ethical reasoning process. While there are several theories, two seem to prevail. One reason for not carrying out a particular business decision is because you believe it is morally wrong, and that is that. The consequences of not acting are not considered. Another reason for not acting leads you to arrive at just the opposite conclusion. You evaluate your decision in terms of the conse- quences of not acting (the impact it would have on others). If you do decide to implement a particular business decision, it is not necessarily an easy task. It is one thing to acknowledge the importance of the task, but to actually incorporate the ethical concepts first requires preplanning and then implementation. Imple- mentation will include a business code of ethics with a built-in rewards system. Employees will be more apt to respond to a code of ethics with a reward system for good ethical behavior.

The following steps compose one of many plans that could be used to build sound ethical practices within a company.

• Develop an ethical vision for the company. What ethical issues does the company feel are important to the overall health of the company- employees, shareholders, customers, and the community in general? What this is leading to is the development of a code of ethics stating a company's ethical priorities that can be distributed to each employee. Fundamental issues to be reviewed for incorporation into this code include employee satisfaction (personal and workplace), community issues, honesty, integrity, fairness, customer respect, environmental concerns that cause harm to others, and loyalty. One outcome of a code will point out to all employees, including company officers and managers, that the profit motive is not the sole objective of the company. More will be said about codes of ethics later in the chapter.

• Determine how the company's vision matches that of the employees. You can do this through an employee survey and a series of small-group focus meetings. You can also survey customers to determine their feelings about the company's services and/or products.

• Reconcile the company's ethical vision to that of the employees. When there is conflict as to ethical goals, consider a compromise, or if manage - ment feels strongly about a particular ethical goal, then this goal must be declared paramount under the circumstances. Imposition of an ethical goal, of course, is not the best choice. The parties may escape from this dilemma by compromise, thus arriving at an alternative plan that is acceptable to both parties. Keep in mind that there are no easy solutions to ethical dilemmas in which fundamental values conflict, for example, trading honesty between employer and employee for fairness (not acting arbi - trarily). If, however, the parties are sincerely determined to resolve the dilemma, a compromise will result.

• Implement the code of ethics that was developed in the company's decision making. From this point on, there needs to be an honest commitment by both management (employer) and employees to carry out the ethical vision that evolved from all the hard work devoted to the development process. A commitment to business ethics and the willingness to invest in communi- cating it internally and externally should lead to some very positive results. For example, employees may act more responsibly and honestly and become more loyal to the company. In turn, the company may show more fairness in dealing with employees and encourage more professional development that , in turn, could increase opportunities for employee growth within the company. As a result, the company's business may grow its customer base.

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code of ethics: document outlining the type of ethical behavior expected of an employee on the job

Development of Business Codes of Ethics There has been a dramatic increase in the development of business codes of e-- over the last several years because ethical conflicts arise in business that s;--- relations between management and employees or between the business an external contacts. This conflict sometimes leads to court trials that impose le5 liability on businesses based on these ethical issues .

A code of ethics consists of rules or standards that establish a framework :tr professional behavior and responsibilities within a company setting. Many bus·- nesses have developed a program that includes ethical training progra ms -- the distribution of a code of ethics to each employee. A code will not solve ethical problems, but its development and implementation will raise the ethic2. sensitivity of staff so that they at least know when a decision they face invol•·es an ethical choice about what is acceptable business practice and what is not. as well as why ethics and integrity are important to their organization. Once th"' code is in place, management should develop a plan to monitor the extent - which the company is living up to its ethical values. Tools to do this might iii.- clude surveys and the establishment of performance indicators for each sectio- of the code of ethics.

The overreaching theme in a business code of ethics may be summed up a- follows: As a representative of a company, you must act with honesty and integ- rity in all matters within the company and outside the company wherever bus i- ness is conducted. Typical inclusions in a business code of ethics are as follows:

• Employees are expressly forbidden from revealing or communicating to any third party confidential information entrusted to them.

• Employees must avoid involvement in outside activities that could conflict with the employee's loyalty.

• Employees must avoid situations where personal interests conflict with those of the company.

• Company assets such as time at work, work products, vehicles, and computers and software are not meant for personal use.

• Employees are not to accept lavish gifts from suppliers. • Employees are not to disclose nonpublic information to anyone outside the

company unless disclosure is required for business purposes.

The Role of the Legal System in Ethical Disputes Some behavior is considered purely unethical; other behavior, although unethi- cal, may also be serious enough to be considered criminal in nature and therefore subject a violator to a fine or even incarceration. Or, the behavior may be consid- ered a civil matter and therefore subject the violator to litigation (a lawsuit), resulting in the payment of money damages. In the example on page 17 in wh ich the Johnson Motor Company placed an unreasonably dangerous product on t he market, a person injured while driving this car because the gas tank explo de would have the legal right to bring a civil lawsuit against the company. If t hi person can prove in court that the Johnson Motor Company deliberately placed this unsafe car on the market, damages awarded to him or her could include re- imbursement for injuries suffered as well as damages imposed as a punishment (called punitive damages).

Ethical violations, and especially those that amount to civil and criminal wrongs, may not always be evident to employees of a company; alternatively, employees may simply be unconcerned with their behavior. Therefore, a code of ethics that clearly defines the type of behavior expected of employees and that makes reference to what can be considered legal and ethical violations becomes a very important document for minimizing unacceptable behavior in a company. Even though a code is well written, employees may draw a conclusion that what is not mentioned in the code is allowed. In addition, the document should be updated frequently to allow for changing conditions in the company. To protect

a company from civil lawsuits and the pursuit of criminal actions against its employees by outsiders, it is advantageous to hire a code enforcement officer to deal with violations internally before they become major issues. The code enforce- ment officer should also hold information sessions with employees to help them become thoroughly familiar with the company's code of ethics.

:.:: c.:» Answer True (T) or False (F) . ..... 1. Ethics has assumed a greater role as businesses carry = on their day-to-day operations. T F c.:» 2. Violations of business ethics occur only in large corporations. ..... T F .... 3 . One ethical issue of major concern to a business owner in the ..... ord inary course of work is sexual harassment. T F r'-1 4. A typical inclusion in a business code of ethics is that it is acceptable

N for a manager or an employee to accept lavish gifts from suppliers. T F

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Key Points in Chapter • • • Clearly, we must have laws to regulate human behavior; otherwise, anything goes. History has recorded the rea- sons why. Those who obey the law will be protected, and those who do not will be punished.

Law consists of rules established by government- federal, state, or local-to regulate the conduct of indi- viduals and groups in society. To say that " justice always prevails" may, to some, simply mean that the process of bringing a court case to a legal conclusion was followed, not that the outcome was necessarily fair. A conclusion that follows from all of this is that absolute justice, while not attainable, is the best rule devised under the circum- stances.

Law has many legitimate functions. Four of them are settlement of disputes, protection of the individual and society, protection of property, and promotion of worth- while social objectives.

The most important influences on the U.S. legal sys- tem are Roman law and English common law. Roman law is the basis of much of the law of Europe today, whereas English common law and equity became the model for the legal system of the United States.

The primary sources of law in the United States are constitutions, statutes, court decisions, and administrative

Important Legal Terms

act

administrative regulation

business ethics

case law

civil law

code of ethics

common law

constitutional law

regulations. Although the modern emphasis is on statu- tory law, including the regulations of administrative agen- cies, a substantial portion of the law in the United States is created through court decisions.

One way to classify law is as civil law and criminal law. Civil law protects the rights and property of individ- uals from harm by other individuals. Criminal law pro- tects society from t-he harmful acts of individuals.

States have adopted uniform laws ensuring that the laws governing commercial transactions will be the same throughout the country. One such law is the Uniform Commercial Code (UCC), which has now been adopted in all fifty states, the District of Columbia, and the Virgin Islands.

Business ethics focuses on ethical behavior (what is right and wrong in business settings). Ethics has assumed a greater role as businesses carry on their day-to-day operations. Business firms must operate within ethical guidelines as well as legal boundaries. Failure to respond to an ethical crisis leaves a firm vulnerable to court chal- lenges, government intervention, consumer boycotts, public distrust, and negative publicity. An unethical busi- ness decision can sometimes end up in court as a civil or criminal matter.

criminal law

equity

ethics

law

ordinance

precedent

stare decisis

statute

Questions and Problems for Discussion ---- ------ 1. Ludwig was the director of human resources for the

Krantz Technology Company. He played in a business -related golf tournament and won. Several people participated in this tournament. The prize was a ten-day all-expense trip to Bermuda . Ludwig accepted the prize and notified the vice president of human resources, his supervisor, for approval , which was granted. Was the decision to accept the price ethically correct?

2. In your own words, give reasons why you think people voluntarily obey the law.

3. Can there be law without justice? 4. Abbott shot and wounded three men who were

attempting to rob him in the subway of a large city. He had been robbed before in the same area and under the same circumstances. If convicted, do you think Abbott should be punished if he believed that what he did was ethica lly correct?

5. Jerome had acupuncture performed on his knee as the result of a football injury. The treatment by the licensed acupuncturist resulted in his getting a severe infection that required medical treatment at a hospital and then several visits to his doctor for additional treatment. Jerome, who had a part-time job, lost several days at work and lost several hundred dollars in pay. He decided to bring a legal action against the acupuncturist for his lost pay. Would his court action be a civil or criminal matter?

6. Clay stole a car from Mooney's driveway. While driving the car down Main Street at an excessive rate of speed, Clay ran into Page's store window, causing extensive damage. Can Mooney and Page bring a civil action against Clay? Can the state take action against Clay? Explain. What functions does the law serve in this case?

7. What ethical considerations might arise for a sales representative who is working with the purchasing department of a large corporation interested in buying several computers? How should she or he handle these considerations?

8.

9.

10.

11.

12.

What are the effects on a company that fai l- - build a strong ethical base into its everyday making? Do you think it is unethical for a compa ny ro ~~ current employees for illegal substances? As you read through the chapter, what wou ld . say are the advantages to a company if it estab and mainta ins good ethical standards of behav! ~­ in the company? Sentinel, a national automotive chain with auto centers throughout the United States, mailed coupons to consumers advertising discounts on brake jobs. Actually, this advertising was a ba it- and-switch scheme to get consumers into Sem iner- auto centers and convince them that additio na l repairs were needed. Sentinel had also establishe ' quotas for repair services that employees were required to meet. The company made millions of dolla rs on this scheme . Once the scheme was discovered , Sentinel's auto repair license was revoked and lawsuits were initiated against the company. Sentinel settled the lawsuits out of coun. and as part of the settlement, it offered various types of auto repairs free of charge. Did Sentinel a- ethically in this case? Why do you think Sentinel settled its claims out of court? The Kaiser Company manufactured a device women could use to prevent pregnancy. This device was sold to more than 3 million women. Thousa nd of women filed lawsuits against the company because the device was found to be defective, causing problems of infection and health defects in children born to them. The company aggressively fought these lawsuits in court, although there wa s overwhelming evidence that the device was truly defective . Was it unethical for the Kaiser Company to contest lawsuits filed against it knowing that it was responsible for the injury?