The Essentials of Business Law
Understanding the legal environment of business is foundational for both the productive enterprise and the study of the law in general. This is made clear in Kenneth W. Clarkson, Roger LeRoy Miller & Frank B.Cross, Business Law Text and Cases (2010). In this highly regarded text, we find the following important statements about the law of business: The various laws that affect business and the legal environment of business are complex, and their interpretation and application in practice is complicated and full of nuances. However, its fundamental principles are of importance both to a productive enterprise and the due administration of the law. Because there is a great deal of common ground among and between the fundamental principles of legal subjects , it can be understood as something of a hierarchy: very often the common ground for one area of law is the subordinate or preparatory basis for another. The study of all such areas should therefore be simplified by first territorying the foundational areas and then introducing the new and more complex areas in the light of such familiar territory. That is, unless we understand the fundamental principles of the law as they relate to business organizations, contracts and torts, there may be little prospect of adequately considering the legal environment of business.
Key Legislation Regulating Business
Beyond the traditional common law system, there are several other legal frameworks that impact business operations. For instance, the Uniform Commercial Code (UCC) governs sales of goods. Article 2 of the UCC applies to contracts where the sale of goods is the primary purpose rather than a service. Typically, the UCC provides protections for buyers and sellers, and codifies many legal doctrines regarding the sale of goods. For example, the UCC provides rules for determining if a contract existed, what constitutes performance, remedies for breach of contract, and the statute of limitations for bringing a lawsuit under Article 2. The UCC also addresses issues like product warranties, risk of loss, and delivery of goods.
There are over 200 federal statutes that regulate business activities. These range from laws governing business finances and labor relations to taxation and trade. For instance, Congress enacted the Sarbanes-Oxley Act of 2002 (SOX) to restore confidence in financial markets after publicized accounting scandals. The goal of SOX was to hold CEOs accountable for financial mismanagement and provide greater assurance that investors’ interests were protected. SOX also imposed significant auditing, compliance, and corporate governance obligations on US companies and their auditors.
State constitutions also contribute to the business law landscape. For example, corporate and personal bankruptcy laws are governed by state statutes. Each state has its own set of laws that apply to corporations and personal financial troubles. States also enact protectionary laws relating to public health, safety, and morals. These laws must pass the standard rational basis test otherwise they may be challenged as unconstitutional.
Landmark Cases in Business Law
A discussion of the legal environment of business would be remiss without a look at some key judicial decisions that have shaped business law. The following selections consider important cases that have helped to define the rules of business.
Gibbons v. Ogden
In Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824), the Supreme Court of the United States took an expansive view of Congress’s power to regulate interstate commerce, overturning the majority of state-granted monopolies on interstate ferrying between New Jersey and New York. In the course of reaching this conclusion, Chief Justice John Marshall rebooted the entire theory of regulated commerce. Historically, courts had viewed interstate commerce as activity at rest; domestic trade fell within the realm of the U.S. States, but trade between continents was the province of the federal government. Chief Justice Marshall, however, carved out a new meaning for interstate commerce: the movement of people and goods, the very sending of goods and people, were also commerce. To regulate the movement of people and goods across state lines was to regulate interstate commerce. By interpreting interstate commerce in this way, the Court pushed aside any notion that states could grant exclusive use of their ports to an individual, corporation, or consortium of companies (or any combination thereof). The decision made states’ powers subordinate to those of Congress, and it did so in the name of free trade.
Schreiber v. Burlington Northern, Inc.
In Schreiber v. Burlington Northern, Inc., 854 F.2d 478 (9th Cir. 1988), the plaintiff sued several railroads for the loss of four gondola railcars containing logs. The railcars were lost in the Pacific; it was assumed that they had sunk. The plaintiff recovered on his loss under the Carriage of Goods by Sea Act (COGSA), but then sought additional damages under the Federal Bill of Lading Act (FBLA) on the argument that the FBLA "supplement[ed] the COGSA." The trial court granted summary judgment in favor of the plaintiff, finding that the plaintiff had proved that the four railcars had been unfit to carry goods. The Supreme Court reversed the ruling in favor of Burlington Northern. The Court first agreed that the FBLA supplanted COGSA and the provisions of the bill of lading, but then found fault with the plaintiff’s case. The plaintiff had not proven that Burlington Northern had, in fact, given over the disposition of the cargo to the plaintiff; as a result, Burlington Northern could not be held responsible.
Oregon Waste Systems, Inc. v. DEQ
In Oregon Waste Systems, Inc. v. DEQ, 511 U.S. 93 (1994), the Supreme Court ruled that a state could not levy differential taxes on out-of-state waste, even if the end result was economic protectionism. The case involved a 1989 law by the State of Oregon levying a tax on all waste deposited in state landfills. But the law provided a higher tax on waste from outside the state than for waste generated in Oregon. Oregon Waste Systems transported waste from within state lines to Washington State, where the waste was transferred onto federal railroads for transportation. As a result, Oregon Waste Systems was required to pay the 1989 tax on the in-state rate for its own waste, the 1989 tax plus $2 per ton on all other waste, or the in-state rate for all waste transported. The Supreme Court held that the 1989 tax by Oregon was discriminatory. It reasoned that a differential tax worked to frustrate the Commerce Clause because it interfered with the free flow of goods across state boundaries. The Court also determined that differential tax rates were not "congruent to their real economic function." A state could not levy a higher tax on imports than on in-state exports just because the former was an "import." Such a tax could be levied, but only if it were used to fund services actually provided to the import.
Regulatory Agencies and their Impact
As the federal government itself can be a source of numerous regulations and a level of oversight and enforcement, there is a crucial role that can be played by regulatory agencies on a state and federal level. Oversight can play a key role in keeping businesses on the up-and-up, and it can help to steer investments in line with the rules and regulations that govern the specific practice or business structure they are targeting.
Part of the role of a federal regulatory agency is to establish parameters for various industries. This includes monitoring and enforcing procedures and norms that should be observed within and between businesses within that industry. This role of agencies often comes into conflict with the right of businesses to operate without regulation, but regulatory agencies are a common means of establishing fair practices within an industry or helping a specific industry avoid monopolistic practices. In that sense , regulatory agencies, such as the federal Trade Commission (FTC) and the federal Aviation Administration, can foster growth, and antitrust laws can set boundaries on monopolistic practices that disallow competition.
State regulatory agencies include boards within specific industries, such as the Board of Accountancy and the Board of Medical Examiners. Issuing professional licenses, establishing codes of conduct and ethics, and investigating and, when necessary, adjudicating claims of malpractice or professional misconduct are all functions of these agencies. As such, while an administrator could have constitutional powers, executive agencies exert their powers via statutes passed by Congress, and can effectively limit the power of state and local government employees.
Practical Applications of Business Law through Case Studies
To understand the vast world of business law, real-world examples of someone applying the principles required to navigate the legal environment of business can help create a better understanding of this process. It’s not just a textbook or a list of rules—all of these things have been litigated in court systems and are representative of learning experiences that have impacted the world of business law as we know it today.
In 1998, Martha Stewart Living Omnimedia was hit with a couple million-dollar lawsuit by the federal government over its claims made on TV. For Stewart, the case was a failure. She didn’t defend her claims in a way that proved them—they were tall claims that she couldn’t deliver to the government and didn’t have the proper paperwork to show that she had her business’s information under lock and key. During the case, she ended up admitting she didn’t fully know how her business was formed—all of the small details used to run a T.V. program and cash flow weren’t something she was fully aware of—not a good look, and one no big brand wants to display.
In another case from 2004, the now-infamous eBay vs. MercExchange case outlines the importance of patents in getting a better grasp on the world of business law. In this case, eBay was being sued by MercExchange over a patent issue-the patents were used on eBay’s online auctions But the Supreme Court ruled that eBay didn’t have any issues with the terms of the agreement on eBay’s side, and thus was not at fault. The case is a well-structured example of how businesses should behave when there is something that needs investigating. Nancy Drew, we mean, the U.S. Supreme Court, solved the mystery of who is at fault in this case.
One recent case involves the retailer Hobby Lobby. Sued for going against the Affordable Care Act, they ended up going to U.S. Supreme Court, where they won 5-4. The U.S. Supreme Court ruled that it violated the federal Religious Freedom Restoration Act to require a "non-religious, for-profit corporation to provide four out of twenty contraceptive methods under employee health plans." All this means it encroaches on their religious freedom.
The Future of Business Law
The future of business law will be closely linked to technological advancements and the ability for businesses to navigate an increasingly globalized market. The rise of artificial intelligence, for example, promises to alter the way businesses conduct themselves and how regulators track their behavior. We are already seeing evidence of intelligent regulation that anticipates evasive actions by corporations. For example, the IRS recently proposed changing tax code terminology to prevent businesses from claiming a foreign tax credit even if they simply pay taxes in a foreign jurisdiction rather than actually investing in that jurisdiction.
At the same time, regulation will continue to tumble in the new globalized market. Trade tariffs are only the latest in a long history of attempts by governments to manage business under national lines. In the 19th century U.S. manufacturing had a competitive advantage over Britain, and British business owners turned to both foreign governments and their British Parliament to try and manage U.S. business competitors. Today , instead of competing with other nations through import and export controls, tariffs, and sanctions, companies are competing in more dynamic ways, such as through innovation and sustainability.
As globalization increases, businesses will have to contend with multiple layers of regulations in terms of legislation, enforcement, enforcement, compliance, litigation, and enforcement through new dispute resolution mechanisms, such as ESAI (Energy, Sustainability & Investment Arbitral Initiative). These hearings operate in a non-judicial setting and can use non-judicial remedies, such as mediation. In some cases, such as the World Trade Organization, compliance with dispute resolution rulings is self-enforced by global powers, rather than an enforcement mechanism. The trend towards alternative dispute resolution will continue to grow as nations will prefer neutral, non-partisan arbitrators rather than judges with a vested interest in one outcome or another.