Homework answers / question archive / PART 1: Read one or two topics from Chapter 5 - chapter 7 and write a summary on it

PART 1: Read one or two topics from Chapter 5 - chapter 7 and write a summary on it

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PART 1:

Read one or two topics from Chapter 5 - chapter 7 and write a summary on it.

Also, provide a graduate-level response to each of the following questions:

1. Beets R Us, LLC is a medium-sized farm in Iowa that grows beets that are only sold in Iowa. It does not export its beets outside of Iowa, though sometimes customers from out of state buy its beets while visiting Iowa. Is Beets R Us, LLC’s business practices subject to federal jurisdiction under Article I, Section 8 of the United States Constitution? Why or why not?
2. Peter Plaintiff’s son is killed while working overseas for a United States corporation that deals in proprietary petroleum extraction and production. Peter Plaintiff brings a wrongful death lawsuit on behalf of his son’s estate against this corporation and requests a wide scope of business documents related to the corporation and its overseas operations under the Freedom of Information Act (FOIA). What defenses, if any, does the corporation have against revealing the requested information under the FOIA?
3. Define expropriation, explain how it effects a county’s investments in foreign counties,and how counties respond to it.

Part 1 needs to be 500 plus words and APA format (refer chapter 5 - 7 from the attached textbook)

PART 2:

Question I - Kansas passes a statutes which says all corn must be grown and processed in a certain manner so as to avoid harmful pesticides. This statute is challenged as being unconstitutional. What are the two factors for the court to consider when deciding whether the statute is constitutional?

Question II - If a business does not agree with the decision of a hearing officer, may that business appeal the decision directly to the judicial court system? What steps must the business take to get the case within the judicial system?

Question III - Megatron, Inc. is a company with its principal offices in the United States. For years, Megatron has only operated domestically; however, Megatron’s board of directors now feels it is in the company’s best interests to explore how to do business internationally. Give at least three examples of actions Megatron can take with regards to foreign government officials, which would benefits Meagtron’s international growth without running afoul of the Foreign Corrupt Practices Act (FCPA)?

Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Want to turn your C into an A? Obviously, right? But the right way to go about it isn’t always so obvious. Go digital to get the grades. MindTap’s customizable study tools and eTextbook give you everything you need all in one place. Engage with your course content, enjoy the flexibility of studying anytime and anywhere, stay connected to assignment due dates and instructor notifications with the MindTap Mobile app... and most of all…EARN BETTER GRADES. TO GET STARTED VISIT WWW.CENGAGE.COM/STUDENTS/MINDTAP Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 ElEvEnth Edition Business its lEgal, Ethical, and global EnvironmEnt Marianne Moody Jennings Arizona State University Australia • Brazil • Mexico • Singapore • United Kingdom • United States Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Business: Its Legal, Ethical, and Global Environment , 11e Marianne Moody Jennings Vice President, General Manager, Social Science & Qualitative Business: Erin Joyner Product Director: Jason Fremder Sr. Product Manager: Vicky True-Baker Sr. Content Developer: Kristen Meere Marketing Director: Kristen Hurd Marketing Manager: Katie Jergens Marketing Coordinator: Casey Binder Product Assistant: Christian Wood Production Management, and Composition: Lumina Datamatics, Inc. Intellectual Property Analyst: Jennifer Nonenmacher Project Manager: Reba Frederics Manufacturing Planner: Kevin Kluck Sr. Art Director: Michelle Kunkler Cover and Interior Designer: Ke Design Cover Image: Shingo Tamura/Moment/ Getty Images © 2018, 2015 Cengage Learning® ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced or distributed in any form or by any means, except as permitted by U.S. copyright law, without the prior written permission of the copyright owner. For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706 For permission to use material from this text or product, submit all requests online at cengage.com/permissions Further permissions questions can be emailed to permissionrequest@cengage.com Library of Congress Control Number: 2016948642 ISBN: 978-1-337-10357-2 Cengage Learning 20 Channel Center Street Boston, MA 02210 USA Cengage Learning is a leading provider of customized learning solutions with employees residing in nearly 40 different countries and sales in more than 125 countries around the world. Find your local representative at www.cengage.com. Cengage Learning products are represented in Canada by Nelson Education, Ltd. To learn more about Cengage Learning Solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in Canada Print Number: 01 Print Year: 2016 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Brief Contents Part 1 Part 4 1 Business: Its Legal, Ethical, and Judicial Environment 1 553 Business Management and Governance 553 16 Management of Employee Conduct: Agency 554 1 Introduction to Law 2 2 Business Ethics and Social Responsibility 24 17 Governance and Structure: Forms of Doing Business 592 3 The Judicial System 72 18 Governance and Regulation: Securities Law 634 4 Managing Disputes: Alternative Dispute Resolution and Litigation Strategies 102 19 Management of Employee Welfare 680 Part 2 20 Management: Employment Discrimination 728 139 Business: Its Regulatory Environment 139 5 Business and the Constitution 140 6 Administrative Law 178 7 International Law 218 A B C D E 8 Business Crime 248 F G H 9 Business Torts 294 10 Environmental Regulation and Sustainability 328 Part 3 Appendices A-1 I 363 Business Sales, Contracts, and Competition 363 11 Contracts and Sales: Introduction and Formation 366 The United States Constitution A-1 The Foreign Corrupt Practices Act (Excerpts) A-12 The Uniform Commercial Code (Excerpts)* A-15 Dodd-Frank (Wall Street Reform and Consumer Financial Protection Act) Key Provisions A-20 The Securities Act of 1933 and the Securities Exchange Act of 1934 (Excerpts) A-23 Sarbanes-Oxley Key Provisions (Excerpts) A-28 The Copyright Act (as Amended) (Excerpts) A-31 Title VII and the Civil Rights Act (Employment Provisions) (Excerpts) A-34 The Americans with Disabilities Act (Excerpts) A-37 Glossary G-1 Table of Cases T-1 Table of Products, People, and Companies T-11 Index I-1 12 Contracts and Sales: Performance, Remedies, and Collection 410 13 Product Advertising and Liability 448 14 Business Competition: Antitrust 486 15 Business and Intellectual Property Law 520 iii Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Contents Preface xv About the Author xxvi Acknowledgments xxviii Part 1 Business: Its Legal, Ethical, and Judicial Environment 1 1 Introduction to Law 2 1-1 Definition of Law 3 1-2 Classifications of Law 3 1-2a 1-2b 1-2c 1-2d 1-2e Public versus Private Law 3 Criminal versus Civil Law 4 Substantive versus Procedural Law 4 Common versus Statutory Law 4 Law versus Equity 5 1-3 Purposes of Law 6 1-3a 1-3b 1-3c 1-3d 1-3e Keeping Order 6 Influencing Conduct 6 Honoring Expectations 6 Promoting Equality 6 Law as the Great Compromiser 7 1-4 Characteristics of Law 7 1-4a Flexibility 7 1-4b Consistency 7 1-4c Pervasiveness 7 1-5 The Theory of Law: Jurisprudence 12 1-5a The Theory of Law: Positive Law 12 1-5b The Theory of Law: Natural Law 12 1-5c The Theory of Law: The Protection of Individuals and Relationships 12 1-5d The Theory of Law: The Social Contract 12 1-6 Sources of Law 13 iv 1-6a Constitutional Law 13 1-6b Statutory Law at the Federal Level 14 1-6c Statutory Law at the State Level 15 1-6d Local Laws of Cities, Counties, and Townships 16 1-6e Private Laws 16 1-6f Court Decisions 16 1-7 Introduction to International Law 17 1-7a Custom 17 1-7b Treaties 18 1-7c Private Law in International Transactions 18 1-7d International Organizations 18 1-7e The Doctrines of International Law 18 1-7f Trade Law and Policies 18 1-7g Uniform International Laws 19 1-7h The European Union 19 Summary 20 Questions and Problems 21 2 Business Ethics and Social Responsibility 24 2-1 What Is Ethics? 26 2-1a “It’s Just Not Right!” 26 2-1b Normative Standards: How We Behave to Keep Order 26 2-1c Line-Cutting and Ethics 27 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Contents 2-2 What Is Business Ethics? 28 2-2a 2-2b 2-2c 2-2d Ethical Standards: Positive Law and Ethics 29 Ethical Standards: Natural Law and Ethics 31 Ethical Standards: Moral Relativism and Ethics 31 Ethical Standards: Religion and Ethics 31 2-3 What Are the Categories of Ethical Dilemmas? 31 2-3a 2-3b 2-3c 2-3d Taking Things That Don’t Belong to You 31 Saying Things You Know Are Not True 32 Giving or Allowing False Impressions 32 Buying Influence or Engaging in Conflict of Interest 33 2-3e Hiding or Divulging Information 34 2-3f Taking Unfair Advantage 34 2-3g Committing Acts of Personal Decadence 35 2-3h Perpetrating Interpersonal Abuse 35 2-3i Permitting Organizational Abuse 35 2-3j Violating Rules 36 2-3k Condoning Unethical Actions 36 2-3l Balancing Ethical Dilemmas 36 2-4 Resolution of Business Ethical Dilemmas 37 2-4a 2-4b 2-4c 2-4d 2-4e Blanchard and Peale 37 The Front-Page-of-the-Newspaper Test 38 Laura Nash and Perspective 38 The Wall Street Journal Model 39 Other Models 39 2-5 Why We Fail to Reach Good Decisions in Ethical Dilemmas 39 2-5a 2-5b 2-5c 2-5d “Everybody Else Does It” 39 “If We Don’t Do It, Someone Else Will” 39 “That’s the Way It Has Always Been Done” 40 “We’ll Wait until the Lawyers Tell Us It’s Wrong” 40 2-5e “It Doesn’t Really Hurt Anyone” 41 2-5f “The System Is Unfair” 41 2-5g “I Was Just Following Orders” 41 2-5h “You Think This Is Bad, You Should Have Seen . . .” 42 2-5i “It’s a Gray Area” 42 2-6 Social Responsibility: Another Layer of Business Ethics 43 2-6a Ethical Postures for Social Responsibility 43 2-7 Why Business Ethics? 45 2-7a Personal Accountability and Comfort: Business Ethics for Personal Reasons 45 2-8 Importance of Ethics in Business Success and the Costs of Unethical Conduct 51 2-8a Ethics as a Strategy 53 2-8b The Value of a Good Reputation 55 2-8c Leadership’s Role in Ethical Choices 56 2-9 Creation of an Ethical Culture in Business 58 2-9a The Tone at the Top and an Ethical Culture 58 2-9b Dodd-Frank, Sarbanes-Oxley, Sentencing, and an Ethical Culture 58 2-9c Reporting Lines: An Anonymous Ethics Line for an Ethical Culture 59 2-9d Developing an Ethics Stance 59 2-9e Being Careful about Pressure and Signals 61 2-10 Ethical Issues in International Business 61 Summary 68 Questions and Problems 69 3 The Judicial System 72 3-1 Types of Courts 73 3-1a Trial Courts 73 3-1b Appellate Courts 73 3-2 How Courts Make Decisions 73 3-2a The Process of Judicial Review 73 3-2b The Doctrine of Stare Decisis 75 3-3 Parties in the Judicial System (Civil Cases) 77 3-3a 3-3b 3-3c 3-3d 3-3e Plaintiffs 77 Defendants 77 Lawyers 77 Judges 79 Name Changes on Appeal 79 3-4 The Concept of Jurisdiction 79 3-5 Subject Matter Jurisdiction of Courts: The Authority over Content 80 3-5a 3-5b 3-5c 3-5d The Federal Court System 80 The State Court Systems 86 Judicial Opinions 88 Venue 88 3-6 In Personam Jurisdiction of Courts: The Authority over Persons 90 3-6a 3-6b 3-6c 3-6d Ownership of Property within the State 90 Volunteer Jurisdiction 90 Presence in the State 90 Internet Companies and Long-Arm Jurisdiction 94 3-7 The International Courts 95 3-7a Jurisdictional Issues in International Law 96 3-7b Conflicts of Law in International Disputes 96 Summary 98 Questions and Problems 99 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 v vi Contents 4 4-3 Resolution of International Disputes 110 Managing Disputes: Alternative Dispute Resolution and Litigation Strategies 102 4-1 What Is Alternative Dispute Resolution? 103 4-2 Types of Alternative Dispute Resolution 103 4-2a 4-2b 4-2c 4-2d 4-2e 4-2f 4-2g 4-2h 4-2i Arbitration 103 Arbitration Procedures 106 Mediation 108 Medarb 108 The Minitrial 108 Rent-a-Judge 109 Summary Jury Trials 109 Early Neutral Evaluation 109 Peer Review 110 Part 4-4 Litigation versus ADR: The Issues and Costs 111 4-4a 4-4b 4-4c 4-4d 4-4e Speed and Cost 111 Protection of Privacy 111 Creative Remedies 111 Judge and Jury Unknowns 112 Absence of Technicalities 113 4-5 When You Are in Litigation 113 4-5a 4-5b 4-5c 4-5d 4-5e 4-5f 4-5g How Does a Lawsuit Start? 113 The Complaint (Petition) 115 The Summons 117 The Answer 119 Seeking Timely Resolution of the Case 119 How a Lawsuit Progresses: Discovery 121 Resolution of a Lawsuit: The Trial 125 4-6 Issues in International Litigation 131 Summary 134 Questions and Problems 134 2 Business: Its Regulatory Environment 139 5 5-4 State versus Federal Regulation of Business— Constitutional Conflicts: Preemption and the Supremacy Clause 152 Business and the Constitution 140 5-1 The U.S. Constitution 141 5-1a An Overview of the U.S. Constitution 141 5-1b Articles I, II, and III—the Framework for Separation of Powers 141 5-1c Other Articles 142 5-1d The Bill of Rights 143 5-2 The Role of Judicial Review and the Constitution 143 5-3 Constitutional Limitations of Economic Regulations 143 5-3a The Commerce Clause 143 5-3b Constitutional Standards for Taxation of Business 149 5-5 Application of the Bill of Rights to Business 156 5-5a Commercial Speech and the First Amendment 156 5-5b First Amendment Protection for Advertising 156 5-5c First Amendment Rights and Profits from Sensationalism 158 5-5d First Amendment Rights and Corporate Political Speech 159 5-5e Eminent Domain: The Takings Clause 164 5-5f Procedural Due Process 169 5-5g Substantive Due Process 170 5-5h Equal Protection Rights for Business 171 5-6 The Role of Constitutions in International Law 171 Summary 173 Questions and Problems 173 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Contents 6 7-2 Trust, Corruption, Trade, and Economics 227 7-2a Foreign Corrupt Practices Act (FCPA) 227 Administrative Law 178 6-1 What Are Administrative Agencies? 179 6-2 Roles of Administrative Agencies 180 6-2a 6-2b 6-2c 6-2d 6-2e Specialization 180 Protection for Small Business 182 Faster Relief 182 Due Process 182 Social Goals 183 6-3 Laws Governing Administrative Agencies 183 6-3a 6-3b 6-3c 6-3d 6-3e Administrative Procedures Act 183 Freedom of Information Act 183 Federal Privacy Act 184 Government in the Sunshine Act 185 Federal Register Act 186 6-4 The Functions of Administrative Agencies and Business Interaction 186 6-4a Providing Input When Agencies Are Promulgating Regulations 186 6-4b Formal Rulemaking 186 6-4c Proactive Business Strategies in Regulation 204 6-4d Informal Rulemaking 204 6-5 Business Rights in Agency Enforcement Action 205 6-5a 6-5b 6-5c 6-5d 6-5e 6-5f Licensing and Inspections 205 Prosecution of Businesses 207 Beginning Enforcement Steps 207 Consent Decrees 207 Hearings 207 Administrative Law of Appeals 209 6-6 The Role of Administrative Agencies in the International Market 210 Summary 212 Questions and Problems 213 7 7-3 Resolution of International Disputes 232 7-4 Principles of International Law 232 7-4a Act of State Doctrine 232 7-4b Sovereign Immunity 232 7-4c Protections for U.S. Property and Investment Abroad 235 7-4d Repatriation 237 7-4e Forum Non Conveniens, or “You Have the Wrong Court” 237 7-4f Conflicts of Law 237 7-5 Protections in International Competition 238 7-5a The International Marketplace and Monetary Issues: The Disclosure Role of Banks 238 7-5b Antitrust Laws in the International Marketplace 240 7-5c Protections for Intellectual Property 242 7-5d Criminal Law Protections 242 Summary 244 Questions and Problems 244 8 Business Crime 248 8-1 What Is Business Crime? The Crimes within a Corporation 249 8-1a Financial Fraud: Employees Manipulating Earnings Numbers 249 8-1b Marketing Missteps: Sales Zeal and Crimes 250 8-1c Friendly Fire: Employee Theft 250 8-2 What Is Business Crime? The Crimes against a Corporation 252 8-3 Who Is Liable for Business Crime? 253 8-4 Federal Laws Targeting Officers and Directors for Criminal Accountability 254 International Law 218 7-1 Sources of International Law 219 7-1a 7-1b 7-1c 7-1d vii International Law Systems 219 Nonstatutory Sources of International Law 220 Statutory Sources of International Law 221 Treaties, Trade Organizations, and Controls on International Trade 222 8-4a 8-4b 8-4c 8-4d 8-4e White-Collar Crime’s Origins and History 254 Sarbanes–Oxley (SOX) 255 Honest Services Fraud 256 Financial Services Crimes and Reforms 256 Other Business Crimes and White-Collar Liability 257 8-5 The Penalties for Business Crime 257 8-5a New Penalties and New Processes 257 8-5b Corporate Integrity Agreements (CIAs) 257 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 viii Contents 8-5c Criminal Indictments of Corporations on Common Law Crimes 259 8-5d Shame Punishment 259 8-5e New and Higher Penalties for Corporate Crime 262 8-5f Corporate Sentencing Guidelines: An Ounce of Prevention Means a Reduced Sentence 262 8-5g Corporate Board Criminal Responsibility 263 8-6 Elements of Business Crime 265 8-6a Mens Rea, Scienter, or Criminal Intent 265 8-6b Mens Rea, Conscious Avoidance, and Corporate Officers 267 8-6c Actus Reus 268 8-7 Examples of Business Crimes 268 8-7a 8-7b 8-7c 8-7d 8-7e 8-7f 8-7g Theft and Embezzlement 268 Obstruction of Justice 268 Computer Crime 269 Internet Crime 271 Criminal Fraud 274 Commercial Bribery 274 Racketeer Influenced and Corrupt Organizations (RICO) Act 275 8-7h Business Crime and the USA Patriot Act 277 8-7i Additional Federal Crimes 279 8-7j State Crimes 279 8-8 Procedural Rights for Business Criminals 279 8-8a Fourth Amendment Rights for Businesses 279 8-8b Exceptions to the Warrant Requirement 281 8-8c Fifth Amendment Rights for Businesses 283 8-9 Business Crime and International Business 287 Summary 289 Questions and Problems 290 9 Business Torts 294 9-1 What Is a Tort? Roots of Law and Commerce 295 9-1a Tort Versus Crime 295 9-1b Types of Torts 295 9-2 The Intentional Torts 296 9-2a 9-2b 9-2c 9-2d 9-2e Defamation 296 Contract Interference 304 False Imprisonment 304 Intentional Infliction of Emotional Distress 305 Invasion of Privacy 305 9-3 Negligence 308 9-3a 9-3b 9-3c 9-3d 9-3e 9-3f Element One: The Duty 308 Element Two: Breach of Duty 311 Element Three: Causation 314 Element Four: Proximate Cause 315 Element Five: Damages 319 Defenses to Negligence 319 9-4 New Verdicts on Tort Reform 321 9-4a Strict Liability 322 Summary 323 Questions and Problems 324 10 Environmental Regulation and Sustainability 328 10-1 Common Law Remedies and the Environment 329 10-1a Nuisances 329 10-1b NIMBYs and Nuisances 329 10-2 Statutory Environmental Laws: Air Pollution Regulation 332 10-2a Early Legislation 333 10-2b 1970 Amendments to the Clean Air Act: New Standards 333 10-2c 1977 and 1990 Amendments 333 10-2d New Forms of Control: EPA Expansion Through Administrative Procedures 333 10-2e New Forms of Control: EPA and Climate Change, Nee Global Warming 334 10-2f New Forms of Control: EPA and Small Businesses 335 10-2g New Forms of Control: EPA and Economic Forces 336 10-3 Statutory Environmental Law: Water Pollution Regulation 336 10-3a Early Legislation 336 10-3b Present Legislation 336 10-3c Other Water Legislation 337 10-4 Statutory Environmental Law: Solid Waste Disposal Regulation 338 10-4a 10-4b 10-4c 10-4d Early Regulation 338 CERCLA and the Superfund 339 New Developments Under CERCLA 343 CERCLA and Brownfields 344 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Contents 10-5 Statutory Law: Environmental Quality Regulation 345 10-6 Statutory Law: Other Federal Environmental Regulations 347 10-6a 10-6b 10-6c 10-6d 10-6e 10-6f 10-6g 10-6h Surface Mining 347 The Fracking Issue 347 Noise Control 347 Pesticide Control 347 OSHA 347 Asbestos 347 Endangered Species 348 State Environmental Laws 351 Part ix 10-7 Enforcement of Environmental Laws 352 10-7a Parties Responsible for Enforcement 352 10-7b Criminal Sanctions and Penalties for Violations 352 10-7c Group Suits: The Effect of Environmentalists 356 10-8 International Environmental Issues 356 10-8a The EU and Environmentalism 356 10-8b ISO 14000 356 10-8c LEED Certification 357 Summary 359 Questions and Problems 359 3 Business Sales, Contracts, and Competition 363 11 Contracts and Sales: Introduction and Formation 366 11-1 What Is a Contract? 367 11-2 Sources of Contract Law 367 11-2a Common Law 368 11-2b The Uniform Commercial Code 368 11-3 Types of Contracts 372 11-3a Bilateral Versus Unilateral Contracts 372 11-3b Express Versus Implied Contracts (Quasi Contracts) 372 11-3c Void and Voidable Contracts 374 11-3d Unenforceable Contracts 374 11-3e Executed Versus Executory Contracts 374 11-4 Consumer Credit Contracts 375 11-4a 11-4b 11-4c 11-4d Discrimination in Credit Contracts 375 Subprime or Predatory Lending 376 Credit Disclosures 377 Controlling Credit Card Contracts 377 11-5 Formation of Contracts 378 11-5a Offer 378 11-5b Acceptance: The Offeree’s Response 390 11-5c E-Commerce and Contract Formation 391 11-5d Consideration 394 11-5e Contract Form: When a Record Is Required 395 11-5f Writing and E-Commerce: The Uniform Electronic Transactions Act 398 11-6 Issues in Formation of International Contracts 402 11-6a CISG—UCC for the World 402 11-6b The Payment Issues in International Contracts 403 11-6c Risk in International Contract Performance: Force Majeure 405 Summary 406 Questions and Problems 407 12 Contracts and Sales: Performance, Remedies, and Collection 410 12-1 Defenses in Contract Formation 411 12-1a 12-1b 12-1c 12-1d Capacity 411 Misrepresentation 414 Fraud or Fraudulent Misrepresentation 415 Consumer Credit Contracts and Rescission Rights 417 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 x Contents 12-1e Subprime Lending Representations and Disclosures 419 12-1f Duress 419 12-1g Undue Influence 419 12-1h Illegality and Public Policy 420 12-2 Contract Performance 426 12-2a When Performance Is Due 426 12-2b Standards for Performance 428 12-2c E-Commerce: Payment Performance Has Changed 429 12-2d When Performance Is Excused 429 12-2e Finding a Way to End Obligations Under the Contract 433 12-3 Nonperformance and Nonpayment—The Collection Remedies 433 12-3a Making Sure the Billing Is Accurate 433 12-3b Collection—Fair Standards for Obtaining Payment 434 12-3c Suits for Enforcement of Debts 437 12-3d The End of the Line on Enforcement of Debts: Bankruptcy 437 12-3e Is There a Cost to Breaching a Contract: Creditor Reports on Nonpaying Debtors 438 12-4 Contract Remedies for Nonperformance 441 12-5 Third-Party Rights in Contracts 442 12-6 International Issues in Contract Performance 443 12-6a Assuring Payment 443 12-6b Assuring Performance: International Peculiarities 443 Summary 444 Questions and Problems 445 13 13-2c Content Control and Accuracy 453 13-2d FTC Control of Performance Claims 454 13-2e FTC Control of Celebrity Endorsements 456 13-2f FTC Control of Bait and Switch 458 13-2g FTC Control of Product Comparisons 458 13-2h FTC Remedies 460 13-2i Ad Regulation by the FDA and Other Federal Agencies 460 13-2j Professional Ads 460 13-3 Contract Product Liability Theories: Implied Warranties 460 13-3a The Implied Warranty of Merchantability 461 13-3b The Implied Warranty of Fitness for a Particular Purpose 464 13-3c Eliminating Warranty Liability by Disclaimers 464 13-3d Privity Standards for UCC Recovery 466 13-4 Strict Tort Liability: Product Liability Under Section 402A 466 13-4a The Requirement of Unreasonably Dangerous Defective Condition 467 13-4b Reaching the Buyer in the Same Condition 471 13-4c The Requirement of a Seller Engaged in a Business 473 13-4d Negligence: A Second Tort for Product Liability 473 13-4e Privity Issues in Tort Theories of Product Liability 473 13-5 Defenses to Product Liability Torts 474 13-5a Misuse or Abnormal Use of a Product 474 13-5b Contributory Negligence 475 13-5c Assumption of Risk 475 13-6 Product Liability Reform 478 Product Advertising and Liability 448 13-1 Development of Product Liability 449 13-2 Advertising as a Contract Basis for Product Liability 449 13-2a Express Warranties 449 13-2b Federal Regulation of Warranties and Advertising 453 13-7 Federal Standards for Product Liability 478 13-7a Consumer Product Safety Commission 478 13-8 International Issues in Product Liability 479 Summary 481 Questions and Problems 481 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Contents 14 15-2 Patents 521 Business Competition: Antitrust 486 14-1 What Interferes with Competition? Covenants Not to Compete 487 14-2 What Interferes with Competition? An Overview of the Federal Statutory Scheme on Restraint of Trade 491 14-2a What Types of Activities Do the Federal Laws Regulate? 492 14-3 Horizontal Restraints of Trade 493 14-3a 14-3b 14-3c 14-3d 14-3e 14-3f Monopolization 493 Price-Fixing 496 Divvying Up the Markets 501 Group Boycotts and Refusals to Deal 502 Free Speech and Anticompetitive Behavior 502 Subtle Anticompetitive Behavior: Interlocking Directorates 503 14-3g Merging Competitors and the Effect on Competition 503 14-4 Vertical Trade Restraints 503 14-4a 14-4b 14-4c 14-4d 14-4e 14-4f 14-4g Resale Price Maintenance 504 Monopsony 508 Sole Outlets and Exclusive Distributorships 508 Customer and Territorial Restrictions 509 Tying Arrangements 509 Price Discrimination 511 Vertical Mergers 513 14-5 What Are the Penalties and Remedies for Anticompetitive Behavior? 513 14-5a Criminal Penalties 513 14-5b Equitable Remedies 514 14-5c Private Actions for Damages 514 14-6 Antitrust Issues in International Competition 514 Summary 516 Questions and Problems 516 15 Business and Intellectual Property Law 520 15-2a 15-2b 15-2c 15-2d 15-2e The Types and Length of Patents 522 What You Can Patent: Patentability 522 The Patent Process 523 What a Patent Does 523 The Remedies for Patent Infringement 524 15-3 Copyrights 525 15-3a What Is a Copyright and What Does It Protect? 525 15-3b The Rights of Copyright Holders Against Third-Party Infringers 526 15-3c How Long Does a Copyright Run? 528 15-3d Rights of a Copyright Holder 529 15-4 Trademarks 533 15-4a What Are Trademarks? 533 15-4b What Are the Legal Protections for Trademarks? 534 15-4c Enforcing Trademarks and the Risk of Going Generic 534 15-4d Trade Names 535 15-4e What Are the Rights When a Trademark or Trade Name Is Misused? 535 15-4f Trade Dress 538 15-4g Cyber Infringement 538 15-5 Trade Secrets 540 15-5a What are Trade Secrets? 540 15-5b How are Trade Secrets Protected? 541 15-5c Criminal Penalties for Theft of Trade Secrets 541 15-6 International Intellectual Property Issues 542 15-6a Patent Protection 542 15-6b Trademark Protection 542 15-6c Copyrights in International Business 543 15-6d Differing International Standards 543 15-7 Enforcing Business Property Rights 544 15-7a Product Disparagement 544 15-7b Palming Off 545 15-7c Misappropriation 545 Summary 548 Questions and Problems 548 15-1 What Can a Business Own? Intangible Property Rights 521 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 xi xii Contents Part 4 Business Management and Governance 553 16 Management of Employee Conduct: Agency 554 16-1 Names and Roles: Agency Terminology 555 16-1a 16-1b 16-1c 16-1d 161e 16-1f Agency 555 Principals 555 Agents 556 Employers and Employees: Master–Servant Relationships 556 Independent Contractors 556 Agency Law 556 16-2 Creation of the Agency Relationship 557 16-2a 16-2b 16-2c 16-2d 16-2e 16-2f Express Authority 557 The Record 557 Capacity 557 Implied Authority 558 Apparent Authority 559 Ratification 561 17 Governance and Structure: Forms of Doing Business 592 17-1 Sole Proprietorships 593 17-1a 17-1b 17-1c 17-1d 17-1e 17-1f 17-2 Partnerships 594 17-2a 17-2b 17-2c 17-2d 17-2e 17-2f 17-2g 16-3 The Principal–Agent Relationship 562 16-3a The Agent’s Rights and Responsibilities 562 16-3b The Principal’s Rights and Responsibilities 569 16-4 Liability of Principals for Agents’ Conduct: The Relationship with Third Parties 570 16-4a Contract Liability 570 16-4b Liability of Principals for Agents’ Torts 572 16-5 Termination of the Agency Relationship 577 16-6 Termination of Agents under Employment at Will 577 16-6a The Implied Contract 578 16-6b The Public Policy Exception 580 16-6c Handling Employee Termination Disputes 584 16-7 Agency Relationships in International Law 585 Summary 588 Questions and Problems 588 Formation 593 Sources of Funding 593 Liability 593 Tax Consequences 594 Management and Control 594 Transferability of Interest 594 Formation 594 Sources of Funding 599 Partner Liability 600 Tax Consequences in Partnerships 601 Management and Control 601 Transferability of Interests 603 Dissolution and Termination of the Partnership 603 17-3 Limited Partnerships 604 17-3a 17-3b 17-3c 17-3d 17-3e 17-3f 17-3g Formation 604 Sources of Funding 605 Liability 605 Tax Consequences 606 Management and Control 606 Transferability of Interests 606 Dissolution and Termination of a Limited Partnership 607 17-4 Corporations 607 17-4a 17-4b 17-4c 17-4d 17-4e 17-4f 17-4g Types of Corporations 607 The Law of Corporations 608 Formation 608 Capital and Sources of Corporate Funds 610 Liability Issues 611 Corporate Tax Consequences 613 Corporate Management and Control: Directors and Officers 614 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Contents 17-4h Corporate Management and Control: Shareholders 621 17-4i The Dissolution of a Corporation 624 17-5 Limited Liability Companies 625 17-5a 17-5b 17-5c 17-5d 17-5e 17-5f 17-5g Formation 625 Sources of Funding 625 Liability 625 Tax Consequences 627 Management and Control 627 Transferability of Interest 627 Dissolution and Termination 628 17-6 Limited Liability Partnerships 628 17-6a 17-6b 17-6c 17-6d 17-6e 17-6f 17-6g Formation 629 Sources of Funding 629 Liability 629 Tax Consequences 629 Management and Control 629 Transferability 629 Dissolution and Termination 629 17-7 International Issues in Business Structure 629 Summary 630 Questions and Problems 631 18 Governance and Regulation: Securities Law 634 18-1 History of Securities Law 635 18-2 Primary Offering Regulation: The 1933 Securities Act 635 18-2a What Is a Security? 635 18-2b Regulating Primary Offerings: Registration 636 18-2c Regulating Primary Offerings: Exemptions 637 18-2d What Must Be Filed: Documents and Information for Registration 642 18-2e Violations of the 1933 Act 643 18-3 The Securities Exchange Act of 1934 654 18-3a Securities Registration 654 18-3b Emerging Growth Companies (EGCs) and 1934 Act Exemption 654 18-3c Periodic Filing Under the 1934 Act: Those Alphabet Reports 654 18-3d The 1934 Act Antifraud Provision: 10(b) 655 18-3e Insider Trading and Short-Swing Profits 665 18-3f Regulating Voting Information 666 xiii 18-3g Shareholder Rights in Takeovers, Mergers, and Consolidations 668 18-4 State Securities Laws 671 18-5 International Issues in Securities Laws 673 Summary 675 Questions and Problems 676 19 Management of Employee Welfare 680 19-1 Wage and Hours Protection 681 19-1a The Fair Labor Standards Act 681 19-1b The Equal Pay Act of 1963 688 19-2 Workplace Safety 688 19-2a The Occupational Safety and Health Act 688 19-2b OSHA Responsibilities 688 19-2c Employee Impairment and Testing Issues 690 19-3 Employee Pensions, Retirement, and Social Security 690 19-3a Social Security 690 19-3b Private Retirement Plans 692 19-3c Unemployment Compensation 693 19-4 Workers’ Compensation Laws 695 19-4a 19-4b 19-4c 19-4d Employee Injuries 695 Causation and Worker’s Compensation 696 Fault Is Immaterial 696 Employees versus Independent Contractors 696 19-4e Benefits 696 19-4f Forfeiture of the Right of Suit 697 19-4g Third-Party Suits 697 19-4h Administrative Agency 697 19-4i Insurance 697 19-4j Problems in Workers’ Compensation Systems 699 19-5 Statutory Protections of Employees Through Labor Unions 700 19-5a The Norris–LaGuardia Act of 1932 700 19-5b The Wagner Act 700 19-5c The Taft–Hartley Act: The Labor-Management Relations Act of 1947 700 19-5d The Landrum–Griffin Act: The LaborManagement Reporting and Disclosure Act of 1959 700 19-5e Union Organizing Efforts and Social Media 701 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 xiv Contents 19-5f 19-5g 19-5h 19-5I 19-5j 19-5k 19-5l 19-5m 19-5n 19-5o 19-5p Employers Are Accountable for Employee Electronic Content 701 Employer Monitoring: What is Legal? 701 Employers’ Right of Access to Employee E-Mails 704 E-Mail and NLRA Issues 705 The Unionization Process 706 Union Contract Negotiations 710 Protected Concerted Activities 711 Unfair Employee Practices 711 Employer Rights 712 Right-to-Work Laws 712 Economic Weapons of Employers 713 20-6 The Defenses to a Title VII Charge 751 20-6a 20-6b 20-6c 20-6d 20-7 Enforcement of Title VII 755 20-7a Steps in an EEOC Case 755 20-7b Remedies Available Under Title VII 756 20-8 Other Antidiscrimination Laws 756 20-8a Age Discrimination in Employment Act of 1967 756 20-8b Equal Pay Act of 1963 758 20-8c Communicable Diseases in the Workplace 758 20-8d Rehabilitation Act of 1973 759 20-8e Americans with Disabilities Act 759 20-8f The Family and Medical Leave Act 760 19-6 International Issues in Labor 715 19-6a Immigration Laws 715 19-6b Working Conditions and International Labor Law 718 19-6c Sample International Standards 718 19-6d The Risks of International Suppliers 719 19-6e New Trends in Managing International Wage and Safety Standards 720 Summary 722 Questions and Problems 724 20 Management: Employment Discrimination 728 20-1 History of Employment Discrimination Law 729 20-2 Employment Discrimination: Title VII of the Civil Rights Act 731 20-2a Application of Title VII 731 20-2b Employment Procedures Covered 731 20-9 The Global Workforce 761 Summary 764 Questions and Problems 764 Appendices A-1 A The United States Constitution A-1 B The Foreign Corrupt Practices Act (Excerpts) A-12 C The Uniform Commercial Code (Excerpts)* A-15 D Dodd-Frank (Wall Street Reform and Consumer Financial Protection Act) Key Provisions A-20 E The Securities Act of 1933 and the Securities Exchange Act of 1934 (Excerpts) A-23 F Sarbanes-Oxley Key Provisions (Excerpts) A-28 G The Copyright Act (as Amended) (Excerpts) A-31 H Title VII and the Civil Rights Act (Employment Provisions) (Excerpts) A-34 I The Americans with Disabilities Act (Excerpts) A-37 20-3 Theories of Discrimination Under Title VII 731 20-3a Disparate Treatment 731 20-3b Disparate Impact 734 20-3c Pattern or Practice of Discrimination 737 20-4 Specific Applications of Title VII 738 20-4a Sex Discrimination 738 20-4b Religious Discrimination 746 20-4c Racial Discrimination 749 20-5 Antidiscrimination Laws and Affirmative Action 749 20-5a What Is Affirmative Action? 750 20-5b Who Is Required to Have Affirmative Action Programs? 750 20-5c Affirmative Action Backlash: The Theory of Reverse Discrimination 750 Bona Fide Occupational Qualification 751 Seniority or Merit Systems 752 Aptitude and Other Tests 752 Misconduct 752 Glossary G-1 Table of Cases T-1 Table of Products, People, and Companies T-11 Index I-1 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Preface A Different World, but the Same Issues The seventh edition of this book was published amidst the fallout from the legal, ethical, and, too often, financial collapses of Enron, WorldCom, Adelphia, HealthSouth, Parmalat, Arthur Andersen, Kmart, and others. With Sarbanes–Oxley on the books and new regulatory demands on corporations, we thought perhaps we had turned the corner. But the eighth edition was published as Wall Street and the economy were reeling from the fallout of a subprime mortgage market operating under regulatory radar without a great deal of disclosure on portfolio risk. When the ninth edition was published, the SEC had just settled a civil suit it brought against Goldman Sachs for allegedly selling securities to clients it was betting against as a short-seller in a scheme that saw its profits reach double-digit billions. Goldman paid a fine of $550 million. In late 2009, Goldman’s CEO, Lloyd Blankfein, uttered the same words that Jeffrey Skilling did in 2000: “We are doing God’s work.” At press time of the tenth edition, there were questions about the fairness of the scrutiny of taxpayers by an administrative agency, the Internal Revenue Service, and the Justice Department’s tapping of phones of news corporations. Book publishers signed antitrust consent decrees for agreeing to fix prices in order to compete with Amazon. A factory in Bangladesh, that produced clothing for U.S. retailers, collapsed, killing over 600 employees, a collapse that was caused by noncompliance with safety and code standards. Now, as this 11th edition is published the EPA has tightened regulations so much that two major coal companies have gone out of business. The Veterans Administration is trying to recover from a program that was designed to reduce queue times for patients but resulted in patients dying. A pharmaceutical company raised its prices on one prescription drug by 5,000%, and Apple has a monitor because it was found guilty of being the master mind behind publishers fixing prices on their electronic books. The raisin farmers had a major victory in the U.S. Supreme Court that will change forever government price and supplies controls on raisin. And insider trading remains in the news, for both convictions and the reversals of those convictions as courts sort through the question, “When exactly does insider trading occur?” The patterns of business behavior that push the envelope of law and ethics continue. Two of the leaders in the New York legislature were convicted on corruption charges, companies from Embrauer to GlaxoSmithKline, and even FIFA faced charges and investigations under the Foreign Corrupt Practices Act. Charges against FedEx for alleged shipping of controlled substances were dismissed because there was no proof that anyone knew what was in the packages. Blue Bell ice cream was shut down for four months because of the presence of listeria in its plants. The FCC was deluged with comments on a proposed rule that would have allowed cell phone use on airplanes. In response to the outcry from flight attendants, passengers, and pilots, the FCC did not promulgate the rule. The issues of law and ethics are still at the forefront of business, sports, and government. It has become a tall order just to keep up with all the events! xv Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 xvi Preface These companies and organizations and their employees and executives certainly could have benefited from understanding and keeping at the forefront of their decision processes the basics of law and ethics! The legal and ethical environments of business are center stage. Several editions ago, Congress made massive regulatory reform a reality with the passage of the Sarbanes– Oxley legislation on corporate governance, accounting regulation, and criminal penalties. But the SEC missed some large market schemes, so Congress passed Dodd-Frank with new directives to the SEC on financial reports, disclosures, and primary offerings. The continuing reliance on new credit mechanisms resulted in a central agency, the Consumer Protection Bureau, handling all forms of consumer credit. Business is even more international, and changes, such as Brexit (Great Britain’s decision to withdraw from the EU), mean more changes in trade, regulation, and tariffs. FCPA cases have expanded and there is increasing cooperation among countries to address money-laundering schemes and the problems of world leaders hiding funds in accounts around the world. The world and business continue to change and grow, but law and ethics have retained their role and importance. In fact, now more than ever, we need to understand the legal and ethical issues that affect our businesses and our lives. The knowledge base and even the questions in law and ethics remain the same, but the underlying facts have changed. For example, we still debate the social responsibility role of business. Now we raise that issue in the context of whether companies should use inversions, or reverse acquisitions, by foreign companies to reduce their effective tax rates. We continue to delve into the pros and cons of sending production to other countries. We still have the question of when a contract is formed, but now we face that question with “point and click” technology rather than faxes and letters. We continue to be concerned about our privacy as consumers, but now we wonder who really has access to our Facebook page. We still wonder about the extent of copyright law. The file-sharing programs have never quite gone away and the film industry now litigates the downloading of copyrighted films. The world is different, but law and ethics form the constant framework into which we fit the issues of the day. In the materials that follow, you have the chance to understand the marvelous stability of this framework and the ease with which you can apply it to this very different world. Be sure to look for descriptions of the new structure as well as the continuing features in the book, such as the “Consider” tutorials, the ethics issues, and the Business Strategy application exercises. Building the Bridge:Applying Legal and Ethical Reasoning to Business Analysis I gave my students a midterm exam—a review of Netflix and its various business issues, including the cost of rights, issues in film production, and problems with obtaining subscriptions. These students are in the second year of their master’s degree studies. They have been trained in economics, marketing, management, and finance. But as they completed their analysis of this fast-growing darling of the stock market, they had an epiphany. A company can get the finance issues right, have the right brand appeal and great offerings, and even yield terrific subscription sales. However, it can all fall apart over the legal issues. What if the estimates on subscriptions released with earnings reports are overly optimistic? Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Preface What if something goes wrong in shooting one of their original production films? Does insurance cover them? Who pays the costs of a late finish on those promised films? What about international copyrights? What happens when copyright holders do not want their films licensed internationally? They are very capable business students. However, they did not realize until this midterm exam how much of business turns on anticipating the legal issues and getting them resolved correctly. And they also realized that all of our discussions of ethics and social responsibility had a role in doing business. TANSTAAFL—“there ain’t no such thing as a free lunch” when it comes to international business. There are costs associated with tapping into a seemingly boundless market of subscribers. And those costs come from legal issues, which, if handled poorly, can affect a company’s value and tarnish its brand name. Why couldn’t these students see the interconnection and critical roles of law and ethics in business until this case for their midterm? It was not for lack of exposure to the law. I taught my course “by the book,” so to speak. Students could recite the components of a valid contract, rattle off the requirements for bankruptcy, and recall from memory the antitrust statutes. Yet, I was coming to realize, this rote knowledge was not enough. One of my best former students, who had gone on to medical school, came to me perplexed about her office lease. She said that the complex in which she wanted to open her practice had a “no advertising” policy. In fact, she said that when she toured the premises with a leasing agent, the leasing agent turned to her and said, “You’re not one of those doctors who advertises, are you? Because if you are, we can’t lease to you. We have a policy against it.” One of my best students, who knew the antitrust statutes well, could not apply them to her everyday business. Worse, perhaps, she could not recognize when to apply these statutes: She did not see the antitrust implications of the agent’s statements nor the problems with the physicians in the complex taking such an approach to screening tenants. I have reached the conclusion that there have always been shortcomings in the standard approach to teaching business students law and ethics. Students were not ignorant of the law; rather, they simply lacked the necessary skills to recognize legal and ethical issues and to apply their knowledge of law and ethics to business decision making. As instructors, we were not integrating legal and ethical reasoning with business analysis. My conclusion led me to develop my own materials for classroom use and eventually led to the publication of the first edition of this book. Now in its eleventh edition, Business: Its Legal, Ethical, and Global Environment brings to the classroom the most integrated approach to learning law and ethics available in the market today. Throughout every chapter and in every feature, students and instructors are continually reminded of how various legal and ethical principles apply in business contexts. For all areas of law and ethics, this book answers the question: How does this concept affect a business? This book builds a bridge for the student between knowledge of law and ethics and application of both in business. My 39 years of teaching law and ethics finally brought this realization: Business ethics is not easily grasped nor practiced in business because we depersonalize ethical issues. If we just allow the company or organization to make the decision, our ethics are not in question; the companies’ are. The ethical issues in the book require students to bring ethical issues into their lives, their circumstances, their world. This feature also forces them to answer this question in a wide variety of contexts: “If it were you, and you were faced with the dilemma and required to make a decision, what would you do?” Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 xvii xviii Preface Strengthening the Bridge: New Content, Business Applications, and Learning Aids For the eleventh edition, Business: Its Legal, Ethical, and Global Environment has undergone further refinement. New content has been added, outdated content has been removed, new business applications have been integrated into every chapter, and the learning aids have been modified and refocused to help students understand and apply legal and ethical concepts. New Content The eleventh edition of Business: Its Legal, Ethical, and Global Environment continues to meet its goal of helping students with their understanding of how law and ethics apply to the business world. The organizational structure, based on feedback from those who use the text, has been changed. The four parts remain, but there is a new mix of topics and chapters in those four parts. Part 1 offers the student an overview of the legal, ethical, and judicial environments of business. Part 2 covers the regulatory environments of business, including environmental regulation and sustainability. Part 3 covers all aspects of sales, contracts, and competition. Part 4 covers business management and corporate governance, and this newly restructured section covers all issues related to employees, boards, agents, and how to keep all of these groups coordinated while taking legal and ethical actions. Cyber law is now integrated into every chapter so that it can be covered in contracts (formation), employment (right of employee privacy in e-mails), and criminal law (everything from industrial espionage to spamming). Ethics Business Ethics and Social Responsibility (Chapter 2) offers new examples and insights on the application of ethics to business decision making. Chapter 2 is chock full of the examples the last two years have netted—including GM’s engine switch guilty plea and VW’s use of emissions defeating software. A new biography focuses on Captain Sullenberger who landed an airplane safely in a river and offers his perspectives on how we know the right thing to do in moments of pressure. Ethics coverage is also integrated throughout all chapters. Business Applications Biography Each chapter contains a biography. Biographies provide students with business history through the study of individuals and companies involved with the area of law and ethics covered in the chapter. For example, Chapter 1 has a biography on Uber, the company that shook up the world of cab transportation. Chapter 4 has a new biography on a legal battle between a small business and its production of parts for another company’s tabletop game including the tools used in that litigation, and the pro bono work of lawyers in helping a small business in Games Workshop v. Chapterhouse. Chapter 19 provides the story of the death of an orca whale trainer at Sea World and the resulting investigations and backlash that Sea World experienced. Chapter 15 gives a biography of Mattel and its Bratz dolls and its long intellectual property battle over who had the idea for the dolls. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Preface For the Manager’s Desk Each chapter also contains at least one “For the Manager’s Desk” feature. These readings provide students the opportunity to see how business interrelates with ethics and law. The readings feature topics tackled by publications such as Wall Street Journal, Harvard Business Review, Corporate Finance Review, and the American Business Law Journal. This feature offers the latest best practices as well as data from academic studies and insights from that research. For example, the Chapter 8 “For the Manager’s Desk” discusses who ends up going to prison for business crimes and how long their sentences last. Chapter 19’s feature deals with the recent series of cases brought by interns for lack of pay and excessive hours as well as the Department of Labor’s proposed responses. Chapter 13 discusses how to manage celebrity tweets when they are your spokesperson, i.e., what can Kim Kardashian tweet about an anti-nausea drug she was using during her pregnancy that will not run afoul of FDA restrictions? Chapter 15’s Manager’s Desk discusses the problems with a trademark or trade name that is offensive. Learning Aids . . . and the Law Each chapter contains a popular feature to further integrate law and ethics with the other “silos” of business. The “. . . and the Law” feature puts law and ethics in the context of economics, human resources, public policy, strategy, finance, and other areas to illustrate the ways knowledge of the where and how for the fit of law and ethics can help make better managers and better decisions. For example, Chapter 20’s “HR and the Law” discusses the dangers and conflicts office romances produce and how managers can deal with those issues. Chapter 1 includes a discussion of the FIFA corruption scandal how the issues were investigated and the problems involved in an NGO. Chapter 8’s “Strategy and the Law” takes a look at what corporations charged with a crime should do and the options for pleas available with the Justice Department. Chapter 14’s “Social Responsibility and the Law” discusses the possible anticompetitive effects of organizations such as Common Code for the Coffee Community and the Bioplastic Feedstock Alliance. These features apply the principles from business disciplines to understand more fully the depth and breadth of management issues. Case Headlines Every court case has a case headline that summarizes what issues are involved in the case. Chapter 7 has a new case on the actions of the Russian tax authorities involving Yukos, an international oil company, and the resulting impact in the market and has this title, “When Putin Affects the Value of Oil Stock.” In Chapter 8, a new case on criminal intent, whether the owner of a salvage yard was aware of his contamination of water, has this intriguing case title, “Mordechay’s Sump Pump and Mens Rea. In Chapter 6, the case Hornbeck Offshore Services, L.L.C. et al. v Salazar deals with an issue of whether agency action was arbitrary and capricious in issuing a moratorium on offshore drilling, and the case title is “Drilling Down to the Facts Supporting a Rule.” The vivid one-line description and colorful facts of the case, a common thread throughout the case choices in the text, help students internalize the rules and lessons about not destroying evidence for a potential lawsuit. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 xix xx Preface Chapter Openings and the “Consider. . . “ Feature Chapters begin with an opening problem, titled “Consider. . .”, which presents a legal dilemma relevant to the chapter’s discussion and similar to those business managers need to handle. These are revisited and answered in the body of the chapter. For example, Chapter 6 has a new chapter opening “Consider. . . “on a proposed regulation on the use of cell phones on airplanes and then walks that issue through the full regulatory process. In addition to this Consider problem opening, each chapter also has quotes, data, humor, or insights to pique reader interest about the chapter topics. Chapter Summary Each chapter concludes with a summary that reinforces the major concepts of the chapter. Each summary is constructed around the key questions introduced at the start of the chapter and key terms presented throughout the chapter. Business Strategy Applications Each chapter has a business strategy connection designed to help students understand where law and ethics fit in developing effective business strategies. For example, in Chapter 13 there is a new business strategy on the problems with highway guard rails and the litigation brought about by a competitor who reported changes in the guard rail design that had not been cleared with the federal government. Chapter 5 has a strategy feature that discusses who gives money in politics, how much, and why. Chapter 8’s strategy feature discusses the components of an effective compliance program. The Chapter 12 strategy deals with how restaurants are coping with no-shows in their reservations and their contract rights when someone makes a reservation but never shows up. Organization and Features:A Structure to Guide Students to Reasoning and Analysis The classic features have been updated and strengthened. The organization has been retained to continue to meet student needs in the classroom. Organization The four parts in the book serve to organize the materials around four basic areas: (1) understanding the legal environment, (2) understanding the regulatory environment, (3) dealing with sales, contracts and competition, and (4) management and governance. Every chapter integrates international and ethical topics. Part 1 In four chapters, Part 1 offers an introduction to law, an introduction to business ethics and the judicial system, and a discussion of litigation and alternative dispute resolution. Part 1 provides students with a foundation in law and ethics as well as legal and ethical reasoning, necessary for the areas of law in the chapters that follow. By being brief (four chapters), Part 1 offers instructors an early and logical break for exams. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Preface Part 2 In six chapters, Part 2 covers the regulatory environment of business, including the following topics: constitutional law, administrative and international law, business crimes and business torts, and environmental regulation. At the completion of Parts 1 and 2, students have a grasp of the legal system, ethical boundaries, and the laws that affect business operational decisions. Part 3 The five chapters in Part 3 present students with the legal and ethical issues surrounding contracts, sales, and competition. Part 3 includes the following topics: contract formation and performance (including coverage of consumer issues); product liability; intellectual property; trade restraints; and business competition and antitrust. From the negotiation of price to the collection of accounts, this segment of the book covers all aspects of selling business products and services. This section is structured so that the contracts discussion precedes the complexities of property and competition. Part 4 The five chapters in Part 4 discuss business management and governance. Topics include the management of employees, from agency law to employment regulation to employee rights to issues in discrimination. Part 4 also includes the governance issues of business structure and management, including financing and securities law issues. This section covers the issues of running, managing, and financing a business. Woven throughout all the chapters are cyber law issues, as marked by margin icons, and featuring discussions of everything from e-mail privacy to the problems of hacking. Features Court Cases Edited court language cases provide in-depth points of law, and many cases include dissenting and concurring opinions. Case questions follow to help students understand the points of law in the case and think critically about the decision. The courts have been active since the last edition, and many 2015–2016 case decisions are presented throughout the book. Students will be able to study Donald Trump’s claim for defamation when a writer misstated his net worth. Can a company avoid Foreign Corrupt Practices Act violations when it has its agent appointed a government official in another country? What happens when a young man saves his Pepsi points to claim a Harrier Jet that he sees in a Pepsi spoof ad for “Pepsi stuff”? Does he get his jet? Consider . . . “Consider . . .” problems, along with “Ethical Issues” and “Business Planning Tips,” have been a part of every chapter since the first edition. The “Consider . . .” features, often based on real court cases, ask students to evaluate and analyze the legal and ethical issues discussed in the preceding text. Because these issues are integrated into the text, students must address and think critically about these issues as they encounter them. Through interactive problems, students learn to judge case facts and determine the consequences. Moreover, answers to all of these opening “Consider. . .” features are referenced in the text and clearly marked. There are more “Consider. . . “ features throughout each chapter. Chapter 3 has a new “Consider . . . “ Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 xxi xxii Preface on whether Katy Perry could be sued in Missouri for her alleged infringement of a Missouri songwriter’s song. Chapter 12 has a new consider on whether a mistake on the total square footage in a property is grounds for setting aside a contract for purchase of that property. “Consider . . . ” brings the most current topics into the book and the classroom. Thinking, Applying, and Answering: “Consider . . . ” Tutorials—A Guide for Reasoning One “Consider . . . ” per chapter is solved for the students in a methodical walkthrough that helps them understand how to apply the legal principles or case precedent that they have just studied. The facts of the case or hypothetical are presented and the students are asked to recall what they have just learned. Next, students are walked through applying those principles to the current facts. Finally, they are given the answer and the reason that answer is consistent with their thinking and applying. Ethical Issues The “Ethical Issues” feature appears in every chapter and presents real-world ethical problems for students to grapple with. “Ethical Issues” help integrate coverage of ethics into every chapter. The ethical issues also include personal and real-life examples that help students relate to the pervasive nature of ethical dilemmas that they do and will continue to face. Chapter 6 includes the U.S. Supreme Court case reversing the bribery conviction of former Virginia governor Bob McDonnell and his wife, followed by an ethics issue that asks students to review whether their taking of vacations, a Rolex, clothing, and help with a wedding from a donor crossed ethical lines. Chapter 12 includes an ethical issue that asks students to evaluate students who accept an employment offer and then renege because a better one came along. Business Planning Tips Students are given sound business and legal advice through “Business Planning Tips.” With these tips, students not only know the law but also know how to anticipate issues and ensure compliance. How to make your property safer, how to conduct an interview without violating the Americans with Disabilities Act, and how to train employees to preserve documents and potential evidence if customers make claims. Cyberlaw Cyberlaw has been integrated throughout the book. Most chapters also include a segment on cyberlaw. These chapter-by-chapter materials, marked by an icon, give students the chance to see how new technology fits into the existing legal framework. Exhibits Exhibits include charts, figures, and business and legal documents that help highlight or summarize legal and ethical issues from the chapter. With the credit and financial market reforms, securities law reforms on stock offerings, and the changes in criminal penalties, many of the charts are either new or updated. End-of-Chapter Problems Many end-of-chapter problems have been updated and now focus more on actual cases. There are new chapter problems throughout the book of varied lengths for different instructor needs. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Preface The Informed Manager: Who Should Use This Book? With its comprehensive treatment of the law, integrated business applications, and full-color design, Business: Its Legal, Ethical, and Global Environment is well suited for both undergraduate and MBA students. The book is used extensively in undergraduate education programs around the country. In addition, this edition has been class-tested with MBA students, and it is appropriate for MBA and executive education programs. A Note on AACSB Standards The strong presence of ethics, social responsibility, international law and issues, and the integration of other business disciplines make the book an ideal fit for meeting AACSB standards and curriculum requirements. The AACSB standards emphasize the need for students to have an understanding of ethical and global issues. The eleventh edition continues with its separate chapter on ethics as well as ethical issues and dilemmas for student discussion and resolution in every chapter. The separate chapter on international law continues its expanded coverage from the last edition, and each chapter has a segment devoted to international law issues. The eleventh edition includes readings on expanded international law enforcement cooperation, the challenges of ethics and law in international business, the role of lawyers in other countries, and attitudes outside the United States on insider trading and antitrust laws. This edition presents students with the legal foundation necessary for business operations and sales but also affords the students the opportunities to analyze critically the social and political environments in which the laws are made and in which businesses must operate. An examination of the lists of companies and individuals covered in the biographies, and of the publications from which the “For the Manager’s Desk” readings are based on, demonstrates the depth of background the eleventh edition offers in those areas noted as critical by the AACSB. The materials provide a balanced look at regulation, free enterprise, and the new global economy. Supplements Business: Its Legal, Ethical, and Global Environment offers a comprehensive and wellcrafted supplements package for both students and instructors. MindTap MindTap™ is a fully online, highly personalized learning experience combining readings, multimedia, activities, and assessments into a singular Learning Path. Instructors can personalize the Learning Path by customizing Cengage Learning resources and adding their own content via apps that integrate into the MindTap framework seamlessly with Learning Management Systems. We have heard that business law instructors want to help students Prepare for class, Engage with the course concepts to reinforce learning, Apply these concepts in real-world scenarios, and use legal reasoning and critical thinking to Analyze business law content. Accordingly, our MindTap product provides a four-step Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 xxiii xxiv Preface Learning Path designed to meet these critical needs while also allowing instructors to measure skills and outcomes with ease. • Prepare: Business Law Ebook and Worksheets – help students prepare for class with interactive guided reading & chapter review questions that can be completed prior to class so that class time can be spent applying the concepts. • Engage: Video Activities – engage students using real-world scenarios that bring business law to life and help students make connections with real work situations. Includes comprehension questions for practice and assignable gradeable homework. • Apply: Brief Hypothetical Scenarios – These short fictional scenarios, help students spot the issue and apply the law and concepts that they’ve learned. These are great questions for exam preparation. • Analyze: Legal Reasoning – Promote deeper critical thinking and legal reasoning by using these case problem questions to help improve critical thinking skills. Every item in the Learning Path is assignable and gradable. This gives instructors the knowledge of class standings and concepts that students may be finding difficult. Additionally, students gain knowledge about where they stand— both individually and compared to the highest performers in class. To view a demo video and learn more about MindTap, please visit www.cengage.com/mindtap. Case Collection Now, within MindTap, instructors can search Case Collection—a library of cases from previous editions of different Cengage textbooks—by relevant criteria and then incorporate those cases in the learning path for students. This exciting repository allows instructors to personalize their course and truly engage students, helping them to reach higher levels of critical thinking. • Easily search by topic, and then refine the search by subtopic, to find case examples of a specific legal concept. • Search by court or state to bring a local flavor or interest to the classroom. • Enjoy over 1500 cases at your fingertips. All new edition omitted cases will be added every year, allowing the archive to continually grow. Mix and match cases from all textbooks, whether you are currently using it in class or not. This allows you to provide longer cases with more information from other resources, which is especially helpful if your text didn’t show the court’s decision. Weekly Ethics and Law Updates. Available at mariannejennings.com, the weekly updates contributed by the author offer at least 12 current events per month for discussion and analysis. The update features new decisions, new statutes, new regulations, new ethical dilemmas, and a host of examples and cites to current periodicals. The eleventh edition includes references to these updates in the text. Instructor’s Manual. The Instructor’s Manual, written by the author, provides the following for each chapter: a detailed outline; answers to “Considers . . . ”, Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Preface “Ethical Issues,” case problems, and the end-of-chapter Questions and Problems; briefs of all cases; summaries of key features; supplemental readings; and interactive/cooperative learning exercises. PowerPoint® Lecture Review Slides. Developed by the author, these PowerPoint slides consist of lecture outlines and select tables and figures used in the book. The slides are available for use by students as an aid to note taking, and by instructors for enhancing their lectures. Test Bank. The Test Bank for instructors includes more than 2,000 questions in true/false, multiple-choice, and essay format. The questions vary in levels of difficulty, and meet a full range of tagging requirements, including AACSB standards. Cognero. Cengage Learning Testing Powered by Cognero is a flexible, online system that allows you to: • author, edit, and manage Test Bank content from multiple Cengage Learning solutions • create multiple test versions in an instant • deliver tests from your LMS, your classroom or wherever you want Start right away! Cengage Learning Testing Powered by Cognero works on any operating system or browser. • No special installs or downloads needed • Create tests from school, home, the coffee shop—anywhere with Internet access What will you find? • Simplicity at every step. A desktop-inspired interface features drop-down menus and familiar, intuitive tools that take you through content creation and management with ease. • Full-featured test generator. Create ideal assessments with your choice of 15 question types (including true/false, multiple choice, opinion scale/ likert, and essay). Multi-language support, an equation editor, and unlimited metadata help ensure your tests are complete and compliant. • Cross-compatible capability. Import and export content into other systems. KnowNOW Blog. Included inside MindTap, this is a professor ’s dream—a daily blog on eye-catching legal issues that allow students the opportunity to engage in discussion and really master concepts because of the nature of the subject matter. Insider trading is something that may not grab their attention until you share with them the story of the famous Notre Dame football player, Rudy, who settled pump-and-dump charges by the SEC. And a breached sale of fabric contract sounds like a dull session unless you are able to use the Lululemon problem—the company made thousands of yoga pants with the fabric only to discover through customer complaints that the fabric was see-through and those customers wanted their money back. Even antitrust law comes to life when you use the merger of Corona with Bud Light to cover market share and monopoly power. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 xxv About the Author Professor Marianne Jennings is an emeritus professor of legal and ethical studies in business from the W.P. Carey School of Business at Arizona State University. She was named professor of the year in the College of Business in 1981, 1987, 2000, and 2010 and was the recipient of a Burlington Northern teaching excellence award in 1985. She served as director of the Joan and David Lincoln Center for Applied Ethics at ASU from 1995–1999. From 2006–2007, she served as the faculty director for the MBA Executive Program. She continues to teach graduate courses in business ethics and ethical culture at ASU and other colleges around the country. Professor Jennings has authored hundreds of articles in academic, professional and trade journals. She was given best article awards by the institute of Internal Auditors and the Association of Government Accountants in 2001 and 2004. In 2006, her article, “Ethics and Investment Management: True Reform,” was selected by the United Kingdom’s Emerald Management Review from 15,000 articles in 400 journals as one of the top 50 articles in 2005. She was named one of the Top 100 Thought Leaders by Trust Across America in 2010. In 2012 she was named one of the 100 Most Influential People in Business Ethics by Ethisphere magazine. She served on the board of directors for Arizona Public Service (now Pinnacle West Capital Corporation), the owner of the Palo Verde Nuclear Station, from 1987 through 2000. She served on the boards of Zealous Capital Corporation from 19961998 and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She served as chair of the Bonneville International Advisory Board for KHTC/KIDR from 1994-199. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004. In 2015 she was named an affiliated scholar with the Center for the Study of Economic Liberty at Arizona State University. Currently she has six textbooks and monographs in circulation. The ninth edition of her textbook, Case Studies in Business Ethics, and the eleventh edition of her textbook, Business: lts Legal, Ethical and Global Environment will be published in January 2017. Her first textbook, Real Estate Law, had its 11th edition published in January 2016. Her text, Anderson’s Business and the Legal Environment had its 23rd edition published in January 2016. Her book, Business Strategy for the Political Arena, was selected in 1985 by Library Journal as one of its recommended books in business/government relations. A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000, her book on corporate governance was published by the New York Times MBA Pocket Series. Professor Jennings’ book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her book, The Seven Signs of Ethical Collapse is used by auditors in advance detection of fraud and is a primer on corporate culture, including analysis of board efficacy. Her books have been translated into five languages. xxvi Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 About the Author She is a contributing editor for the Real Estate Law Journal and New Perspectives. She served on the Board of Editors for the Financial Analysts Journal from 2007– 2012. She served as editor-in-chief of the Journal of Legal Studies Education during 2003–2004. During 1984-85, she served as then-Governor Bruce Babbitt’s appointee to the Arizona Corporation Commission. In 1999 she was appointed by thenGovernor Jane Dee Hull to the Arizona Commission on Character. Her columns have been syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader’s Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She was given an Arizona Press Club award in 1994 for her work as a feature columnist. She has been a commentator on business issues on All Things Considered for National Public Radio. She served as chair of the Bonneville International Advisory Board for KHTC/KIDR from 1994–1997 and was a weekly commentator on KGLE during 1998. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. Professor Jennings earned her undergraduate degree in finance and her J. D. from Brigham Young University. She has done consulting work for law firms, government agencies, businesses and professional groups including AES, AICPA, Allstate, Amgen, AstraZeneca, Bell Helicopter, Blue Cross Blue Shield, Boeing, Bristol-Myers Squibb, Certified Financial Analysts Institute, CoBank, Coca-Cola, Department of Energy, Department of Interior, Dial Corporation, DuPont, Hy-Vee Foods, IBM, Institute of Internal Auditors, Mattel, Motorola, Southern California Edison, Pfizer, Raytheon, Tenet, Toyota, U.S. Navy, Veterans Administration, and VIAD. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 xxvii Acknowledgments By its eleventh edition, a book has evolved to a point of trademark characteristics. This book is known for its hands-on examples and readings for business managers. That trademark evolves because of the efforts of many. They are the reviewers and adopters of the text who provide ideas, cases, and suggestions for improvement and inclusion, and I thank them all. Any edition of a book bears the mark of the editors who work to design, refine, market, and produce it. Seven editions ago, Rob Dewey saw potential for the book and applied his enthusiasm and market insights to mold a somewhat ugly duckling into a four-color swan. The book also carries the imprimatur of Steve Silverstein, who confronted me with a profound question, “Why can’t those in business see these ethical dilemmas when they are in the midst of them?” His question forced me back to the drawing board and resulted in the more personal ethical dilemmas. Vicky True, now in Rob’s role, understands the needs of instructors because of her intense road schedule, holds a keen sense of market direction, and offers the insights of both to help to shape this new edition. Kristen Meere, new as the editor for this edition, came into the work with little lead time and picked up the baton and ran with me as we worked through a tight schedule. Kris Tabor has been with me since the first edition, helping with word processing, IMs, study guides, test banks, and venting. We mark 30 years of a terrific partnership with this edition. This book also carries the unmistakable liveliness of an author who shares her life with helpful and delightful children and one tolerant husband. Since the first edition of this book, I have added four children to our first, witnessed two graduate from college, one from law school, grieved over the loss of two, and seen the others grow up all too quickly in a household in which these words, “Mom, the UPS guy is here with page proofs,” made up their first sentences. They now simply witness me hovering over my computer from dawn’s light until I fall asleep on the keyboard. My children and my husband, collectively my family, are the most charming people I know. They have brought me stories, pop culture, and good sense with their, “Uh-oh, here we go!” when their mother finds outrage in yet another ethical lapse in business. Even from their now–globally dispersed positions, they call and ask, “How’s the writing going?” Their vibrancy is found in the color and charm of these pages. I am grateful for their unanimous and unwavering support for my work. Finally, I am grateful to my parents who taught me through their words and examples of the importance and rewards of ethics and hard work. Marianne Moody Jennings xxviii Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Part 2 Business: Its Regulatory Environment A business is regulated by everything from the U.S. Constitution to the rules of the Consumer Product Safety Commission. Managers must know codified law, as well as the law that develops as cases are litigated and new issues of liability arise. The regulatory environment of business includes penalties for criminal conduct and punitive damages for knowingly causing injuries to customers. Part 2 describes the laws that regulate businesses and business operations, including tort and environmental law, the sanctions that are imposed for violation of these laws, and the manner in which businesses can make compliance with the law a key part of their values. 139 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 5 Chapter Business and the Constitution T he U.S. Constitution is a remarkable document. It was drafted by a group of independent states more than 220 years ago in an attempt to unify the states into one national government that could function smoothly and efficiently without depriving those independent states of their rights. The fact that it has survived so many years with so few changes indicates the flexibility and foresight built into the document. This chapter covers the application of the U.S. Constitution to business and answers several questions: What are the constitutional limitations on business regulation? Who has more power to regulate business—the states or the federal government? What individual freedoms granted under the Constitution apply to businesses? Update 140 For up-to-date legal and ethics news, go to mariannejennings.com Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Some men look at constitutions with sanctimonious reverence, and deem them like the ark of the covenant, too sacred to be touched. . . . I am certainly not an advocate for frequent and untried changes in laws and constitutions. . . . But . . . laws and institutions must go hand in hand with the progress of the human mind. The history of the United States has been written not merely in the halls of Congress, in the Executive offices and on the battlefields, but to a great extent in the chambers of the Supreme Court of the United States. C harles W arren T homas J efferson Consider . . . Congress passed the Patient Protection and Affordable Care Act (also known as Obama Care) in order to increase the number of Americans covered by health insurance and decrease the cost of health care. One key provision in the law is the individual mandate, which requires most Americans to maintain “minimum essential” health insurance coverage. Attorneys general and businesses from several states challenged this 5-1 5-1a 5.1 requirement (and other provisions of the law) as being unconstitutional under the Commerce Clause. From a series of federal decisions from the courts below, some finding the law constitutional and others not, the affected parties appealed to the U.S. Supreme Court. What does the Commerce Clause have to do with this law? Is the law constitutional? The U.S. Constitution an Overview of the U.S. Constitution Although virtually all constitutional issues and all court decisions on those issues are complicated and detailed, the U.S. Constitution itself is a simple and short document. Contained within it is the entire structure of the federal government, its powers, the powers of the states, and the rights of all citizens. The exact language of the U.S. Constitution is presented in Appendix A. 5-1b articles I, II, and III—the Framework for Separation of powers The first three articles of the U.S. Constitution set up the three branches of the federal government. Article I establishes the legislative branch. The two houses of Congress—the House of Representatives and the Senate—are created, their method of electing members is specified, and their powers are listed. Article II creates the executive branch of the federal government. The office of president along with its qualifications, manner of election, term, and powers are specified. Article III establishes the judicial branch of the federal government. This article creates only the U.S. Supreme Court and establishes its jurisdiction. Congress, however, is authorized to establish inferior courts, which it has done in the form of federal district courts, specialized federal courts, and U.S. courts of appeals (see Chapter 3, Exhibit 3.1). The first three articles establish the nature of the federal government as involving the separation of powers. Each of the branches of government is given unique functions that the other branches cannot perform, but each branch also has curbing powers on the other branches through the exercise of its unique powers. For example, the judicial branch cannot pass laws, but it can prevent a law passed by Congress from taking effect by judicially interpreting the law as unconstitutional. The executive branch does not pass legislation but has veto power over legislation Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 141 142 part 2 Business: Its Regulatory Environment passed by Congress. The executive branch has responsibility for foreign relations and treaty negotiation. However, those treaties do not take effect until the Senate ratifies them. In 2015, the ratification of the Obama treaty with Iran became a politically charged issue in the Senate. This system of different powers that can be used to curb the other branches’ exercise of power is called a system of checks and balances. The drafters of the U.S. Constitution designed the federal government this way to avoid the accumulation of too much power in any one branch of government. In Nixon v Administrator of General Services, 433 U.S. 425 (1977), the Supreme Court held that former President Nixon was required to turn over to Congress any records and materials of the executive branch that were relevant to the congressional inquiry into the Watergate scandal (a break-in at the Democratic Party’s national headquarters that was masterminded by members of the Nixon administration). In NLRB v. Noel Canning, 134 S.Ct. 2550 (2014), the Supreme Court declared that President Obama’s interim appointments to the National Labor Relations Board were invalid and would have to be redone with Senate approval. In Clinton v Jones, 520 U.S. 681 (1997), the Supreme Court ruled that even the president is subject to the laws of the land and is accountable for civil wrongs alleged by private citizens. In the case, Paula Corbin Jones alleged that Mr. Clinton had sexually harassed her while he was governor of Arkansas. The Court ruled that, “. . . even the sovereign is subject to God and the law.” 5-1c Other articles Article IV deals with states’ interrelationships. Article V provides the procedures for constitutional amendments. Article VI is the Supremacy Clause (discussed later in this chapter), and Article VII simply provides the method for state ratification of the Constitution. For the Manager’s Desk Re: the president, Justice alito, Congress, and the Balance of powers During President Obama’s State of the Union address on January 27, 2009, he made reference to Citizens United v Federal Election Commission, 558 U.S. 310 (2010) (see pp. 162–164). The decision dealt with the constitutionality of portions of the McCain–Feingold campaign and campaign contributions law. The president made the following statements about the decision: With all due deference to separation of powers, last week the Supreme Court reversed a century of law that, I believe, will open the floodgates for special interests, including foreign corporations, to spend without limit in our elections. Well I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities. They should be decided by the American people, and that’s why I’m urging Democrats and Republicans to pass a bill that helps to right this wrong. Following the statement, U.S. Supreme Court Justice Alito could be seen (as he was picked up by the cameras) shaking his head and mouthing what appears to be “not true” or “definitely not true.” What can be done with regard to the decision? Who was right on what the decision did—Mr. Obama or Justice Alito? (See p. 160.) Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Chapter 5 5-1d Business and the Constitution the Bill of Rights In addition to the seven articles, the U.S. Constitution 27 has amendments, the first 10 of which are the Bill of Rights. Although these rights originally applied only to federal procedures, the Fourteenth Amendment extended them to apply to the states as well. These amendments establish rights ranging from freedom of speech (First Amendment) to the right to a jury trial (Sixth Amendment) to protection of privacy from unlawful searches (Fourth Amendment) to due process before deprivation of property (Fifth Amendment). The amendments as they apply to businesses are covered later in this chapter and in Chapter 8. 5-2 The Role of Judicial Review and the Constitution The Supreme Court and its decisions are often in the news because the cases decided by the Court are generally significant ones that provide interpretations of the U.S. Constitution and also define the extent of the rights we are afforded under it. The role of the U.S. Supreme Court is to decide what rights are provided by the general language of the U.S. Constitution. For example, the Fifth Amendment guarantees that we will not be deprived of our life, liberty, or property without “due process of law.” Due process of law, interpreted by the courts many times now, includes such rights as the right to a hearing before a mortgage foreclosure, or at least the right of notice before property is sold after repossession as a result of nonpayment of the underlying debt. The First Amendment protects the simple right to freedom of speech, but the Supreme Court has been faced with issues such as whether restrictions on membership in student clubs at state universities are an infringement of the First Amendment.1 The Fourth Amendment, the “privacy amendment,” protects us from warrantless searches. This general idea has been analyzed in the context of garbage taken from cans waiting for pickup on the street and unannounced inspections of company workplaces by OSHA regulators (see Chapter 19 for more information on OSHA—the Occupational Safety and Health Administration). The U.S. Supreme Court has the responsibility of determining the extent and scope of the rights and protections afforded by the U.S. Constitution. In addition, the Supreme Court plays the unique role of reviewing the actions of the other branches of government. The Court is a crucial part of the checks-and-balances system set up in our Constitution. As noted in the “For the Manager’s Desk” (see p. 142), the court recently dealt with the issue of the constitutionality of legislation passed by Congress. 5-3 5-3a Constitutional Limitations of Economic Regulations the Commerce Clause The Commerce Clause is found in Article I, Section 8, Part 3, of the U.S. Constitution and provides Congress with the power “[t]o regulate Commerce with foreign Nations, and among the several States.” Although the language is short and simple, the phrase “among the several states” has created much controversy. The clause limits Congress to the regulation of interstate commerce. The regulation of local and Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 143 144 part 2 Business: Its Regulatory Environment intrastate commerce is left to the states. Defining interstate commerce has been the task of the courts. The standards are defined from two perspectives: federal regulation of state and local commerce and state and local regulation of interstate commerce. Standards for Congressional Regulation of State and Local Business activity The issue, as defined by the U.S. Supreme Court, is whether the situation involves sufficient interstate contact or effects for the application of federal standards. The Constitution gives Congress authority to regulate interstate matters and vests all the remaining regulatory authority in the states. The U.S. Supreme Court initially gave a very narrow interpretation to the scope of the Commerce Clause. In the beginning of the Court’s interstate commerce jurisprudence, federal regulation applied to commercial activity if the commercial activity had a “direct and immediate effect” on interstate commerce. In 1918, the Court ruled that manufacturing was not “commerce” (because it was solely intrastate) and struck down an act of Congress that attempted to regulate goods manufactured in plants using child labor. [Hammer v Dagenhart, 247 U.S. 251 (1918)] During the 1930s, Congress and President Roosevelt bumped heads with the Court many times in their attempts to legislate a recovery from the Depression. The Court consistently refused to validate federal legislation dealing with manufacturing, operations, and labor. [Schechter Poultry v United States, 295 U.S. 495 (1935); Carter v Carter Coal, 298 U.S. 238 (1936)] Roosevelt refused to accept a judicial roadblock to his legislation and initiated his court-packing plan to increase the number of members of the court with Roosevelt appointees. The Court responded in NLRB v Laughlin Steel, 336 U.S. 460 (1940), by ruling that intrastate activities, even though local in character, may still affect interstate commerce and thus be subject to federal regulation. The “affectation” doctrine expanded the authority of the federal government in regulating commerce. In the words of the Court, “If it is interstate commerce that feels the pinch, it does not matter how local the squeeze” (336 U.S. at 464). The Commerce Clause has had a critical role in the elimination of discrimination because the Court’s liberal definition of what constitutes interstate commerce has permitted the application of federal civil rights laws to local economic activities. However, some recent refinements limit federal authority. For example, in U.S. v Lopez, 514 U.S. 564 (1995), the court held that the Gun-Free School Zones Act of 1990, 18 U.S.C. § 922(q)(1)(A), which made it a federal crime to knowingly possess a firearm in a school zone, exceeded Congress’s authority under the Commerce Clause because Congress was not regulating any form of commerce through the law but imposing criminal sanctions on a local activity. Because there was no commerce or economic activity involved, federal authority to regulate was limited by the Commerce Clause. Congress has the authority to regulate in those areas where what they are regulating substantially affects interstate commerce. Likewise, in U.S. v Morrison, 529 U.S. 598 (2000), the Court struck down the federal Violence Against Women Act because the law, which provided for a federal cause of action for women who had been assaulted, did not deal with any underlying economic activity and the Court held that allowing Congress to regulate the right to file suit for criminal activity would allow Congress to use the Commerce Clause to completely obliterate the Constitution’s distinction between national and local authority. National Federation of Independent Business v Sebelius (Case 5.1) is a landmark case that also limits the scope of federal power under the Commerce Clause but expanded other federal powers, including that of taxation (see discussion of taxation powers on p. 149). Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Chapter 5 Case 5.1 Business and the Constitution National Federation of Independent Business v Sebelius 132 S.Ct. 2566 (2012) © Harper 3D/Shutterstock.com Mandating Health Insurance under the Commerce Clause FaCtS Congress passed the Patient Protection and Affordable Care Act (also known as Obama Care) in order to increase the number of Americans covered by health insurance and decrease the cost of health care. One key provision in the law is the individual mandate, which requires most Americans to maintain “minimum essential” health insurance coverage. Attorneys general from several states, along with businesses, challenged this requirement (and other provisions of the law) as being unconstitutional under the Commerce Clause. From a series of federal court decisions below, some finding the law constitutional and others not, the affected parties appealed and the Supreme Court granted certiorari. Their cases were consolidated for the court’s review. JUdICIaL OpInIOn ROBERTS, Chief Justice The Constitution grants Congress the power to “regulate Commerce.” (Art. I, § 8, cl. 3.) The power to regulate commerce presupposes the existence of commercial activity to be regulated. If the power to “regulate” something included the power to create it, many of the provisions in the Constitution would be superfluous. For example, the Constitution gives Congress the power to “coin Money,” in addition to the power to “regulate the Value thereof.” And it gives Congress the power to “raise and support Armies” and to “provide and maintain a Navy,” in addition to the power to “make Rules for the Government and Regulation of the land and naval Forces.” If the power to regulate the armed forces or the value of money included the power to bring the subject of the regulation into existence, the specific grant of such powers would have been unnecessary. The language of the Constitution reflects the natural understanding that the power to regulate assumes there is already something to be regulated. Our precedent also reflects this understanding. As expansive as our cases construing the scope of the commerce power have been, they all have one thing in common: They uniformly describe the power as reaching “activity.” It is nearly impossible to avoid the word when quoting them. The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce. Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority. Every day individuals do not do an infinite number of things. In some cases they decide not to do something; in others they simply fail to do it. Allowing Congress to justify federal regulation by pointing to the effect of inaction on commerce would bring countless decisions an individual could potentially make within the scope of federal regulation, and—under the Government’s theory—empower Congress to make those decisions for him. Indeed, the Government’s logic would justify a mandatory purchase to solve almost any problem. To consider a different example in the health care market, many Americans do not eat a balanced diet. That group makes up a larger percentage of the total population than those without health insurance. The failure of that group to eat a healthy diet increases health care costs more than the failure of the uninsured to purchase insurance. Those increased costs are borne in part by failure of that group to have a healthy diet increases health care costs, to a greater extent than other Americans who must pay more, just as the uninsured shift costs to the insured. Congress addressed the insu...