The Legal Business Environment: A Primer
Business law encompasses a wide ranging set of regulations that apply to both commercial and private enterprises. While on one hand it can cover all aspects of how any business may conduct itself, on the other it focuses on specific areas of business activity. This includes the supply of goods and/or services (contract law), the hiring of employees (labour law) or the exchange of information (data protection), to name a select few. However, whether large or small, private or public sector, they all need to respect the same basic legal framework.
Broadly speaking these laws can be broken down into two groups, which we can consider as hierarchical. At the very top of the hierarchy is the separate set of laws governing public regulation compliance. This refers to laws and regulations, such as anti-bribery and corruption, consumer protections or representatives from non-governmental organizations, that primarily relate to the conduct of governments and their agencies with respect to private companies and citizens.
As such, specific legal business environments will vary between different jurisdictions depending on a variety of factors. These include, but are not limited to , the size and industry of the respective businesses in question, the maturity of the jurisdiction’s legal system and economy, and the current socio-political environment.
However, what is constant for every business will be the requirement to comply with both mandatory requirements (laws) and voluntary requirements (standards, guidelines, etc.). Whether they are in line with the public or private business regulation, these basic requirements can have a significant impact on your company, customer and indeed your reputation if you do not take care to meet them.
The slip-up of not following private business regulation, such as adopting a mark or symbol that is trademarked by another company, for example, can result in being ordered to make changes, pay fines, compensate losses and damages, or in the worst case scenario, injunctions, closures, prison sentences and even company dissolutions. However, for the public business regulation, a compliance gap is very serious. Contributions to illicit activities, such as money laundering or human trafficking, can stop you from carrying out business altogether if you are found to be in breach of the relevant laws.
Legislation Governing Business Operations
It has been recognized for centuries that many situations require compulsion; we must be just to others for our own security." — Thomas Hobbes
The business world is deeply intertwined with the legal framework of business law. Understanding the key legislation that impacts business operations, such as how to form a business, how to protect your work force against discrimination in employment practices, and how to operate under contract law are areas of law that directly impact entrepreneurship and can significantly affect your property (material assets), livelihood and the quality of your life.
Laws that govern the formation of businesses attempt to facilitate both the protection of the members of the business, as well as to promote the development of new and innovative businesses. Such laws define the roles and obligations of those who manage a business and the responsibilities of the owners toward the management of the business. For example, while most individuals will agree that honesty and ethics might be the best policy in a business endeavor, the law must step in and compel the business owners and managers to conduct their business in a certain manner.
Likewise, business owners and managers must adhere to the legal requirements in order to remain in business. Concepts such as fiduciary duty among the directors of a business and limitations on the type of business structure that an owner may utilize (e.g., a limited liability company protects the individual from being over extended and only holds the owners of an LLC liable for that which the LLC itself owns and operates), are all dictated by legal standards.
The Fair Labor Standards Act (FLSA) governs both wage and hour requirements for certain businesses. Among other things, the FLSA mandates overtime pay and pay for minors and prohibits child labor.
Title VII of the Civil Rights Act of 1964 prohibits discrimination on the basis of race, color, religion, sex or national origin, and is enforced by the Equal Employment Opportunity Commission (EEOC). The Age Discrimination in Employment Act of 1967 prohibits the discrimination of employees who are at least 40 years old for those employers who hold 20 or more employees. The EEOC enforces violations of the Age Discrimination in Employment Act (ADEA). Title I of the Americans with Disabilities Act (ADA) prohibits employers from discrimination against a qualified individual with a disability in all aspects of employment. The Americans with Disabilities Act of 1990 is enforced by the EEOC.
The Sherman Anti-Trust Act prohibited businesses from monopolizing trade. It was an effort to promote competition and free enterprise. More modernly, the Federal Trade Commission Act of 1914 outlaws unfair methods of competition and unfair acts or practices in commerce.
Contract law provides remedies to the aggrieved party if one party fails to honor the terms of a contract. The terms of a legally binding contract are negotiable, but may still be considered unenforceable because the terms violate public policy.
Business Law, Ethics and Regulatory Compliance
Regulatory compliance is an integral part of business law that sits at the intersection between the law and ethics. Navigating the regulatory web requires a proactive mindset to head off issues before they arise. So, what should you be looking out for?
For starters, every business will have to comply with rules and regulations specific to its industry on a local, state, and federal level. All businesses and industries, however, must abide by a number of general requirements such as international trade laws, tax codes, and equal opportunity employment laws.
Business entities engaged in manufacturing, production, transportation, handling, import or export of materials, equipment, products, or goods may be an employer and required to comply with OSHA (Occupational Safety and Health Administration) standards. Federal laws and regulations in place to protect the environment, the EPA (Environmental Protection Agency) regulations, are also in place to enforce compliance concerns and help avoid contamination, spills, and potential health hazards to the public. Companies involved in the banking system must comply with the regulations set forth by the SEC (Securities and Exchange Commission) and/or the FDIC (Federal Deposit Insurance Corporation) regarding the protection of assets entrusted to banks and how those assets can be used. And companies sharing private information must adhere to the Federal Trade Commission’s (FTC) Fair Credit Reporting Act (FCRA) and Gram-Leach-Bliley Act (GLBA).
We can’t go too far in any discussion of regulations, without mentioning the Americans with Disabilities Act, ADA, which ensures people with disabilities are given access to goods and services, either physical or virtual. Inapplicable or imprecise compliance for some regulations can result in expensive civil litigation penalties.
The FTC in 2023 will begin implementation of its new Privacy Regulation that was passed in 2021. CCPA (California Consumer Privacy Act) (sometimes referred to as CPRA, California Privacy Rights Act) Compliance is also now required in California. Employers have recently faced lawsuits for failing to comply with these acts. Other state and local regulations are specific to white collar businesses, such as those in the telemedicine and telehealth industry.
Below I provide a list of common regulatory compliance and business ethics issues that require diligence, including regulations, and why they matter to business owners.
Intellectual Property and Businesses
As previously discussed, understanding the legal business environment in which your business operates is crucial to protecting your assets and investing wisely. Even when hiring an attorney specifically for a targeted issue, such as a contract, it is good to have an appreciation of how your legal matter fits into the broader legal landscape as a whole.
This section covers general approaches to finding a business attorney.
A crucial area of intellectual property law may be patent law, for the protection of inventions. Patents cover new inventions in the form of utility patents, design patents, and plant patents. Utility patents, which are by far the most common patent, grant the inventor a monopoly on the use of a new and materially useful invention (a "process" or "method," which must also be novel and non-obvious) for 20 years from the date of patent application. This ensures that the inventor can recover some of the costs of developing and bringing the new product to market. Patents are very important for businesses that depend on inventiveness, research, development and innovation. Patents are governed by Title 35 of the U.S. code and can be both state and federally regulated.
Trademarks are another important type of intellectual property law. Trademarks provide a way for consumers to identify the source of goods and services by means of a distinctive sign, word, logo or design. For example, the word APPLE® is an Apple computer trademark. Trademarks are very important for marketing the goods and services of a company who must compete with other companies. Trademarks are governed by Title 15 of the U.S. code. Trademarks can also be protected under state law. Certain aspects of intellectual property law related to trademarks are specialized and require a business lawyer with expertise in that area.
Copyrights, another aspect of intellectual property law, cover artistic and literary works, including music, movies, and paintings, for example. Copyrights provide that the creator of a work has the exclusive right to duplicate, share and profit from their work. Like patents and trademarks, copyrights are governed by federal law (Title 17 of the U.S. code).
International Business Legalities
As businesses expand their reach globally, they encounter a myriad of international legal issues that require careful navigation. From cross-border transactions to understanding international trade laws and treaties, the international business landscape is filled with challenges that demand robust legal strategies and compliance mechanisms. Cross-border transactions, whether related to the sale of products, acquisition of services, or corporate restructuring efforts, must be conducted with an eye towards the complex web of international laws, treaties, and other legal requirements. Businesses must ensure compliance with both domestic and foreign laws when dealing with foreign companies, government entities, and international transactions. This includes an understanding of the applicable import/export regulations, tariffs, trade restrictions, and other international requirements that may affect the transaction or the business as a whole . In addition to adapting to local laws and customs, businesses also need to account for the fact that international transactions may involve complex tax implications, intellectual property protections, jurisdictional considerations, and potential political and economic instability. The application and interplay of these legal regimes can be confusing and may result in unanticipated compliance obligations unless the business has a thorough understanding of the international legal environment in which it operates. In an effort to facilitate international trade and investment, countries have entered into free trade agreements, economic cooperation treaties, and other agreements regarding commerce, transportation, investments, patents and other intellectual property, and all aspects of business and trade. Compliance with these international agreements is critical for any businesses operating in the global marketplace.
Resolving Business Disputes
Businesses have a variety of dispute resolution mechanisms at their disposal, including: (i) litigation; (ii) arbitration; and (iii) mediation.
Litigation
Litigation typically takes place in a court of law. The most common types of litigation that businesses encounter are civil litigation and criminal litigation. Civil litigation involves resolving legal conflicts among two or more parties. In civil litigation, a plaintiff files a complaint against a defendant, seeking damages or equitable relief. Criminal litigation, on the other hand, involves prosecuting a party for committing a crime. It typically involves the prosecutor, a lawyer representing the government, pursuing action against the defendant, a party (or parties) accused of committing a crime. If the litigation involves a final decision rendered by an administrative agency, it may be referred to as Administrative Litigation.
Arbitration
In the case of arbitration, the parties select a neutral third party called an arbitrator to resolve the dispute. This is typically done pursuant to a contract that was signed by both parties at the beginning of their business relationship. If, however, there was no such contract, the parties may later agree to arbitration when the dispute arises. A single arbitrator could be elected or a panel of arbitrators chosen. In most cases, an arbitrator is a professional trained in dispute resolution. The arbitrator’s decision is commonly known as an award. An arbitration award is legally binding and will be enforced by courts in the same manner as a court judgment. In order to have a claim for an arbitration award, the party must establish a legal ground for recovery by a preponderance of the evidence.
Mediation
In a mediation, the parties to the dispute meet with a neutral third party (usually a professional mediator) in order to pursue settlement. A mediator is not necessarily a lawyer; however, he or she usually has a legal or other professional background. The role of the mediator is to facilitate discussion between the parties, in efforts to assist them in reaching a mutually agreeable resolution. At the same time, the mediator makes no decisions on who is at fault or what the solution should be, and does not come up with a decision for the parties. Approaches to mediation vary greatly depending upon the mediator’s style. A mediator’s style can be non-directive or directive. Non-directive mediators do not offer opinions or recommendations for resolving the dispute. Their focus is on assisting the parties in discussing their conflict and creating solutions. Directives mediators, on the other hand, are more involved in the process. They make suggestions on how the dispute may be resolved while encouraging parties to create their own solutions. Mediators may also employ techniques of facilitation. Mediators do not have the power to determine the outcome of the case or impose a decision on the parties. Rather, they attempt to bring the parties together for the purpose of resolving the dispute. The parties may also be represented by attorneys during a mediation. The attorney, however, does not have to be an attorney who is affiliated with the court system, but rather can be any attorney qualified to represent the party in such legal matters.
Emerging Trends in the Legal Business Environment
The future of business law will continue to be shaped by developments in technology and an increasingly global marketplace. Digital contracts will become the norm, replacing traditional paper-based agreements, which adds new complexity to enforcement and dispute resolution. The emergence of blockchain technology may transform the future of contracts by making agreements immutable and transparent, limiting the scope for litigation and other disputes. Innovative dispute resolution mechanisms, such as online dispute resolution, will become more prevalent and accessible, allowing parties in different jurisdictions to resolve their conflicts in a more streamlined manner.
As businesses expand beyond their home countries into new and emerging markets, it is likely that companies will face new and unique hurdles presented by changing laws and regulations. In the coming years, we will likely see an increase in the enforcement of labour and industry regulations on multinational companies, as governments keep a close watch on their national industries to ensure they are being protected from international markets. Increased scrutiny will foster better labour practices and create fairer competition among local markets.
Commercial law will continue to evolve, responding to developments in the global economy . Most recently, in response to the increased use of e-commerce platforms and the introduction of digital currencies, the OECD released the OECD/G20 Base Erosion and Profit Shifting Project and the OECD Principles for Artificial Intelligence. These guidelines shape how countries should review their tax laws to protect their economies and promote fair competition in the digital space. The application of these guidelines will be a defining issue over the next decade, as the international business community adjusts its business model to comply with these new regulations.
From a corporate governance perspective, there is an increasing focus on consumer privacy and protection. The General Data Protection Regulation (GDPR) is paving the way for stricter data privacy standards worldwide. Businesses must be able to demonstrate compliance with the GDPR, or alternative laws, and demonstrate a commitment to data protection. As a result, many companies will have to make significant investments in new technologies and infrastructure to meet new standards.
The developments in commercial law will shape the relationship between consumers and international businesses. Going forward, consumers will expect businesses to demonstrate accountability and actively commit to protecting the consumer and the environment. The future of commercial law will be defined by innovation.