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THE LEGAL ENVIRONMENT OF BUSINESS
© 2009 Pearson Education, Inc. publishing as Prentice Hall© 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 2-Ch. 2-11
The Legal Environment of BusinessThe Legal Environment of Business
A Critical Thinking ApproachA Critical Thinking Approach
55thth
EditionEdition
Nancy K. KubasekNancy K. Kubasek
Bartley A. BrennanBartley A. Brennan
M. Neil BrowneM. Neil Browne

Introduction to Law and theIntroduction to Law and the
Legal Environment ofLegal Environment of
BusinessBusiness
CHAPTER 2CHAPTER 2

Chapter 2 OverviewChapter 2 Overview
 Definition of the legal environment of businessDefinition of the legal environment of business
 Definition of law and jurisprudenceDefinition of law and jurisprudence
 Sources of lawSources of law
 Classifications of lawClassifications of law
 International dimensions of the legalInternational dimensions of the legal
environment of businessenvironment of business

Definition of the Legal Environment of BusinessDefinition of the Legal Environment of Business
 It develops critical thinking skills.It develops critical thinking skills.
 The study of legal reasoning, critical thinking skills, ethicalThe study of legal reasoning, critical thinking skills, ethical
norms, and schools of ethical thought that interact with thenorms, and schools of ethical thought that interact with the
law.law.
 The study of the legal process and our present legalThe study of the legal process and our present legal
system, as well as alternative dispute resolution systems.system, as well as alternative dispute resolution systems.
 The study of the administrative law process and the role ofThe study of the administrative law process and the role of
business people in that process.business people in that process.
 The study of selected areas of public and private law,The study of selected areas of public and private law,
consumer law, and environmental law.consumer law, and environmental law.
 The examination of the international dimensions of theThe examination of the international dimensions of the
legal environment of law.legal environment of law.

Why study the legal environment of law?Why study the legal environment of law?
 It develops critical thinking skills.It develops critical thinking skills.
 It helps to establish legal literacy.It helps to establish legal literacy.
 It develops an understanding that the law isIt develops an understanding that the law is
dynamic not static.dynamic not static.
 It deals with real-world problems.It deals with real-world problems.
 It is interdisciplinary.It is interdisciplinary.

Top Ten Reasons for Studying theTop Ten Reasons for Studying the
Legal Environment of BusinessLegal Environment of Business
 Becoming aware of the rules of doing business.Becoming aware of the rules of doing business.
 Recognizing the legal limits on business freedom.Recognizing the legal limits on business freedom.
 Becoming aware of potential misconduct of competitors.Becoming aware of potential misconduct of competitors.
 Appreciating the limits of entrepreneurship.Appreciating the limits of entrepreneurship.
 Being able to communicate with your lawyer.Being able to communicate with your lawyer.
 Making you a more fully informed citizen.Making you a more fully informed citizen.
 Developing an employment-related skill.Developing an employment-related skill.
 Exploring the fascinating complexity of business decisions.Exploring the fascinating complexity of business decisions.
 Providing a heightened awareness of business ethics.Providing a heightened awareness of business ethics.
 Opening your eyes to the excitement of the law and business.Opening your eyes to the excitement of the law and business.

Plato:Plato: law is a form of social control;law is a form of social control;
Aristotle:Aristotle: it is a rule of conduct, a contract, an idealit is a rule of conduct, a contract, an ideal
of reason;of reason;
Cicero:Cicero: it is the agreement of reason and nature,it is the agreement of reason and nature,
the distinction between the just and thethe distinction between the just and the
unjust;unjust;
Aquinas:Aquinas: it is an ordinance of reason for the commonit is an ordinance of reason for the common
good;good;
Bacon:Bacon: certainty is the prime necessity of law;certainty is the prime necessity of law;
Hobbes:Hobbes: law is the command of the sovereign;law is the command of the sovereign;
Hegel:Hegel: it is an unfolding or realizing of the idea ofit is an unfolding or realizing of the idea of
right.right.
Jurisprudence -Jurisprudence -
science or philosophy of lawscience or philosophy of law

SOME CHARACTERISTICSSOME CHARACTERISTICS
Source of law is absolute (Nature, God, or Reason).Source of law is absolute (Nature, God, or Reason).
Source of law is the sovereign.Source of law is the sovereign.
Source of law is contemporary community opinion and customs.Source of law is contemporary community opinion and customs.
Source of law are actors in the legal system and scientificSource of law are actors in the legal system and scientific
analysis of their actions.analysis of their actions.
Source of law is a cluster of legal and non-legal beliefs that mustSource of law is a cluster of legal and non-legal beliefs that must
be critiqued to bring about social and political change.be critiqued to bring about social and political change.
Jurisprudence reflects a male-dominated executive, legislative,Jurisprudence reflects a male-dominated executive, legislative,
and judicial system in which women’s perspectives are ignoredand judicial system in which women’s perspectives are ignored
and women are victimized.and women are victimized.
Applies classical economic theory and empirical methods to allApplies classical economic theory and empirical methods to all
areas of law in order to arrive at decisions.areas of law in order to arrive at decisions.Law and EconomicsLaw and Economics
FeministFeminist
Critical Legal TheoryCritical Legal Theory
American RealistAmerican Realist
SociologicalSociological
PositivistPositivist
Natural LawNatural Law
Schools of JurisprudenceSchools of Jurisprudence
SCHOOLSCHOOL

Natural Law School –Natural Law School –
Natural law has existed since 300 B.C. ItNatural law has existed since 300 B.C. It
consists of the following concepts:consists of the following concepts:
 There exist certain legal values or value judgmentsThere exist certain legal values or value judgments
(e.g., a presumption of innocence until guilt is(e.g., a presumption of innocence until guilt is
proved);proved);
 these values or value judgments are unchangingthese values or value judgments are unchanging
because their source is absolute (e.g., Nature, God, orbecause their source is absolute (e.g., Nature, God, or
Reason);Reason);
 these values or value judgments can be determined bythese values or value judgments can be determined by
human reason; andhuman reason; and
 once determined, they supersede any form of humanonce determined, they supersede any form of human
law.law.

There are just laws and there are unjust laws. I wouldThere are just laws and there are unjust laws. I would
be the first to advocate obeying just laws. One has notbe the first to advocate obeying just laws. One has not
only a legal but moral responsibility to obey just laws.only a legal but moral responsibility to obey just laws.
Conversely, one has the moral responsibility toConversely, one has the moral responsibility to
disobey unjust laws. I would agree with St. Augustinedisobey unjust laws. I would agree with St. Augustine
that “An unjust law is no law at all”.that “An unjust law is no law at all”.
Martin Luther King Jr.Martin Luther King Jr.
Natural Law School –Natural Law School –

Positivist SchoolPositivist School
Followers of positivism, developed a schoolFollowers of positivism, developed a school
of thought in opposition to the natural lawof thought in opposition to the natural law
school in the 1800’s. Its chief tenets are:school in the 1800’s. Its chief tenets are:
 Law is the expression of the will of the legislatorLaw is the expression of the will of the legislator
or sovereign, which must be followed;or sovereign, which must be followed;
 Morals are separate from law and should not beMorals are separate from law and should not be
considered in making legal decisions;considered in making legal decisions;
 Law is a “closed logical system” in which correctLaw is a “closed logical system” in which correct
legal decisions are reached solely by logic andlegal decisions are reached solely by logic and
the use of precedents.the use of precedents.

Sociological SchoolSociological School
Followers of the sociological schoolFollowers of the sociological school
propose three steps in determining law:propose three steps in determining law:
 A legislator or a judge should make an inventory ofA legislator or a judge should make an inventory of
community interests;community interests;
 Judges and legislators should use this inventory toJudges and legislators should use this inventory to
familiarize themselves with the community’sfamiliarize themselves with the community’s
standards and mores; andstandards and mores; and
 They should rule or legislate in conformity with thoseThey should rule or legislate in conformity with those
standards and mores.standards and mores.

American Realist SchoolAmerican Realist School
 The American realist school, focuses on theThe American realist school, focuses on the
actors in the judicial system instead of on the largeractors in the judicial system instead of on the larger
community to determine the meaning of law.community to determine the meaning of law.
 This school sees law as a part of society and aThis school sees law as a part of society and a
means of enforcing political and social values.means of enforcing political and social values.
““This doing of something about disputes, this doing itThis doing of something about disputes, this doing it
reasonably, is the business of the law. And the peoplereasonably, is the business of the law. And the people
who have the doing of it are in charge, whether they bewho have the doing of it are in charge, whether they be
judges, or clerks, or jailers, or lawyers, they arejudges, or clerks, or jailers, or lawyers, they are
officials of the law. What these officials do aboutofficials of the law. What these officials do about
disputes is, to my mind, the law itself.”disputes is, to my mind, the law itself.” Karl LlewellynKarl Llewellyn in
The Bramble BushThe Bramble Bush
““This doing of something about disputes, this doing itThis doing of something about disputes, this doing it
reasonably, is the business of the law. And the peoplereasonably, is the business of the law. And the people
who have the doing of it are in charge, whether they bewho have the doing of it are in charge, whether they be
judges, or clerks, or jailers, or lawyers, they arejudges, or clerks, or jailers, or lawyers, they are
officials of the law. What these officials do aboutofficials of the law. What these officials do about
disputes is, to my mind, the law itself.”disputes is, to my mind, the law itself.” Karl LlewellynKarl Llewellyn in
The Bramble BushThe Bramble Bush

Critical Legal Studies SchoolCritical Legal Studies School
 Critical legal studies seek to connect whatCritical legal studies seek to connect what
happens in the legal system to the political-happens in the legal system to the political-
economic context within which it operates.economic context within which it operates.
 Adherents believe that law reflects a cluster ofAdherents believe that law reflects a cluster of
beliefs that convinces human beings that thebeliefs that convinces human beings that the
hierarchical relations that they live and workhierarchical relations that they live and work
under are natural and must be accommodated.under are natural and must be accommodated.
 This cluster of beliefs has been constructed byThis cluster of beliefs has been constructed by
elitists to rationalize their dominant power.elitists to rationalize their dominant power.

Feminist SchoolFeminist School
 Most adherents of this school advocate lobbyingMost adherents of this school advocate lobbying
legislatures and litigating in courts for changes inlegislatures and litigating in courts for changes in
laws to accommodate women’s views.laws to accommodate women’s views.
 They argue that our traditional common law reflectsThey argue that our traditional common law reflects
a male emphasis on individual rights, which, ata male emphasis on individual rights, which, at
times, is at odds with women’s views that the lawtimes, is at odds with women’s views that the law
should be more reflective of a “culture of caring.”should be more reflective of a “culture of caring.”
 To other adherents of this school of jurisprudence,To other adherents of this school of jurisprudence,
the law is a means of male oppression.the law is a means of male oppression.

Law and Economics SchoolLaw and Economics School
 It employs economics to explain andIt employs economics to explain and
predict a judge’s decisions in certainpredict a judge’s decisions in certain
areas.areas.
 Most court decisions and legalMost court decisions and legal
doctrines they depend on are efforts todoctrines they depend on are efforts to
promote an efficient allocation ofpromote an efficient allocation of
resources in society.resources in society.

Sources of U.S. LawSources of U.S. Law
 The Legislative Branch - creates the lawThe Legislative Branch - creates the law
 The Judicial Branch - interprets the lawsThe Judicial Branch - interprets the laws
 The Executive Branch - enforces the lawsThe Executive Branch - enforces the laws
 Administrative AgenciesAdministrative Agencies

Where to Find the LawWhere to Find the Law
• Municipality
administrative
regulations
• Varies; often difficult to find.
Many municipalities do not
publish case decisions but
do preserve them on
microfilm. Interested parties
usually must contact the
clerk’s office at the local
courthouse.
• Municipal ordinances
• State administrative
code or state
administrative
regulations
• Regional reporters
• State reporters
• State code or state
statutes (e.g., Ohio
Revised Code
Annotated, Baldwin’s)
STATE
• Code of Federal
Regulations (C.F.R.)
• Federal Register
(Fed. Reg.)
• United States Reports (U.S.)
• Supreme Court Reporter (S.
Ct.)
• Federal Reporter (F., F.2d)
• Federal Supplement (F.
Supp.)
• Federal agency reports
(titled by agency; e.g., F.C.C.
Reports)
• Regional reporters
• State reporters
• Title 3 of the
Code of
Federal
Regulations
• Codification of
Presidential
Proclamations
and Executive
Orders
• United States Code
(U.S.C.)
• United States Code
Annotated (U.S.C.A.)
• United States
Statutes at Large
(Stat.)
FEDERAL
Admin
Regulations
Common
Law/Judicial
Interpretations
Executive
Orders
Legislative
Law
Level of
Government
FEDERAL

Introduction
H.R.1
Introduced in House
Sent to Clerk of House
House Rules Committee
Action
Referred to Appropriate
House Committee
Referred to Subcommittee
Reported by Full Committee
House Floor Debate and
Vote on Bill
S.1
Introduced in Senate
Sent to Clerk of Senate
Introduction
Referred to Appropriate
House Committee
Referred to Subcommittee
Reported by Full Committee
House Floor Debate and
Vote on Bill
Joint House – Senate
Conference Committee
House (H.R.I.) Senate (S.1)
Legislation - How a Bill Becomes a LawLegislation - How a Bill Becomes a Law

Judicial BranchJudicial Branch
Definition:Definition: is comprised of the federal courtsis comprised of the federal courts
and most state courts.and most state courts.
Landmark case:Landmark case: Marbury v. MadisonMarbury v. Madison
1.1. Judicial Review – the power to determineJudicial Review – the power to determine
whether a statute is constitutional was given towhether a statute is constitutional was given to
the courts in this case.the courts in this case.
2.2. Case law precedentsCase law precedents

Executive BranchExecutive Branch
Definition:Definition: is composed of the President,is composed of the President,
President’s staff and the cabinet (heads ofPresident’s staff and the cabinet (heads of
the executive departments).the executive departments).
 Treaty MakingTreaty Making
 Executive OrdersExecutive Orders

Administrative AgenciesAdministrative Agencies
Congress delegates authority to theseCongress delegates authority to these
agencies to make rules governing theagencies to make rules governing the
conduct of business and labor in certainconduct of business and labor in certain
areas.areas.
Examples of Federal Regulatory Agencies:Examples of Federal Regulatory Agencies:
 SECSEC
 FTCFTC
 OSHAOSHA
 EEOCEEOC

Classifications of LawClassifications of Law
Case LawCase Law Statutory LawStatutory Law
results from judicialresults from judicial
interpretations ofinterpretations of
constitutions and statutes.constitutions and statutes.
made by the legislativemade by the legislative
branch of government.branch of government.
Criminal LawCriminal Law Civil LawCivil Law
composed of federal andcomposed of federal and
state statutes prohibitingstate statutes prohibiting
wrongful conduct rangingwrongful conduct ranging
from murder to fraud.from murder to fraud.
governs litigation betweengoverns litigation between
two private parties.two private parties.

Classifications of LawClassifications of Law
Public LawPublic Law Private LawPrivate Law
deals with the relationship ofdeals with the relationship of
government to individualgovernment to individual
citizens.citizens.
deals with the enforcementdeals with the enforcement
of private duties.of private duties.
SubstantiveSubstantive ProceduralProcedural
creates and regulates legalcreates and regulates legal
rightsrights
sets out the rules forsets out the rules for
enforcing the legal rights.enforcing the legal rights.
It is the “ Process”.It is the “ Process”.
Cyber lawCyber law - is not a new type of law. It applies the traditional- is not a new type of law. It applies the traditional
categories of law to a new form of communication (online).categories of law to a new form of communication (online).

SummarySummary
Variables that have an impact onVariables that have an impact on
business decision making:business decision making:
 LegalLegal
 FinancialFinancial
 EconomicEconomic
 EthicsEthics

All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice HallPublishing as Prentice Hall

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