Running Head PERFORMANCE ISSUES AND MOTIVATION1 PERFORMANCE IS.docx

Running Head: PERFORMANCE ISSUES AND MOTIVATION
1
PERFORMANCE ISSUES 6
Performance Issues and Motivation
Name
Bus 610: Organizational Behavior
Date
Instructor
Past studies have shown that the motivation issues experienced
in the work place are not necessarily caused by the work
environment. In some cases, external factors not related to work
environment are the primary reason that so many workers are
incapable of performing to the best of their ability. People tend
to underestimate the importance of external factors and
overestimate the importance of internal factors as influences on
those behaviors” (Baack, 2012, Ch. 3.1). Through the
exploration of how financial problems can affect motivation in
employees and how the motivation of these employees can be
boosted, a better understanding of performance issues and
motivation can be gained.
Financial problems are quite common and they contribute a
huge percentage of motivational problems found in the work

place. In most scenarios, financial difficulties are a result of
poor choices made by the individual (Ford, 1992). However, in
some instances the financial hardships are a result of situations
beyond the control of the individual. Hardships are often the
result of the economic climate, or other external situations.
Some common financial problems that are experienced by
employees include: minimal or no medical insurance, mortgage
payments, gambling addictions, lack of savings, and fraud
(Shinnick, 2009). Regardless if the hardship is self inflicted or
beyond one’s control the effects on motivation in the workplace
are still present.
Having medical insurance ensures peace of mind that medical
attention can be received for themselves or family members if
needed. If an employee does not have medical insurance, this
will weigh heavily on their mind, spiking their stress levels and
generally affecting their performance at work. If they feel, that
despite how hard they labor, they can not earn medical
insurance, then their motivational problems will definitely
decrease.
With mortgage rates continuously rising, keeping up with
mortgage payments and affording common expenses has become
an increasingly daunting task. If employees are continuously
worried about being unable to keep up with mortgage payments
and meeting basic financial responsibilities the motivation they
have for their job will slowly dissipate. Even basic
responsibilities can have a drastic effect on motivation.
If an employee has a gambling problem, they might find that
they have continuous financial issues. Gambling is a game of
chance and they might not always be lucky. If they have a
losing streak, and still do not have the energy of spirit to give
up on the game, then they might end up losing most of their
major assets. With bankruptcy facing them, and with tension
back at home, their motivation will dwindle leaving them with
poor work performance.
In some cases, due to poor prior planning, employees may be
quickly approaching retirement but without enough money set

aside for them to live comfortably. That can leave many
employees feeling hopeless and unmotivated. Hopelessness can
in turn affect productivity and ability to be motivated or
motivate others.
Sometimes, through no fault of their own, employees might find
that they have invested in a fraudulent venture that might have
wiped out their savings. If this is the case, not only will they be
facing major financial problems at home, they might be feeling
guilty for losing the family's hard earned money. When this
happens an employee may find it difficult to focus on the job at
hand. All in all, financial problems affect the psychological
well being of the employees and they are unable to perform to
their level best in the work place.
There are various theories of motivation that all strive to
explain what motivates workers to do their best when in the
work place. When these motivations are identified, it becomes
easier to motivate workers since they are provided with the
incentives they require to give their best. The incentive theory
of motivation and Taylor’s theory of scientific manage are two
theories regarding motivation.
The incentive theory suggests that employees in the work place
are only motivated by the incentives they receive. They are not
motivated by intelligence-increasing needs; neither do they have
great passion for what they do. Most people will perform
practically any sort of job as long as the incentives they receive
are good enough. Financial incentives received in the work
place fall under this category. If employees are facing financial
problems at home, and their job is not providing them with
enough money to pay off their bills; employees might be less
motivated to work hard. Instead they will direct their energy
towards looking for a better paying job (Simone and Werner,
2008).
According to Winslow Taylor, employees are motivated mainly
by how much they are able to earn at work. Taylor came up with
his own solution on how to best motivate workers in the work
place. He suggested that the whole work process should be

broken down into small specific tasks for each employee
(Herzberg, 1993). The employees should then be trained on how
to best perform each of these tasks. From then onwards, workers
are paid depending on the quantity of results that they are able
to produce.
Directly helping out employees who are struggling with
financial problems will not always work, it will in fact be an
additional cost that the company might not be in a position to
bear (Shah and Gardner, 2008). However, there are other,
cheaper methods that can be used to achieve higher motivational
levels in employees. Coming up with bonus schemes for
employees who perform exemplary tasks is one way to go about.
Monetary bonuses should be generous, or else they will not be
as effective as they could be. However if used properly
monetary incentives will work because, even though the
employee’s salary will not change, they will be able to earn the
much needed money by working to achieve a bonus, in addition
to their salary. Also, if a company has a good employee
promotion program in place that rewards hard working
employees with a higher job title and higher pay, then this will
increase the overall motivation of the employees. They will
work harder to achieve a higher title that comes with better pay.
It is important that the different theories of motivation are
analyzed so they can then be used to help employees who may
be having motivational issues. Financial problems are one of the
main factors that an employee may be facing; therefore when
they fail to perform at their peak at work, measures need to be
taken that will properly motivate them. Some of the methods
that can be used include having bonus schemes and excellent
job promotion programs.
Past studies have shown that the motivation issues experienced
in the work place are not necessarily caused by the work
environment. In some cases, external factors not related to work
environment are the primary reason that so many workers are
incapable of performing to the best of their ability. Through the
exploration of how financial problems can affect motivation in

employees and how the motivation of these employees can be
boosted, a better understanding of performance issues and
motivation has been gained.
References
Baack, D. (2012). Organizational behavior. San Diego, CA:
Bridgepoint Education, Inc.
Ford, E. (1992). Motivating Humans: Goals, Emotions, and
Personal Agency Beliefs. California: SAGE
Herzberg, F. (1993). The Motivation to Work. New Jersey:
Transaction Publishers.
Shah, Y. & Gardner, L. (2008). Handbook of Motivational
Science. New York: Guilford Press.
Shinnick, E. (2009). Issues in Economic Performance: Business,
Regional and Transport Issues. Berlin: LIT Verlag Munster.
Simone, L., and Werner, M. (2008). Human Resource
Development. New York: Cengage Learning
Comstock/Thinkstock
The Foundation of Law and Ethics
Unit I
Chapter 1 The Civil Law and Common Law Traditions
In this chapter you will:
• Understand the importance of studying law
and its relationship to business.

Chapter 2 Beginning a Civil Lawsuit
• Be able to distinguish between criminal and
civil litigation.
• Take a case step-by-step through a civil lawsuit.
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Chapter 3 Completing a Civil Lawsuit and Alternative Dispute
Resolution
• Understand the importance of alternative
dispute resolution and its application to
business.
Chapter 4 Business Ethics and Conflict Management
• Identify ethical issues one might confront in
legal and business matters.
Chapter 5 Administrative Law
• Identify the different types of administrative
agencies and explain their functions.

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The Civil Law and
Common Law Traditions 1
Why should a business student study law? After
all, you are not going to law school, and if
you ever have a legal problem, you can always
consult an attorney. Perhaps you have never
sued anyone, been sued yourself, been arrested, or
written a contract. If all this is true, the
law probably seems like someforeign country that
you have never been to and have no desire to
visit.The truth is, as a businessperson, you can no
longer view the law from a distance. Your life
and
the law, whether you like it or not, will be
intertwined, and having a basicunderstanding of
the law’s
scope, application, and influence will serve you
well, both in business and in your personal life.
If you are a manager, business owner, employee,or
entrepreneur, the law will impact your daily
decision making and have far-reaching consequences in
all your business activities. Believe it or not,
a law course is an integral part of your
education. This will become clearer to you as
you read cases
and witness for yourself the unfortunate situations
that people have gotten themselves into.

Whereas larger companies have in-house legal
departments or have access to the expertise of
large
law firms, small businesses oftenoperate with
little knowledge of the law and minimal access
to
legal counsel, making a legal background even more
valuable in the marketplace. Regardless of
size, any business can benefit greatly from employing
people at all levels who have at least a
basic
understanding of the law and a solid grasp of
essential legal principles so that they can recognize
potential legal problems and refer them to legal counsel
before they become costly matters that
threaten the health of a business. This is
especially true in the United States, which
has no unified
legal system but rather an overlay of federal,
state, and local laws. Further, the trendtoward
more
global commerce and trade, governed by international
treaties such as the North American Free
Trade Agreement, has implications for businesses
of all sizes and types. Today, many
business trans-
actions involve two or more states and may even
include parties separated by the full continent, so
a much greater amount of business is
conducted by various means across state lines.
While no textbook can become a comprehensive
hands-on guide to American law (the legal ency-
clopedias that attempt to do so run tens of
thousands of pages and still do not cover all

aspects of
the law),it is the purpose of this text to provide
an accurate, easy-to-understand, useful guide to
someareasof the law that have the greatest impact on
business. Business law, as well as the legal
environment of business and legal studies courses,
will provide students with the skills to
recognize
and apply the proverbialounce of prevention to
their business careers and personal lives. This
can
prove more useful to employersand to themselves
than pounds of competent, costly legal advice
obtained too late to remedy a problem that could
have been avoided.
Although this course will not “make you a
lawyer,” it will provide you with a number of
advan-
tages. First, you will better be able to
recognize legal problems before they happen, a
topicoften
referred to as preventive law. If you can prevent
a situation or conflict from developing into a
law-
suit, you may save your business money and the
embarrassment of a lawsuit, as well as
maintain a
lawful and ethical work environment. Second, in
the event that you are involved in a
controversy,
you may be able to resolve the dispute outside of
courtthrough “alternative dispute resolution”
techniques such as negotiations, mediation, or

arbitration. You will learnabout each of these
and
their advantages and disadvantages. If you do have to
deal with a lawyer, this course will teach
you
many legal concepts and the vocabulary to
effectively communicate with legal counsel. You
will
also learnhow to hire an attorney, manage legal
counsel, and deal with the legal profession.
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4
Section 1.1 Law: Its Scope and Origins CHAPTER 1
1.1 Law: Its Scope and Origins
No single course or textbook can address all of
the complexities of law. If you stop to think
about it, law—and legal systems—have been in
effect sinceearlycivili-zation began. Thus,
therehave been many forms of law and legal
systems, too
many to enumerate. Suffice it to say that
people need rules to maintain order; otherwise,
society would revert to barbarism. Throughout
the ages,philosophers, jurists, political
scientists, political leaders, and common people from all
walks of life have defined law
in a number of ways. Cicero viewed law as
“nothing but a correct principle drawn from

the inspiration of the gods, commanding what is
honest, and forbidding the contrary.”
For the eminent British jurist William Blackstone,
law could be defined as “a rule of civil
conduct, prescribed by the supreme power in a
state, commanding what is right and pro-
hibiting what is wrong.” SaintThomas Aquinas, on
the otherhand, defined law as “an
ordinance of reason for the common good, made
by him who has care of the community.”
Whatever our working definition, law is oftenwhat
Justice FelixFrankfurter described as
“all we have standing between us and the tyranny of
mere will.” We will see that this is
true and, even more so, come to appreciatethat law
also allows us to conduct business,
enterinto formal relationships, depend on some
predictability in our affairs, and create
order in our lives.
At its simplest, law comprises rules of behavior that a
government imposes on its people
for the benefit of society as a whole. As
such, it represents the governing body’s
subjective
views of what is best for that society, combined
with precedent and tradition. And even
though most legal systems attempt to protect society
and promote the common good,
therecan be radical differences in the law from
one country to another, and even in dif-
ferent regions within countries, the 50 United
States being a prime example. Although
federal and constitutional law serve to balance
and put a check on state and local law, for
example, and in turn, the federal government is

limited in its powers to legislate and must
give states the power to regu-
late certain matters, thereis no
“one” law, as in a country whose
legal system is based on civil
law (codified statutes alone).
Unlike the U.S. common law
system, a civil law system,
such as prevails in Europe and
South America, is more effi-
cient and stable, leaving little
roomfor judicial interpretation
and lawyers. Trial by jury is not
an option, so judges apply the
law in a highly predictable, rel-
atively swift proceeding, and
the law itselfis slow to change.
In common law jurisdictions
like the United Kingdom and
the United States, however,
thereis much more litigation,
so you need to be prepared.
The United States Capitol in Washington, D.C., is the meeting
place of Congress, the nation’s federal legislative body.
Photodisc/Thinkstock
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5
Section 1.2 Sources of Law CHAPTER 1

One of the reasons that studying law is difficult is
that the numerous “factions” that con-
stitute our legal system are all operating at the
same time.There is state and federal law,
statutory law, administrative law, local law, and so on.
For example, each of the 50 states
has a legislative body that passes state statutes.
Each of the states also has a state court
system ruling on cases and making state “case
or judicial law.” Operating at the same time
is the federal legislative body—Congress, which
makes federal statutes—and the federal
courts, which make federal case law. These
are just a few of the “places” making law. As
you can imagine, thereare thousands of volumes and
treatises dealing with questions
about what is the law and legal history, as well as
reporting on all of the new law being
made every day. The law is vast and complicated,
no doubt, but understanding how it
works and how the layers of lawmaking bodies
fit together into the larger scheme is an
essential part of your education.
1.2 Sources of Law
Table 1.1 lists the four major sources of law in
the United States: judicial, statutory,
constitutional, and administrative. Note that each source
of law has both a federal and state component.
Table 1.1: The foundations of the American legal system
Judicial Law
Federal case law

State case law
Statutory Law
Federal statutes
State statutes
Constitutional Law
U.S. Constitution
State constitutions
Administrative Law
Federal administrative agencies
State administrative agencies
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6
Judicial (Case) Law
The phrase judicial law is used interchangeably
with case law. Judicial law is law made in
courts, by judges, when they rule on a case
and writean opinion; it had its origins in
what
is called the common law. When the early
pilgrims immigrated to America, they brought
with them their legal system, along with customs,
traditions,and values that helped to

shape our legal system. It is in the nature of
common law, however, that it adapts to the
local customs, traditions,and needs of a people.
Thus, despite its English roots, American
law has evolved to fit the needs of our
federalist system and reflects regional differences
and values. As a result, law in the United
States today resembles more the earlyEnglish
common law system, with its regional differences
based on local customs and traditions,
than it does the relatively unified law of the
modern-day United Kingdom.
Before a judge can “make law,” therefirst
must be a controversy brought to the court-
roomfor a decision. Such a controversy involves
two parties: the plaintiff, or the person
bringing the lawsuit, and the defendant, or the
person being sued. A civil lawsuit is
one
in which the plaintiff is seeking money, or
restitution. (This should be contrastedwith a
criminal action, which is being brought to
punish and possibly incarcerate the defendant.)
As more and more cases are decided, they form a
body of law. These cases become prec-
edent for cases that follow, building one upon
the other. Judges rely on previous cases to
form their opinions and so on down the line.
When a judge decides a case in court,
the judge will oftenwritean opinion that is

pub-
lished in case books, or compendiums of court
opinions. In that way, others can look up
and read the decisions to determine what the law is
and how a judge ruledon a specific
topic. Figure 1.1 provides an example of a
case as it appears in a case book.
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7
Figure 1.1: Example of a case
Stare Decisis and Precedent
Yet another name for a case or an opinion is
precedent. Precedent also means a previous
case. If you look at the case in Figure 1.1, you
will see in the last paragraph a series of
cita-
tions that begin like this:
Ciofalo v. Vic Tanney Gyms, supra, 10 N.Y.2d 297, 220
N.Y.S.2d 962, 177 N.E.2d 925;
Franzek v. Calspan Corp.
78 A.D.2d 134, 434 N.Y.S.2d 288
N.Y.A.D., 1980.
December 23, 1980 (Approx. 4 pages)

This litigation arises as a result of an attempt to traverse the
“white water” of the lower
Niagara River on a rubber raft. Twenty-nine persons were
aboard on this ex-
perimental trip to determine the feasibility of offering regular
passenger trips to
the general public. During the journey the raft capsized. Three
persons died and a
number including plaintiff, Michael J. Franzek, were injured.
Franzek sued Niagara
Gorge River Trips, Inc. (Niagara) and its president, George
Butterfield, who were the
rafter trip operators. He also sued Calspan Corporation
(Calspan) an engineering
firm located in Buffalo which allegedly designed, tested and
evaluated the raft.
In the first and third causes of action asserted in his complaint,
Franzek al-
leges that Niagara and Butterfield negligently caused the
accident; specifical-
ly that Butterfield was negligent in offering the ride to the
public, and plaintiff in
particular, when he knew or should have known that the raft was

unsafe and unsuitable as a means to carry passengers upon the
lower Ni-
agara River. The second cause of action, asserted against
Calspan, alleges that
Calspan failed to test the raft properly and negligently
recommended
to Niagara and Butterfield that it was suitable for use on the
Niagara River.
Where the waiver extends to claims arising out of the
negligence of a party, wheth-
er by use of the term “negligence” or by words of similar
import, it provides the
negligent party with a valid defense (Ciofalo v. Vic Tanney
Gyms, supra, 10 N.Y.2d
p. 297, 220 N.Y.S.2d 962, 177 N.E.2d 925; Solodar v. Watkins
Glen Grand Prix Corp.,
36 A.D.2d 552, 317 N.Y.S.2d 228; Theroux v. Kedenburg
Racing Assn., 50 Misc.2d
97, 269 N.Y.S.2d 789 affd. 28 A.D.2d 960, 282 N.Y.S.2d 930,
mot. for lv. to app. den.
20 N.Y.2d 648, 286 N.Y.S.2d 1026, 233 N.E.2d 300; see, Gross
v. Sweet, supra, 49
N.Y.2d, p. 108, 424 N.Y.S.2d 365, 400 N.E.2d 306). The
agreement here extends

specifically to claims based upon the negligence of Niagara and
Butterfield, its
officer and agent, and bars, therefore, plaintiff Franzek’s claim
against them.
This is the citation. It tells you where to find
the case. For example, 434 is the volume
number, N.Y.S. stands for New York Supple-
ment books, and 288 is the page number.
The third paragraph
states the rules.
The last sentence in
the case is the holding
of the court, whose
pronoucement actually
makes law.
The second paragraph
details the cause of
action, negligence.
The first paragraph
presents the facts
of the case.
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8

The judge is using each of thesecases to
decide in the current case. Each one of these
cases is precedent. The actual use of the
case to form a decision in the current
controversy
is called stare decisis, which is Latin for
“standing on previous decisions.” Stare decisis is
a
fundamental principle of both English and American
legal systems. The stability of com-
mon law depends on judges following legal precedent
guided by the doctrine of stare
decisis. This stability allows legal practitioners to
predict how a given case will be decided
by examining how similar cases were decided in
the past. Judges don’t “invent” or “make
up” the law, dependingon whim; for the most part,
they rely heavily on previous cases to
writetheir opinions. Under the principle of stare decisis,
a courtshould follow established
legal precedent unless thereis a compelling reason
not to do so. This principle is crucial
to common law; if judges did not follow
established precedent, therewould be little
pre-
dictabilityto the legal system. Attorneys would have no
solid guidelinesupon which to
base their advice to clients and no stable
guideposts on which to base legal arguments
and
chartlegal strategies for arguing cases in court.
Changing Precedent
Sometimes, however, the judge will reject a
previous decision and refuse to follow it.
Recall, for example, the U.S. Supreme Court

decision of Roe v. Wade, which struck down
state laws limiting abortion and held that abortion is
legal. In doing so, the Court rejected
previous cases that stated abortion was illegal.
When do courts reject stare decisis? The
decisions of a state’s highest courtare binding on
that state’s lower courts, which must
follow it, but are only persuasive precedent on
the courts of otherstates, which are free
to follow or ignore such precedent. This means
that if a case is being heard in New
York
and the attorney attempts to use a Pennsylvania
case as precedent, the judge can refuse
to recognize the Pennsylvania case. Thus,
managers should be aware that state law is
binding only within that state, and the law varies
greatly from one state to another. This
is important to you as a business manager because
theremay be instances in which “law”
from another state is brought to your attention but
does not apply to you at all. Thus, the
doctrine of stare decisis is limited to decisions
within the same jurisdiction, state, or region.
Another reason that stare decisis is not always
followed is the result of a change in
the
political climate of the country. Sometimes opinion
around an issuechanges so much that
the courts reflect a change in attitude and
reject well-established doctrine. Consider racial
discrimination in the United States, which at
one time was legal and upheld as consti-
tutional by the U.S. Supreme Court. Over time,both

the law and cases have changed to
reflect a different philosophy. This was true in
1954, when the Supreme Court found
racial
discrimination illegal in the case of Brown v. Board
of Education. Untilthat time,the doc-
trine of “separate but equal” accommodations for
blacks and whites had been applied by
the courts. The Brown decision eradicatedthe
doctrine and replaced it with a new “law.”
Here was an example of social mores changing to
such a degree that the Court refused to
follow previous cases.
In summary, case or judicial law is made in
courts by judges rendering an opinion. Each
state has at least one state court that is
hearing controversies and rendering opinions.
Thousands of opinions are being written each
day from all of thesestates. All of these
state courtopinions form a body of law called case or
judicial law because they are based
on cases, or controversies between people. Thus,
when you wonder, “What is the law?”
remember that only one aspect of law includes state
courtopinions.
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9
Statutory Law

Another key site for lawmaking is in both state
and federal legislatures, which are govern-
ing bodies whose job is to make new laws.
Law made by a legislature is called a
statute.
Legislatures gain consensus from their members to pass
the bills making new laws, after
which the bills are signed by the governor (for
the state) or the president (for Congress).
At any time in the United States, thereare 50
state legislatures passing state statutes and a
federal legislature (Congress) passing federal
laws.
Federal
At the federal level, Congress can legislate over a
broad range of areasthrough the exer-
cise of its constitutionally granted powers. These
powers are set out in the federal (U.S.)
Constitution in Article I, Section 8. Whenever
Congress legislates within its area of consti-
tutionally granted power, the resulting legislation
has the forceof law, although its legal-
ity can be challenged in federal court, as
will be discussed later on. Federal law is not
some
remote or arcane academic exercise; it affects
each of us on a dailybasis. This is
especially
true for people involved in business. As a
manager, you will deal with many important
federal laws. For example, the Americans with
Disabilities Act of 1990 spells out how
employersmust accommodate disabled workers. This is a
federal law that applies to all

businesses, as opposed to a state law that applies
only to businesses within that particular
state. Other examples of federal statutory law
include the CivilRights Acts of 1964, which
prohibits discrimination on the basisof race, and the
Age Discrimination in Employment
Act of 1967, which describes the rules for hiring
and firing employees above the age of
40.
The Senate also plays a role in international
agreements, or treaties, as it is empowered
to
ratify treaties negotiated by the president. These
treaties (e.g., the North American Free
Trade Agreement, or NAFTA, approved in 1994)
impact businesses in all 50 states if
they
engage in international commerce. See also
Timeline of Major 20th-Century Legal Devel-
opments That Affect Modern Businesses in Appendix C.
Figure 1.2 provides an example of a federal
statute. Notice that a federal statute looks
completely different than a case. Federal statutes do
not have parties, nor do they involve
a controversy between people. Instead, they are a
pronouncement of the law and there-
fore are sometimes much shorter and terse than a
case, which involves people, a specific
controversy, and an explanation of events. Note
the citation for where to find the statute
in the U.S. Codebooks.
Figure 1.2: Example of a federal statute

29 USC § 623
(a) Employer practices
It shall be unlawful for an employer —
(1) to fail to refuse to hire or to discharge an individual or
otherwise
discriminate against any individual with respect to his
compensa-
tion, terms, conditions, or privileges or employment, because
of
such individual’s age;
Note that the citation for a federal statute is USC, which
stands for United States Code. This is where all federal
statutes are located. This particular statute is in volume
29 of the United States Code at section 623.
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10
State
Every state has its own legislature, which is
usually patterned after Congress, with two
chambers (often, house and senate) comprising
elected members from the two main polit-

ical parties, one of which forms a majority.
These legislatures enact state laws in a
wide
range of areas, including civil and criminal law
and procedure, business regulation, and,
of course, taxation. The power of state legislatures
to regulate both business and private
conduct is far greater than that of the federal
government, sincemost states reserve to
themselves in their state constitutions broad powers
to legislate in all areastouching on
the welfare of their citizens. In addition, the
Founding Fathers explicitly limited the pow-
ers of the federal government to regulate state
matters. In general, states have the right
to regulate all areasof private or public life as
long as they do not infringe on any right
protected by the U.S. Constitution (see Table 1.2).
State and local legislation that does not
infringe on a constitutionally protected right
is validas long as it can pass a relatively flexible
rational relationship test, which simply
means that any state law that is rationally related to
the preservation of a validsocietal
interest is valid. This litmus test of
constitutionality is a simple one to pass,
sincenearly
any law can be rationally justified as serving some
validpurpose. The test is somewhat
more stringent, however, when a vital interest or
suspect classification is involved; in such
instances, the state must pass a strict scrutiny test of
constitutionality, wherein the courts
weigh the state’s interest against the infringement
of protected rights in determining the

validity of a statute. For purposes of the strict
scrutiny test, a vital interest can be defined
as any constitutionally protected right, such as
the rights enumerated under the Bill of
Rights. A suspect classification would include a
law that makes distinctions based on
race, sex, color, religion, or national origin.
A Closer Look: Finding the Law on the Internet
During the course of your work, you may have occasion to
research laws. Since you will most likely be
accessing legal materials via the Internet, an excellent site that
is free to all users is the Cornell University
Law School Legal Information Institute (LII), which can be
found at http://www.law.cornell.edu/. One
advantage of online research is that you do not need an actual
citation. For example, if you go to this
website and type in “age discrimination law,” the appropriate
statute will appear. Please note the exten-
sive legal materials that are available online for free.
Many times, finding federal statutes is not useful because their
language is overly complex and diffi-
cult to understand. In that case, be aware that there are many
resources that will explain or interpret
what a statute actually means in down-to-earth language along
with the underlying reasons for pas-
sage of the law. For example, the Congressional Research
Service located at http://www.fas.org/sgp/
crs/misc/97-589.pdf explains many complicated federal statutes.
Suppose, for example, that your supervisor asked you to rewrite
part of the employee handbook
pertaining to discrimination. Many reliable websites exist that
can explain the law, from the more

basic aspects to detailed and legally sophisticated information.
While these do not take the place of
utilizing an attorney, there are many daily tasks that you will
perform as a manager for which access
to law sites will be informative and helpful to your work.
sea80373_01_c01_001-016.indd 10 10/4/12 3:21 PM
http://www.law.cornell.edu/
http://www.fas.org/sgp/crs/misc/97-589.pdf
http://www.fas.org/sgp/crs/misc/97-589.pdf
11
Figure 1.3 provides an example of what a state
statute “looks like.” Notice that it begins
with a number, in this case 28-1381, which is a
typical way to recognize that this is statu-
tory law. Next, note that it has a title, in this
case the sentence beginning with “Driving
. . .” Notice that thereare differences
between the format of a case and a statute.
Remember
that cases begin with the name of the parties
and are the result of a controversy
between
two people, whereas a statute is passed by a
legislative body.
Figure 1.3: Example of a state statute
Local

In addition to state and federal legislatures, “local”
legislative bodies (e.g., city councils
and various town boards and planning commissions)
have the power to legislate in areas
allowed them by their local charters. These local
ordinances also carrythe weight of law
and form a part of the state’s statutory law. Often
when doing business, theselocal laws
are the first place to check when a
question about the legality of a certain
action arises,
such as zoning. Local laws are frequentlyrestrictive
and much more narrow in scope and
intent than either state or federal laws.
Constitutional Law
In addition to judicial and statutory law, 51
constitutions play a significant role in formu-
lating “the law.” There are 51 constitutions
because each state has a constitution (50) and
thereis one federal constitution, the U.S. Constitution.
A country or state’s constitution
is the most fundamental source of law. It
delineates in general terms the sovereign state’s
form of government and provides the basicframework
for its laws. Article VI, Section 2,
of the U.S. Constitution specifically sets the U.S.
Constitution as the “supreme law of the
land” (see Appendix A). As such, no otherlaw
passed by a state or the federal government
can conflict with it; any law that does can be found
by the courts to be unconstitutional
and void.

Constitutions are necessarily broad documents. In
the United States, the job of interpret-
ing the federal constitution and that of every
state is left to the courts. Both state and
federal courts have the power to interpret the
U.S. Constitution, but the final word on the
analysis of the federal constitution is reserved to
the U.S. Supreme Court, whose interpre-
tation of the Constitution is final and represents
binding precedent on all lower courts,
state and federal.
28-1381. Driving or actual physical control while under the
influence; trial by jury;
presumptions; admissible evidence; sentencing; classification
A. It is unlawful for a person to drive or be in actual physical
control of a vehicle in this
state under any of the following circumstances:
1. While under the influence of intoxicating liquor, any drug, a
vapor releasing substance
containing a toxic substance or any combination of liquor, drugs
or vapor releasing sub-
stances if the person is impared to the slightest degree.
sea80373_01_c01_001-016.indd 11 10/4/12 3:21 PM
12

The U.S. Constitution serves as an important source
of law in the areasof governmental
power. It empowers states and the federal
government to pass and enforce laws that regu-
late people’s interactions with one another and with
their government while limiting the
government’s ability to legislate in certain areas.
Under our Constitution, the federal government is
one of limited powers. Congress has
the power to legislate only in areasthat it has
been specifically granted the power to regu-
late by the U.S. Constitution. The powers of
Congress are enumerated in Article I, Section
8 (see Table 1.2).
Table 1.2: Powers of Congress listed in Article I, Section 8, of
the U.S. Constitution
Collect taxes and import duties, pay debts, and provide for the
common defense and general welfare
of the United States
Borrow money
Regulate commerce with foreign nations, among the states, and
with the Indian tribes
Establish rules for naturalization and bankruptcy
Coin money, regulate its value, and fix a standard of weights
and measures

Punish counterfeiting
Establish post offices and post roads
Issue patents and copyrights
Set up federal courts inferior to the U.S. Supreme Court
Define and punish crimes on the high seas and crimes against
the United States
Declare war, grant letters of marque and reprisal, and make
rules regarding the seizure of property
under letters of marque and reprisal
Raise and support armies
Create a navy
Regulate the armed forces
Exercise control over the territory encompassing the seat of
government
Under the U.S. Constitution, states are free to
create legislation to regulate any area not
spe-
cifically reserved to the federal government. Thus, states
can adopt any laws they wish within
their borders as long as they do not conflict with a
duly enacted federal law or transgress
upon any right guaranteed by the U.S. Constitution, as
interpreted in the courts.
While the Constitution gives broad regulatory

powers to states and the federal govern-
ment, it also preserves the rights of the
individual in the Bill of Rights. The most
significant
body of constitutional law concerns itselfwith the
prohibitions on governmental powers
enumerated in the Constitution—in particular,
the guarantees provided to individuals
by the Bill of Rights (the first 10 amendments to
the U.S. Constitution), the Fourteenth
Amendment, and the U.S. Supreme Court’s
interpretation of the broad language in which
they are framed.
sea80373_01_c01_001-016.indd 12 10/4/12 3:21 PM
13
But even the U.S. Constitution is not static. Under
Article V of the Constitution, Congress
may propose a constitutional amendment by a
two-thirdsvote by the House of Represen-
tatives and the Senate. If a proposed amendment
is approved by Congress, it then goes to
all the states’ legislatures. If three-quarters of
the states’ legislatures approve the amend-
ment, it becomes part of the Constitution and
the preeminent law of the land. States may
also propose amendments to the Constitution to
Congress on their own initiative by votes
for such a proposal in two-thirdsof the states’

legislatures. If the states make the initia-
tive, Congress must decide whether to allow
ratification by constitutional conventions in
three-quarters of the states; the change is then
ratified upon its approval by three-quarters
of the states’ legislatures, by a constitutional
convention in three-quarters of the states, or
by a vote for ratification by three-quarters of
the states’ legislatures.
Other than the right to each state’s equal
representation in the Senate, thereis no limit
to what changes can be written into the Constitution.
To date, the Constitution has been
amended 27 times. In the case of the Eighteenth
Amendment (1919) (better known as
Prohibition), which outlawed the manufacturing, sale, or
transportation of intoxicating
liquors in the United States, Congress changed its
mind and repealed Prohibition in the
Twenty-First Amendment (1933), leaving it up to
the individual states to prohibit the sale
of alcoholic beverages as they saw fit.
Administrative Law
One of the least visible entities that “makes law” is
the state or federal administrative
agency, whose members are appointed by government
leaders but who operate quasi-
independently, reporting to Congress and the public.
When Congress decided to regulate
nuclear energy, for example, it created the Nuclear
Regulatory Commission and empow-
ered it with the ability to both create and enforce

rules for the safe civil use of nuclear
energy. Although Congress could have created and
enforced theserules itself, individual
members of Congress have neither the necessary
expertise nor time to engage in such
micromanagement of the regulatoryenvironment. The
same holds true for otheragencies
whose primary purpose is the regulation of
business and industry, including the Federal
Aviation Administration, the Securities and Exchange
Commission, the National Labor
Relations Board, the Federal Trade Commission,
and the Federal Communications Com-
mission, among many others.
At the state level, state legislatures and
governors also set up administrative agencies
to help them regulate business and carryout other
important governmental functions.
Taken together, the rules that all federal and state
agencies promulgate are quasi-judicial
and quasi-legislative. That is, they have the forceof
law and form the most important
component of administrative law. Like statutes,
however, most administrative rules and
many administrative agency decisions are subject to
judicial review, the process whereby
statutes, administrative rules, and administrative agency
decisions are reviewed by courts
when challenged. (See Chapter 5, Administrative
Law, for a fuller discussion.)
All agencies have this in common: a need to
regulate a highly technical industry or busi-
ness environment in order to ensure safety
and fair practices. Administrative agencies are

empowered by either the executive or legislative
branches of the state or federal govern-
ment to assist them in carrying out necessary
governmental functions that they lack either
the time or expertise to carryout themselves.
sea80373_01_c01_001-016.indd 13 10/4/12 3:21 PM
14
Section 1.3 The Three Branches of Government and the Balance
of Power CHAPTER 1
1.3 The Three Branches of Government and the Balance of
Power
The U.S. government comprises threebranches: judicial,
executive,and legislative. These branches were
designed to balance each other so that
one cannot become too powerful. For example, the
courts can review the actions by the
legislative and
executive branches.
No matter how clear the language of a statute or
how
plain its import, it is generally impossible in a
com-
mon law jurisdiction to interpret a statute, or
the fed-
eral or state constitutions, at face value. Ultimately,
the
validity of any statute is determined by the
courts, as

is its meaning. A case in pointis the Second
Amend-
ment to the U.S. Constitution, which reads: “A
well-
regulated militia being necessary to the security of
a
free state, the right of the people to keep and
bear arms
shall not be infringed.” Any reasonable
interpretation
of that amendment that looks at the plain
meaning of
the language used, particularly when viewed
with its
revolutionary framers’ inherent distrust of govern-
ment, leadsone to believe that the U.S. Constitution
guarantees the right of citizens to own and bear
guns.
Nevertheless, the amendment has been interpreted to
mean only that individual states can raise their own
militias (e.g., national guards) if they so choose.
Regardless of the wisdom of such an
interpretation,
one message is clear: any statute, including the
U.S.
Constitution, means only what the courts ultimately
decide it means. This has been the
case ever sinceMarbury v. Madison (5 U.S. 137 [1803]),
when Chief Justice John Marshall
first announced the power of judicial review (the
power of courts to declare the acts of
legislative bodies, including the U.S. Congress, void if

they violate the courts’ interpre-
tation of the Constitution). In what is arguably
the greatest act of judicial activism in
the history of U.S. jurisprudence, Chief Justice
Marshall argued, “It is a proposition too
plainto be contested that the Constitution controls
any legislative act repugnant to it,
or that the legislature may not alter the Constitution
by an ordinary act. . . .” This novel
proposition was not challenged. The power of
the courts generally, and ultimately of the
U.S. Supreme Court, to declare any act of the
U.S. Congress or any federal or state law
unconstitutional has now been well established by
more than 200 years of legal prec-
edent. Nothing in the U.S. Constitution itself
explicitly reserves this right to the courts,
and British courts did not historically enjoy a
similar privilege (only the king,queen, or
Parliament itselfcould invalidate a royaledict or
Act of Parliament). Arguably, the chief
justice could have been successfully impeached
for overstepping his bounds and infring-
ing on congressional legislative privilege. By not
challenging the decision, Congress left
the courts as the ultimate authority on the
Constitution, empowering the judicial branch
of government to curb the actions of legislative
and executive branches when these, in its
view, transgressed the U.S. Constitution.
John Marshall was the first chief
justice to enact the power of judicial
review.
Wikimedia Commons/Public Domain

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15
Key Terms CHAPTER 1
administrative agency A governmental
entity established to regulate a particularly
complex, technical area of business or
industry (e.g., nuclear power, communica-
tions, securities exchanges) that relies on
special expertise.
administrative law Law made by a state
or federal administrative agency.
Bill of Rights The first 10 amendments
to the U.S. Constitution, enumerating the
individual rights and powers of citizens.
case law Law made by a judge (or panel
of judges) as the result of a controversy
between two parties. Also called judicial law.
citation The abbreviations following legal
sources that tell the reader where to find
the original text of the law.
common law The name given to the body
of law established by the English and
brought to the United States as the first law
established in the colonies. Can also mean
case law or the aggregate body of case law.

Congress The federal legislative body that
enacts federal statutes.
controversy A dispute between two or
more parties that may be decided in court.
federal (U.S.) Constitution The “supreme
law of the land” to whose standards all
laws must be submitted.
federal statute A law passed by Congress
and signed into law by the president.
judicial law See case law.
judicial review The power of courts
to declare the acts of legislative bodies,
including the U.S. Congress, void if they
violate the courts’ interpretation of the
U.S. Constitution.
lawsuit A controversy brought to courtby
litigants: the plaintiff and defendant.
litigation The act of suing someone in
court; a plaintiff bringing a lawsuit against
a defendant.
precedent A previous case or body of
cases that holds sway over current legal
decisions in a common law system.
quasi-judicial In the context of adminis-
trative agencies, describes the process of
adjudicating disputes over agency rules

or their application in hearings similar to
trials, presided over by administrative law
judges—that is, when an agency acts “like
a court.”
quasi-legislative Describes the process of
creating one’s own rules (such as when an
administrative agency exercises a legisla-
tive power).
stare decisis The use by a judge of previ-
ous decisions (precedent) to make a legal
decision or ruling.
state constitution Each state’s governing
document that sets the standard for all
laws within its borders. Stateconstitutions
are established, written, and amended by
the state legislature.
state statute A law passed by a state legis-
lature and signed into law by the governor.
statute A law passed by either a state or
federal legislature.
U.S. Code (U.S.C.) The set of books that
contains all the federal statutes passed by
Congress.
Key Terms
sea80373_01_c01_001-016.indd 15 10/4/12 3:21 PM

16
Critical Thinking and Discussion Questions CHAPTER 1
Critical Thinking and Discussion Questions
1. Why do business managers and others need to
understand the foundations,
origins, and scope of the law?
2. What is the advantage to the American legal
system of using stare decisis?
3. How does the concept of judicial review
empower the courtsystem?
4. Locate the website for your state’s legislature.
Find a recent law passed by your
state legislature and give the citation for the statute
as well as a brief summary of
the legislation.
5. Locate a case on the Internet. What is
the citation for the case? What happened in
the case? How did you go about finding the
case? Does the case use stare decisis
in its decision, and if so, how?
6. Why were administrative agencies created? Find
the website for an administra-
tive agency and explain what types of issues
the agency dealswith and whether
it holds hearings. If the agency does hold
hearings, describe the types of opinions
it issues.

7. Suppose that Judge Harrison is hearing a
case in her courtand that the attorneys
present her with two disparate cases to use in
her decision. Based on the concept
of stare decisis, how would the judge go about
making her decision? Does Judge
Harrison have to use previous cases to make a
ruling in the current case?
sea80373_01_c01_001-016.indd 16 10/4/12 3:21 PM

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