Unit 7

THE LEGAL
ENVIRONMENT

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 OPENING
QUESTION WHO NEEDS A LAWYER?

Just 40 years ago, a UK shopkeeper could:

• Find it relatively easy to discriminate on grounds of
gender and race when recruiting staff
• Pay only cursory regard to “Health and Safety”
• Refuse to serve disabled customers
• Happily allow smoking by customers and employees
• So much has changed!
Is change in the law a good or bad thing?
Who benefits and who bares the costs?
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 LEARNING OBJECTIVES
To understand
1. The principal sources of law
2. The impacts of law on business activities
3. legal remedies and processes available to a
firm's customers
4. Voluntary codes of conduct as an alternative to
law

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 THE LEGAL ENVIRONMENT AFFECTS
BUSINESSES IN MANY WAYS
 Contractual relationships with customers / suppliers
 Owes duty of care to members of the public
 Increasingly complex employment legislation
 The legal environment influences the relationship between
business enterprises themselves
 The laws of copyright and patent protect a firm's investment in
research
 The legal environment influences the production possibilities of
an enterprise and hence the products that can be offered to
consumers

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 TWO SOURCES OF LAW
In UK:
 Common law
- develops on the basis of judgements in the courts.
Previous cases set precedent
 Statute law
- passed by Parliament

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 THE LAW OF CONTRACT
• Vital elements for a contract to exist:
– offer
– acceptance
– intention to create legal relations
– consideration
– capacity
• Must not be Misrepresentation
• Damages for breach of contract

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 THINKING
AROUND IS A BUSINESS
THE RELATIONSHIP A
SUBJECT CONTRACT?

• Many long term relationships between businesses may

be based on vague understandings between the party
• EG Marks and Spencer's has had close business
relationships with many suppliers
• But can M&S be in breach of contract if it suddenly
stops giving orders to its suppliers?
• Wren does a general understanding become a
contractual obligation to place orders?
SEE MINI CASE
PAGE 204
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 LAW OF NEGLIGENCE
• A civil remedy based mainly on decided
cases
– Does the company owe a ‘duty of care’ to an
individual?
– Were they in breach of that duty?
– Is damage of a type that ought reasonably to
have been foreseen?
• Definition of “reasonable” changes over
time
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 THE LEGAL SYSTEM (In England)
• The Magistrates Court - mainly criminal matters
• Crown Court - more serious cases committed to
it for trial on ‘indictment’
• High Court - hears appeals from the Magistrates
Court
• Court of Appeal - deals with appeals from Crown
Court.
• County Courts - the courts of first instance in
most civil matters
• Supreme Court - ultimate appeal court

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 ENFORCEMENT OF CONSUMER
LEGISLATION

 Trading Standards Departments

 Environmental Health Departments
 Utility regulators

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 STATUTORY INTERVENTION IN
CONSUMER LAW
Main Legislation:
– Trade Descriptions Act 1968
– Sale of Goods Act 1979
– Misrepresentation Act 1967
– The Consumer Protection Act 1987
– Consumer Credit Act 1974

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 CODES OF CONDUCT
• A voluntary agreement (e.g. ASA Code)
• Can help raise standards in an industry
sector
• More flexible than legislation
• Can be quicker and cheaper than recourse
to the law
• Threat of new law if code breaks down

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 THINKING
AROUND
WHO BENEFITS FROM A
THE “COMPENSATION
SUBJECT CULTURE”?
• Many stories about apparently “trivial” claims by customers for
compensation:
– Customer burned by coffee “too hot”
– Girl guide awarded compensation for being struck by fat from a cooking
sausage
– Teacher sued after slipping on a chip
• Greedy opportunistic behaviour?
• Or an essential part of the process of making businesses act
responsibly to customers and to others?

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 EMPLOYMENT LAW
• Based on principles of contract law and
negligence
• Employer vicariously liable for actions of
employees
• Increasing amount of statutory legislation
• Need to distinguish between an employee
and a self-employed contractor

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 THINKING
AROUND SHOULD COMPANY
THE DIRECTORS BE LIABLE?
SUBJECT

Consider fatal accidents,

e.g. Paddington train
crash
• Junior employees
blamed for error
• But should directors be
prosecuted for having
unsafe procedures?

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 CONTRACT OF EMPLOYMENT
An employer must issue its employees with a
written contract of employment within 13
weeks of starting their employment
(Employment Rights Act 1996)
– Contains details of hours of work, pay,
conditions etc
– Terms cannot be altered without agreement
– Contract may refer to a collective agreement

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 INCREASING LEVELS OF LEGAL
PROTECTION FOR EMPLOYEES
• To redress imbalance of power between
employer and employee
• Examples:
 Health and Safety legislation
 Minimum wage legislation
– Working Hours directive
• Statutory redress for unfair dismissal/
redundancy
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 THINKING
AROUND TOO MUCH ‘ELF AND
THE SAFETY?
SUBJECT

• Is the customer always right?

• Regulations often seek to
protect ‘vulnerable’
customers/employees
• Many examples:
– Smoking in pubs
– 2006 EU Optical Radiation
Directive – should she be
covered up and protected from
sunshine??

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 DISCRIMINATION AT WORK
• Legislation seeks to protect disadvantaged
groups
– The Sex Discrimination Act 1975 (SDA)
– The Equal Pay Act 1970
– Race Relations Act 1976

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 RIGHTS TO WORKERS’
REPRESENTATION
• Traditionally, Labour governments have
advanced the cause of organised labour;
Conservative governments have taken a
more individualist approach
• The Employment Relations Act 1999
established a statutory procedure through
which trades unions can seek recognition
for collective bargaining

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 HUMAN RIGHTS ACTS
• The Human Rights Act came into force in the UK
in 2000
• Has presented a number of new legal challenges
for business organisations.
• Many of the rights specified in the Act are already
protected e.g. Sex Discrimination Act 1975
• Courts in the UK can now issue injunctions to
prevent violations of rights

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 PROTECTION OF COMPANY’S
INTANGIBLE ASSETS
• PATENTS
– Patents Act 1977 gives right to an inventor to reap
the benefits from their invention
• TRADE MARKS
– The Trade Marks Act 1994 provides protection for
trade marks (defined as any sign capable of being
represented graphically to distinguish goods or
services from those of competitors)

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 WHAT CAN A TRADE MARK OWNER
DO TO PREVENT THIS ?
• Patents and trade marks
are often a company’s
most valuable assets

• The law helps prevent

‘passing off’

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 LAW AND THE INTERNET
• Same basic principles of law apply online
• But can be difficult to determine the legal
jurisdiction that governs a contract
• Can be difficult to track down the other party
in cyberspace in order to enforce legal
requirements

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 THINKING
AROUND WHERE DO YOU GAMBLE
THE ONLINE
SUBJECT

• Online gambling has become big

business
• Can cross national boundaries and
avoid national laws to prevent
gambling
• How can countries ban shop
based gambling but be apparently
powerless to stop online gambling
in their countries
• What legal remedies – direct and
indirect – are practical?
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 LAW AND PRODUCTION
PROCESSES

Increasing level of legislation to reduce

external costs of production, e.g.:

– Environmental Protection Act 1995

– Environment Act 1990
– Water Resources Act 1991

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 LEGISLATION TO PROTECT THE
COMPETITIVENESS OF MARKETS

• Presumption that competitive markets are

more efficient
• Common law acts against restraint of trade
• Statutory regulatory framework (e.g.
Competition Act; Articles 85 and 86 of Treaty
of Rome)

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 CASE LEGISLATION
STUDY STRENGTHENED IN A BID
TO END “NIGHTMARE”
HOLIDAYS
• Holidays are bought on trust – you cannot
evaluate the holiday until after purchase
• Many codes of conduct have had mixed success
• Now much more legislation to protect
consumers
• But is there now too much protection?

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 SUMMARY
You should now understand
 The basic principles of law as they affect
business organisations
 Legal remedies and processes available to a
firm's customers
 Voluntary codes of conduct as an alternative to
law
Remember, the law can be very complex.
This session has only covered basic principles!

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 END

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