The Legal Ramifications of Ethical Issues in Business

The law governs many aspects of business life.
The law governs many aspects of business life. (Image: Jupiterimages/ Images)

Ethics and law share a close relationship, in business and in other fields. However, business ethics and business law are not the same thing. The main difference between law and ethics is as follows: Ethics is what you should do, while law is what you are obligated to do. Ethical issues in business can sometimes have legal ramifications, including criminal penalties, civil disputes and contract disputes.


Unethical conduct in business can sometimes lead to criminal penalties. While much of business law is governed by the civil system, there are certain ethical transgressions in business that cannot be dealt with through the civil system alone. When a business damages the environment, engages in false advertising or hires employees without proper documentation, that business could potentially face criminal charges. The reason these ethical breaches can lead to criminal charges is that they are cases where the company breached a contract, not just with an individual, but with society at large. While an ethical breach affecting just one individual can be dealt with through a lawsuit, a blatantly antisocial act requires a criminal remedy.


Civil law is the branch of law that concerns contractual relationships between people in society. In addition to written contracts, civil law concerns itself with torts, or breaches of duties owed to others without an explicit agreement. Businesses generally have more written and unwritten duties than private citizens, for the simple reason that a business typically engages in more transactions than a private citizen. Whenever a business runs into ethical trouble for not taking proper care of employees or customers, the potential for civil lawsuits is never far away. This is because civil law is firmly rooted in ethics. When a judge makes a decision on a civil lawsuit, he is deciding what one person owes another, not whether one person violated a written law. Businesses that deal with money, health or privacy are therefore responsible for respecting their clients' rights and freedoms.


Regulations are laws that apply specifically to businesses in certain industries. There are regulations for environmental protection, banking, leasing materials and making transactions. The relationship between ethical issues and business regulation is a complex one. On one hand, not all regulations are based on ethics; on the other hand, ethical issues can often have regulatory consequences. For example, if a lawyer in a law firm obtains information from a client that could help solve a crime, he might feel ethically obligated to tell the police. However, the rule of the legal profession known as "attorney-client privilege" says that he can't. In general, regulations sometimes make it difficult to act in ways we may think are ethical.

International Law

International law is somewhat different from national law. Whereas national law generally has a central authority, such as a government, international law is decentralized. For this reason, international law is rarely, if ever, as clear as national law. The end effect of this is that ethical and political disputes in international business dealings end up forming the basis of international treaties and case law. For example, if a TV provider and a foreign outsourcing company get into an ethical dispute over what constitutes a fair rate for the outsourcer's employees, that dispute could escalate into a breach of contract that results in the creation of totally new international case law.

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