Contractual issues, employment law and discrimination, intellectual property (IP) protection, and cybersecurity and technology risks are some of the legal issues in business. What measures are organisations implementing to safeguard against potential legal pitfalls?
Table of contents:
- Introduction
- 8 legal issues in business
- Final thought
Businesses of all sizes aim to maximise their profits and use their existing funds and income to continue growing. However, things do not always go as planned, and companies often face unexpected costs, such as those from an employment lawsuit. With employee lawsuits having increased by 400% over the past 20 years, companies today must be more cautious than ever.
It is estimated that settling an employment lawsuit costs businesses an average of $200,000, although the expenses can be much higher depending on the case. This is a significant amount of money that could otherwise have been used to improve the business.
The most effective way for businesses to protect themselves from legal claims is to understand the various reasons companies get sued.
Legal issues are a critical aspect of running a business, as they directly impact the operational, financial, and reputational stability of any organisation. Regardless of the size or industry, businesses must comply with various laws and regulations that govern how they function. Non-compliance or ignorance of legal obligations can result in hefty fines, lawsuits, and even the dissolution of the company.
This article will explore key legal issues businesses commonly face, providing real-world examples and statistics to underscore their importance.
8 legal issues in business
- Contractual Issues
Contracts are the foundation of most business operations, providing legal security in agreements with suppliers, clients, and partners. However, contract disputes are common and can lead to lengthy and expensive litigation. According to a report by the World Bank, approximately 35% of business-related lawsuits globally are related to contract breaches.
A classic example of a contract dispute occurred between PepsiCo and Leonard in the 1990s, known as the “Pepsi Points” case. In a promotional campaign, PepsiCo featured a fighter jet in an advertisement, stating that 7 million Pepsi points could “purchase” it. When a customer, John Leonard, attempted to claim the jet, Pepsi refused, leading to a lawsuit. The court ruled in favour of Pepsi, citing that the offer was not a legitimate contract.
Businesses must ensure that contracts are clear, enforceable, and consistent with current laws to avoid such disputes. Clear communication of terms and conditions, legal review, and a well-documented dispute resolution process are essential safeguards.
- Employment Law and Discrimination
Employment law covers a wide range of legal issues, from recruitment and hiring practices to workplace safety and discrimination. One of the most critical areas of concern is compliance with anti-discrimination laws. In the UK, the Equality Act 2010 provides a legal framework to protect individuals from unfair treatment in the workplace, encompassing factors such as race, gender, age, disability, and sexual orientation.
Employment discrimination remains a significant issue in business. A study by the Trades Union Congress (TUC) revealed that nearly 50% of women in the UK had experienced some form of discrimination at work, with maternity and pregnancy being common reasons for unfair treatment.
An example is the 2018 case of Samira Ahmed vs. the BBC, where Ahmed sued the broadcaster for unequal pay, arguing that she was paid less than her male counterparts for similar work. The tribunal ruled in favour of Ahmed, highlighting the need for companies to address gender pay disparity and ensure compliance with employment law.
Businesses must establish clear policies that promote inclusivity and equality, as well as provide regular training on employment law to prevent discrimination claims.
- Intellectual Property (IP) Protection
In a knowledge-driven economy, intellectual property is often one of the most valuable assets for a business. Intellectual property rights, including patents, trademarks, and copyrights, protect a company’s innovations, brands, and creative outputs. However, IP infringement is a widespread problem, costing businesses billions annually.
In 2022, the UK Intellectual Property Office reported a 15% increase in IP disputes, particularly in sectors like technology, fashion, and pharmaceuticals. One high-profile example involves the tech giants Apple and Samsung, who have been engaged in patent infringement lawsuits for over a decade. Their disputes primarily revolve around design and technology patents, with multiple cases being fought in courts worldwide.
To safeguard their IP, businesses should register their patents, trademarks, and copyrights and monitor the market for potential infringements. Having strong IP policies in place can prevent unauthorised use and ensure legal recourse when necessary.
- Data Protection and Privacy Laws
With the rise of digital business, the importance of data protection has become paramount. The General Data Protection Regulation (GDPR), introduced by the European Union in 2018, represents one of the most significant changes to data protection law in recent years. It applies to any business that processes personal data of EU citizens, regardless of where the company is located.
The GDPR imposes stringent requirements on businesses to protect personal data, including obtaining consent, providing transparency, and ensuring data security. Non-compliance can result in hefty fines—up to €20 million or 4% of global annual turnover, whichever is higher. In 2021, Amazon was fined €746 million for GDPR violations, illustrating the serious financial consequences of failing to comply with data protection regulations.
Businesses need to implement comprehensive data protection strategies, regularly update their privacy policies, and ensure that employees are trained in handling personal data securely.
- Corporate Governance and Compliance
Corporate governance refers to the system by which companies are directed and controlled. It involves balancing the interests of a company’s stakeholders, including shareholders, management, customers, suppliers, and the community. Good governance ensures accountability, fairness, and transparency in a company’s operations.
In the UK, the Companies Act 2006 outlines the legal responsibilities of company directors, emphasising the need for compliance with statutory duties. Failing to uphold corporate governance standards can lead to legal liabilities and loss of investor confidence.
For example, the collapse of Carillion in 2018, one of the largest construction firms in the UK, was partly attributed to poor corporate governance. The company’s directors were criticised for reckless management and failing to manage financial risks adequately. The scandal led to regulatory scrutiny and highlighted the need for stronger corporate governance measures.
Businesses should prioritise governance by maintaining accurate financial records, conducting regular audits, and ensuring compliance with industry regulations.
- Environmental and Health Regulations
With growing awareness of environmental issues and sustainability, businesses are increasingly subject to environmental laws and regulations. Failure to comply with these regulations can result in severe penalties, including fines, lawsuits, and reputational damage.
In the UK, the Environmental Protection Act 1990 is the principal legislation governing environmental issues such as waste management and pollution control. The Health and Safety at Work Act 1974 also places a legal obligation on businesses to ensure the safety of their employees and the public.
In 2019, Thames Water was fined £2 million for polluting a river with raw sewage, violating environmental regulations. The company’s failure to prevent the contamination resulted in significant environmental damage and financial penalties.
To avoid similar issues, businesses must implement rigorous environmental and health policies, conduct regular risk assessments, and stay up to date with changing regulations.
- Cybersecurity and Technology Risks
As businesses become increasingly dependent on technology, the legal risks associated with cybersecurity are rising. Cyberattacks, data breaches, and system failures can lead to significant financial losses, legal liabilities, and damage to a company’s reputation.
According to the UK’s Cyber Security Breaches Survey 2023, 39% of UK businesses reported having experienced a cyberattack in the past 12 months. A notable case is the 2017 cyberattack on Equifax, a credit reporting agency. The breach exposed sensitive information of 147 million people, resulting in lawsuits, regulatory fines, and a settlement of £520 million.
Businesses must take proactive measures to protect their digital assets by investing in cybersecurity infrastructure, conducting regular security audits, and developing incident response plans.
- Tax Compliance
Tax laws are complex and vary significantly across jurisdictions. Non-compliance with tax regulations can lead to severe financial penalties and, in some cases, criminal charges. In 2022, HM Revenue and Customs (HMRC) collected £30 billion from tax investigations and compliance activities.
A well-known example is the tax avoidance case involving Google, which agreed to pay £130 million to the UK government in 2016 after a long-running investigation into its tax practices. The case sparked a broader debate about the tax obligations of multinational corporations and led to calls for greater transparency in corporate taxation.
To ensure tax compliance, businesses should seek expert advice, maintain accurate financial records, and stay informed about changes in tax legislation.
Final thought
Legal issues in business are multifaceted and can arise at any stage of a company’s operations. Whether it’s protecting intellectual property, complying with employment law, or navigating the complexities of corporate governance, businesses must be vigilant to avoid legal pitfalls.
The costs of non-compliance can be steep, both financially and in terms of reputation. By understanding the legal landscape, investing in compliance programmes, and seeking expert legal counsel, businesses can mitigate risks and focus on sustainable growth. As the regulatory environment continues to evolve, staying informed and proactive will be critical to long-term success.
Key takeaways
- Businesses must recognise the various legal issues they face, including contractual disputes, employment law compliance, and intellectual property protection.
- Non-compliance with laws and regulations can lead to significant financial penalties, lawsuits, and reputational damage.
- Implementing clear policies, regular training, and comprehensive compliance programmes can help mitigate legal risks.
- With stringent regulations like the GDPR, companies must prioritise data security to avoid hefty fines and legal repercussions.
- Strong corporate governance is essential for maintaining accountability and transparency, ultimately safeguarding a company’s long-term success.
Himani Verma is a seasoned content writer and SEO expert, with experience in digital media. She has held various senior writing positions at enterprises like CloudTDMS (Synthetic Data Factory), Barrownz Group, and ATZA. Himani has also been Editorial Writer at Hindustan Time, a leading Indian English language news platform. She excels in content creation, proofreading, and editing, ensuring that every piece is polished and impactful. Her expertise in crafting SEO-friendly content for multiple verticals of businesses, including technology, healthcare, finance, sports, innovation, and more.
