978-0078023194 Chapter 6 Lecture Notes

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Essentials of Business Law, 9th edition

INSTRUCTOR’S MANUAL

Chapter 6 Administrative Law

LESSON OVERVIEW

We briefly discussed the role of administrative agencies in Chapter 1, where the point was made that

they affect nearly every individual, business firm, and organization in the country. In Chapter 6, we will

take a closer look at the purpose of administrative agencies, discuss the organization of governments,

and define the duties of the three branches: legislative, executive, and judicial. We will examine the

purpose of these administrative agencies and their functions including regulating conduct, satisfying

government requirements, disbursing benefits, and providing goods and services. The chapter also

discusses why and how an administrative agency is formed, and explains the similarities and

differences between administrative agencies and governments. Finally, we analyze the viewpoints of

critics and the economic burdens and benefits of these agencies.

CHAPTER OUTLINE

A. ADMINISTRATIVE AGENCIES (p. 90)

B. ORGANIZATION OF GOVERNMENTS (p. 91)

1. Legislative Branch of Government (p. 91)

2. Executive Branch of Government (p. 93)

3. Judicial Branch of Government (p. 91)

C. FUNCTIONS OF ADMINISTRATIVE AGENCIES (p. 91)

1. Regulating Conduct (p. 92)

2. Fulfilling Government Requirements (p. 92)

3. Disbursing Benefits (p. 92)

4. Providing Goods and Services (p. 92)

D. WHY AND HOW AN ADMINISTRATIVE AGENCY IS FORMED (pp. 92-93)

E. SIMILARITIES AND DIFFERENCES BETWEEN ADMINISTRATIVE AGENCIES AND

GOVERNMENTS (p. 96)

1. Similarities (p. 94)

2. Differences (pp. 94-95)

F. CRITICISM OF ADMINISTRATIVE AGENCIES (p. 96)

G. CHAPTER SUMMARY (p. 96 – 97)

H. CHAPTER ASSESSMENT (p. 97)

1. Matching Key Terms (p. 97)

2. True/False Quiz (pp. 97-98)

3. Discussion Questions (pp. 98-99)

4. Thinking Critically About the Law (p. 99)

5. Case Questions (p. 100)

6. Case Analysis (pp. 101-102)

7. Legal Research (p. 102)

KEY TERMS

Key terms are listed at the beginning of the chapter, posted in the student textbook margins, and placed

in bold in the copy. They are listed here for your quick reference.

§ administrative agency (p. 90)

§ legislative branch (p. 91)

§ executive branch (p. 91)

§ judicial branch (p. 91)

§ subpoena (p. 93)

§ administrative hearing (p. 93)

LEARNING OUTCOMES

The chapter Learning Outcomes will help you and the students discover the concepts and information

that should be understood upon completion of the chapter. You may want to access the PowerPoint

(PPT) slides for Chapter 6 when you begin the study of the chapter and discuss each Performance

Outcomes. Each Learning Outcomes will be covered separately in the Instructor Notes, but they are

shown here in total as an overview of the sections being presented in Chapter 6. The corresponding text

page numbers and PPT slides are listed next to each outcome. These slides should be used to reinforce

the main points of the lecture.

After completing this chapter, the students will be able to:

1. Describe the purpose of administrative agencies. (pp. 90-91, PPT slide 2)

2. Discuss the organization of governments and define the specific duties of the three branches of

government. (p. 91, PPT slides 3-6)

3. List functions of administrative agencies. (pp. 91, PPT slide 7)

4. Explain why and how an administrative agency is formed. (pp. 92-93, PPT slide 8-9)

5. Explain the similarities and differences between administrative agencies and governments. (pp.

94-95, PPT slides 10-14)

6. Discuss criticism of administrative agencies. (p. 96, PPT slide 15)

LECTURE OUTLINE

A. ADMINISTRATIVE AGENCIES

An administrative agency is a governmental body responsible for the control and supervision of a

particular activity or area of public interest. Legislatures lack the time and expertise to make the

necessary rules to govern the operations of complex areas of our social and economic life (energy,

taxation, transportation, environmental pollution, employee safety, and communication). Neither do

legislatures have the time or expertise to supervise the many details of these complex areas on a daily

basis. As a result, legislatures delegate these responsibilities to administrative agencies, or regulators.

These agencies exist at all levels of government: federal, state, and local.

B. ORGANIZATION OF GOVERNMENTS

Each level of government has three branches: legislative, executive, and judicial. Each branch has

specific duties and powers. The organization of administrative agencies often resembles the

organization of governments.

1. Legislative Branch of Government

The legislative branch at all levels of government consists of elected representatives

who have the responsibility for passing laws that represent the will of the people.

At the federal level, there are two houses of Congress: the House of Representatives and

the Senate. At the state level, the legislative branch is often called the general assembly;

like the federal Congress, it consists of two houses (except in Nebraska). At the local

level, the legislative branch is often called a city council or given a similar name.

2. Executive Branch of Government

The executive branch at all levels of government ensures that all enacted legislation is

enforced. At the federal level, the executive branch is headed by the president; at the

state level, the executive is the governor; and at the local level, the executive is the

mayor, county executive, or someone with a similar title.

3. Judicial Branch of Government

The judicial branch of government determines if there have been violations of the law.

It also interprets the law if there are questions about what the law means in particular

situations.

At the federal level, there are district courts, appeals courts, and the U.S. Supreme

Court. Each state also has several levels of courts: trial courts, appeals courts, and a

supreme court. At the local level, there are municipal courts, justices of the peace, and

magistrate courts.

C. FUNCTIONS OF ADMINISTRATIVE AGENCIES

Functions of administrative agencies include regulating conduct, satisfying government requirements,

disbursing benefits, and providing goods and services.

1. Regulating Conduct

Often an agency regulates such economic matters as price, entry into a particular

geographical area, or entry into a particular kind of business.

2. Fulfilling Government Requirements

Administrative agencies exist at all levels of government (to collect taxes and to raise

revenues through various licensing laws). At the federal level, one of these agencies is

the Internal Revenue Service (IRS), which collects taxes needed to operate the federal

government.

3. Disbursing Benefits

A number of governmental agencies distribute subsidies and benefits of various kinds to

farmers, persons in need of public assistance, students, the unemployed, and the elderly.

4. Providing Goods and Services

Although the United States is largely a capitalist country, in which the private sector

provides most of the goods and services needed by the people, some governments at all

levels provide goods and services, such as electricity, water, highway maintenance,

hospital care, and public housing.

D. WHY AND HOW AN ADMINISTRATIVE AGENCY IS FORMED

With the help of an illustration, we examine the functioning of a medium-sized city called Legis. Let us

assume they have problems with local businesses, with merchants cheating customers, inaccurate

measuring scales, dysfunctional businesses, false advertising, and services that overcharge and perform

poor-quality work. The consumers are having trouble coping with the abuses of the businesses in their

community.

Thus they complain to their elected representatives on the city council who in turn decide to pass a

consumer protection law. The law requires that all businesses be licensed and also that it would be

unlawful for businesses to engage in “false advertising, deception, or the employment of unqualified

workers to perform auto repair work.”

Consequently, the law also establishes a consumer protection agency to be headed by a director with

the authority to (1) hire experts in various fields to clarify and enforce the law, and to assist in the

formulation of agency rules and regulations; (2) license businesses operating in the city of Legis; and

(3) establish rules and regulations that businesses will need to follow to maintain their licenses. In

addition to establishing the Consumer Protection Agency (CPA), the law requires that all businesses

have to be licensed to operate within the city of Legis.

After the law has been passed, the mayor, with the approval of the city council, hires a qualified

consumer affairs person, to be the head of the CPA. The CPA, like any government entity, needs money

to operate. The city council, therefore, appropriates a certain amount of money that the CPA could use

to hire the necessary people, rent office space, pay telephone bills, and so on. The director hires experts

to develop rules and regulations governing advertising, auto repair shops, and other kinds of

businesses.

However, it is also important to enforce the rules which requires some authority to ensure that people

will obey the rules. Thus a group of inspectors are hired to check the accuracy of scales, truthfulness of

newspaper advertising, and so on. When these inspectors notice any noncompliance, they notify the

owners or managers of the condition, but since they do not have the power to enforce this, they report

back to the CPA director, informing him or her of the violation. The director may then send a letter to

the merchant or owner ordering him or her to appear at a hearing to answer the inspector’s complaint.

An administrative hearing conducted by an administrative agency is in some respects like an informal

court trial, but without a jury. If the merchant refuses to appear, his or her license can be revoked. The

CPA director would then notify the regular court prosecutor that the business is operating without the

required license—a violation of the law that established the agency. The court could then order the

business closed.

E. SIMILARITIES AND DIFFERENCES BETWEEN ADMINISTRATIVE AGENCIES

AND GOVERNMENTS

1. Similarities

There are several significant similarities between administrative agencies and

governments.

a) Executive Function

The executive function of the CPA is performed by the CPA director together

with his or her staff of experts, inspectors, and others. The executive function of

the CPA includes the daily operations of the agency and the establishment of

general policies and objectives.

b) Legislative Function

The rules and regulations established by the CPA resemble the laws passed by a

legislature and have the force of law. This is the legislative function of the

administrative agency.

c) Judicial Function

The activity of the CPA in holding hearings and requiring compliance with its

decisions has an effect similar to the decisions made in a regular court of law.

This activity is the judicial function of the administrative agency.

2. Differences

The administrative agencies are very much like the three levels of government, but they

also differ in some important respects.

a) Executive Function

At all three levels of government, the voter has the opportunity to vote the

executive into and out of office. Usually, however, voters do not elect the

administrator of a regulatory agency. There are two general patterns in the

executive organization of an administrative agency. In some agencies, the

executive is appointed by and serves at the discretion of the elected executive of

the government—the president, the governor, or the mayor—subject to approval

by the legislature. These executives can be removed from office either with or

without cause.

In other cases, Congress has created agencies outside the executive branch that

are headed by groups or individuals, such as boards or commissions appointed

by Congress. Such boards or commissions carry out the executive function of the

agency. Once appointed to their multiyear terms, members may not be removed

by the president without cause.

b) Legislative Function

Rules and regulations are established by the agency, not by elected

representatives. Again, the voter does not have direct control over the legislative

function of the administrative agency. Administrators are usually appointed by

the executive with the advice and consent of the legislature. This practice gives

the public, through its legislatures, at least some indirect control over the

operations of administrative agencies. After administrators have been approved,

however, it is generally very difficult to remove them. The only recourse is to

bring pressure on the executive or legislative branch to change the agency or to

remove the administrator.

c) Judicial Function

The hearings conducted by an administrative agency do not provide for a jury,

and the procedures are not as formal as in the case of a regular court hearing.

Moreover, unlike the judge in a court trial, the “judge” at an administrative

agency hearing is not entirely impartial, because he or she is determining

whether a person or firm has complied with the agency’s own rules rather than

with statutes enacted by the legislature. There was early debate over whether a

legislature could delegate to an administrative agency the authority to function as

judge in certain matters. This question was largely settled in the case of Crowell

v. Benson, 285 U.S. 22 (1932), in which the Supreme Court decided that an

administrative agency does have such authority.

The determinations reached at a hearing conducted by an administrative agency

can be appealed through the regular court system. As a practical matter, the

courts seldom reverse the decisions of the agency unless it can be shown that the

agency has clearly abused its authority.

To determine whether an administrative agency has abused its authority, the

courts are guided by the statutes that established the agency and by the

constitutions of the United States and the individual states.

F. CRITICISM OF ADMINISTRATIVE AGENCIES

A number of critics allege that certain administrative agencies have been “captured” by the enterprises

they were created to regulate. Because of the economic benefits or burdens that administrative agencies

can bestow on a firm or an industry, those regulated have a powerful incentive to secure favorable

rulings. In many cases, the need for specialized expertise in a given area can usually come only from

the industry being regulated. Some have suggested that the heads of administrative agencies be elected

by popular vote, as are some insurance commissioners. However, having these individuals elected

would not mean that they would not be influenced as time passed, or that they would not use their

positions to further their own economic or political ambitions.

INSTRUCTOR NOTES

A resulting answer or explanation is provided below for each Learning Outcome in Chapter 6. Every

outcome is also mapped to corresponding text page numbers, PPT slides, and relevant chapter

assessment exercises and activities for ease of reference and use.

LO1. Describe the purpose of administrative agencies.

Legislatures have neither the time nor expertise to make the necessary rules to govern the operations of

complex areas of our social and economic life. Legislatures also lack the time and expertise to

supervise the many details of these complex areas on a day-to-day basis. Consequently, legislatures

delegate these responsibilities to administrative agencies. A typical administrative agency is a consumer

protection agency, which licenses firms, formulates agency regulations, and clarifies and enforces the

laws.

Text Pages: 90-91

PowerPoint: Slide 2

LO2. Discuss the organization of governments and define the specific duties of the three branches

of government.

Each level of government has three branches: legislative, executive, and judicial. Each branch has

specific duties and powers. The organization of administrative agencies often resembles the

organization of governments. The legislative branch consists of elected representatives who have the

responsibility for passing laws that represent the will of people. The executive branch ensures that all

enacted legislation is enforced. The judicial branch determines if there have been violations of the law

and interprets the law if there are any questions about what the law means in particular situations.

Text Pages: 91

PowerPoint: Slides 3-6

Case Questions: 32-33

Case Analysis: 34-35

LO3. List and provide examples of the functions of administrative agencies.

The functions of administrative agencies are as follows: regulating conduct in areas such as economic

matters, and entry into a particular location or industry; fulfilling government requirements such as

collecting taxes and raising revenues through various licensing laws; disbursing benefits to agencies or

persons; and providing goods and services such as water, highway maintenance, and public housing.

Text Pages: 91-92

PowerPoint: Slide 7

Case Questions: 27

LO4. Explain why and how an administrative agency is formed.

The law may establish an administrative agency to protect members of the public who have trouble

coping with the abuses of businesses in their communities. Administrative agencies may be headed by a

director with the authority to (1) hire experts in various fields to clarify and enforce the law, and to

assist in the formulation of agency rules and regulations; (2) license businesses in the city in which they

operate; and (3) establish rules and regulations that businesses will need to follow to maintain their

licenses.

Text Pages: 92-93

PowerPoint: Slide 8 -9

Discussion Questions: 25

Thinking Critically About the Law: 29

LO5. Explain the similarities and differences between administrative agencies and governments.

The similarities are that each level of government has three branches: legislative, executive, and

judicial. Each branch has specific duties and powers. The organization of administrative agencies often

resembles the organization of governments. The differences are that at all three levels of government,

the voter has the opportunity to vote the executive into and out of office. Usually, however, voters do

not elect the administrator of a regulatory agency. For the most part, voters have little control over the

activities of an administrative agency.

Text Pages: 94-95

PowerPoint: Slides 10-14

Discussion Questions: 21

Thinking Critically About the Law: 26-27

Case Analysis: 36-37

LO6. Discuss criticism of administrative agencies.

Critics allege that administrative agencies are too closely aligned with the enterprises they were created

to regulate. In many cases, the need for specialized expertise in a given area can come only from the

industry being regulated. Some have suggested that the heads of administrative agencies be elected by

popular vote.

Text Pages: 96

PowerPoint: Slide 15

Discussion Questions: 24

Thinking Critically About the Law: 28