Business Law (part 9)

Government Regulation of Business

(part A)

 by

 Charles Lamson

 Government rules and regulations affect the operation of every business, no matter what type. The areas of business operation affected by government regulation, both state and federal, range from prices and product safety to the relationship of the business to its employees. The next couple of posts discuss some ways in which government regulates the operation of business. 

Purpose of Regulation

Government regulates business in order to eliminate abuses and to control conduct considered to be unreasonable. The goal is to enhance the quality of life for society as a whole by setting the rules under which all businesses compete.

Administrative Agencies

Administrative agencies are governmental boards or commissions with the authority to regulate or implement laws. Most government regulation of business is done by administrative agencies.

Most administrative agency regulation occurs because of the complex nature of the area of regulation. Each administrative agency can become a specialist in its particular area of regulation. Agencies can hire scientists and researchers to study Industries or problems and set standards that businesses must follow. Agencies conduct research on proposed drugs (the Food and Drug Administration), examine the safety of nuclear power facilities (the Nuclear Regulatory Commission), certify the wholesomeness of meat and poultry (the Food Safety and Inspection Service), and set standards for aircraft maintenance (the Federal Aviation Administration). In all these areas, research has been necessary to determine a safe level for the public.

Some agencies investigate industries and propose rules designed to promote fairness to the businesses involved and the public. This occurs in the area of trading in stocks (the Securities and Exchange Commission), the granting of radio and television licenses (the Federal Communications Commission), and the regulation of banks (the Federal Deposit Insurance Corporation). The legislature thus can set up the guidelines and specify the research to be done by specialists in the field.

Structure of Administrative Agencies

Agencies may be run by a single administrator who serves at the pleasure of the executive, either the president of the United States in the case of federal agencies or the governor in the case of state agencies. Alternatively, a commission, the members of which are appointed for staggered terms, frequently of 5 years, may run agencies.

Types of Agencies

The two types of administrative agencies are usually referred to as regulatory and non-regulatory. Regulatory Agencies govern the economic activity of businesses. They prescribe rules stating what should or should not be done in particular situations. They decide whether a law has been violated and then proceed against those violating the law by imposing fines and, in some cases, ordering that the activity be stopped. Regulatory type agencies include agencies such as the Environmental Protection Agency, the Securities and Exchange Commission, and the Federal Trade Commission.

Regulatory agencies also regulate a wide variety of professions that serve the public. Those supervised by governmental agencies in an effort to protect the interests of consumers include barbers, doctors, insurance agents, morticians, cosmetologist, fitters of hearing aids, and restaurateurs. In order to be licensed to practice a regulated profession, an individual must meet the requirements set by the appropriate regulatory agency.

Public utility companies, which are granted monopoly status, are regulated to ensure that they charge fair rates and render adequate service. Such businesses include natural gas, electric, and water companies. A Public Service Commission or Public Utilities Commission regulates these companies and most states.

Nonregulatory agencies, also called social regulatory agencies, dispense benefits for social and economic welfare and issue regulations governing the distribution of benefits. Such agencies include the Railroad Retirement Board, the Farm Credit Administration, and the Department of Health and Human Services.

Powers of Agencies

Different regulatory agencies have different powers. However, the three major areas of regulations include:

1. Licensing power: Allowing a business to enter the field being regulated
2. Rate-making power: Fixing the prices that a business may charge
3. Power over business practices: Determining whether the activity of the entity regulated is acceptable or not

Agencies such as the Federal Communications Commission, the Nuclear Regulatory Commission, and the Securities and Exchange Commission have licensing power. The Civil Aeronautics Board, the Federal Power Commission, and the Interstate Commerce Commission all have rate-making power. The primary powers of the Federal Trade Commission and the National Labor Relations Board are to control business practices.

Rule Making

Administrative agencies primarily set policy through the issuance of rules and regulations. When an agency's rule is challenged, the courts primarily focus on the procedures followed by the agency in exercising its rule-making power. The rule-making procedure followed by state agencies resembles that which must be used by federal agencies.

After investigating a problem, an agency will develop a proposed rule. A federal agency must publish a notice of the proposed rule in the Federal Register. This allows interested parties the opportunity to comment on the proposed rule. The agency might hold formal hearings, but informal notice and comment rule making has been more and more common. When an agency uses notice and comment rule making, it publishes a proposed rule, but does not hold formal hearings. After time for comments, the proposed rule could be published as proposed, changed, or entirely abandoned by the agency. Once a rule or regulation is adopted, it has the force of a statute; however, persons affected by it may challenge it in court. 

State Agencies

Whereas federal administrative agencies affect businesses throughout the country, State administrative agencies affect businesses operated in their state. The most common state agencies include public service commissions, state labor relations boards or commissions, and workers compensation boards. 

*SOURCE: LAW FOR BUSINESS, 15TH ED., 2005, JANET E. ASHCROFT,, J.D., PGS. 39-42*

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