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Business · Understanding external influences on business

Legislation and business

Laws protect customers and employees. Consumer law covers quality and customers' rights; employment law covers recruitment, pay, discrimination and health and safety. Obeying the law costs a small business money - breaking it costs far more.

  • 8 key terms
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Teacher resources

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Last Lesson

Answer from memory before the answers appear.

  • Name the four types of technology used by businesses.

    E-commerce, social media, digital communication and payment systems.

  • Give one way technology can cut costs.

    Selling online avoids rent, social media promotion is cheap, digital records save time.

  • Give one new cost technology creates.

    Equipment, software, websites, card fees or marketplace fees.

  • How has technology changed price in the marketing mix?

    Customers compare prices online, so prices must be competitive.

Learning Objectives

  1. 1Explain the purpose of legislation.
  2. 2Explain the principles of consumer law: quality and consumer rights.
  3. 3Explain the principles of employment law: recruitment, pay, discrimination and health and safety.
  4. 4Explain the impact of legislation on a business: the cost of meeting the law, and the consequences of breaking it.

Why Do We Have Business Laws?

Legislation means laws passed by Parliament. Business laws exist to protect people.

  • Protect customers

    So they get what they pay for, and are treated fairly if something goes wrong.

  • Protect employees

    So they are paid fairly, treated equally and kept safe at work.

  • Fair competition

    So every business plays by the same rules.

  • Applies to every business

    A one-person market stall must follow consumer law, and any business that employs staff must follow employment law.

Quality: What Customers Are Entitled To

Under the Consumer Rights Act 2015, goods sold to customers must be:

  • Of satisfactory quality

    Not faulty or damaged, and as good as a reasonable person would expect for the price.

  • Fit for purpose

    Able to do what they are meant to do - and anything the seller said they could do.

  • As described

    Matching the description on the packaging, in the advert, on the website or given by the seller.

  • Services

    Must be carried out with reasonable care and skill, at a reasonable price and within a reasonable time, if none was agreed.

Consumer Rights: When Something Goes Wrong

If goods are faulty, customers have the right to put it right.

  • A refund

    Within 30 days of buying faulty goods, customers can reject them and get a full refund.

  • A repair or replacement

    After 30 days, the business must first be given a chance to repair or replace the goods.

  • A later refund or price cut

    If the repair or replacement fails, the customer can then ask for a refund or a reduction in price.

  • Not for a change of mind

    These rights are for faulty goods. Many shops choose to allow returns of unwanted goods, but in a shop it is not required by law.

The Principles of Employment Law

  • Recruitment

    Businesses must recruit fairly: job adverts and interviews cannot discriminate, and they must check that new staff have the right to work in the UK.

  • Pay

    Employees must be paid at least the National Minimum Wage or National Living Wage for their age, set by the government and usually raised every April.

  • Discrimination

    The Equality Act 2010 makes it illegal to treat people unfairly because of protected characteristics such as age, disability, race, religion, sex or sexual orientation.

  • Health and safety

    The Health and Safety at Work Act 1974 requires employers to keep staff, customers and visitors safe - with training, safe equipment and risk assessments.

Pay and Discrimination

Treating staff fairly is a legal duty, not a choice.

  • Minimum wage

    Every worker must be paid at least the legal minimum for their age. A business cannot pay less, however small it is.

  • Equal pay

    Men and women doing the same or equivalent work must be paid the same.

  • In recruitment

    A small business cannot refuse to hire someone because of their age, race, religion, disability or any other protected characteristic.

  • At work

    The same rules cover promotion, training and dismissal.

Health and Safety

Every business must keep people safe.

  • Risk assessments

    Identifying hazards - a hot oven, a wet floor, heavy boxes - and reducing the risk.

  • Training and equipment

    Showing staff how to work safely and providing protective equipment such as gloves or goggles.

  • Safe premises

    Fire exits, first aid, safe wiring and clear walkways.

  • Food businesses

    Must also meet food hygiene rules, and are inspected and given a food hygiene rating by the local council.

Meeting the Law, or Breaking It

The cost of meeting the law

  • Paying at least the minimum wage raises wage costs.
  • Health and safety equipment, training and checks cost money.
  • Refunds, repairs and replacements for faulty goods.
  • Time spent learning the rules and keeping records.
  • But: happier staff, loyal customers and a good reputation.

The consequences of breaking it

  • Fines and compensation, which can be large for a small business.
  • Having to repay underpaid wages.
  • Being taken to an employment tribunal or to court.
  • Bad publicity that drives customers away.
  • In serious cases, being closed down or prosecuted.

Case study

Named for Not Paying the Minimum Wage

The UK government regularly publishes lists naming employers who have underpaid their staff the National Minimum Wage. Employers on the list must pay back every penny they owe, and can be fined up to 200% of the amount they underpaid. Many of those named are small businesses - hairdressers, cafés, shops and care providers - some of which did not understand the rules. Being publicly named damages their reputation with both customers and future staff.

200% The maximum fine, as a share of the wages underpaid
Named Employers are listed publicly by the government

Spot the Law-Breaker

For each situation, decide whether the business has broken the law, which law, and what the business should have done: a shop refuses a refund on a phone charger that stopped working after a week; a café advertises for "young, energetic staff under 25"; a builder does not give staff hard hats; a salon pays its 22-year-old apprentice-trained stylist less than the minimum wage for their age.

1. Has the law been broken?

2. Which law?

3. What should the business have done?

A good answer shows: Each situation linked to consumer law (quality and rights) or employment law (recruitment and discrimination, health and safety, pay), with the correct action.

Can I...?

  1. 1Explain the purpose of legislation.
  2. 2Explain the rules on quality.
  3. 3Explain customers' rights with faulty goods.
  4. 4Explain the law on recruitment.
  5. 5Explain the law on pay.
  6. 6Explain the law on discrimination.
  7. 7Explain health and safety law.
  8. 8Explain the cost of meeting the law.
  9. 9Explain the consequences of breaking it.

Summary & Exam Focus

  • Legislation protects customers and employees and makes competition fair.
  • Consumer law: goods must be of satisfactory quality, fit for purpose and as described, with rights to refunds and repairs.
  • Employment law covers recruitment, pay, discrimination and health and safety.
  • Meeting the law costs money; breaking it brings fines, compensation and bad publicity.

Exam focus

Explain one impact on a small business of an increase in the National Minimum Wage. (3 marks) (3 marks)

For legislation questions, name the law, then explain the effect on costs, prices or profit - and, if relevant, what happens if the business ignores it.

Key terms

The vocabulary this lesson expects you to use. Each one is linked from the first place it appears above.

Legislation
Laws passed by Parliament.
Consumer law
Laws that protect customers when they buy goods and services.
Satisfactory quality
Goods that are not faulty and are as good as a reasonable person would expect.
Fit for purpose
Able to do what the product is meant to do.
Employment law
Laws that protect employees at work.
National Minimum Wage
The lowest hourly pay an employer is legally allowed to pay a worker of a given age.
Discrimination
Treating someone unfairly because of a characteristic such as age, race, sex or disability.
Health and safety
Laws requiring employers to protect the safety of staff, customers and visitors.

Questions and answers

9 questions set on this lesson, with the mark schemes and model answers open.

1. Exam question Define 1 mark Foundation

Define the term 'legislation'.

Mark scheme — 1 mark available

  • Laws / rules made by Parliament or the government — 1 mark

Model answer

Laws passed by Parliament that businesses and people must follow.

2. Exam question State 1 mark Foundation

State one area covered by employment law.

Mark scheme — 1 mark available

  • Any one of: recruitment; pay / minimum wage; discrimination; health and safety — 1 mark

Model answer

Health and safety.

3. Exam question Outline 2 marks Foundation

Outline one consequence for a business of not meeting health and safety law.

Mark scheme — 2 marks available

  • A consequence identified, e.g. fines / compensation / closure / bad publicity — 1 mark
  • Developed: the effect on the business — 1 mark

Model answer

It could be fined or prosecuted (1), which increases its costs and, if an employee is hurt, could also mean paying them compensation (1).

4. Exam question Explain 3 marks Foundation

Explain one impact on a small business of an increase in the National Minimum Wage.

Mark scheme — 3 marks available

  • An impact identified, e.g. higher costs / lower profit / higher prices / fewer staff hours — 1 mark
  • First linked point of explanation — 1 mark
  • Second linked point of explanation — 1 mark

Model answer

The business's wage costs would rise (1). It must pay every worker at least the new, higher rate, so its total costs increase (1). This reduces its profit unless it can raise its prices, which could lose it customers to cheaper rivals (1).

5. Exam question Analyse 6 marks Core

Source: Gemma runs a small shop selling electrical goods such as kettles, toasters and hairdryers. A customer has returned a kettle bought three weeks ago that stopped working. Gemma's shop policy says "no refunds", and she wants to offer only a repair. Analyse the impact of consumer law on Gemma's business.

Mark scheme — 6 marks available

  • AO2 (Application, 3 marks): uses the context - the kettle, three weeks, the "no refunds" policy — Level 1-3
  • AO3a (Analysis, 3 marks): chains of reasoning about the costs of meeting the law and consequences of not meeting it — Level 1-3

Model answer

Under consumer law the kettle must be of satisfactory quality, and it stopped working after only three weeks. Because it is within 30 days of the purchase, the customer has the right to reject it and receive a full refund, so Gemma's "no refunds" policy is not legal for faulty goods. Refunding faulty goods increases her costs, especially if a whole batch from a supplier is faulty. However, if Gemma refuses, the customer could take her to court, and could post bad reviews online. For a small shop that relies on local reputation, this could lose her many future customers. By following the law and refunding quickly, Gemma protects her reputation, which means customers are more likely to trust her and return.

6. Multiple choice 1 mark Foundation

Under consumer law, goods must be:

  1. A Of satisfactory quality, fit for purpose and as described Correct
  2. B The cheapest on the market
  3. C Made in the UK
  4. D Sold with a free gift

Why: Goods must be of satisfactory quality, fit for purpose and as described.

7. Multiple choice 1 mark Core

A customer returns faulty headphones 10 days after buying them. What are they entitled to?

  1. A Nothing, because they have been used
  2. B A repair only
  3. C A full refund Correct
  4. D A voucher for the same shop

Why: Within 30 days, faulty goods can be rejected for a full refund.

8. Multiple choice 1 mark Core

Which law makes it illegal to refuse a job applicant because of their age?

  1. A Consumer law
  2. B Discrimination law Correct
  3. C Health and safety law
  4. D Food hygiene law

Why: Discrimination law (the Equality Act 2010) protects people from being treated unfairly because of their age and other characteristics.

9. Multiple choice 1 mark Stretch

Why might obeying employment law help a small business, even though it costs money?

  1. A It removes the need to pay tax
  2. B It means the business can charge any price
  3. C It guarantees the business will make a profit
  4. D Staff are more likely to stay and work well, and fines are avoided Correct

Why: Fairly paid, safe and fairly treated staff are more likely to stay and work well, and the business avoids fines and bad publicity.