Common Legal Issues in Manufacturing

Manufacturers aim to produce an item to prescribed quality standards and get it to market at the lowest possible cost. Systems exist to check the quality of that product as it goes through the manufacturing process, to monitor the amount and number of inputs used in the creation of the product, and even to track the number of units and the location of each batch in a given order. These are all essential components of manufacturing.

Another less frequently mentioned and often overlooked aspect is the effect of manufacturing laws and legal issues on manufacturing profitability. These issues are often complex and businesses can greatly benefit from a working knowledge of possible legal pitfalls, which is why MBA programs like the University of Southern Indiana’s online program include coursework in business law.

Legal Issues

Data breaches are an ever-growing concern for manufacturing businesses, with 50% of executives lacking confidence that they are sufficiently protected from cyber risks. Hackers into the manufacturer’s system often gain access to customer files, transaction records and sensitive information related to the manufacturing process. Data breaches are serious because they could expose trade secrets and leave the manufacturer vulnerable to lawsuits from customers whose personal information was compromised. This information at risk goes beyond order history, often including payment methods and specific routing or credit information.

International risks are a growing concern as the global economy expands and manufacturing facilities exist outside companies’ home nations. The laws and requirements of other countries may not match those of the parent country’s government. Some requirements are clear. Some are more difficult to discover. Either way, the parent company is responsible for meeting the legal requirements wherever it operates.

Workplace safety has both ethical and legal components. While a manufacturer may have legal clearance to offer poor working conditions, neglecting the workplace environment can lead to accidents, which could cost the company money. Beyond legal actions for reimbursement or covering an injured employee’s care, consumer opinion can damage brands if the community catches wind of a lack in employee protections.

Legal issues that fall under workplace safety include the use of protective goggles, the availability of medical treatment for industrial accidents and the absence of hazardous conditions — in keeping with the laws of the country where the manufacturing is taking place. Failure to comply with workplace safety laws  that agencies like OSHA enforce, can result in lawsuits with significant damages.

Human resources violations are also subject to manufacturing laws and concerns. The use of part-time workers to avoid hiring full-time employees requiring medical insurance coverage, worker harassment based on sexual orientation or gender, and unequal treatment of male and female applicants for the same job are all violations of the laws that ensure equal opportunities in the workplace. They are a significant consideration for a manufacturer.

Product liability also exposes a manufacturer to potential lawsuits. Even if a product is used improperly — a lawn mower used as a hedge clipper, say — the injured party can still file a lawsuit. According to manufacturing laws, manufacturers must defend themselves against claims, which takes time. To avoid such lawsuits, manufacturers provide detailed information on the intended and proper use of their products.

Manufacturers must also defend themselves against product liability claims when the product does not perform as promised. When a high-chair hinge malfunctions or airbags do not deploy as specified, a manufacturing business will likely need to pay for the damage. For this reason, many manufacturers have product liability insurance policies.

Restrictive covenants are contractual promises between an employee and an employer. The restriction may specify where the person can work after leaving the current employer. It may limit the transfer of information from the current employer to a new employer. A restrictive covenant seeks to keep employees from taking vital information, customer lists, technology or other competitive information to competitors after leaving the current company. These covenants also often put a time limit on how soon an employee can begin working at a competing firm or define the market geographically to restrict competition inside the current manufacturer’s territory.

Terms and conditions spell out what will happen in the event of a shipment delay. They stipulate the types of claims that customers can make and under what conditions. Often there will be disagreement over goods damaged in transit. The best protection in this circumstance is terms and conditions that cover both likely and unlikely scenarios according to manufacturing laws. This is important because the shipped item could be a vital part of the customer’s finished product, resulting in potentially large losses from a missed delivery date.

Knowing the rules and regulations that apply at the local, state and international level is a must for  companies that want to stay in business. The online MBA program at USI includes coursework that covers legal issues. Understanding and adhering to the rules is an essential part of doing business and is required to ensure that your doors remain open for the long run.

Learn more about the USI online MBA program.

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