chapter 4: constitutional authority to regulate business

©2001 West Legal Studies in Business. All Rights Reserved.1

Chapter 4:Chapter 4:Constitutional Authority Constitutional Authority

to Regulate Businessto Regulate Business

Chapter 4:Chapter 4:Constitutional Authority Constitutional Authority

to Regulate Businessto Regulate Business


HistoryHistoryHistoryHistory

Before Revolutionary War, States wanted a confederation with weak national government and very limited powers. After the war, in 1787, States voted to amend Articles of Confederation and create a new, federal government that shared power with States.

Before Revolutionary War, States wanted a confederation with weak national government and very limited powers. After the war, in 1787, States voted to amend Articles of Confederation and create a new, federal government that shared power with States.


§1: Constitutional Powers of §1: Constitutional Powers of the Federal Governmentthe Federal Government

§1: Constitutional Powers of §1: Constitutional Powers of the Federal Governmentthe Federal Government

• Constitution established a federal form of government with checks and balances among three branches: executive, legislative and judicial.

• National government has limited, enumerated powers delegated from States.


U.S. Commerce ClauseU.S. Commerce ClauseU.S. Commerce ClauseU.S. Commerce Clause

• Power to regulate interstate commerce defined in Gibbons v. Ogden (1824).

• Expansion to private businesses began with Wickard v. Fillburn (1942).

• Today, Commerce Clause it authorizes the national government to regulate virtually any business enterprise, including internet.

• Limits: U.S. v. Lopez (1995), Alden v. Maine (1999).


State CommerceState CommerceState CommerceState Commerce

• States possess inherent police powers to regulate health, safety, public order, morals and general welfare.

• State laws that substantially interfere with interstate commerce will be struck down.– Raymond Motor v. Rice (1978).


U.S. Supremacy ClauseU.S. Supremacy ClauseU.S. Supremacy ClauseU.S. Supremacy Clause

• Article VI of the Constitution “Supreme Law of the Land.”

• In case of direct conflict between state and federal law, state law is invalid.

• Congress can preempt states.• Taxing Powers (Emerging Trends).


§2: §2: Business and Business and the Bill of Rightsthe Bill of Rights§2: §2: Business and Business and the Bill of Rightsthe Bill of Rights

• Bill of Rights are not absolute. • Originally the Bill of Rights was a limit on

the national government’s powers.• During the early 1900’s, the Supreme Court

applied the Bill of Rights to the States via the “due process” clause of the 14th amendment.


Free Speech Free Speech Free Speech Free Speech

• Afforded highest protection by courts.• Symbolic Speech.

– Texas v. Johnson (1989).– R.A.V. vs. City of St.Paul (1992).


Commercial SpeechCommercial SpeechCommercial SpeechCommercial Speech

• Advertising is protected speech. Restrictions must:– Implement substantial government interest;– Directly advance that interest; and– Go no further than necessary.

• Case 4.1: Bad Frog Brewery (1998).


Corporate Political SpeechCorporate Political SpeechCorporate Political SpeechCorporate Political Speech

Afforded significant protection by the first amendment but not to the degree of speech of natural persons.– First National v. Bellotti (1978).– Consolidated Edison v. Public Service Commis

sion (1980).


Unprotected SpeechUnprotected SpeechUnprotected SpeechUnprotected Speech

• Certain types of speech are not protected by the first amendment:– Slander.– Pornography, Obscenity.– Fighting Words.

• What about “Hate Speech”?– Doe v. University of Michigan (1989).


Freedom of ReligionFreedom of ReligionFreedom of ReligionFreedom of Religion

• First amendment many neither prohibit the “establishment” nor prohibit the “free exercise” of religion.

• The first amendment does not require complete “separation of church and state.”

• First amendment mandates accommodation of all religions and forbids hostility toward any. Zorach v. Clauson (1952).


Freedom of ReligionFreedom of ReligionFreedom of ReligionFreedom of Religion

• First amendment guarantees the “free exercise” of religion.

• Employers must reasonably accommodate beliefs as long as employee has sincerely held beliefs. – Frazee v. Illinois (1989).


Self-IncriminationSelf-IncriminationSelf-IncriminationSelf-Incrimination

• Fifth amendment guarantees no person can be compelled to testify against himself in a criminal proceeding.

• Does not apply to corporations or partnerships.– Verniero v. Beverly Hills Ltd (1998).


Searches and SeizuresSearches and SeizuresSearches and SeizuresSearches and Seizures

• Fourth amendment requires warrant with “probable cause.”

• Warrantless exceptions exist for “evanescent” evidence.

• Searches of Business: generally business inspectors must have a warrant. Marshall v. Barlow’s (1978).


Equal ProtectionEqual ProtectionEqual ProtectionEqual Protection

Strict Scrutiny.–Laws that affect the fundamental rights of similarly situated individuals in a different manner are subject to the “strict scrutiny” test. – Any “suspect class” (race, national origin) must serve a “compelling state interest” which includes remedying past discrimination.



• Intermediate Scrutiny.– Applied to laws involving gender or legitimacy.– To be constitutional laws must be substantially

related to important government objectives.» (EXAMPLE: Illegitimate teenage pregnancy).



Rational Basis Test.– Applied to matters of economic or social

welfare.– Laws will be constitutional if there is a rational

basis relating to legitimate government interest. – Case 4.3: WHS Realty v. Morristown (1999).


Due ProcessDue ProcessDue ProcessDue Process

• 5th and 14th amendments provide “no person shall be deprived of life, liberty or property without due process of law.”

• Procedural and Substantive issues.


Procedural Due ProcessProcedural Due ProcessProcedural Due ProcessProcedural Due Process

• Procedures depriving an individual of her rights must be fair and equitable.

• Constitution requires adequate notice and a fair and impartial hearing before a disinterested magistrate.


Substantive Due ProcessSubstantive Due ProcessSubstantive Due ProcessSubstantive Due Process

• Focuses on the content or substance of legislation.

• Laws limiting fundamental rights (speech, privacy, religion) must have a “compelling state interest.”

• Laws limiting non-fundamental rights require only a “rational basis.”


PrivacyPrivacyPrivacyPrivacy

• Fundamental right not expressly found in the constitution, but derived from 1st, 5th and 14th amendments.

• Laws and policies affecting privacy are subject to the compelling interest test.


Law on the WebLaw on the WebLaw on the WebLaw on the Web

• Online Constitution at Cornell U.• See the “Vote-Smart” site on federalism.• Federalist Society.com.• ACLU.org.• Official U.S. Supreme Court site.

• Legal Research Exercises on the Web.


Emerging Trends: Taxing Emerging Trends: Taxing CyberspaceCyberspace

Emerging Trends: Taxing Emerging Trends: Taxing CyberspaceCyberspace

• States sales tax-sufficient “nexus”?– Quill v. North Dakota (1992).

• Internet Tax Freedom Act– http://www.house.gov/chriscox/nettax/lawsums

.html

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