Chapter 4: Business and the Constitution Business Law Text and Cases The First Course Fourteenth Edition Miller Chapter 4: Business and the Constitution

§1: The Constitutional Powers of Government (1 of 24) Federal Form of Government: Shares power between national and state governments. Each U.S. state government has inherent sovereignty (power to govern itself). As a result, states also have police powers (the ability to regulate certain affairs within their borders).

The Constitutional Powers of Government (2 of 24) Privileges and Immunities Clause: Article IV of the U.S. Constitution states that “Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.” A state may not treat citizens of other states differently from citizens of its own state without a substantial reason that is substantially related to the purpose of the rule.

The Constitutional Powers of Government (3 of 24) Full Faith and Credit Clause (Art. IV §1): Ensures that any judicial decision with respect to such property rights will be honored and enforced in all states. The full faith and credit clause protects the legal rights of American citizens as they move about from state to state.

The Constitutional Powers of Government (4 of 24) Separation of Powers: The national government is composed of three separate branches: Legislative Branch: Creates laws. Executive Branch: Enforces laws. Judicial Branch: Interprets laws.

The Constitutional Powers of Government (5 of 24) A system of checks and balances allows each branch to limit the actions of the other two branches. This system prevents any one branch from exercising too much power.

The Constitutional Powers of Government (6 of 24) The Legislative Branch (i.e., Congress): Can override the president’s veto. Can define the jurisdiction of the judiciary. Must confirm judiciary appointees.

The Constitutional Powers of Government (7 of 24) The executive branch (i.e., the president): Has the power to veto legislation passed by Congress. Can appoint the members of the judiciary.

The Constitutional Powers of Government (8 of 24) The judicial branch (i.e., the Supreme Court and the lower federal courts): Has the power to void the acts of the executive and legislative branches because they are unconstitutional.

The Constitutional Powers of Government (9 of 24) The Commerce Clause: Art. I §8 of the U.S. Constitution empowers Congress “[t]o regulate Commerce with foreign nations, and among the several States, and with the Indian Tribes.” The clause prevents states from establishing laws and regulations that would interfere with trade and commerce among the states.

The Constitutional Powers of Government (10 of 24) The congressional power to regulate interstate commerce was defined in Gibbons v. Ogden (1824) and includes regulation of activities that “substantially affect interstate commerce.” 

The Constitutional Powers of Government (11 of 24) Since 1824, the Supreme Court has interpreted the commerce clause to permit Congress to regulate both interstate commerce and intrastate commerce as long as the intrastate commerce at issue “substantially affects” interstate commerce.

The Constitutional Powers of Government (12 of 24) Expansion of Powers under the Commerce Clause: In 1942, Supreme Court expanded commerce clause to purely intrastate businesses (Wickard v. Filburn). In 1964, Supreme Court prohibited racial discrimination in interstate commerce (Heart of Atlanta Motel v. U.S.).

The Constitutional Powers of Government (13 of 24) Today the commerce clause authorizes the national government to regulate virtually any business enterprise, including those that are Internet based. However, the breadth of the clause permits the national government to legislate in areas in which Congress has not explicitly been granted power. 

The Constitutional Powers of Government (14 of 24) Example: The Supreme Court has allowed the federal government to regulate noncommercial activities relating to medical marijuana that take place wholly within a state’s borders. More than twenty-five states have now adopted laws that legalize marijuana for medical purposes (and a handful permit the recreational use of marijuana). 

The Constitutional Powers of Government (15 of 24) However, marijuana possession is illegal under the federal Controlled Substances Act (CSA) and individuals can be prosecuted for possession—even if they reside in a state that allows the medical or recreational use of marijuana.

The Constitutional Powers of Government (16 of 24) The “Dormant” Commerce Clause: When state regulations interfere with interstate commerce, courts must balance the state’s interest against the burden that the regulation places on interstate commerce.

The Constitutional Powers of Government (17 of 24) Generally, state laws enacted pursuant to the state’s police powers are presumed to be valid (relative to their effect on interstate commerce). If a state law substantially interferes with interstate commerce, it will most likely be held to violate the commerce clause and will be struck down.

The Constitutional Powers of Government (18 of 24) Cases involving the use of the “dormant” commerce clause: Family Winemakers of California v. Jenkins (2010). Tri-M Group, LLC v. Sharp (2011).

The Constitutional Powers of Government (19 of 24) The Supremacy Clause and Federal Preemption: Article VI of the Constitution provides that the Constitution, laws, and treaties of the United States are the “Supreme Law of the Land.” 

The Constitutional Powers of Government (20 of 24) Preemption: A doctrine under which certain federal laws preempt (or take precedence over) conflicting state or local laws.   In case of direct conflict between state and federal law, state law is invalid. 

The Constitutional Powers of Government (21 of 24) Congressional Intent: It is not clear whether Congress intended to preempt an entire subject area through passing a certain law. In these situations, the courts determine whether Congress intended to exercise exclusive power. 

The Constitutional Powers of Government (22 of 24) Congressional intent to preempt a conflicting state or local law, regulation, or ordinance exists if the federal law is so pervasive, comprehensive, or detailed that it leaves state and local law no room to supplement it, or creates a federal regulatory agency that is empowered to enforce federal law.

The Constitutional Powers of Government (23 of 24) Taxing and Spending Powers (Art. I §8): Congress has the “Power to lay and collect Taxes, Duties, Imposts, and Excises” which shall be “uniform” among the states. Expansion of commerce clause gives taxing power as well.

The Constitutional Powers of Government (24 of 24) Taxing and Spending Powers (Art. I§8): Also gives Congress its spending power—the power “to pay the Debts and provide for the common Defence and general Welfare of the United States.” Congress can spend revenues to carry out its expressed powers and promote any objective it deems worthwhile—as long as it does not violate the Bill of Rights.

§2: Business and the Bill of Rights (1 of 15) First Ten Amendments to the U.S. Constitution are called the Bill of Rights. All apply to natural persons and most apply to business entities as well.

Business and the Bill of Rights (2 of 15)

Business and the Bill of Rights (3 of 15) Limits on Federal and State Actions: Originally, the Bill of Rights was a limit on the national government’s powers. Over time, the Bill of Rights was “incorporated” to states via the due process clause of the 14th Amendment. Rights are not absolute.

Business and the Bill of Rights (4 of 15) Freedom of Speech: Right to free speech is the basis for our democratic government. Free speech also includes symbolic speech, including gestures, movements, and articles of clothing. 29

Business and the Bill of Rights (5 of 15) Freedom of Speech: Expression is subject to reasonable restrictions. There is a balance between government’s obligation to protect and citizens’ exercise of rights. Content-Neutral Laws: Laws that regulate the time, manner, and place—but not the content—of speech receive less scrutiny by the courts.  30

Business and the Bill of Rights (6 of 15) Freedom of Speech: Laws that restrict content of speech must have a compelling government interest. See Morse v. Frederick (2007). 31

Business and the Bill of Rights (7 of 15) Freedom of Speech: Corporate political speech also falls within the protection of the First Amendment. In Citizens United v. Federal Election Commission (2010), the Supreme Court ruled that corporations can spend freely to support or oppose candidates for president and Congress. 32

Business and the Bill of Rights (8 of 15) Freedom of Speech: Courts give substantial protection to commercial speech (advertising). Restrictions must implement substantial government interest, directly advance that interest, and go no further than necessary. CASE 4.3 Bad Frog Brewery, Inc. v. New York State Liquor Authority (2003). 33

Business and the Bill of Rights (9 of 15) Freedom of Speech: The Supreme Court has held that certain speech is unprotected by the First Amendment: “fighting words,” defamatory speech, and speech that violates criminal laws (such as threatening speech or possession of child pornography). 34

Business and the Bill of Rights (10 of 15) Freedom of Speech: In 2003, Congress passed the PROTECT Act, making it a crime to intentionally distribute “virtual” pornography of children. 35

Business and the Bill of Rights (11 of 15) Freedom of Religion: First Amendment may not “establish” a religion or prohibit the “free exercise” of religion. The establishment clause prohibits government from establishing a state-sponsored religion, or passing laws that favor one over the other. 36

Business and the Bill of Rights (12 of 15) Freedom of Religion: The free exercise clause guarantees a person’s right to freely exercise her religion. Employers must reasonably accommodate sincerely held beliefs of their employees. The government can act in protecting the public when religious practices work against public policy and welfare. 37

Business and the Bill of Rights (13 of 15) Searches and Seizures: The Fourth Amendment requires law enforcement officers to have a search warrant before searching or seizing private property. Officers must have probable cause in order to get a search warrant. 38

Business and the Bill of Rights (14 of 15) Searches and Seizures: Search warrants must be specific. General searches through personal belongings are illegal. Generally, business inspectors must have a warrant, though a warrantless search is permissible for seizure of spoiled or contaminated food. 39

Business and the Bill of Rights (15 of 15) Self-Incrimination: The Fifth Amendment guarantees that no person can be compelled to testify against himself in a criminal proceeding. This guarantee does not extend to corporations or partnerships. 40

§3: Due Process and Equal Protection (1 of 7) Mandated by the due process clauses of the Fifth and Fourteenth Amendments and the equal protection clause of the Fourteenth Amendment. Under these clauses, no person shall be deprived “of life, liberty, or property, without due process of law.” 41

Due Process and Equal Protection (2 of 7) Procedural Due Process: Any government decision to take life, liberty, or property must be made equitably. A person must be given proper notice and an opportunity to be heard. Fair procedures must be used in determining whether a person will be subjected to punishment or have some burden imposed on her or him. 42

Due Process and Equal Protection (3 of 7) Substantive Due Process: Focuses on the content of the legislation (the right itself) instead of the fairness of procedures. Substantive due process limits what the government may do in its legislative and executive capacities. 43

Due Process and Equal Protection (4 of 7) Substantive Due Process: Fundamental Right: Includes interstate travel, privacy, voting, marriage and family, and all First Amendment rights. A state must have a substantial reason for taking any action that infringes on a person’s fundamental rights. 44

Due Process and Equal Protection (5 of 7) Equal Protection: The Supreme Court has interpreted the due process clause of the Fifth Amendment to make the equal protection clause applicable to the federal government as well. Government must treat similarly situated individuals (or businesses) in the same manner. 45

Due Process and Equal Protection (6 of 7) Equal Protection: Courts apply different levels of scrutiny (tests) to determine whether the law or action violates the equal protection clause. Strict scrutiny. Intermediate scrutiny. “Rational basis” test. 46

Due Process and Equal Protection (7 of 7) Strict Scrutiny: Inquiries involving the exercise of fundamental rights. Intermediate Scrutiny: Inquiries involving discrimination based on gender and legitimacy. “Rational Basis” Test: Inquiries involving economic or social welfare. 47

§4: Privacy Rights (1 of 2) The fundamental right to personal privacy is not expressly found in the Constitution, but implied from the First, Fifth, and Fourteenth Amendments. Privacy rights receive protection under various federal statutes and the U.S. Constitution. State constitutions and statutes secure individuals’ privacy rights—often to a significant degree.

Privacy Rights (2 of 2) Federal statutes that protect privacy include: Freedom of Information Act (1966). Privacy Act (1974). HIPAA (1996). USA PATRIOT Act (2001). USA Freedom Act (2015).