chapter 4: constitutional authority to regulate business business law: text & cases — legal,...

Chapter 4: Constitutional Chapter 4: Constitutional Authority to Regulate BusinessAuthority to Regulate Business

BUSINESS LAW: Text & Cases — BUSINESS LAW: Text & Cases — Legal, Ethical, International, and Legal, Ethical, International, and E-Commerce EnvironmentE-Commerce Environment 1111thth Ed.Ed.

Copyright © 2009 South-Western Legal Studies in Business,

a part of South-Western Cengage Learning.

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§1: The Constitutional §1: The Constitutional Powers of GovernmentPowers of Government

Before the Revolutionary War, States Before the Revolutionary War, States wanted a confederation with weak national wanted a confederation with weak national government and very limited powers. government and very limited powers.

After the war, in 1787, the States voted to After the war, in 1787, the States voted to amend Articles of Confederation and amend Articles of Confederation and create a new, federal government that create a new, federal government that shared power with States. shared power with States.

Problems with Confederation.Problems with Confederation.

Before the Revolutionary War, States Before the Revolutionary War, States wanted a confederation with weak national wanted a confederation with weak national government and very limited powers. government and very limited powers.

After the war, in 1787, the States voted to After the war, in 1787, the States voted to amend Articles of Confederation and amend Articles of Confederation and create a new, federal government that create a new, federal government that shared power with States. shared power with States.

Problems with Confederation.Problems with Confederation.



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The Constitutional The Constitutional Powers Powers

of Governmentof Government Federal Form of Government: Federal Form of Government:

– SharesShares power between national and state power between national and state governments. governments.

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

Regulatory Powers of States.Regulatory Powers of States.– 1010thth Amendment. Amendment.– Police Powers: order, safety, morals.Police Powers: order, safety, morals.



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Relations Among StatesRelations Among States

Privileges and Immunities Clause.Privileges and Immunities Clause.– Art. IV §2.Art. IV §2.– Prevents state from imposing unreasonable Prevents state from imposing unreasonable

burdens on citizens.burdens on citizens.

Full Faith and Credit Clause (Art. IV §1).Full Faith and Credit Clause (Art. IV §1).– Applies only to civil matters.Applies only to civil matters.– Ensures that any judicial decision with respect Ensures that any judicial decision with respect

to such property rights will be honored and to such property rights will be honored and enforced in all states.enforced in all states.



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Separation of National Separation of National Government’s PowersGovernment’s Powers

National government provides checks and National government provides checks and balances among three branches: balances among three branches: executive, legislative and judicial.executive, legislative and judicial.– Legislative (Congress): Creates laws.Legislative (Congress): Creates laws.– Executive (President/Agencies): Enforce laws.Executive (President/Agencies): Enforce laws.– Judicial (Federal Courts): Interprets laws.Judicial (Federal Courts): Interprets laws.



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U.S. Commerce ClauseU.S. Commerce Clause

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

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

Today, the Commerce Clause authorizes the Today, the Commerce Clause authorizes the national government to regulate virtually any national government to regulate virtually any business enterprise, including the internet-business enterprise, including the internet-based. Limits: based. Limits: U.S. v. LopezU.S. v. Lopez (1995). (1995).

Medical marijuana and interstate commerce.Medical marijuana and interstate commerce.



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State Actions and the State Actions and the “Dormant” Commerce “Dormant” Commerce

ClauseClause National government has exclusive authority National government has exclusive authority

to regulate commerce that substantially to regulate commerce that substantially affects trade among the states.affects trade among the states.

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

State police powers or regulations that State police powers or regulations that substantially interfere with interstate substantially interfere with interstate commerce will be struck down.commerce will be struck down.

CASE 4.1 CASE 4.1 Granholm v. HealdGranholm v. Heald (2005). (2005).



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The Supremacy Clause and The Supremacy Clause and Federal PreemptionFederal Preemption

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

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

Preemption: when Congress chooses to Preemption: when Congress chooses to act exclusively when national and state act exclusively when national and state governments have concurrent powers. governments have concurrent powers.



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Taxing and Spending Taxing and Spending PowersPowers

Article I, Section 8: Congress has the Article I, Section 8: Congress has the “Power to lay and collect Taxes, Duties, “Power to lay and collect Taxes, Duties, Imposts, and Excises” which shall be Imposts, and Excises” which shall be “uniform” among the states.“uniform” among the states.

Expansion of commerce clause gives Expansion of commerce clause gives taxing power as well.taxing power as well.

However, no violation of Bill of Rights.However, no violation of Bill of Rights.



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

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

national government’s powers.national government’s powers.– Starting in 1925, the Supreme Court applied Starting in 1925, the Supreme Court applied

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

Limits on Bill of Rights.Limits on Bill of Rights.



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Freedom of Speech Freedom of Speech

Afforded highest protection by courts.Afforded highest protection by courts. Symbolic Speech.Symbolic Speech.

– Texas v. JohnsonTexas v. Johnson (1989), the “flag burning” (1989), the “flag burning” case.case.



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Commercial SpeechCommercial Speech

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

CASE 4.2: CASE 4.2: Bad Frog Brewery, Inc. v. Bad Frog Brewery, Inc. v. New York State Liquor AuthorityNew York State Liquor Authority (2003).(2003).



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Unprotected SpeechUnprotected Speech Certain types of speech are not protected Certain types of speech are not protected

by the First Amendment:by the First Amendment:– Slander.Slander.– Obscenity (Miller v. California).Obscenity (Miller v. California).– Fighting Words.Fighting Words.

CASE 4.3 CASE 4.3 Lott v. LevittLott v. Levitt (2007). (2007). Online Obscenity:Online Obscenity:

– CDA, COPA, Children’s Internet Protection CDA, COPA, Children’s Internet Protection Act.Act.

– Children’s Internet Protection Act (2000).Children’s Internet Protection Act (2000).



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Freedom of ReligionFreedom of Religion

First Amendment may not “establish” a First Amendment may not “establish” a religion or prohibit the “free exercise” of religion or prohibit the “free exercise” of religion.religion.

First Amendment mandates First Amendment mandates accommodation of all religions and forbids accommodation of all religions and forbids hostility toward any.hostility toward any.– Sunday Closing Laws.Sunday Closing Laws.– Religious Displays on Public Property. First Religious Displays on Public Property. First

amendment does amendment does notnot require complete require complete separation of church and state.separation of church and state.



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Freedom of ReligionFreedom of Religion

First Amendment guarantees the “First Amendment guarantees the “free free exerciseexercise” of religion.” of religion.

Employers must reasonably accommodate Employers must reasonably accommodate beliefs as long as employee has sincerely beliefs as long as employee has sincerely held beliefs.held beliefs.



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Searches and SeizuresSearches and Seizures

Fourth Amendment requires warrant with Fourth Amendment requires warrant with “probable cause.” “probable cause.”

Warrantless exceptions exist for Warrantless exceptions exist for “evanescent” evidence.“evanescent” evidence.

Searches of Business: generally business Searches of Business: generally business inspectors must have a warrant. inspectors must have a warrant.

Border Searches of Computers.Border Searches of Computers.– U.S. v. RommU.S. v. Romm (2006). (2006).



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Self-IncriminationSelf-Incrimination

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

Does not apply to corporations or Does not apply to corporations or partnerships.partnerships.



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§3: §3: Due Process and Due Process and Equal ProtectionEqual Protection

Fifth and Fourteenth Amendments provide Fifth and Fourteenth Amendments provide “no person shall be deprived of life, liberty “no person shall be deprived of life, liberty or property without due process of law.”or property without due process of law.”

Procedural and Substantive issues. Procedural and Substantive issues.



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Procedural Due ProcessProcedural Due Process

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

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



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Substantive Due ProcessSubstantive Due Process

Focuses on the content or substance of Focuses on the content or substance of legislation.legislation.

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

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



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Equal ProtectionEqual ProtectionStrict Scrutiny Test.Strict Scrutiny Test.

–Laws that affect the fundamental rights of Laws that affect the fundamental rights of similarly situated individuals in a different similarly situated individuals in a different manner are subject to the “strict scrutiny” manner are subject to the “strict scrutiny” test. test.

–Any “suspect class” (race, national origin) Any “suspect class” (race, national origin) must serve a “compelling state interest” must serve a “compelling state interest” which includes remedying past which includes remedying past discrimination. discrimination.



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Equal ProtectionEqual Protection

Intermediate Scrutiny.Intermediate Scrutiny.– Applied to laws involving gender or Applied to laws involving gender or

legitimacy.legitimacy.

– To be constitutional laws must be To be constitutional laws must be substantially related to important substantially related to important government objectives.government objectives.• (EXAMPLE: Illegitimate teenage (EXAMPLE: Illegitimate teenage

pregnancy).pregnancy).



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Equal ProtectionEqual Protection

““Rational Basis” Test.Rational Basis” Test.– Applied to matters of economic or Applied to matters of economic or

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

rational basis relating to legitimate rational basis relating to legitimate government interest.government interest.



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§4: §4: Privacy RightsPrivacy Rights

Fundamental right not expressly found in Fundamental right not expressly found in the constitution, but derived from First, Fifth the constitution, but derived from First, Fifth and Fourteenth Amendments. and Fourteenth Amendments.

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

Federal Statutes Affecting Privacy Rights.Federal Statutes Affecting Privacy Rights.– Privacy Act of 1974.Privacy Act of 1974.– HIPAA of 1996.HIPAA of 1996.– PATRIOT Act of 2001.PATRIOT Act of 2001.

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