The Legal Environment of Business: A Critical Thinking Approach

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Chapter 5
Constitutional Principles

Introduction

Chapter Five addresses these questions:

• What is the importance of the Constitution?

• How does the idea of federalism affect the government’s structure?
• What is “separation of powers,” and what does it mean for the branches of government?
• How does the commerce clause affect the legal environment of business?
• What are the tax and spending powers of the federal government?
• How do the Constitution’s amendments affect the legal environment of business?

Chapter Five is significant because Constitutional provisions affect the daily work of
business managers. Business managers need to understand the Constitution not only because it
affects their work, but also because it guarantees their individual rights.

Achieving Teaching Excellence

Encouraging Better Student Responses to Questions in Class

Once instructors learn how to ask good questions in class, instructors need to know how to
get their students to give good responses. Instructors also need to know what to do with the
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 The Legal Environment of Business: A Critical Thinking Approach

responses students give.

One of the best changes a teacher can make to improve student responses to questions is to
increase the “wait time” after they ask a question. J.T. Dillon, in his article on research on
questioning and discussion, explains the idea of wait time. Wait time refers to the amount of time
a teacher pauses after asking a question. Instructors will know wait time is a problem for them if
they answer their own questions without giving students time to think, and then respond. Thomas
R. McDaniel, in his article on asking better questions in class, mentioned something surprising.
He explains that the average amount of time a teacher allows students to respond to a question is
ONE SECOND! Dillon cites research on wait time that suggests that waiting only two to three
seconds after asking a question, and waiting again before asking another question, increases the
amount and quality of student discussion. He writes that “[m]ore students talk, and students talk
more; their talk is more relevant to the topic and more elevated in cognitive level.” McDaniel
agrees. His article suggests that increasing wait time to three to four seconds after asking a
question triggers these significant changes: Students give longer answers, more students
volunteer, more questions are answered, students report that class is more interesting, students
ask more questions, and student responses are more analytical. Students are more likely to
synthesize, and they are more creative. Taking into consideration all those benefits, all that the
instructors have to do is increase the wait time!

Instructors must try to work on their wait time in classes. The wait time can be increased by
instructors by counting (1…2…3…) to themselves and make sure that students have time to
think and respond. Instructors would be surprised at how well students can answer the questions
when they wait. Instructors often incorrectly assume that students who say “I don’t know this
one” have nothing to offer the discussion. Now instructors will know and say, “It’s OK to think
about it before you respond.” If instructors wait, student responses are generally good. It is
important to develop a classroom atmosphere that not only tolerates, but also encourages silence.

Once students respond to the instructor’s better questions, and give better answers,
instructors need to know how to respond to their improved answers. Verbal reinforcements are
important, McDaniel says, but instructors have to be careful. They need to use a variety of
reinforcements, including nonverbal cues. Also, they have to be careful not to overuse
reinforcements. Although telling students all their answers are great might boost their self-
esteem in the short run, instructors must let them know that answers differ in quality. They are
not all outstanding. Many are poor, and many are wrong. They should stress to students that the
purpose of class time is to work with the material, and discover where they are confused. It is
okay to make mistakes. That is how students can figure out what they do not know.

McDaniel makes another good suggestion and writes that instructors should use a technique
called “suspended judgment.” This technique “keeps the thinking process alive for longer
periods.” McDaniel describes suspended judgment as a technique in which the instructor tries to
keep the ball in the student’s court for some time. Instructors should spend a great deal of time
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 The Legal Environment of Business: A Critical Thinking Approach

“clarifying responses, rephrasing and simplifying answers to questions, synthesizing the best
responses into a satisfactory composite answer.”

In summary, instructors can get better responses from students if they give them time to
think, reinforce their answers appropriately, and the instructor’s focused attention should be on
their answers. When students work on the material in Chapter five, try to increase the wait time,
to reinforce their answers appropriately, and use the technique of suspended judgment.

References

• J.T. Dillon, “Research on Questioning and Discussion,” 42 EDUCATIONAL

LEADERSHIP 50 (November 1984).

Thomas R. McDaniel, “A Question of Questions: Can We Ask Better Ones?” THE SOCIAL
STUDIES TEACHER 242 (November/December 1979).

Chapter Overview, Topic Outline, and Discussion Questions

Chapter Overview

Fiercely independent, highly individualistic, and very proud of their country would be a
good characterization of Americans. Many say there is no place they would rather live than the
United States. Much of their pride stems from a belief that they have a strong Constitution,
which secures for all individuals their most fundamental rights. Most people, however, are not
aware of precisely what their constitutional rights are or of how to go about enforcing those
rights. This chapter provides the future business manager with basic knowledge of the
constitutional framework of our country, as well as an overview of the significant impact of
some of the constitutional provisions on the legal environment of business.

This chapter is one of the most challenging chapters in the book. It is one that students find
especially interesting. This chapter presents an opportunity to work especially hard on critical
thinking. Instructors should devote a considerable amount of time and attention to the cases and
critical thinking questions.

Instructors should make sure to include a lengthy discussion of the Lucas v. South Carolina
Coastal Commission case. Save time for it. Students may also be interested in the Paula Jones
case. Finally, the chapter includes a new section on the taxing and spending powers of the federal
government. This section’s focus on taxation of the Internet is especially interesting.

Discussion questions come from throughout the chapter. The numbers of discussion
questions have been limited, so instructors can focus their attention on the critical thinking
questions that follow the cases.
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 The Legal Environment of Business: A Critical Thinking Approach

Topic Outline

I. The Constitution
II. Federalism
A. Supremacy Clause
B. Federal Preemption
III. Separation of Powers
William Jefferson Clinton v. Paula Corbin Jones
IV. The Impact of the Commerce Clause on Business
A. The Commerce Clause as a Source of Federal Authority
Gonzales v. Raich
B. The Commerce Clause as a Restriction on State Authority
Nat’l Ass’n of Optometrists & Opticians v. Brown
V. The Taxing and Spending Powers of the Federal Government
A. Taxation of the Internet?
VI. The Impact of the Amendments on Business
A. The First Amendment
Corporate Commercial Speech
Central Hudson Gas & Electric Corp. v. Public Service Commission of New York
Corporate Political Speech
B. The Fourth Amendment
Florida v. Jardines
C. The Fifth Amendment
D.A.B.E., Inc. v. City of Toledo
D. The Fourteenth Amendment
Standard of Review
VII. Summary

Discussion Questions for Chapter Five

1. How are the supremacy clause and federal preemption related?

The supremacy clause is found in Article VI of the Constitution which provides that the
Constitution, laws, and treaties of the United States constitute the supreme law of the land. It
says that any state or local law that directly conflicts with the federal Constitution, laws, or
treaties is void. The supremacy clause is the basis for the doctrine of federal preemption.
Federal preemption is a doctrine used to strike down a state law that, although does not
directly conflict with a federal law, attempts to regulate an area in which federal legislation
is so pervasive that it is evident that the U.S. Congress wanted only federal regulation in that
general area.

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 The Legal Environment of Business: A Critical Thinking Approach

2. Explain why someone would say it’s true that the Commerce Clause allows Congress to
regulate almost anything that happens within states.

Some of the cases presented in the chapter show just how much power Congress has under
the Commerce Clause. Almost any activity, even if purely intrastate, can be regulated by the
federal government if it substantially affects interstate commerce. This effect may be direct
or indirect. The case of Wickard v. Filburn shows how broad Congress’ power is under the
Commerce Clause. In that case, the Court upheld the federal regulation of the production of
wheat solely for consumption on the farm. The combination of many small farmers’
activities could have a substantial impact on the national wheat market.

3. Explain the significance of the issue of Internet taxation.

Article I, Section 8 of the U.S. Constitution gives the federal government the “Power to lay
and collect Taxes, Duties, Imports and Excises.” This same provision also gives the federal
government spending power by authorizing it to “pay the Debts and provide for the common
Defence and general Welfare of the United States.”

State governments also have the right to impose taxes. Imposing taxes is difficult with
regard to e-commerce because state laws impose sales taxes on businesses only when they
have a store or distribution center in the state. Currently, more than one regulatory or
advisory body (e.g., the Advisory Commission on Electronic Commerce) is studying how
both federal and state governments could tax Internet commerce. A significant amount of
money is at stake for both federal and state governments. Additionally, the issue is important
because one reason why Internet retail sales are robust is the absence of sales tax.

4. Evaluate this statement: The First Amendment protects all kinds of speech equally.

The First Amendment does not protect all kinds of speech equally. Some kinds of speech are
not protected at all, such as speech that incites a riot (yelling “Fire!” in a crowded theater).
Nor does one’s right of free speech extend to making false statements about another that
would be injurious to that person’s reputation. Other kinds of speech enjoy limited
protection. Commercial speech is less protected than other forms of expression. Commercial
expression not only serves the economic interest of the speaker, but also assists consumers
and furthers the societal interest in the fullest possible dissemination of information. The
protection available for particular commercial expression turns on the nature of both the
expression and the government interests served by its regulation. Not all corporate speech is
considered commercial speech. Sometimes, for example, corporations might spend funds to
support political candidates or referenda.

5. Evaluate this statement: The Fourth Amendment applies to individuals, but not corporations.

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 The Legal Environment of Business: A Critical Thinking Approach

The Fourth Amendment protects the rights of individuals to be secure in their persons, their
home, and their personal property. It prohibits unreasonable searches and seizures. The
statement above is inadequate because the Fourth Amendment applies to corporations as
well as individuals. Corporations enjoy constitutional protection against unreasonable
searches and seizures. For instance, administrative agencies cannot usually conduct
warrantless searches. (It depends on whether the industry is so regulated that it should
reasonably expect searches.)

6. Explain relationships between procedural and substantive due process.

One relationship is that both are protected by the Fifth Amendment. They are two types of
due process. Procedural due process requires procedural safeguards before there is a taking
of an individual’s life, liberty, or property. Substantive due process refers to the basic
fairness of laws that may deprive an individual of his or her liberty or property. Under
substantive due process, we would ask, “Is the law fair?” Under procedural due process, we
would ask, “Was the life, liberty, or property taken away only after we followed certain
procedures?”

Answers to Critical Thinking about the Law, Case Summaries, and Answers
to Review Questions, Review Problems, and Case Problems

Suggested Answers to Critical Thinking about the Law Questions

1. If one branch of government became too strong, it could engage in behavior that would not
be in the best interest of citizens. Each branch was made independent of the others and was
given a separate sphere of power to prevent any one source from obtaining too much power
and consequently dominating the government. Separation of powers is consistent with the
ethical norm of security. Citizens are confident that their rights will be protected.

2. The protection of unrestricted speech to citizens and businesses is consistent with the ethical
norm of freedom. Businesses would not have to comply with restrictions on them imposed
by others.

3. The business might suffer because a business manager would not have a full appreciation of
his or her rights as a corporate citizen. For instance, business managers need to know the
protections they have to engage in free speech. Business managers also need to know the
limits of government action. The government is not allowed to violate the rights of a
business.

Case Summary—William Jefferson Clinton v. Paula Corbin Jones

This case is in the book to show the limits of presidential immunity. In this case, Defendant
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 The Legal Environment of Business: A Critical Thinking Approach

Clinton sought to use presidential immunity to dismiss Paula Jones’ sexual harassment claim, or,
alternatively, to delay the proceedings until his term of office had expired. The U.S. Supreme
Court rejected Clinton’s argument. The Court reminded Clinton that the President does not have
immunity that extends beyond the scope of any action taken in an official capacity. An official’s
absolute immunity extends only to acts in performance of particular functions of his office. The
Court also rejected Clinton’s argument under the separation of powers principles. Separation of
powers principles would not be violated by allowing the action to proceed. The doctrine of
separation of powers does not require federal courts to stay all private actions against the
President until he leaves office. The Court reminded Clinton that “we have long held that when
the President takes official action, the Court has the authority to determine whether he has acted
within the law.” Also, “it is settled that the President is subject to judicial process in appropriate
circumstances.”

Case Summary—Gonzales v. Raich

The case is in the book to show how the U.S. Supreme Court interprets the Commerce
Clause. In particular, the case considers whether medicinal marijuana can be ceased and
destroyed by federal authorities.

In this case, to investigate Raich’s and Monson’s use of medical marijuana the authorities
seized and destroyed their cannabis plants, even though California law allowed them to possess
these. The Court found that the Federal Government was well within its rights because it is very
hard to tell where marijuana originates. The Commerce Clause protected this act because
Congress has the right to regulate drugs within the country. Therefore, even though it was legal
in the state, the federal government still could destroy the plants if they feared they would be
used illegally.

Suggested Answers to Critical Thinking about the Law Questions

1. Wickard is applied here because it deals with farming a product for personal consumption.
In both cases, the Commerce Clause regulates it because it can be transported for sale to
different states.

2. The Court acknowledges that illegal drugs are much more of a concern than farmed food. It
downplays the idea that the drug was not for sale, but rather for medicinal purposes.

Case Summary—Nat’l Ass’n of Optometrists & Opticians v. Brown

This case shows how California had a regulation that prohibited licensed opticians from
offering prescription eye-wear in the same city or location where professional eye examinations
are provided. The National Association of Optometrists and Opticians, LensCrafters, Inc., and
EyeCare Centers of America, Inc. challenged this California statute, stating that it places a
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 The Legal Environment of Business: A Critical Thinking Approach

burden on interstate commerce that “excessively outweighs the local benefits of the law.” In this
case, the district court granted the State’s motion for summary judgment. The plaintiff
companies appealed.

Plaintiffs challenge these laws to the extent they prohibit opticians and optical companies
from offering prescription eyewear at the same location in which eye examinations are provided
and from advertising that eyewear and eye examinations are available in the same location. The
district court denied Plaintiffs’ motion for summary judgment and granted the State’s motion for
summary judgment. The court effectively concluded that, based on the facts and the law, there
were no genuine issues of material fact. Plaintiffs argued that the challenged laws impermissibly
burdened interstate commerce because: 1) the challenged laws preclude an interstate company
from offering one-stop shopping, which is the dominant form of eyewear retailing; and 2)
interstate firms would incur a great financial loss as a result of the challenged laws.

Case Summary—Central Hudson Gas & Electric Corp. v. Public Service Commission of New
York

This case shows how the Supreme Court applies the First Amendment to corporate
commercial speech. This case considers the constitutionality of a regulation that completely
banned promotional advertising by the utility, but permitted informational ads. The U.S.
Supreme Court reversed the lower courts and ruled in favor of Central Hudson. The Court
decided that New York’s regulation violated the First Amendment.

Suggested Answers to Critical Thinking about the Law Questions

1. The primary ethical norm implicit in the requirement that regulations on commercial speech
be of the most limited nature possible is freedom. One definition of freedom is “to act
without restriction from rules imposed by others.” This nation has a history of protecting
freedom of speech, so the Court wants to make sure it does not violate this ethical norm.

2. The Public Service Commission is concerned because Central Hudson holds a monopoly
over the sale of electricity in its service area. It is concerned that their advertising could
endanger energy conservation or mislead the public. It would be interesting to find out more
about why Central Hudson wants to advertise (given that it has a monopoly) and exact
content of its regulations. That information would help students decide how much to
regulate Central Hudson.

Case Summary—Florida v. Jardines

This case deals with the question of whether it is ethical to conduct searches without a
warrant. A detective received an unverified tip that marijuana was being grown in Jardines’
home. A month later, the Police Department and the Drug Enforcement Administration sent a
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 The Legal Environment of Business: A Critical Thinking Approach

joint surveillance team to Jardines’ home for investigation. The detective approached Jardines’
home accompanied by a trained canine handler who had just arrived at the scene with his drug-
sniffing dog. Jardines cited the Fourth Amendment. He argued that the search could not be
admissible in court as evidence since it was gathered unlawfully and unsupported by probable
cause.

The Supreme Court ruled that the issue here was not just pertaining to the Fourth
Amendment but it extended to the aspect that it was a case of trespassing and invasion of
privacy. For this reason the court ruled in the favor of Jardines.

Case Summary—D.A.B.E., Inc. v. City of Toledo

This case deals with the Clean Indoor Air Ordinance’s ability to regulate smoking in public
places, including restaurants, bars, and so on. A group of bar, restaurant, and bowling alley
owners came together as D.A.B.E., Inc., to sue the city of Toledo, citing the Fifth and Fourteenth
Amendments. They argued that the act constituted an unfairly regulatory taking of their property.

The Supreme Court ruled that the ordinance was legal because there was no taking of private
property. It did not regulate the property, only the people. Compliance did not create an undue
hardship because the owner did not have to spend money to put in a lounge. But even if he or she
wanted to, that was not enough to make the ordinance unlawful. Lastly, there was no regulation
of smoking in places of public assembly, so the ordinance stood.

Suggested Answers to the Critical Thinking about the Law Questions

1. Martin relied on the reasoning above: there was no taking of property and there was no
hardship on the owners.

2. It seems Martin is relying on public health and safety. For him, it obviously takes precedent.

Answers to Review Questions

5-1. The supremacy clause is the basis for the doctrine of federal preemption. The supremacy
clause says that the Constitution, laws, and treaties of the United States constitute the
supreme law of the land. Federal preemption is the doctrine used to strike down a state
law that, although does not directly conflict with a federal law, attempts to regulate an
area in which federal legislation is so pervasive that apparently the U.S. Congress wanted
only federal regulation in that general area. This doctrine is valid because of the
supremacy clause.

5-2. The Commerce Clause provides the basis for most of the federal regulation of business
today. The Commerce Clause allows the federal government to regulate any activity that
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 The Legal Environment of Business: A Critical Thinking Approach

substantially affects interstate commerce.

5-3. Police power means the residual powers retained by the state to enact legislation to
safeguard the health and welfare of its citizenry.

5-4. The courts have attempted to resolve the conflict over the impact of the Commerce
Clause on state regulation by distinguishing between regulations of commerce and
regulations under the state police power. When courts perceive state laws to be attempts
to regulate interstate commerce, they will strike the law down. However, when the courts
finds state laws are based on the exercise of state police powers, they will uphold the law.

5-5. A regulatory taking occurs when a government regulation becomes so onerous as to

constitute a taking for which compensation is required. The key is whether a regulation
renders the land “valueless.” In (a), there is minimal interference. With (b), the land still
has value even if billboards cannot be placed on the land. In (c), compensation would be
required if the land became valueless, and Florida Rock Company’s plans were not
creating a “noxious use.”

5-6. In general, commercial speech enjoys less protection than private speech. That is because
it is expression solely related to the economic interests of the speaker and speaker’s
audience. Commercial speech has less value than private speech, so courts are less
willing to protect it.

Answers to Review Problems

5-7. This law will be challenged under the first amendment. The challenge by the tobacco
industry will focus on the nature of the expression and the governmental interests served
by the regulation. Here, the tobacco industry will not succeed in challenging the law. This
case is similar to the case of Central Hudson Gas & Electric Corp. v. Public Service
Commission of New York, only the law does not seem more restrictive than is necessary
to serve the government’s interests. The law does not ban all advertising and all cash
contributions—only specific kinds. (Of course, the facts are ambiguous, and this case can
be argued in the opposite way.)

5-8. Probably not. Ms. Crabtree suffered the loss of her job, but she was given a one year,
nontenured contract. Her deprivation was not that great because she had not been assured
she’d have a job after a year. Because she was not deprived of much, Students will have
low expectations about the procedures the state must follow.

5-9. The landfill operators will say the state cannot make any law that impairs the obligations
of any person under a contract. This law affects their contracts with out-of-state waste
generators.
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 The Legal Environment of Business: A Critical Thinking Approach

The State will argue that their law is reasonable, so it should be upheld. The State must
argue that the law is designed to meet an emergency, that it serves a general societal
interest, the relief is appropriate to the emergency, the conditions imposed must be
reasonable, and the legislation must be limited to the duration of the emergency.

The State will probably win. The landfills are becoming “too full at too rapid a pace.”
Sounds like an emergency.

5-10. Under Braswell, Chen will have to comply with the subpoena. Because Chen has
incorporated, he is acting as a representative of the corporation. Regardless of how small
the corporation, Chen cannot claim privilege.

5-11. No. Ricardo will not be able to argue that the regulation is so onerous as to constitute a
taking for which just compensation is required. He will still be able to stay in business
and use his property. He just has to undertake some additional expenses. That’s the price
of progress in America.

5-12. The plaintiffs would say there has been a regulatory taking. They would be wrong. A law
has changed the way the plaintiffs can use the land, but it has not made the property
valueless.

Answers to Case Problems

5-13. This case is related to First Amendment rights. The Wilson twins were suspended from
school for creating a blog site which contained highly racist and sexually explicit
comments about several girls in their high school. Although their freedom of speech was
not violated, they are still responsible for posting hate speech on their blog. Therefore,
they will have to face the consequences of their actions.

5-14. In this case the plaintiffs argue that they were discriminated against and when they filed a
complaint they were discharged from their duties. However, the court held that their
freedom of speech was not violated as they addressed private problems and were not
public in nature. Additionally, the internal grievances were redressed due to which this
involvement of the court was not necessary.

5-15. The court affirmed the lower court’s ruling. It held that Congress had the authority to
pass the Body Armor Act of 2002. The interstate sale and possession of body armor is a
sufficient link to the Commerce Clause.

This case is similar to Gonzales v. Raich, because both cases address the issue of how to
interpret the Commerce Clause. The clause, like most of the Constitution, is vague
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 The Legal Environment of Business: A Critical Thinking Approach

enough to be open to various interpretations.

5-16. The court upheld the district court’s decision by ruling in favor of Tennessee Governor
Bredesen and the Constitutionality of the new law. The court found that the law was in
accordance with the Commerce Clause because regulating the trade of scrap metal does
not excessively burden interstate commerce. It also found that the law did not violate the
Fifth Amendment because even if holding the metal for ten days deprived scrap dealers
of their property, they are still entitled to due process.

5-17. The ordinance to ban pit bulls and other select dog breeds inside the city limits was ruled
by the Court to be constitutional. There is no fundamental constitutional right that
protects the ownership of dogs. The ownership of dogs is qualified by the safety of
society. The Court deemed that the dog breeds listed in the regulation were dangerous
and costly to control. Because there was a rational basis for the ban, it did not violate Due
Process or Equal Protection Clause.

5-18. The court’s decision on the appeal was reasonable because the police used the GPS
device surpassing the stipulated time frame and geography specified for a warrant. The
plaintiff government agents’ act violates the Fourth Amendment as it constituted an act of
trespassing on private property making the search unreasonable.

5-19. The appeals court ruled in favor of Phelps. It decided that the First Amendment protected
Phelps’s actions because the statements were a matter of public concern, where not
provably false and were only expressed through hyperbolic rhetoric. The statements were
not dangerous threats so they were still protected under the First Amendment. The Free
Speech Clause can be used as a defense in state tort suits and it was in this case.

5.20. In this case the plaintiff would not have been able to receive compensation other than
monetary payment. This is because there was a reason for which the plaintiff was debarred
and it was up to the discretion of the Court to reinstate his license or to revoke it.

Thinking Critically about Relevant Legal Issues

1. The issue here is that corporations should be given the right to openly endorse a candidate,
just as any person can. The conclusion would be that freedom of speech applies to
corporations.

2. There is a case citation and the idea that businesses are protected under the Constitution and
therefore have rights, such as freedom of speech.

3. There are misleading analogies that make it seem as though not allowing corporations to
endorse candidates or speak out on political issues will lead to keeping corporations quiet.
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 The Legal Environment of Business: A Critical Thinking Approach

The author seems to miss the idea that corporations are made up of people with diverse
backgrounds.

4. Corporations should not be allowed to speak about politics because they are not people.
They are made up of people with many different viewpoints. The company, to be fair, would
have to represent and speak about all political ideas within the company. The problem
remains that the CEO would have the last say. Lastly, one could see that if disagreements
arise from differences in the “corporate stance” and the stance of employees, unlawful firing
of employees could result.

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