Marianne M.

Jennings

BUSINESS
Its Legal, Ethical, and 10th Ed.
Global Environment

Chapter 5
Business and the
Constitution
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The U.S. Constitution
• Article I: Legislative Branch
– Congress
• House of Representatives
• Senate
• Article II: Executive Branch
– President
– Vice President
• Article III: Judicial Branch
– Creates U.S. Supreme Court
– Authorizes Congress to create other courts
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The U.S. Constitution
• Creates a System of Checks and
Balances
– Each branch has some power check over
the others to keep any one from
becoming too powerful
– Examples
• Nixon v. Administrator of General Services
• Clinton v. Jones
• Obama v. Alito © 2015 Cengage Learning. All Rights Reserved.
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The U.S. Constitution
• Other Articles in the Constitution
– Article IV: State Interrelationships
– Article V: Procedures for Amendments
– Article VI: Supremacy Clause
– Article VII: State Ratification of the
Constitution

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The U.S. Constitution
• Bill of Rights
– First: Freedom of speech
– Fourth: Privacy
– Fifth: Due process and self-
incrimination
– Sixth: Jury trial
• Other Amendments
– Fourteenth Amendment: Due Process
and Equal Protection
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Role of Judicial Review
• Determines the Rights Afforded by
the U.S. Constitution
• Determines the Scope of Rights
• Plays Unique Role in Checks and
Balances
– Determines the appropriateness of the
actions of other branches

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Limits of Economic Regulation
• The Commerce Clause: Article I, Section 8
– Standards for Federal Regulation of Interstate
Commerce
– Historical application
• Initially, Court gave a narrow interpretation
• Court held New Deal Legislation unconstitutional
• Roosevelt proposed Court-Packing Plan
• After these political battles, the court responded in
NLRB v. Laughlin Steel with the affectation
doctrine
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Limits of Economic Regulation
A. Economic Activity B. Economic Activity
is an Economic in a Non-Economic
Setting Setting
e.g., Price Fixing by e.g., Loan Sharking on the
Multinationals Street Corner

C. Non-Economic D. Non-Economic
Activity in an Activity in a Non-
Economic Setting Economic Setting
e.g., Race Discrimination by e.g., VAWA and Morrison?
a Hotel

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Table One – Part A
A. COMPARISON OF CONGRESSIONAL
JURISDICTION FACTORS

CHILD LABOR WOMEN AND VIOLENCE

1. AWFUL; HORRIBLE 1. AWFUL; HORRIBLE
2. PERVASIVE 2. PERVASIVE
3. INSUFFICIENT 3. INSUFFICIENT
STATE ACTION STATE ACTION
4. BUSINESSES 4. MEN ARE DOING IT
WERE DOING IT

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Table One – Part B
B. CIVIL RIGHTS (LACK THEREOF)

CHILD LABOR GUNS IN SCHOOLS

1. DISPARATE 1. VIOLENCE IS AWFUL
2. UNSAFE–VIOLENCE 2. UNSAFE–VIOLENCE
3. INSUFFICIENT 3. INSUFFICIENT
STATE ACTION STATE ACTION
4. BUSINESSES 4. HIGH SCHOOL
WERE DOING IT STUDENTS DOING IT

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Table Two
The Factors of Wickard v. Filburn
Local Farmers
Individuals, But Still in Business
Local Commerce Affects Prices in National Market
National Economic Interest in Farm Products/Pricing

Combining Wickard with the decisions in Lopez and Morrison,

we are able to develop a clear matrix on the Commerce Clause as
depicted by Response to Razook Figure One and the specific
examples listed in Razook Figure Two.

In the Lopez case, the court held that the act of having a gun on
school property had no economic/commerce base and that federal
laws could not regulate local school.
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Response to Razook Figure One
Jennings Figure R-1
Examples of Congressional Authority/Non-Authority After
Morrison and Lopez

Congress
may
Congress May Regulated conduct Regulated conduct
regulate
Regulate is economic is performed by an

(commercial (commercial Congress

character) character to actor) may not
regulate
Congress May Regulated conduct Regulated conduct
Not Regulate is non-economic is not performed by
Congress
an economic entity
may
(non-commercial
regulate
character)
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Table Three
Application of the Economic/Non-Economic Actor/
Activity Test to Specific Regulations

Gun Possession
Gun possessor (actor) – non-commercial, Congress may not regulate
Act of gun possession – non-commercial, Congress may not regulate

Violence Against Women

Abuser (actor) – non-commercial, Congress may not regulate
Act of abusing – non-commercial, Congress may not regulate

Farm Regulation (Wickard v. Filburn)

Farmer (actor) – commercial (livelihood), Congress may regulate
Act of selling – commercial, Congress may regulate

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Table Three (cont’d)
Title VII Civil Rights Discrimination
Hotel/Restaurant Owner (actor) – commercial, Congress may
regulate
Act of discrimination – non-commercial, Congress may regulate

Labor/Unions/OSHA
Actors are business – commercial, Congress may regulate
Or Unions Engaged in Business – commercial, Congress may
regulate
Act of Work/Employment – commercial, Congress may regulate

Lending (loan sharking)

Actors are loan sharks – commercial, Congress may regulate
(Facilities are not great, but they are a source of loans)
Act of lending – commercial, Congress may regulate
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Limits of Economic Regulation
• Case 5.1 National Federation of
Independent Business v. Sebelius
(2012)
– The court found that the individual
mandate violated the Commerce Clause
– Court upheld the law on other grounds

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Limits of Economic Regulation
• The Commerce Clause: Article I, Section 8
– Standards for state regulation of commerce
• If Congress has regulated, there is an overriding
concern about the Supremacy Clause
• If Congress has not acted, there is a benefit/burden
analysis
• Balance police power (state’s interest in regulation)
with the burden on commerce
• State law cannot give in-state businesses an
advantage
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Limits of Economic Regulation
• Case 5.2 Granholm v. Heald (2005)
– Michigan and New York regulate the sale and
importation of alcoholic beverages
– Three-tier distribution system
– Separate licenses are required for producers,
wholesalers, and retailers
– Out-of-state producers cannot sell directly to
consumers
– Out-of-state wine producers are required to pay
wholesaler fees and cannot compete (price-wise) with
in-state wine producers on direct-to-consumer sales
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Limits of Economic Regulation
• Congressional Regulation of Foreign
Commerce
– The power of Congress to regulate
foreign commerce applies regardless of
where it begins and ends

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Taxation of Business
• Congress’ Power to Tax – Article I,
Section 8: The Ability of Congress to
Tax Has Been Consistently Upheld
• State and Local Taxation of Interstate
Commerce
– Interstate business is not exempt from
state and local taxes just because they
are interstate businesses
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Taxation of Business
• Requirements for Valid State Tax
– Tax cannot discriminate against
interstate commerce
– Tax cannot be an undue burden on
interstate commerce

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Taxation of Business
• Requirements for Valid State Tax
– Must be a “sufficient nexus” between the state
and the business being taxed
• Examples: Does business there, holds property
titles there, manufactures there, inventory stored
there
– Must be apportioned fairly
• Example: A corporation doing business in fifty
states cannot have all income taxed in all fifty
states – must be apportioned according to its
revenues in the states
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Taxation of Business
• Case 5.3 Quill Corporation v. North
Dakota (1992)
– How did Quill come to have customers
in North Dakota?
– Is there a difference between pamphlets
in a state and salespeople in that state?

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State vs. Federal Regulation
• The Supremacy Clause and
Preemption
– Article VI exists to determine which
laws control in the event both state and
federal governments regulate the same
thing
– If state law directly conflicts with
federal law, state law is invalid
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State vs. Federal Regulation
• The Supremacy Clause and Preemption
– Whether there is preemption is controlled
by answering several questions:
• What does legislative history provide?
• What is the level of detail in the federal
regulation?
• What benefit flows from the federal
regulation?
• What is the nature of conflict—can the two
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State vs. Federal Regulation
• Case 5.4 Mutual Pharmaceutical Co., Inc. v.
Bartlett (2013)
– Federal law regulates labels for prescription drugs
– State law provides product liability rights of recovery
for failure to warn
– Federal law does not allow generic producers to
change label by manufacturer, so they cannot include
additional disclosures
– State law was pre-empted by federal regulation – no
product liability

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Bill of Rights
• First Amendment
– Provides some protection for commercial
speech
• Commercial speech is speech used to further the
economic interests of the speaker
– Advertising and commercial speech protection
• Can regulate advertising
• Substantial government interest must be furthered
• Is the regulation the least restrictive means of
accomplishing the interest
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Bill of Rights
First Amendment Protections
and Business Speech

First Speech Governmental

on Social
Amendment Issues and Regulation of
Full Protection Business: Commercial
Business Nike, Speech
Professions
Political Business
Speech Advertising

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Bill of Rights
• First Amendment
– Corporate political speech
• Corporate participation in campaigns is given full
First Amendment protection
• Nike case was never fully litigated to determine
whether advertising regulation could be applied to,
for example, letters to the editor or columns by
corporate executives about controversial issues that
affect the company, such as Nike’s labor practices
in other countries

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Bill of Rights
• Case 5.5 Citizens United v. Federal
Election Commission (2010)
‒ Case returns to holding in Belotti case that First
Amendment rights are not contingent on how
much money or power the speaker holds
‒ Some limits on campaign contributions are
appropriate
‒ Controls on time, place, and manner of speech
in the lead-up to elections have too chilling an
effect on speech and dissemination of
information 5-28
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Eminent Domain
• Eminent domain is the right of
government to take private property
for public purpose for just
compensation
• Public use examples: Highways,
schools, urban redevelopment, limits
on mining, historical preservation,
economic development
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Eminent Domain
• Requirements
– Taking or regulating
• Examples: Prohibitions on use, elimination
of use
• In Loretto v. Teleprompter Manhattan
CATV Corp. et al. (1982)
• In Nollan v. California Coastal Commission
(1987)
• In Lucas v. South Carolina Coastal Council
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Eminent Domain
• Just Compensation
• Public Purpose
• New issue is question of taking
property for economic development or
revitalization or just new projects

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Eminent Domain
• Case 5.6 Kelo v. City of New London
(2005)
– Issue of taking for economic
development
– Who owned the land?
– Who would get the land under the city’s
plan?
– What question in eminent domain was a
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Procedural Due Process
• Requirement: Procedural Due Process
– Applies to criminal, civil, and
administrative proceedings
• Example: Summons and complaint
provide notice to defendants
– Right to notice of hearings
– Right to be heard

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Substantive Due Process
• Requirement: Substantive Due
Process
– State laws cannot substantively
eliminate rights without some benefit
• Law must be logically related to legitimate
governmental purpose
• Example: Sunday blue laws—stores are
closed by law—states must be able to show
economic, health, social benefits of such
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Equal Protection
• Elements of Protection for Regulation
– Regulation must apply to all businesses
• Example: Courts have struck laws that
allow small stores to stay open on Sunday
while large stores could not

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International Law and
Constitutions
• General Types of Constitutions Found
in the United States and England
• Code Law Countries Found in Mexico
and Many European Countries
• Islamic Law: Based on Religion,
Governs All Aspect of Personal and
Business Life Law

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