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CHAPTER 4
CONSTITUTIONAL BASES FOR BUSINESS REGULATION
The Constitution is the supreme law of the land. The Constitution is the source of
federal power. This power was received from the States. Powers not delegated to the
federal government are retained by the States and the people.
I. STRUCTURE OF GOVERNMENT.
The Constitution divides governmental power between the federal and state
governments. Sometimes both federal and state governments regulate the
same activity. If there is a conflict, federal law preempts state law
II. SEPARATION OF POWERS.
A. The Judicial Power. The power of federal courts is found primarily in
Article III of the constitution.
1. Article III Courts. District, Appellate, and Supreme courts.
B. The Executive Power. Power vested in the President.
D. Conflicts between the Branches.
1. The President is immune from criminal prosecution for acts
taken as president, unless he is first impeached.
BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 7TH ED—INSTRUCTOR’S MANUAL
II. SUPREMACY CLAUSE AND PREEMPTION. Article VI of the U.S. Constitution.
In Geier v. American Honda Motor Co., 529 U.S. 861 (2000), the U.S.
III. FEDERALISM.
A. Eleventh Amendment.
1. Supports the doctrine of sovereign immunity of the States and
2. In Alden v. Maine, 527 U.S. 706 (1999) the Supreme Court
3. In Tennessee v. Lane, 541 U.S. 509 (2004), plaintiffs,
paraplegics, sued the state of Tennessee based on lack of ADA
1. Printz v. United States, 521 U.S. 898 (1997), the Supreme
Court struck a federal law requiring local sheriffs to run
CHAPTER 4 CONSTITUTIONAL BASES FOR BUSINESS REGULATION
2. Reno v. Condon, 528 U.S. 141 (2000), the Court upheld a
federal law prohibiting State governments from disseminating
IV. THE COMMERCE CLAUSE. Article I, section 8, clause 3.
A. 1824-1887. In Gibbons v. Ogden (1824) Supreme Court held that
Commerce Clause gave Congress the power to regulate virtually every
activity having any interstate impact.
B. 1887-1937. Gibbons v. Ogden was narrowed so that activities like
C. 1937 to 1995 the Supreme Court expanded Congressional authority to
regulate American business from hotels and restaurants to minimum
D. 1995 to the Present. In U.S. v. Lopez, the Supreme Court struck down
federal statute as an overbroad extension of Congress’ interstate
CASE 4.1 Florida v. U.S. Department of Health and Human
Services, 648 F.3d 1235 (11th Cir. 2011), cert. granted,
2011 U.S. LEXIS 8094 (U.S. Nov. 14, 2011). The
BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 7TH ED—INSTRUCTOR’S MANUAL
Vinson ruled the entire law was unconstitutional, while
the 11th Circuit Court of Appeals affirmed Judge
Vinson’s holding that only the insurance mandate was
unconstitutional.
E. Limits on State Powers.
1. Dormant or Negative Commerce Clause. State laws
conflicting with federal interstate commerce regulations are
generally preempted, even if the Congress has not acted, State
V. FEDERAL FISCAL POWERS. Police power is traditionally left to the States and
local government, but via taxing and spending powers, Congress can regulate
VI. PROTECTION OF INDIVIDUAL LIBERTIES. The original Constitution and the
Bill of Rights guarantee certain individual liberties, rights and protections.
A. The Constitution.
1. Contracts Clause. In general, States and the Federal
3. Privileges and Immunities. Article IV, Section 2, guarantees
that citizens of each state shall receive all the privileges and
immunities of the citizens of the other states, such as the right
CHAPTER 4 CONSTITUTIONAL BASES FOR BUSINESS REGULATION
B. The Bill of Rights. The first ten amendments to the Constitution,
enumerates some of the pre-existing liberties and rights of the people
CASE 4.2 Board of Education of Independent School District No,
92 of Pottawatomie County v. Earls, 536 U.S. 822
(2002). Based on Vernonia School District 47J v.
Acton, 515 U.S. 646 (1995), the Supreme Court held
1. Applicability to the States. Fourteenth Amendment has three
general provisions designed to protect individuals: (a) the
VII. FREEDOM OF SPEECH AND THE PRESS. Freedom of speech is not absolute.
However freedom of speech grant groups the right not to speak or associate.
See, e.g., Hurley v. Irish-American Gay, Lesbian and Bisexual Group of
Boston, 515 U.S. 557 (1995).
A. “Clear and Present Danger” Test.
1. In wartime, the government may outlaw words that create a
2. Speech that produces or is likely to produce imminent lawless
or criminal action is not protected. E.g., Brandenburg v. Ohio,
BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 7TH ED—INSTRUCTOR’S MANUAL
B. Defamation of Public Figures is protected when said about a public
D. Commercial Speech. Unlike political speech, commercial speech
(advertising) has always been subject to reasonable regulations.
1. Advertising, Data Mining, and Video Games. Laws designed
to curb alcohol ads or compel disclosure have been ruled
CASE 4.3 Brown v. Entertainment Merchants Association,
131 S. Ct. 2729 (2011). Does a California law
which prohibits the sale or rental of “violent
video games” to minors, and which requires an
“18” on the packaging, violate the right to free
speech of minors? HELD: The law was struck
2. Political Speech. Direct corporate expenditures to elect or
defeat political candidates (express advocacy) were barred for
nearly a century. Recently the McCain-Feingold Act made it a
crime for corporations to give ‘soft money’ to party
committees. However, in Citizens United v. Federal Election
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F. Academic Research. Generally professors or researchers are shielded
from revealing their research or notes as are journalists. Moreover, if
academics have non-disclosure agreements, they cannot be compelled
to reveal information.
G. English-Only Laws. Laws that require state or local government to
use English only, may conflict with freedom of speech protections.
VIII. RIGHT OF ASSOCIATION. The First Amendment guarantees a near absolute
right for individuals to associate with whom they please. In determining
whether a law banning discrimination is constitutional, courts balance the
state’s interest in preventing discrimination against the individuals’ right to
association.
Boy Scouts of America v. Dale, 530 U.S. 640 (2000). New Jersey state
law prohibited discrimination based on sexual orientation in its public
IX. FREEDOM OF RELIGION. The First and Fourteenth Amendments prohibit the
government from establishing a state religion or from interfering in the Free
Exercise of religion.
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A. Establishment Clause.
1. In Van Ordern v. Perry, 545 U.S. 677 (2005), the Supreme
2. On the other hand, in McCreary County, Kentucky v. ACLU,
545 U.S. 844 (2005), the Supreme Court struck down the
B. Free Exercise Clause.
1. In Jimmy Swaggart Ministries v. Board of Equalization, 493
2. In Gonzalez v. O Centro Espiritu, 546 U.S. 418 (2006), the
Court used the Religious Freedom Restoration Act of 1993
Act.
X. THE FOURTH AMENDMENT. The Fourteenth Amendment protects against
unreasonable search and seizure (see Chapter 14 for more information).
XI. DUE PROCESS. Under the 5th and 14th Amendments government must ensure
due process to persons facing the loss of “life, liberty or property.”
A. Procedural Due Process. The government must provide adequate
notice and fair hearings.
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1. Limit on Economic Regulation.
2. Protection of Fundamental Rights. Laws that interfere with or
limit fundamental rights (e.g. child-rearing) will be held
unconstitutional, unless the law can be shown to promote a
3. Limits on Punitive Damage Awards. Punitive damage awards
in civil tort actions cannot be so excessive as to violate the
defendant’s right to substantive due process.
XI. COMPENSATION FOR TAKINGS. The Fifth Amendment prohibits the “taking”
of private property for public use by state or federal governments without just
compensation. This power of the government to take land is called eminent
domain. The issue generally is, when does a regulation constitute a taking
XII. EQUAL PROTECTION. The 5th and 14th Amendments guarantee individuals
equal protection of the laws. Laws may violate equal protection in three
ways: (1) facially; (2) as applied; or (3) in effect.
BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 7TH ED—INSTRUCTOR’S MANUAL
A. Tests for Judging Validity of Discrimination. The Supreme Court has
established three legal tests to determine if a law violates the equal
protection clause of the Constitution.
1. Rational Basis Test.
B. Racial Discrimination. Since the Brown v. Board of Education 347 U.S.
483 (1954) decision, states cannot compel racial segregation. Applying
this rule to government contracts and affirmative action policies has been
controversial.
1. In Adarand Constructors v. Pena (1995), the Supreme Court ruled
2. “Diversity” considerations in university admissions policies are
also subject to strict scrutiny. See Grutter v. Bollinger, 539 U.S.
3. In Ricci v. DeStefano, 129 S.Ct. 2658 (2009), the Supreme Court
held that the City of New Haven violated Title VII of the Civil
D. Other Forms of Discrimination.
1. Gender. In United States v. Virginia (1996), the Supreme
Court ruled that the Virginia Military Academy, an all-male,
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state-supported military college, violated the Equal Protection
XIII. RIGHT TO JURY TRIAL. Seventh Amendment provides that in suits at
common law in which the amount in controversy exceeds twenty dollars, the
right of trial by jury shall be preserved.
RESPONSIBLE MANAGERS: TEACHING SUGGESTIONS
1. Discuss the pros and cons of the Patient Protection and Affordable Care Act of
2009. Divide the class up in students that represent the federal government, versus
those that represent state governors. What arguments would support the Supreme
Court finding the law constitutional, and what factors would support the Court’s
decision to find the law unconstitutional?
2. Discuss whether or not freedom of speech should be limited on the Internet.
3. Under what circumstances should religious accommodation be made by
employers?
4. Discuss the pros and cons of racial diversity in public and private institutions.