Management Chapter 4 Moreover Technological Changes Have Given Parents The

Chapter Four

Constitutional Bases for Business

Regulation

A MANAGER’S DILEMMA: PUTTING IT INTO PRACTICE

Personal Privacy in Text Messages on Employer-Provided Mobile Phones

Issue Presented: Did the City violate an employee’s Fourth Amendment rights when it

obtained and reviewed text-message transcripts of the employee’s government-provided cell

phone?

The Fourth Amendment guarantees the privacy, dignity, and security of persons against

certain arbitrary and invasive acts by officers of the Government. This protection applies as well

when the Government acts in its capacity as an employer. In O’Connor v. Ortega, 107 S. Ct. 1492

(1987), the U.S. Supreme Court discussed this principle, and provided two differing frameworks

for Fourth Amendment claims against government employees. A four-Justice plurality

In City of Ontario, California. v. Quon, 130 S. Ct. 2619 (2010), the Court did not address

which framework was correct. Instead, the Court concluded that the search was reasonable

even assuming Quon, the employee whose phone records were searched, had a reasonable

expectation of privacy. Thus, both O’Connor approaches led to the same result.

expression.” On the other hand, the ubiquity of those devices has made them affordable, so

employees who need cell phones for personal matters can buy them on their own. The Court

stressed the need to proceed with caution when considering the concept of privacy expectations

in communications made on electronic equipment—rapid changes in the dynamics of

communication and information transmission are evident not just in the technology itself,

explained the Court, but in what society accepts as proper behavior. Thus, a broad holding

concerning an employee’s privacy expectations through employer–provided equipment might

have implications in future cases that cannot be predicted. For this reason, the Court preferred a

narrow holding, and assumed without deciding that Quon had a reasonable expectation of

privacy.

The Court next addressed the issue of whether the City violated the Fourth Amendment

by obtaining and reviewing the text message transcripts. Under the O’Connor plurality

Further, the Court found that the search was “reasonable” because it was an “efficient

and expedient” way to determine whether Quon’s overages were the result of work-related

messaging or personal use. The review of the transcripts was not “excessively intrusive,” but

was instead permissible in its scope. The Court noted that the City had only requested

transcripts for two months, although Quon had overages for several months. Further, the City

Because the search was motivated by a legitimate work-related purpose and was not

excessive in scope, the search was reasonable under the O’Connor plurality approach. Moreover,

because the search would be regarded as “reasonable and normal” in the private–employer

context, it would satisfy the approach suggested in Justice Scalia’s concurrence.

Questions and Case Problems

Question 1

Issue Presented: What factors should managers and labor union leaders take into account

when deciding whether to support specific political candidates?

The Supreme Court’s decision in Citizen United v. Federal Election Commission, 130 S. Ct.

876 (2010), eliminated the ban on the use of corporate or union general treasury funds for direct

Question 2

Issue Presented: Is a corporation that participates in a public debate subject to liability for

factual inaccuracies?

Nike moved to dismiss the plaintiff’s first amended complaint on the basis, among

others, that the relief that the plaintiff sought was “absolutely barred by the First Amendment

to the United States Constitution.” The trial court dismissed the complaint without leave to

The court noted that the U.S. Supreme Court has not adopted an all-purpose test to

distinguish commercial from noncommercial speech under the First Amendment. However, it

found that a close reading of the Supreme Court’s decisions suggests that “when a court must

Applying this purpose test, the California Supreme Court found that the first element—

a commercial speaker—was satisfied because Nike was engaged in commerce. The second

element—an intended commercial audience—was also satisfied because Nike’s various

Here, Nike’s speech is not removed from the category of commercial speech

because it is intermingled with noncommercial speech. To the extent Nike’s

press releases and letters discuss policy questions such as the degree to which

domestic companies should be responsible for working conditions in factories

located in other countries, or what standards domestic companies ought to

The court also rejected Nike’s argument that regulating its speech would restrict or

disfavor its point of view and not the point of view of its critics. The court stated that

differential treatment of speech about products and services based on the identity of the speaker

is inherent in the commercial speech doctrine because a noncommercial speaker’s statements

about a product are protected while a commercial speaker’s statements may be prohibited

entirely to the extent they are either false or actually or inherently misleading.

As a result, the California Supreme Court reversed the judgment of the California Court

Question 3

Issue Presented: Do state laws that prohibit the direct shipment of wine to consumers across

state lines violate the dormant Commerce Clause?

The wine owners argued that the laws prohibiting the direct shipment of wine to

consumers across state lines violated the dormant Commerce Clause because they discriminate

against out-of-state wineries while allowing in-state wineries or wineries in reciprocal states to

ship to consumers. The Twenty-first Amendment might allow a state to ban direct shipping

In Granholm v. Heald, 544 U.S. 460 (2005), the U.S. Supreme Court held that the state laws

discriminated against interstate commerce in violation of the Commerce Clause. The Court

further ruled that the discrimination was neither authorized nor permitted by the Twenty-first

Amendment. The Court noted that it has long held that state laws violate the Commerce Clause

if they mandate “differential treatment of in–state and out-of–state economic interests,” with

only very narrow exceptions. Recent cases have confirmed that the Twenty-first Amendment

Question 4

Issue Presented: Is a law that gives the U.S. Army Corps of Engineers permitting authority

over wetlands that are not adjacent to a navigable waterway, but are hydrologically

connected to a navigable waterway, a constitutional exercise of Congress’s power under the

Commerce Clause?

In a plurality opinion, the U.S. Supreme Court decided that wetlands connected only

hydrologically to navigable waters were not covered by the Clean Water Act. Rapanos v. United

States, 547 U.S. 715 (2006). Although the Court did not reach a decision on the effect of the term

First, the Court noted that the natural definition of “waters” included only permanent,

fixed bodies of water. Second, the Court gave examples of other cases interpreting the term

“waters” that supported this definition. The Court also relied on evidence from other sections

of the Act, noting that the Act defined “point sources” to include intermittent bodies of water.

Having resolved the meaning of “waters,” the Court next turned to whether wetlands

were covered under the Act. Faced with the difficult problem of drawing boundaries between

water and land, the Court deferred to the Corps’ decision to include adjacent wetlands in its

In making its decision, the Court did not determine whether the Corps of Engineer’s

interpretation of its jurisdiction under the Act exceeded the limits of Congress’s Commerce

Clause power. Instead the Court held that the Corps of Engineer’s interpretation exceeded the

Question 5

Issue Presented: Does a state’s refusal to grant scholarships to students who pursue a degree

in pastoral ministries violate the Free Exercise Clause of the First Amendment?

To be eligible for the Promise Scholarship, funded through Washington State’s general

fund, a student must meet academic, income, and enrollment requirements. A student who

meets the academic and income requirements is notified that he or she is eligible for the

scholarship if he or she meets the enrollment requirements. Once the student enrolls at an

eligible institution, the institution must certify that the student is enrolled at least halftime and

is not pursuing a devotional theology degree.

The state of Washington conceded that it could, consistent with the federal Constitution,

permit Promise Scholars to pursue a degree in devotional theology, but it argued that its state

constitution, which has been authoritatively interpreted as prohibiting even indirectly funding

religious instruction that will prepare students for the ministry, required the denial of Promise

Scholarships to students pursuing a degree in theology. It argued that the U.S. and the state

The U.S. Court of Appeals for the Ninth Circuit concluded that Washington had singled

out religion for unfavorable treatment, that the state’s anti-establishment concerns were not

compelling, and that the Promise Scholarship Program was unconstitutional. The U.S. Supreme

Court reversed in Davey v. Locke, 540 U.S. 712 (2004). The Court noted that the state imposed

neither criminal nor civil sanctions on any type of religious service or right. It also did not deny

Given the historic and substantial state interest [in seeking to avoid an

establishment of religion] at issue, we therefore cannot conclude that the denial

of funding for vocational religious instruction alone is inherently constitutionally

suspect. . . . The State’s interest in not funding the pursuit of devotional degrees

Question 6

Issue Presented: Is an FCC policy prohibiting the broadcast of any “fleeting expletives” that

the FCC determines to be “indecent” or “patently offensive” constitutional under the First

Amendment?

The U.S. Court of Appeals for the Second Circuit ultimately held that the FCC’s “Golden

Globes standard” was unconstitutional. Fox Television Stations, Inc. v. FCC, 613 F.3d 317 (2d Cir.

2010). As discussed below the U.S. Supreme Court struck down the FCC orders based on Du

Process grounds in FCC v. Fox Television Stations, Inc. 132 S. Ct. 2307 (2012).

As a threshold issue, the Second Circuit evaluated the proper standard of review of

restrictions on speech through broadcast media. In most contexts, explained the court, the

Supreme Court has considered restrictions on indecent speech to be content-based restrictions

subject to strict scrutiny. However, the Court has always recognized that broadcast radio and

The court next addressed the parties’ differing interpretations of the Pacifica framework.

According to the FCC, Pacifica permits it to exercise broad regulatory authority to sanction

indecent speech. On the other hand, the Networks viewed Pacifica as establishing the limit on

A law or regulation is impermissibly vague if it does not “give the person of ordinary

intelligence a reasonable opportunity to know what is prohibited.” This so–called “vagueness

Here, the court was required to determine whether the FCC indecency policy provided

“fair notice” to broadcasters in the form of a discernible standard by which broadcasters could

accurately predict what speech was prohibited. The FCC argued that its detailed indecency

policy together with subsequent decisions gave broadcasters sufficient notice. The court,

however, agreed with the Networks that the policy did not provide sufficient notice to

broadcasters. The first problem with the policy, explained the court, arose in FCC’s

Because the FCC policy did not ensure “fair notice” to broadcasters, explained the

Second Circuit, there was a risk that it would be enforced in a discriminatory manner. The risk

of subjective, content-based decision-making raises “grave concerns” under the First

Amendment. Although conceding that, as the FCC had argued, context is relevant in making

enforcement decisions, the court concluded that discernible standards must still exist.

The court concluded that because broadcasters had to choose between not airing or

censoring controversial programs and risking massive fines or the loss of their licenses, the

The U.S. Supreme Court’s initial decision in this case FCC v. Fox Television Stations, Inc.,

556 U.S. 502 (2009), is Case 17.1. In that decision, the Court remanded the case to the Second

Circuit for consideration of the constitutionality of the FCC’s indecency policies, which prohibit

the Commission policy in place at the time of the broadcasts gave no notice to

Fox or ABC that a fleeting expletive or a brief shot of nudity could be actionably

indecent; yet Fox and ABC were found to be in violation. The Commission’s lack

of notice to Fox and ABC that its interpretation had changed so the fleeting

moments of indecency contained in their broadcasts were a violation of § 1464 as

interpreted and enforced by the agency “fail[ed] to provide a person of ordinary

intelligence fair notice of what is prohibited.”

The Court explained that “the void for vagueness doctrine addresses at least two

The Court explicitly limited the reach of its holding, making it virtually certain that the

FCC indecency rules will continue to be the subject of intense constitutional debate:

It is necessary to make three observations about the scope of this decision. First,

because the Court resolves these cases on fair notice grounds under the Due

Process Clause, it need not address the First Amendment implications of the

Commission’s indecency policy. It is argued that this Court’s ruling in [FCC v.

This leads to a second observation. Here, the Court rules that Fox and ABC

lacked notice at the time of their broadcasts that the material they were

broadcasting could be found actionably indecent under then-existing policies.

Question 7

Issue Presented: Do federal regulations restricting egg sales from farms where egg-laying

chickens tested positive for the presence of salmonella bacteria effect a “taking” requiring

compensation under the Fifth Amendment?

The U.S. Court of Appeals for the Federal Circuit ruled that the regulations did not

amount to a “taking” for Fifth Amendment purposes in Rose Acre Farms, Inc. v. United States, 559

The first Penn Central factor requires the court to examine the economic impact of the

action on the claimant. In the present case, the court first determined that a proper framing of

the issue required it to refocus its analysis on the eggs produced at Rose Acre’s farms, as

opposed to the business of the farms themselves. Because the court had defined the proper unit

of analysis as the eggs themselves, it concluded that the proper indicator of economic impact

The second Penn Central factor requires the court to examine the effects of the

governmental action on the reasonable investment-backed expectations of the claimant. In the

present case, the court noted that although the poultry industry is highly regulated, the

regulations in place here are more than merely an extension of existing regulations – they are

based on an entirely new scientific understanding and were unprecedented in their reliance on

hen testing. As such, this factor weighed in favor of Rose Acre.

In balancing the Penn Central factors, a court’s objective is to “ascertain whether, in light

of those factors, it is unfair to force the property owner to bear the cost of the regulatory action.”

After conducting this “ad hoc” analysis, the court concluded that the regulations did not

amount to a compensable taking. Rose Acre’s economic impact was not severe; the character of

the regulations strongly favored a non-taking; and although the reasonable investment-backed

expectations favorrd Rose Acre, they were not strong enough to be dispositive.

Question 8

Issues Presented: (a) Is an Arizona statute providing for matched contributions of public

money to publicly funded political candidates constitutional? (b) Is a Minnesota statute

banning direct corporate contributions to political candidates and requiring corporations

wishing to make independent expenditures to either form and register an independent

political fund or contribute to an existing fund constitutional? (c) A Montana statute barring

corporate political expenditures constitution gain that state’s history of political corruption?

(a) The U.S. Supreme Court ruled that the Arizona statute was unconstitutional in

Arizona Free Enterprise Club’s Freedom Club PAC v. Bennett, 131 S. Ct. 2806 (2011). The Court

found that the matching funds provision imposed a substantial burden on the speech of

privately financed candidates and independent expenditure groups. Under this scheme, once a

privately financed candidate has raised or spent more than the State’s initial grant to a publicly

Because laws that burden political speech are subject to strict scrutiny, in order to

prevail on its claim Arizona was required to prove that the restriction furthers a “compelling

state interest” and is “narrowly tailored” to achieve that interest. Arizona argued that the

provision furthered the State’s interest in “preventing corruption and the appearance of

corruption.” The Court found this argument unpersuasive. Instead, evidence tended to show

that the purpose of the matching funds provision was to “level the playing field.” The Court

The Court did not deny that the government “may engage in public financing of election

campaigns,” and that doing so can further a “significant governmental interest.” However, the

goal of creating a viable public financing scheme can only be pursued in a manner consistent

with the First Amendment. Arizona’s program went “too far” in that it gave money to a

(b) The U.S. Court of Appeals for the Eighth Circuit ruled that the Minnesota statute

was constitutional. Minnesota Citizens Concerned For Life, Inc. v. Swanson, 640 F.3d 304 (8th Cir.

2011). Minnesota Citizens argued that Minnesota had impermissibly preserved its ban on

corporate independent expenditures because under the new law, corporations could only

contribute to political funds, which are separate entities. According to Minnesota Citizens, this

ran afoul of the Supreme Court’s holding in Citizens United, which mandates that “corporations

Alternatively, Minnesota Citizens argued that Minnesota’s extensive regulations of

political funds serve as a de facto ban even if a corporation could theoretically speak through a

political fund. As support for its argument, Minnesota Citizens asserted that Minnesota’s

regulations were materially indistinguishable from the PAC regulations the Supreme Court

found to be unconstitutionally burdensome in Citizens United. The court disagreed, finding that

collectively, Minnesota’s provisions were significantly less burdensome than the federal

regulations on PACs. The court noted that under Minnesota’s provisions, a corporation can

Minnesota Citizens next argued that Minnesota’s laws governing corporate independent

expenditures are not sufficiently tailored given the heightened level of constitutional scrutiny.

The court, which likened Minnesota’s provisions to disclosure laws, explained that corporate

disclosure laws are subject to the less–rigorous “exacting scrutiny” standard. As such, the

government must show only a “substantial relation” between the disclosure requirement and

the government’s “important interest” in providing information to the electorate. The court

found that Minnesota had adequately tailored its laws because they imposed no materially

greater burden on corporations than the disclosure laws at issue in Citizens United. Further, even

(c) In Western Tradition Partnership, Inc. v. Bullock, 271 P.3d 1 (Montana 2011), the

Supreme Court of Montana upheld a Montana statute enacted by voter initiative in 1912 that

provides that a “corporation may not make . . . an expenditure in connection with a candidate

or a political committee that supports or opposes a candidate or a political party.” The court

distinguished Citizens United, reasoning that Montana had a compelling state interest in

The U.S. Supreme Court reversed in American Tradition Partnership, Inc. v. Bullock, 132 S.

Ct. 2407 (mem.) (2012), ruling that “Montana’s arguments in support of the judgment below

either were already rejected in Citizens United, or fail to meaningfully distinguish that case.” In a

dissent by Justice Breyer, in which Justices Ginsburg, Kagan, and Sotomayor joined, Justice

Breyer stated: