Constitutional Grounds for Regulating Business

Business Law, Sixth Edition
© 2019 BVT Publishing. All rights reserved.
S-1
Chapter 6:
Constitutional Grounds for
Regulating Business

S-2
Learning Objectives
• Explain the separation of powers.
• Articulate checks and balances.
• Understand the concept of federalism.
• Explain the commerce clause.
• Contrast supremacy and preemption.
• Recall freedom of speech.
• Describe takings.
• Understand due process.
• Define equal protection.

S-3
6.0 In the News (Slide 1 of 2)
Laura & Marvin Horne’s Story (3:17)
http://bvtlab.com/7kkw7
The Supreme Court issued its decision in Horne
v. Department of Agriculture, the raisin takings
case. Horne involves a challenge to the forcible
appropriation of large quantities of raisins by the
federal government.

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6.0 In the News (Slide 2 of 2)
• Why is the forcible appropriation of
raisins a taking?
• Should the takings clause offer less
protection for personal property than for
real property?

S-5
6.1a The Constitution and
Government Regulation (Slide 1 of 3)
Creates the federal government
• Legislative
• Executive
• Judicial
• Fourth branch
- Administrative agencies

S-6
Allocates power of federal and state
governments
• Notion of federalism
• Relationship between federal and state
governments today

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Establishes limitations on the role of
government
• Applicable to individuals
• Applicable to businesses

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6.2a Separation of Powers (Slide 1 of 3)
Constitutional mandate that requires
branches of government, each with
certain functions and powers.
• Legislative Branch
- Established by Article I of the Constitution
- Purpose: create laws
- Powers of the Senate and House of
Representatives

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• Executive Branch
- Established by Article II of the
Constitution
- Purpose: enforce laws
- Powers of the Presidency

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Judicial
• Emanates from the provisions of
Article III of the Constitution
• Purpose: power to adjudicate
disputes
• Powers of the Supreme Court and
lower courts.
Constitutional Principles: Separation of
Powers (6:25) http://bvtlab.com/7pD7E

S-11
6.2a Critical Thinking (Slide 1 of 2)
Case: Free Enterprise Fund and
Beckstead and Watts, LLP
The Sarbanes-Oxley Act, created to regulate
accounting procedures after Enron and Worldcom
scandals, established the Public Company Accounting
Oversight Board to supervise the audit of public
companies. The board members are not subject to
direct removal or appointment by the president and it
retains the power to set and raise its own budget. The
question here: is the establishment of the Board a
constitutional violation of separation of power
principles?

S-12
6.2a Critical Thinking (Slide 2 of 2)
• Why did the Court rule this contrary to the
notion of separation of powers?
• Why is presidential accountability critical,
according to the Court?
• Under the decision, members of the Board
must be able to be removed for any reason
or simply because the president wants to
seat a different person on the Board. Does
“at will” removal further the underlying
purpose of Sarbanes-Oxley?

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6.2b Checks and Balances
The process by which each branch
restrains the power of another branch.
• Special role of the power of judicial
review
- Critical nature of this power of the
court system
- Declare an act of the legislative or
executive branch unconstitutional

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6.3a Nature of Federalism
• Recognition of two forms of
government
- Federal
- State
• Ensures that the power of government
is distributed

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6.3b Distribution of Powers (Slide 1 of 3)
Federal enumerated powers
• The federal government’s powers are
limited to those enumerated in the
Constitution.
• Enumerated powers are exclusive to
the federal government.

S-16
State police powers
• Public safety
• Health
• Welfare
• Morals

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• Concurrent powers
– Historical lines
– Current growth in federal government
• Relationships among the states

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6.3c Commerce Clause (Slide 1 of 2)
Single greatest constitutional clause
that fosters federal regulation of
business
• Congress has the power to regulate
interstate commerce.
– Foreign nations
– Among the several states
– Indian tribes

S-19
6.3c Commerce Clause (Slide 2 of 2)
• Active commerce clause
interpretations
• Dormant commerce clause
applications
What is the Commerce Clause: (3:00)
http://bvtlab.com/7jfed

S-20
6.3c Critical Thinking
Case: Heart of Atlanta Motel, Inc. v. U.S.
The extent to which the government regulates
business is the central issue in this United States
Supreme Court decision.
• If racial discrimination were not the subject of the
federal legislation and a more benign topic were the
focus, would the author of the opinion have supported
the expansive reach of the commerce clause?
• What limits, if any, are there on the commerce
clause after this case? Is there currently any area
free of federal government regulation under the
reasoning of the case?

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6.3d Supremacy and Preemption
The Constitution, treaties, and federal
laws take precedence over state laws.
• Congress may expressly preempt any
state regulation.
• Savings clause

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6.4a Constitutional Limitations (Slide 1 of 2)
Government Action Requirement
Power possessed by government was
limited and dispersed.
• Bill of Rights
• Requirement of state action
– Any governmental action, not just action
by a “state”
– Importance of the concept of state action
in applying limits

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6.4a Constitutional Limitations (Slide 2 of 2)
Constitutional balancing tests
• Strict scrutiny
• Rational basis
• Intermediate scrutiny

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6.4b Freedom of Speech
• Need for protection
• Types of speech
– Political
o Strict scrutiny test
– Commercial
o Intermediate level of scrutiny

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6.4b Critical Thinking (Slide 1 of 2)
Case: Kasky v. Nike, Inc.
This California Supreme Court opinion traces the
parameters of commercial speech, including an
interesting discussion of the three elements of
commercial speech.
Public statements regarding labor conditions at Nike
manufacturing facilities are commercial speech, subject
to regulation aimed at preventing consumer deception.
Yet, such speech is political in nature and, therefore,
subject to full First Amendment protections.

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6.4b Critical Thinking (Slide 2 of 2)
• Why did the court deem the speech
commercial and not political?
• Why did the court find that the commercial
speech was not entitled to any
constitutional protections?
This Land Is Your Land (:53)
http://bvtlab.com/enTb6

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6.4c Takings
Eminent Domain: the power of the
government to claim land for public uses.
• Necessity
• Potential to damage private property rights
• Just compensation
• Types of takings

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6.4d Due Process (Slide 1 of 2)
Procedural due process
• Notice that the government is going to
act and why
• A hearing before any governmental
action takes place so that the individual
or entity with the right has an
opportunity to be heard
• An ability to appeal the determination
made at the hearing

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6.4d Due Process (Slide 2 of 2)
Substantive due process
• Fairness is the key word
• Impacts fundamental rights as
opposed to economic rights

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6.4e Equal Protection (Slide 1 of 2)
14th Amendment: Government may not
deny any person equal protection of
the law. Yet Courts must weigh
competing interests. Three balancing
tests are used:
• Strict scrutiny test
- Legislation necessarily relates to a
compelling interest of government.

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6.4e Equal Protection (Slide 2 of 2)
• Intermediate scrutiny test
- Legislation is substantially related to an
important purpose of government.
• Rational basis test
- Legislation is reasonably related to a
legitimate purpose of government.

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6.5 Privacy Rights
The United States Supreme Court has
fashioned a constitutional right of privacy.
In 2013, NSA contractor Edward Snowden
leaked a large number of classified documents
to the media, exposing the U.S. government’s
covert surveillance activities.
Oliver Stone on Snowden & Privacy Rights (10:11)
http://bvtlab.com/b59j5
• Discuss the concept of privacy rights versus
national security.

Constitutional Grounds for Regulating Business

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