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Module 04
The Constitution: Focus on Application to
Business
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Learning Objectives
Upon successful completion, the student will be able to:
Analyze the Constitution in respect to business interests;
Analyze constitutional amendments;
Explain how to amend the US Constitution
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The Constitution of the United States
“We the people of the United States, in Order to form a more perfect
a Union, establish Justice, insure domestic Tranquility, provide for
the common defence, promote the general Welfare, and secure the
Blessings of Liberty to ourselves and our Posterity, do ordain and
establish this Constitution for the United States of America.”
See Appendix C
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Articles of the Constitution
I. Composition and powers of Congress
II. Selection and powers of the President
III. Creation and powers of the federal judiciary
IV. Role of the states in the federal system
V. Methods of amending the Constitution
VI. Declaring the Constitution to be supreme law of the land
VII. Method for ratifying the Constitution
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The Constitutional Amendments
The constitutional amendments began almost immediately after it
was ratified.
In 1791 the first 10 amendments were ratified by the States. Called
the Bill of Rights.
Proposed amendments must be passed by 2/3 vote in the House
and Senate.
Then ratified by 3/4 of state legislatures
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Commerce Clause Art. I, Section 8
Congress has power to: “Regulate Commerce with foreign Nations,
and among the several States, and with the Indian Tribes”
Congress can regulate foreign trade and interstate commerce
Federal Government supreme in regulating business.
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Necessary and Proper Clause
(Clause 18, Article I, Section 8)
Constitution lists specific Congressional powers and grants
Power “to make all Laws which shall be necessary and proper for
carrying into Execution the forgoing Powers…”
This power, with the Commerce Clause, provides strong
Congressional control of commerce.
Most things are necessary and proper
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McCulloch v. Maryland (1819)
Can Congress establish a National Bank?
Court Held: Yes, it is constitutional under the Necessary and Proper
Clause, which EXPANDS, not restricts, Congress’s powers.
Federal actions take precedence over actions of other governments
under Federal Supremacy Clause.
Maryland wanted to regulate the National Bank
Court Held: No, under the Supremacy Clause Congress has the

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Federal Supremacy: The Supremacy Clause
Article VI, Paragraph 2
“The Constitution, and the Laws of the United States . . . Shall be
the supreme Law of the Land; and the judges in every State shall be
bound thereby. . . .“
McCulloch v. Maryland states that when the federal government
has power to act under the Constitution, its actions are “supreme.”
In such a case, federal government actions take precedence over
actions of other governments.
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Wickard V. Filburn
Federal controls on production of wheat
Farmer Filburn produced 239 bushels more than he was allowed.
Sold none.
He was fined and ordered not to plant more.
Filburn argued that production was used to feed his chickens and
cows and for making bread – all consumed on the farm. No
commerce.
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Wickard V. Filburn (2)
HELD: Although this appears to be “intrastate” and “trivial,” all small
farmers together would impact “interstate commerce” and “market
conditions.”
Congress may regulate all production.
Almost all business is defined as “interstate.”
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Ollie’s Bar-B-Q, a family-owned local restaurant in Birmingham, AL.
Only white customers served.
Title II of newly enacted 1964 Civil Rights Act prohibits racial
segregation in public accommodations such as restaurants if in
interstate commerce.
Is Title II constitutional?
HELD: Yes, activity may “exert a substantial economic effect on
interstate commerce.” Even if customers all in-state, goods used in
restaurant come from elsewhere.
Katzenbach v. McClung
(Use of Commerce Clause in Non- discrimination)
1964 Case
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Federal and State Regulatory Relations
States often legislate on a matter on which Congress has legislated.
Federal regulation takes precedence over state regulation.
State regulations may not contradict federal law standards.
State may not enact laws that burden interstate commerce by
imposing restrictions on business from other states.
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When State law impedes Interstate Commerce
Some Supreme Court Cases:
Southern Railway Co v. Arizona – Court struck down Arizona law which
required trains to be shortened for safety reasons. Said interstate
commerce should be “free from interferences.”
Chemical Waste Management v. Hunt – Violates Commerce clause to
charge more for out-of-state generated hazardous waste than for in
state waste.
U.S. vs. Locke – Supreme Court struck down WA state regss regarding
tanker design and operation. Congress has uniform rules re: tanker
operations in all waters. States can not intervene.
Wyoming v. Oklahoma – Oklahoma law requiring coal-burning power
plants to burn at least 10% Oklahoma-mined coal was discriminatory &
interfered with interstate commerce.
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When State law impedes Interstate Commerce
Some Supreme Court Cases: (2)
States have legitimate interest in protecting public health, safety &
other public policies
However, regulation for these goals must be designed to achieve its
legitimate interest with minimal impact on interstate business.
In some areas, states may add their own rules to strengthen impact
of federal rule
As long as no conflict or intent to impede interstate commerce.
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Hughes v. Oklahoma
Oklahoma prohibits shipping or selling minnows out of state to
protect Oklahoma minnows. Hughes bought minnows in Oklahoma
and took them to Texas.
Convicted of violating state law. OK Supreme Court upheld statute
as constitutional to protect OK natural resources. Hughes appealed.
U.S. Supreme Court reversed.
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Hughes v. Oklahoma (2)
Court Set Guideline:
1) Does statute regulate evenhandedly with only ”incidental” effects on
interstate commerce?
2) Does statute serve a legitimate ”local purpose,” and if so,
3) Could ”alternative means” promote local purpose as well ”without
discriminating against interstate commerce?”
Fine to protect wildlife, but could be done in less discriminatory way.
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Taxing Power
Art. I, Section 8, Clause 1
Power to “lay and collect taxes”
16th Amendment gave federal government power to impose income
taxes.
Taxes used to raise revenue and /or deter/punish/encourage certain
behavior.
Supreme Court: “the power to tax includes the power to destroy.”
Supreme Court upheld taxes on illegal activities (such as sale of
narcotics)
If report income: evidence of illegal activity
If don’t report, violate tax laws
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State Taxation
State taxes cannot impede interstate or international commerce.
Northwestern States Portland Cement Co. v. Minnesota: State
cannot impose taxes upon person passing through the state or
coming into it merely for a temporary purpose.
Baccus Imports v. Dias: Court struck down Hawaii’s 20% tax on all
alcoholic beverages except for local products. Same tax must be
imposed on all.
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State Taxation (2)
Davis v. Michigan Dept. of Treasury: Michigan exemption from state
income taxed the retirement benefits paid to state employees.
All other retirement income (i.e. federal government benefits) taxed.
Taxes must apply equally to all retirement benefits.
Comptroller v. Wynne: In 2015 the Court struck down Maryland
income tax scheme that allowed counties to impose higher taxes on
income earned outside the sate of Maryland than income earned
within the state.
Apportioning state tax burden: Supreme Court held business income
may be taxed by states as long as they use formulas that divide a
company’s income fairly in the portion attributable to its state.
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State Taxes May Not Impede Foreign Trade
Constitution gives Congress power to regulate international trade.
State may not interfere with international commerce through
taxation.
Japan Line v. County of Los Angeles: California cities imposed
property tax on cargo-shipping containers used in international
shipping and owned by Japanese companies. Tax was
unconstitutional. Power over foreign commerce rests with Congress.
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Business And Free Speech
1st Amendment And Freedom Of Speech
One area of cases: Commercial Speech (advertisements)
Other area of cases: Political statements by corporations (public
issues)
Usually allowed
Unless “compelling state interest” to prohibit
For example: public health or safety
Controversial: Supreme Court struck down parts of McCainFeingold Act prohibiting for-profit and non-profit corporations and
unions from broadcasting “electioneering communications.”
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Consolidated Edison Co. v. Public Service
Commission of NY (political speech)
Con Ed mailed controversial statement supporting nuclear power in
monthly billing.
Public Service Comm. of NY said: Can not do it as customers are
“captive audience” and should not be subjected to Con Ed’s views.
Supreme Court set standard: Was the state’s prohibition 1)
reasonable as to time, place & manner of speech? 2) a permissible
subject matter? 3) serving a “compelling state interest”?
HELD: Supreme Court reversed in favor of Con Ed.
Customers may choose not to be exposed to material by not reading
it or throwing away.
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Central Hudson Gas & Electric v. Public
Service Comm. of NY (commercial speech)
The NY PSC ordered the end of advertising that promoted the use
of electricity because it was contrary to public interest. Central
Hudson contested the regulation. NY courts upheld.
U.S. Supreme Court held: Commercial speech receives less
protection than political speech but the ban was more extensive than
necessary to achieve the state’s objective and thus was
unconstitutional. Reversed in favor of Central Hudson.
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Central Hudson Gas & Electric v. Public
Service Comm. of NY (commercial speech) (2)
Court set the standard for review in such cases:
1) Does the speech concern a lawful matter and is it truthful?
2) Does the government have a substantial interest?
3) Does the restriction directly advance the public interest?
4) Is the restriction no more extensive than is necessary?
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Business & Commercial Speech
Bigelow v. Virginia: Court reversed conviction of VA newspaper
editor who published ads about availability of abortions in NYC.
Virginia State Bd. Of Pharmacy v. Virginia Citizens Consumer
Council: Court struck down VA law prohibiting advertising of prices
of prescription drugs.
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Business & Commercial Speech (2)
Shapiro v. Kentucky Bar Assn.: Court held state bar association
violated 1st Amendment by restrictions on truthful advertising for
professionals services (e.g. lawyers or doctors).
Bd. Of Trustees of the State University of NY v. Fox: Standard for
judging commercial speech regulation is one that is “not necessarily
perfect but reasonable” and “narrowly tailored to achieve the desired
objective.”
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Freedom To Criticize
Freedom of speech vs. disparagement
Bose Corp. v. Consumers Union
Consumer Reports gave bad review of Bose speakers.
Product disparagement or truthful reporting? To show defamation must
show actual malice in publishing a knowing and reckless falsehood.
Supreme Court held: Review fine because no malice
Similar cases regarding material published on Internet
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2nd Amendment Right to Bear Arms
Restrictions government may place on gun ownership and
possession – not settled area
Some jurisdictions (i.e. NYC) have very tight controls.
Some employers & business ban the possession of firearms
anywhere on company property.
State of Oklahoma: Passed statute prohibiting employers from
preventing employees from storing firearms in their personal, locked
vehicles on company property.
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4Th Amendment – Unreasonable Search &
Seizure
Does government (i.e. OSHA) need warrant?
Usually, yes
Exception: closely regulated businesses
However, business usually agrees to search.
Generally, closed places such as homes and businesses are not
subject to random police searches.
Improperly obtained evidence may not be used in court under the
exclusionary rule.
“The right of the people to be secure in their persons, houses, papers and
effects, against unreasonable searches and seizures, shall not be violated,
and no Warrants shall issue but upon probable cause….”
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Limits of Searches & Inspections
Government inspectors who come to business for a warrantless
inspection:
Marshall v. Barlow
OSHA inspector asks to search work areas. Barlow refused admission
unless inspector got a warrant.
HELD: Inspector must get a warrant.
Skinner v. Railway Labor Executives’ Assn.: RR employees involved
in train accidents or safety violations can be searched (including
blood tests) for alcohol or drugs – closely regulated industry.
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5th Amendment:
Right Against Self Incrimination
Does not apply to public records.
Corporate executives cannot be made to testify against
themselves—but must testify about corporate matters.
Business records must be produced even if might incriminate the
corporation.
Does self-reporting violate 5th Amendment?
No, it applies to persons, not Corporations
Braswell v. U.S.: President & sole stockholder of company must report
about company, even if it incriminates him
“No person shall be. . . compelled in any criminal case to be a witness against
himself.”
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5Th Amendment
Just Compensation Or Takings Clause
Can government “take” property for public purposes – oil pipelines,
schools, highways? Yes.
Eminent domain – the right of governments to condemn private
property for public uses.
What is “just” compensation? Usually “fair market value.”
“Nor shall private property be taken for public use, without just compensation.”
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5Th Amendment
Just Compensation Or Takings Clause (2)
Destruction of property value through takings must be almost
complete to receive compensation.
i.e. 60% fall in value due to change in law does not require
governmental compensation to affected owners.
Controversial economic development tactics: City uses power to
piece together land desired by a private developer – Legal in some
states; illegal in others
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Kelo v. City of New London, Connecticut
City put together property along riverfront for upscale housing, a
shopping center, and a facility for the Pfizer Company.
Some home owners refused to sell, including Suzette Kelo, who
wanted to keep her home.
City used power of eminent domain to buy property and sell to
developers.
Homeowners claimed this was a 5th Amendment violation of “public
use.”
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Kelo v. City of New London, Connecticut (2)
ISSUE Does the City’s development plan serve a “public purpose”?
U.S. Supreme Court held:
The takings satisfy the Fifth Amendment requirements of “takings for
a public purpose” (higher tax revenue from new development). City
wins.
As a result of Kelo, many states passed laws to restrict use of
eminent domain to benefit private developers.
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Horne v. Department of Agriculture
Federal law allows Dept. Of Agriculture to issue “marketing orders”
to maintain stable markets for ag products.
Raisin Administrative Committee could require raisin growers to
“reserve” part of crop with no payment.
Raisins usually destroyed.
One year, growers required to give to government 47% of crop.
The Hornes refused.
For public use without just compensation.
Government fined Hornes $680,000. They appealed. Court of
Appeals upheld the regulation.
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Horne v. Department of Agriculture (2)
Ct. of Appeals: Personal property, such as raisins, receive little
constitution protection. Hornes can plant other crops – such as
grapes to make wine.
Hornes appealed to U.S. Supreme Court.
Reversed.
Grapes are private property under “Takings Clause.” It does not
distinguish among different types of property.
good excuse by government.
Hornes relieved of paying fine.
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6th, 7th & 8th Amendments
6th Right to trial by jury in criminal cases
7th Right to trial by jury in common law cases
8th Limits cruel & unusual punishments and excessive fines
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14Th Amendment
No state . . . shall deprive any person of life, liberty or property
without due process of law;
“Nor deny to any person within its jurisdiction the equal protection of
the laws.”
U.S. v. Virginia: Supreme Court held Virginia violated equal
protection clause by excluding women from attending the Virginia
Military Institute
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14Th Amendment (2)
14th Amendment incorporates protections from the Bill of Rights &
applies them to state governments.
Due process:
Is violated when state infringes on fundamental liberty interests without
narrowly tailoring to meet the compelling state interest
Is offended when state action shocks the conscience or offends judicial
notions of fairness and human dignity
Equal Protection: Governments must treat people equally.
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Labrayere v. Bohr Farms
Missouri enacted statute eliminating right to common law action for
private nuisance when “alleged nuisance emanates from property
use for crop or animal productions purposes.”
Purpose: Preclude damages for loss from odors from concentrated
animal feeding operations.
Bohr had hog farm.
On-site sewage treatment and system for composting dead hogs.
Nearby property owners sued for: “Offensive odors, particulate
pathogens, hazardous substances, flies, and manure”
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Labrayere v. Bohr Farms (2)
Contended state statute was a violation of due process and equal
protection.
Lower Courts: Held for Bohr.
Statute must survive “strict scrutiny” of constitutional claim.
Two Steps:
1) Identify the classification to ascertain appropriate level of scrutiny.
2) Does law make distinction on basis of suspect classification and
exercise of fundamental right? THEN strict scrutiny applies.
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Labrayere v. Bohr Farms (3)
If no suspect classification, the court applies rational basis review to
see if law is related to a legitimate end.
Rural landowners suffering from the smell are not a “suspect
class”—those are race, religion, etc.
No fundamental rights violation such as movement, free speech or
voting.
Land use regulation not subject to heightened judicial scrutiny under
equal protection.
Issue: Not that law is wise or desirable but if law is completely
irrational.
Affirmed.
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THE END
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