1. CHAPTER 5 CONSTITUTIONAL REGULATION OF BUSINESS DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.)

2. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 2 HISTORICAL PERSPECTIVE Pervasive regulation of business include federal, state, and local levels. The U.S. economy was built on laissez-faire. – Belief that businesses operate best when uninhibited by the government. Buyers were ignored and workers were unprotected. Government regulation emerged after a time of abuse by big business. Pervasive regulation of business include federal, state, and local levels. The U.S. economy was built on laissez-faire. – Belief that businesses operate best when uninhibited by the government. Buyers were ignored and workers were unprotected. Government regulation emerged after a time of abuse by big business.

3. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 3 SHOULD GOVERNMENT REGULATE BUSINESS? Depends on the type of business issue, regulation, and the level of government involvement. Government regulation takes two forms: – Social regulation: workplace safety, equal opportunity, environmental and consumer protection. – Economic regulation: prices, production, and industry conditions. Depends on the type of business issue, regulation, and the level of government involvement. Government regulation takes two forms: – Social regulation: workplace safety, equal opportunity, environmental and consumer protection. – Economic regulation: prices, production, and industry conditions.

4. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 4 SHOULD GOVERNMENT REGULATE BUSINESS? Benefits of regulation weighed against costs. Many today believe there is an over- regulation of business. Business’s “social contract” requires it pay attention to social and economic issues. Benefits of regulation weighed against costs. Many today believe there is an over- regulation of business. Business’s “social contract” requires it pay attention to social and economic issues.

5. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 5 COMMERCE CLAUSE Most important constitutional provision affecting business. Commerce clause allows federal government broad regulatory power. Power to regulate interstate commerce. Allows federal government to regulate commerce. Most important constitutional provision affecting business. Commerce clause allows federal government broad regulatory power. Power to regulate interstate commerce. Allows federal government to regulate commerce.

6. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 6 COMMERCE CLAUSE Exclusive Federal Power to regulate interstate commerce: – With foreign nations; – With Native American tribes; or – Between states (interstate commerce). Exclusive Federal Power to regulate interstate commerce: – With foreign nations; – With Native American tribes; or – Between states (interstate commerce).

7. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 7 COMMERCE CLAUSE Concurrent State Power. States may regulate commerce if the regulations: – Serve a state interest; – Do not impose undue burden on interstate commerce; – Do not conflict with federal law; or – Taxes do not discriminate against out-of-state businesses. Concurrent State Power. States may regulate commerce if the regulations: – Serve a state interest; – Do not impose undue burden on interstate commerce; – Do not conflict with federal law; or – Taxes do not discriminate against out-of-state businesses.

8. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 8 COMMERCE CLAUSE Exclusive State Power: – States have exclusive regulatory power over purely local activities that have remote effects on other states. Exclusive State Power: – States have exclusive regulatory power over purely local activities that have remote effects on other states.

9. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 9 THE EQUAL PROTECTION CLAUSE Protects individuals or businesses from invidious discrimination arising from governmental action. Prohibits only discrimination that derives from governmental action. Applies to federal and state governments. Protects individuals or businesses from invidious discrimination arising from governmental action. Prohibits only discrimination that derives from governmental action. Applies to federal and state governments.

10. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 10 THE EQUAL PROTECTION CLAUSE Level 1: The “Rational Basis” Test. – Applies to most social and economic regulations. – Courts presume regulations are valid. – Allows government to discriminate against similarly situated persons if regulation rationally related to legitimate purpose. Level 1: The “Rational Basis” Test. – Applies to most social and economic regulations. – Courts presume regulations are valid. – Allows government to discriminate against similarly situated persons if regulation rationally related to legitimate purpose.

11. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 11 THE EQUAL PROTECTION CLAUSE Level 2: The “Compelling State Interest” Test. – Applies to regulations based on suspect classifications (race or ethnic origin). – Courts presume such regulations are invalid. – Regulation based on suspect classification valid only if it furthers compelling state interest and there is no less burdensome way of accomplishing interest. Level 2: The “Compelling State Interest” Test. – Applies to regulations based on suspect classifications (race or ethnic origin). – Courts presume such regulations are invalid. – Regulation based on suspect classification valid only if it furthers compelling state interest and there is no less burdensome way of accomplishing interest.

12. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 12 THE EQUAL PROTECTION CLAUSE Intermediate Level: The “Substantially Important State Interest” Test. – Test applies to gender-based classifications. – Regulation based on gender is valid if it is substantially related to an important state interest. Intermediate Level: The “Substantially Important State Interest” Test. – Test applies to gender-based classifications. – Regulation based on gender is valid if it is substantially related to an important state interest.

13. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 13 THE DUE PROCESS CLAUSE Due process clause protects against deprivations of life, liberty, or property. Procedural Due Process: – Before government (state or federal) can deprive a person of life, liberty, or property, government must provide hearing. Fair hearing requires notice to the defendant; Opportunity for defendant to be heard; and Impartial decision maker. Due process clause protects against deprivations of life, liberty, or property. Procedural Due Process: – Before government (state or federal) can deprive a person of life, liberty, or property, government must provide hearing. Fair hearing requires notice to the defendant; Opportunity for defendant to be heard; and Impartial decision maker.

14. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 14 THE DUE PROCESS CLAUSE Substantive Due Process: – Focuses on the content or subject matter of the law. – Applies to all persons. – Courts will defer to legislatures and uphold regulations unless they are clearly irrational. Substantive Due Process: – Focuses on the content or subject matter of the law. – Applies to all persons. – Courts will defer to legislatures and uphold regulations unless they are clearly irrational.

15. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 15 THE TAKINGS CLAUSE Prevents government (federal or state) from taking private property for public use without just compensation. A taking has occurred if governmental action destroys property’s current use or impairs value of property. Land use regulations may constitute a taking. Prevents government (federal or state) from taking private property for public use without just compensation. A taking has occurred if governmental action destroys property’s current use or impairs value of property. Land use regulations may constitute a taking.

16. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 16 THE FIRST AMENDMENT/ COMMERCIAL SPEECH The advertising of business products and services is protected under the First Amendment. Laws regulating content of speech are valid only if they are narrowly written to advance compelling state interest. Courts presume laws regulating speech are invalid. The advertising of business products and services is protected under the First Amendment. Laws regulating content of speech are valid only if they are narrowly written to advance compelling state interest. Courts presume laws regulating speech are invalid.

17. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 17 THE FIRST AMENDMENT/ COMMERCIAL SPEECH Government may regulate time, place, or manner of speech. Protection of commercial speech is more limited than protection of individual speech. Government can ban commercial speech if false and misleading. Government may regulate time, place, or manner of speech. Protection of commercial speech is more limited than protection of individual speech. Government can ban commercial speech if false and misleading.

18. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 18 ADMINISTRATIVE AGENCIES Conduct much of the work of regulating business. They’re not an independent branch of government. Have legislative and judicial powers. Congress has power to create and abolish agencies. Conduct much of the work of regulating business. They’re not an independent branch of government. Have legislative and judicial powers. Congress has power to create and abolish agencies.

19. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 19 ADMINISTRATIVE AGENCIES Congress limits power and authority by statute. Agencies are subject to procedural and substantive due process. Courts have power to review decisions. – Court will review the proceedings only from the point of view of their legality. Congress limits power and authority by statute. Agencies are subject to procedural and substantive due process. Courts have power to review decisions. – Court will review the proceedings only from the point of view of their legality.