Chapter 5 Business and the Constitution

Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning

Chapter 5 Business and the

Constitution

Its Legal, Ethical, and Global Environment

MARIANNE M. JENNINGS

7th Ed.

2 Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning

The U.S. ConstitutionThe U.S. Constitution• Article I: Legislative Branch.

– Congress.• House of Representatives.• Senate.

• Article II: Executive Branch.– President.– Vice President.

• Article III: Judicial Branch.– Creates U.S. Supreme Court.– Authorizes Congress to create other courts.


The U.S. ConstitutionThe U.S. Constitution• Creates a System of Checks and

Balances.– Each branch has some power check over

the others to keep any one from becoming too powerful.

• Example: Clinton v. Jones, 520 U.S. 681 (1997), President is accountable for civil wrongs alleged by private citizens.


The U.S. ConstitutionThe U.S. Constitution• Other Articles in the Constitution.

– Article IV: State interrelationships.– Article V: Procedures for amendments.– Article VI: Supremacy Clause.


The U.S. ConstitutionThe U.S. Constitution• Bill of Rights.

– First: Freedom of speech.– Fourth: Privacy.– Fifth: Due process and self-incrimination.– Sixth: Jury trial.

• Other Amendments.– Fourteenth Amendment: Due Process and

Equal Protection.


Role of Judicial ReviewRole of Judicial Review• Determines the Rights Afforded by

the U.S. Constitution.• Determines of the Scope of Rights.• Plays Unique Role in Checks and

Balances.– Determines the appropriateness of the

actions of other branches.


Limits of Economic Limits of Economic RegulationRegulation

• The Commerce Clause: Article I, Section 8:– Standards for Federal Regulation of Interstate

Commerce. – Historical application:

• Initially, Court gave a narrow interpretation.• Court held New Deal Legislation unconstitutional.• Roosevelt proposed Court-Packing Plan.• After these political battles, the court responded in

NLRB v. Laughlin Steel with the affectation doctrine.



• Case 5.1 U.S. v. Morrison (2000).– Victim of assault sued university under

the Violence Against Women Act.– Court found the VAWA was non-

economic and therefore outside the scope of Congress’ power under the interstate commerce clause.



• The Commerce Clause: Article I, Section 8:– Standards for state regulation of commerce.

• If Congress has regulated, there is an overriding concern about the Supremacy Clause.

• If Congress has not acted, there is a benefit/burden analysis.

• Balance police power (state’s interest in regulation) with the burden on commerce.

• State law cannot give in-state businesses an advantage.



• Case 5.2 Fort Gratiot Sanitary Landfill, Inc. v. Michigan Dept. of Natural Resources (1992).

• Of what significance is it that the restrictions apply both to outside counties and to other states?

• Is economic protectionism involved?



• Congressional Regulation of Foreign Commerce.– The power of Congress to regulate

foreign commerce applies regardless of where it begins and ends.


Taxation of BusinessTaxation of Business• Congress’ Power to Tax: Article I,

Section 8: The ability of Congress to tax has been consistently upheld.

• State and Local Taxation of Interstate Commerce.– Interstate business is not exempt from

state and local taxes just because they are interstate businesses.


Taxation of BusinessTaxation of Business• Requirements for Valid State Tax:

– Tax cannot discriminate against interstate commerce.

– Tax cannot be an undue burden on interstate commerce.


• Requirements for Valid State Tax:– Must be a “sufficient nexus” between the state

and the business being taxed.• Examples: Does business there, holds property

titles there, manufactures there, inventory stored there.

– Must be apportioned fairly.• Example: A corporation doing business in fifty

states cannot have all income taxed in all fifty states. Must be apportioned according to its revenues in the states.

Taxation of BusinessTaxation of Business


• Case 5.3 Quill Corp. v. North Dakota (1992).– How did Quill come to have customers

in North Dakota?– Is there a difference between pamphlets

in a state and salespeople in that state?

Taxation of BusinessTaxation of Business


State vs. Federal State vs. Federal RegulationRegulation

• The Supremacy Clause and Preemption.– Article VI exists to determine which

laws control in the event both state and federal governments regulate the same thing.

– If state law directly conflicts with federal law, state law is invalid.


• The Supremacy Clause and Preemption.– Whether there is preemption is controlled by

answering several questions:• What does legislative history provide?• What is the level of detail in the federal

regulation?• What benefit flows from the federal regulation?• What is the nature of conflict—can the two laws

survive?



• Case 5.4 Geier v. Honda Motor (2000).– Geier’s car did not have an air bag and she

was injured.– She sued claiming negligent manufacture, that

Honda owed a duty to include an airbag.– Case was dismissed and Supreme Court

affirmed.



• First Amendment.– Provides some protection for commercial

speech. • Commercial speech is speech used to further the

economic interests of the speaker. – Advertising and commercial speech protection

• Can regulate advertising.• Substantial government interest must be furthered.• Is the regulation the least restrictive means of

accomplishing the interest.

Bill of RightsBill of Rights


First Amendment Full Protection

First Amendment Protections and Business Speech

Business Political Speech

Governmental Regulation of Commercial Speech

Business Advertising

Bill of RightsBill of Rights

Speech on Social

Issues and Business:

Nike, Professions


Bill of RightsBill of Rights• Case 5.5 Nike, Inc. v. Kasky (2003).

– What kind of speech was targeted?– Were Nike’s press releases protected by

the First Amendment?– What do you think is the impact of this

case on other companies?


Bill of RightsBill of Rights• First Amendment.

– Corporate political speech. • Corporate participation in campaigns is

given full First Amendment protection.


Bill of RightsBill of Rights• Case 5.7 First National Bank of

Boston v. Bellotti (1978). • What did the Massachusetts statute

regulate?• How does the Court respond to the fact that

corporate speech might be more persuasive?


Eminent DomainEminent Domain• Eminent domain is the right of

government to take private property for public purpose for just compensation.

• Public use examples: Highways, schools, urban redevelopment, limits on mining, historical preservation, economic development.


• Requirements:– Taking or regulating.

• Examples: Prohibitions on use, elimination of use.

• In Loretto v. Teleprompter Manhattan CATV Corp. et al. (1982).

• In Nollan v. California Coastal Commission (1987).

• In Lucas v. South Carolina Coastal Council (1992).

Eminent DomainEminent Domain


• Requirement: Procedural Due Process.• Applies to criminal, civil, and

administrative proceedings.• Example: Summons and complaint provide

notice to defendants.– Right to notice of hearings.– Right to be heard.



• Requirement: Substantive Due Process.– State laws cannot substantively eliminate

rights without some benefit.• Law must be logically related to legitimate

governmental purpose.• Example: Sunday blue laws—stores are

closed by law—states must be able to show economic, health, social benefits of such closure.



Equal ProtectionEqual Protection• Elements of Protection for Regulation.

– Regulation must apply to all businesses.• Example: Courts have struck laws that

allow small stores to stay open on Sunday while large stores could not.


International Law and International Law and ConstitutionsConstitutions

• General types of constitutions found in the United States and England.

• Code Law Countries found in Mexico and many European countries.

• Islamic Law: Based on religion, governs all aspect of personal and business life law.

Chapter 5 Business and the Constitution

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