1.4 The Constitution and Business

The Role of the U.S. Constitution

The U.S. Constitution is the supreme law of the land. Every law in the country must comply with the provisions of the Constitution or that law is void. The Constitution has two main functions: First, it establishes the three branches of the federal government and allocates the division of powers between them. Second, the Constitution enumerates the fundamental liberty rights of citizens and protects them from the government’s ability to restrict those rights. These enumerated rights, known as the Bill of Rights, are the first 10 amendments of the Constitution.

The First Amendment

Perhaps the most revered of the fundamental rights guaranteed by the Bill of Rights is the First Amendment guarantee of freedom of speech, which prevents a governmental actor from prohibiting a citizen’s oral, written, or symbolic (e.g., wearing an armband) expression. Speech that has a commercial purpose is less protected than political speech. Therefore, commercial speech may be subject to time, place, and manner restrictions which might not apply to public policy or political speech. For example, a city sign ordinance may lawfully prohibit a business advertisement sign on a residence but might not prohibit a political poster in the same place.

Supremacy Clause

The Constitution contains, in addition to the Bill of Rights, a Supremacy Clause, which mandates that the Constitution and federal law, treaties, and regulations are the highest laws of the land and have priority over state law. This is known as the preemption doctrine.

Commerce Clause

The Commerce Clause of the Constitution gives Congress the power to regulate commerce among the states, among the American Indian tribes, and with foreign nations. Traditionally, the Commerce Clause was interpreted narrowly, but under the affectation doctrine, virtually all commerce conducted in the United States comes under the purview of federal law. The affectation doctrine is the notion that any commerce that has a substantial effect upon commerce between states will come under congressional authority. It is important for business entities to recognize that even when a business activity is local, it may be governed by federal law. However, through the police powers reserved to the states by the Constitution, a state also has the power to regulate commerce within its borders, subject to the preemption doctrine.

Due Process Clause

Another constitutional provision that has implication for business is the Due Process Clause. The government cannot deprive a citizen of life, liberty, or property without giving him or her notice and an opportunity to be heard before a neutral arbiter. This concept is known as procedural due process. For example, before a state government can terminate a person’s driver's license, it must provide an opportunity for the driver to object or defend himself or herself. The concept of procedural due process relates to the fundamental fairness of any government or legal proceeding involving the rights of a citizen.

The second component of due process is substantive due process. This is the notion that government statutes must be clear and understandable to the reasonable person, limited in their scope, and designed to further a legitimate governmental purpose. A law will violate substantive due process if it is arbitrary. Usually laws governing business practices are reasonably related to a legitimate governmental purpose.

Equal Protection Clause

Finally, the Fourteenth Amendment provides that the laws of the United States must be applied equally to all its citizens. This is known as the Equal Protection Clause. Importantly, the courts have concluded that this clause applies to corporations as well as citizens.

Three Constitutional Tests

When laws, promulgated by a governmental actor, treat citizens differently, the courts employ three tests to determine if the law is legitimate:

1. Strict scrutiny test

2. Intermediate scrutiny test

3. Rational basis test

Strict Scrutiny Test

First, if a law distinguishes between citizens based on a class of persons, it will be constitutional only if designed to achieve a compelling state interest. To determine if such a law achieves a compelling state interest, it must be determined whether the law passes the strict scrutiny test. For example, a state’s interest in having inmates cut their hair—such as prison security, identification of inmates, the impact of long hair on industrial safety, and general concerns about hygiene—are compelling governmental interests.

Intermediate Scrutiny Test

Second, when a law curtails a citizen’s exercise of rights based on protected classifications such as gender or age, it must be substantially related to important objectives to be valid under what is called the intermediate scrutiny test. For example, the intermediate scrutiny test would say that in the federal government’s effort to lower the number of illegitimate teen pregnancies, it is justified in creating a law that punishes men but not women for statutory rape, since only females can become pregnant.

Rational Basis Test

Finally, the rational basis test allows for treatment of citizens in a disparate way in matters of economic or social welfare, if there is a justifiable reason or a rational basis for the government action. For example, the federal government is justified in granting government subsidies to farmers but not to those in other occupations. The government justifies these subsidies because they are a means to keep food production high and food costs low, which impacts the economy

As written, the tests for determining if a law complies with the Equal Protection Clause seem straightforward but in application can be very complicated.