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

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.

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.

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.

6. COMMERCE CLAUSE • Exclusive Federal Power to regulate interstate commerce: • With foreign nations; • With Native American tribes; or • Between states (interstate commerce).

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.

8. COMMERCE CLAUSE • Exclusive State Power: • States have exclusive regulatory power over purely local activities that have remote effects on other states.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.