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Chapter 6—The Constitution and
Regulation of Business
REED SHEDDREED SHEDD PAGNATTARO PAGNATTARO MOREHEAD MOREHEAD
F I F T E E N T H E D I T I O NF I F T E E N T H E D I T I O N
TheThe Legal & Legal & RegulatoryRegulatory Environment of of BusinessBusiness
McGraw-Hill/IrwinCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights
reserved.
6-2
Introduction
The United States The United States Constitution provides the Constitution provides the
legal frameworklegal framework of our of our federal government and the federal government and the authority it has to regulate authority it has to regulate
business activities.business activities.
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Learning Objectives To appreciate the structure of the United States Constitution.
To distinguish between basic concepts and basic protections contained in the Constitution.
To understand how these provisions impact business.
To learn about the constitutional framework granting governments authority to regulate business activities.
To comprehend how this governmental authority is implemented through administrative agencies.
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think
TANKthink
TANKthinkthink
TANKTANKWhat is the mechanism through which the states receive their governmental power from the federalgovernment?
a.a. The Tenth Amendment of the US Constitution.The Tenth Amendment of the US Constitution.b.b. Article VI of the US Constitution.Article VI of the US Constitution.c.c. The Federal States Power-Sharing Act of 1791.The Federal States Power-Sharing Act of 1791.d.d. States do not receive their power from the States do not receive their power from the Federal government.Federal government.
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Strong Centralized Federal Government
3 Key Concepts
Separation of Powers
Supremacy Clause
ContractClause
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Separation of Powers
Success of constitutional experiment founded in division of powers
Checks and balances Federalism – separate and distinct
roles of levels of government.
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Supremacy Clause
Constitution Supreme of all Laws
Federal Law over State Law
Preemption
State Law may be invalid for Conflicting with Federal Law
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Contract Clause
• States cannot pass laws that impact rights and duties under existing contracts
• Does not apply to federal government
• May not apply in emergencies
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pop
QUIZpop
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QUIZDo the protections of the Bill of Rights Do the protections of the Bill of Rights apply to businesses?apply to businesses?
a.a. YesYesb.b. NoNo
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Amendments & Basic Protections
Not absoluteBalance with public policyRemoves issues from political processVaries during emergencies
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Amendments & Basic Protections
1st Amendment
14th
Amendment
2nd Amendment
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Freedoms:Freedoms:•ReligionReligion
•PressPress
•SpeechSpeech
•AssemblyAssembly
Right To Petition Right To Petition For RedressFor Redress
Amendments & Basic Protections
1st Amendment
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1st Amendment – Freedom of Religion
Establishment
Free Exercise
Employment Discrimination
Amendments & Basic Protections
1st Amendment
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1st Amendment – Freedom of Press
Organized Scrutiny of Government
Not Absolute – Prior Restraints
Defamation
•Libel
•Public Figure – Actual Malice
Amendments & Basic Protections
1st Amendment
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1st Amendment – Freedom of Speech
Symbolic speech
Overbreadth Doctrine
Commercial Speech
•Protects Corporations
•Includes Freedom of Information
Amendments & Basic Protections
1st Amendment
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2008 individuals may have handguns in homes for self defense
2nd Amendment
Right to Possess
GunsFew Court Opinions
Amendments & Basic Protections
Narrow Opinion
Increased litigation?
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Due ProcessDue Process
•Procedural- Proper Notice Procedural- Proper Notice & Hearing & Hearing
•Substantive- Substantive- Property/Rights Affected Property/Rights Affected By Gov’t ActionBy Gov’t Action
•55thth Amendment- Federal Amendment- Federal
•1414thth Amendment- State Amendment- State LocalLocal
Incorporation DoctrineIncorporation Doctrine
Amendments & Basic Protections
14th
Amendment
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Equal Protection Minimum rationality
Strict scrutiny- compelling state purpose
Quasi-strict scrutiny
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Equal Protection Issues
1. Legislative Apportionment
2. Real Estate- Racial Segregation
3. Rights Of Legitimates & Illegitimates
4. Jury Makeup
5. Voting Requirements
6. Welfare Residency
7. Rights Of Aliens
8. Property Tax To Finance Schools
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pop
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QUIZQUIZIs it ever permissible for a law or governmentIs it ever permissible for a law or governmentregulation to discriminate?regulation to discriminate?
a.a. YesYesb.b. NoNo
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Commerce Clause
“Congress shall have power . . . to regulate commerce with foreign Nations, and among the several states and with the Indian tribes.”
Art. I, Sec. 8
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Commerce Clause““Key Areas”Key Areas”
RegulationRegulation
Foreign Foreign CommerceCommerce
Interstate Interstate CommerceCommerce
LimitationLimitation
State Police State Police PowerPower
State TaxationState Taxation
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Foreign Commerce Federal government has exclusive right to
regulate foreign commerce
State can regulate commerce if occurs entirely within state boundaries
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Interstate Commerce Persons Engaged In Activities
“Affecting”
Power Is Very Broad
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think
TANKthink
TANKthink
TANKWho is the ultimate interpreter of the Who is the ultimate interpreter of the Constitution?Constitution?
a.a. CongressCongressb.b. The President of the United StatesThe President of the United Statesc.c. The Supreme CourtThe Supreme Courtd.d. The general publicThe general public
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Police Powers
State LegislationAnd Regulation To Protect The Public’s Health, Safety,
Morals, And General Welfare.
Definition
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Dormant Commerce Clause: Limits State Police Powers
Limits (Dormant Commerce
Clause)
FederalCommerce
Clause
Arbitrary, CapriciousOr Unreasonable
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Areas of Regulation of Commerce
Federal Preemption Regulation But No
Preemption Irreconcilable Conflicts Undue Burden
No Federal Regulation No Discrimination
Exclusively Federal Exclusively State
Dual Regulation
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State Taxation Form Of Regulation Limited By Commerce
Clause
Apportionment Must Be Sufficient Tie-
Nexus Or Taxable Situs
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Regulatory Process – Administrative Agencies
Authority of government to regulate professional and
personal lives is founded in constitutional principles of:
Commerce Clause
Police Powers
Performed by administrative agencies
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Administrative Agencies Examples
Federal Trade Commission
National Labor Relations Board
Equal Employment Opportunity Commission
Securities & Exchange Commission
Environmental Protection Agency
Federal Aviation Administration
Consumer Product Safety Commission
Federal Communications Commission
Federal Energy Regulatory Commission
Federal Reserve Board Food & Drug
Administration Nuclear Regulatory
Commission Occupational Safety &
Health Administration
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Quasi-Legislative(to issue rules or regulations with
impact of law)
Regulatory Authority
Quasi-Judicial (to make decisions
like a court)
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Rules & Regs Must Be Within Legislative Grant Of Power
Delegation Valid? Definite - Violate Due Process? Agency’s Power Limited To Certain Areas
Broad Language Authority Exceeded?
Judicial Review Of Agency Rule Making
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Review Of Adjudications:Procedural Aspects
Judicial Review Is Limited Agency Authority Limited
Delegated From Legislature Develop Rules Of Procedure
Courts Lack Authority To Substitute For Agency
Doctrines Exhaustion Of Remedies Primary Jurisdiction
Equal Access To Justice Act
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Review Of Factual Determinations
Court DoesCourt Does Presume Findings Of
Fact Correct Analyze Agency
Proceedings
Court Does NotCourt Does NotReweigh EvidenceMake Independent
DeterminationSubstitute Its View
For Agency’s
6-36
Growth of Government
“All levels of government are larger and more complex in the first
decade of the 21st century than 25 years ago.”
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