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.

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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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TANKthink

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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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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

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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

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Growth of Government

“All levels of government are larger and more complex in the first

decade of the 21st century than 25 years ago.”