US Constitution Basics
The U.S. Constitution is the foundation of our nation's government and law. It was the first written constitution in the world and has been frequently copied since its ratification. George Washington described its drafting as a miracle. In a 1788 letter to Lafayette, he said:
“It appears to me, then, little short of a miracle, that the delegates from so many different states (which states you know are also different from each other in their manners, circumstances, and prejudices) should unite in forming a system of national Government, so little liable to well-founded objections.”
Business and commerce is affected by the words and interpretation of the Constitution. The U.S. Supreme Court is the arbiter of disputes arising out of the Constitution and reviews federal and state laws, having the ability to strike down laws that violate the Constitution.
The Constitution established a system of government based on the principle of federalism where the authority to govern is divided between federal and state governments. According to the Tenth Amendment, all powers that the Constitution neither gives exclusively to the federal government nor takes from the states are reserved for the states. As a result, federal laws that affect business must be based on an expressed constitutional grant.
General Structure of the Constitution
Besides allocating authority between the state and federal governments, the Constitution allocates federal power between the three branches of government. If you look at the Constitution, you will see that there are seven articles, starting with Article I (legislative powers), Article II (executive branch), and Article III (judiciary). There are also ten amendments adopted in 1791 known as the Bill of Rights. In 1868, the Fourteenth Amendment passed requiring states to provide due process and equal protection of the laws to U.S. citizens.
Division of Powers Among the Federal Branches of Government
Because the Founding Fathers wanted to ensure that no single branch of government would control the others, they created checks and balances to ensure that the different branches had oversight. Thus, the president has veto power, but the House of Representatives is entrusted with the power to initiate spending bills. Each branch of government was given a major area of responsibility:
- Congress (or the federal legislature) makes laws. If you need a refresher on the legislative branch, check out this video review.
- The President (the chief executive) enforces the laws. Modern presidents have broad powers in both domestic and foreign affairs.
- The courts, or the judiciary, determine the constitutionality of the laws enacted by Congress or a state legislature. More on this below.
In an important case, Marbury v. Madison, the U.S. Supreme Court announced the doctrine of judicial review - that the courts can declare federal or state actions to be in violation of the Constitution (e.g., that they are unconstitutional). Because the Constitution speaks in general terms such as "due process" or "equal protection," it became important to have a government body interpret how the law applies to specific facts. The courts fill that role. And the U.S. Supreme Court is the final arbiter of constitutionality.
Imagine that two states have interpreted constitutional law aspects differently. Perhaps one state determines that it can restrict gun ownership while another strikes down similar legislation as unconstitutional. In such a circumstance, the case may be appealed to the U.S. Supreme Court. The court's decision would then give clarity to the numerous states about the constitutionality of states' gun control laws.
Because the Supreme Court has this power of judicial review, many disagree about how that power should be exercised. Some argue that the Supreme Court should limit its interpretation of the Constitution based on the original understanding of the authors or the people that confirmed it at the time. This notion stands in contrast to the concept of the living constitution, or the idea that the Constitution is intended to be interpreted based on the ideals of our current times.
Justice Scalia regularly lectured on this topic before his death in 2016. If you would like to watch a speech he gave on the matter, you can watch this address to the Cambridge Union.
Federal Enumerated and Implied Powers
Remember that Congress only has those specific powers granted to it by the Constitution. These powers can be granted expressly (the enumerated powers) or implicitly (the implied powers). Other powers are reserved to the states through the Tenth Amendment which states that those powers "not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." Of the powers expressly granted to Congress (including the ability to print money, establish post offices, etc.), three primary powers will be discussed here - the commerce clause, the taxing authority, and the spending clause.
The Commerce Clause
The primary source of authority for federal action or regulation of business is the commerce clause. The commerce clause gives Congress exclusive power to make laws relating to commerce among the various states.
For many years, the Supreme Court was very strict in its application of the commerce clause. If the laws did not directly deal with products moving from one state to another, those laws were found unconstitutional and stricken down. However, during the Great Depression of the 1930s, President Roosevelt's New Deal program sought greater federal action to revive the economy. The Supreme Court began viewing federal action in a broader sense. The court looked to see if the federal action would have an "effect" on commerce between the states. Court generally accepted that even small impacts on interstate commerce could be the basis of federal legislation. For example, during this time, the Supreme Court upheld federal laws that regulated how much wheat a person could grow and a federal ban on racial discrimination at a small restaurant with very few customers coming from across state lines.
Until the 1990s, it was widely assumed that Congress could pass nearly any law because all laws have at least some small effect on interstate commerce. So it came as a shock when in 1995 the Supreme Court declared unconstitutional a law that prohibited possession of firearms within 1,000 feet of a school. In US v. Lopez, Mr. Lopez admitted to having a firearm within 1,000 feet of a San Antonio school, but challenged the law itself, arguing that this law did not have any material effect on interstate commerce. The attorney representing the government argued that Congress did in fact have this authority because if guns were allowed near schools, they may distract students from their studies, lessening their future job prospects. With few job prospects, commerce would be reduced. The Supreme Court disagreed, finding that if this law were to stand, Congress could pass any law under that Commerce Clause, which defeats the purpose of the U.S. Constitution limiting Congress's authority. Lopez was freed because the law itself was unconstitutional.
Following the Lopez decision, Congress is careful to make a record as to why it believes laws it passes address a problem related to interstate commerce.
Power to Tax
Governments cannot function without a source of revenue. For this reason, the Constitution declares that "Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises." Courts generally uphold any taxing measure so long as it is intended to generate revenue. An example of a law struck down for violating this principle was a statute that placed substantial taxes on employers who knowingly hired under-age children. Because this law was meant only to punish employers who knowingly hired minors.
The taxing power, however, may still act as a regulatory device. Congress may choose to regulate certain business activities by taxing it heavily so long as the main purpose of the tax is to generate revenue. It may also promote other activities by granting tax breaks on it. Today, this taxing authority is interpreted as being very broad.
Power to Spend for the General Welfare
Congress has been granted the spending power. The Constitution authorizes it to "pay the Debts and provide for the common Defense and general Welfare of the United States." You can look at the taxing authority as the stick; the spending authority is the carrot.
Congress can use the spending power to encourage states to take specific actions that Congress has prioritized. This power has been broadly interpreted as well. For example, in South Dakota v. Dole, the Supreme Court upheld a federal statute that grants federal funds for state highways to only those states in which the legal drinking age is set at 21.
There are limits to this power as well. For example, there must be a reasonable nexus between the action that Congress is incentivizing and the funds that will be expended. For example, Congress regularly sends the state of Idaho federal funds to cover costs of Medicaid, the state-administered (but federally created) health coverage program. Congress therefore can tie additional Medicaid funds by requiring that Idaho expand coverage. It likely could not, however, tie additional funds by requiring Idaho to increase the amount of land protected by the state park system.
The Amendments to the Constitution
The first ten amendments of the Constitution are known as the Bill of Rights and are important to a study of business law because they prohibit the federal government from infringing on individual liberties. The 14th Amendment makes these provisions applicable to state governments as well, meaning that state governments are prohibited from interfering in citizens' exercise of rights. However, it is important to remember that the Bill of Rights does not protect citizens from acts of their employers, other citizens, or any non-governmental body. As a result, your employer may limit your freedom of expression without running afoul of your Constitutional rights.
The First Amendment
The First Amendment guarantees freedom of speech, including gestures and other forms of expression, and of the press. But like other rights, its protections are not absolute. As you may know, if you scream "fire!" in a crowded theater, you may be prosecuted despite your arguments that the Constitution gives you the right to say whatever you want.
Political speech is any speech used to support candidates for office as well as referendum. Political speech is given high protections. Not only does the Constitution protect individual political speech, but it also protects corporations that wish to weigh in on political issues. In First National Bank of Boston v. Bellotti, the Supreme Court ruled that the First Amendment protects corporate political speech to the same extent as ordinary citizens' political speech. This is because corporations are treated as artificial persons.
But not all corporate speech is political in nature. Commercial speech involves information disseminated to the public about the sale of goods or services. A simple example could involve the government's ban on misleading advertisements or the advertisement of illegal activity. That speech is not protected by the First Amendment. However, how would you analyze a law that prohibits the advertising of alcohol in locations where alcohol is not sold? In such cases, courts will look at whether the government has an interest in limiting speech, whether the law directly advances the government interest asserted, and whether the regulation is more extensive than necessary to serve the government interest. To see how the Supreme Court ruled on this specific case, see this summary of 44 Liquormart v. Rhode Island.
Other examples of speech that are not protected include defamation, obscenity (though this has been eroded substantially as societal norms change), and fighting words (or direct threats).
The First Amendment also protects citizens' freedom of religion. For more information, please see the information on the Church's Religious Freedom webpage. In addition, BYU holds an annual conference about religious freedom that you may be interested in attending. You can find information on the conference here.
The Fifth Amendment
The Fifth Amendment protects individuals from self-incrimination, meaning that in a criminal case, a defendant doesn't have to take the stand and testify against himself or herself. It also protects against double-jeopardy, meaning that a defendant cannot be tried for the same crime twice by the same court.
For businesses, the Fifth Amendment's due process clause provides extensive protection. This clause states that the government cannot deprive a person of life, liberty, or property without due process of law.
Procedural Due Process. Procedural due process requires that the government use fair procedures before depriving someone of life, liberty, or property. This requires that a person be given notice of any legal action being taken against him or her and to have a hearing before an impartial judge. This applies to both federal and state courts. But note that this applies to more than just criminal proceedings. The government could potentially deprive a citizen of liberty or property by taking away Social Security benefits or food stamps. In such cases, the citizen likewise must be given the opportunity to have a hearing.
Substantive Due Process. Where procedural due process deals with the procedures that must take place, substantive due process is more concerned about fairness in the process. To satisfy the substantive due process requirement, the government must have a proper purpose for enacting laws that restrict individuals' liberty or the use of their property.