Role and Functions of Law in Business

Role and Functions of Law in BusinessPaper details:Resource: Case Brief Cipollone v. Liggett Group, Inc., et al. in Ch. 2, “Commerce Powers,” of the text.*** This reference that I have provided in the attachment and Chapter two must be used by the writer as one of the sources (***Melvin, S. P. (2011). The legal environment of business: A managerial approach: Theory to practice. New York, NY: McGraw-Hill/Irwin***).***the other source that the writer selects must be peer-to-peer review and I must have access to it for reviewing the content of my paper***.Write a 700- to 1,050-word paper in which you define the functions and role of law in business and society. Discuss the functions and role of law in your past or present job or industry.STRUCTURE AND NATURE OF THE CONSTITUTION:FEDERAL POWERSThe United States uses a federal system in which a national government coexists with thegovernment of each state. An important concept underlying the federal system is that thefederal government has only limited powers to regulate individuals and businesses. Statesare thought of as having more inherent powers to protect the general welfare of their citizenrywith only general constitutional authorization.1 In contrast, the federal government’spower to regulate must be specifically granted by the U.S. Constitution. For example, theConstitution grants Congress the explicit power to collect taxes and to control the issuanceof patents and copyrights.From a broad perspective, the Constitution may be thought of as having three generalfunctions: (1) establishing a structure for the federal government (including qualificationsfor certain government offices) and rules for amending the Constitution; (2) granting specificpowers for the different branches of government; and (3) providing procedural protectionsfor U.S. citizens from wrongful government actions.Structure of the ConstitutionThe U.S. Constitution is composed of a preamble, seven articles,and 27 amendments. The first three articles establish athree-part system of government with three coequal branches:the legislative branch, the executive branch, and the judicialbranch. The underlying rationale for this structure is that eachof the branches exercises its respective powers to ensure thatone branch does not exceed its authority under the Constitution.Specifically, the Constitution begins with a preamble statingthe Constitution’s broad objectives (e.g., justice, liberty, tranquility,common defense). The articles then set out structure,powers, and procedures. From a business perspective, it is alsoimportant to note that Congress’s powers to directly and exclusivelyregulate bankruptcy, patents, and copyrights are set outin Article I. Table 2.1 is a brief synopsis of the provisions ineach article.In addition to the creation of federal courts, the Constitutionalso establishes boundaries of jurisdiction. Jurisdiction isthe legal authority that a court must have before it can hear acase. Both the U.S. Constitution and individual state constitutionscontain language that establishes jurisdiction for certainmatters to be heard by certain courts. The concept of jurisdictionis discussed in detail in Chapter 3, “The American JudicialSystem, Jurisdiction, and Venue.”AmendmentsThe Constitution has been amended (added to or changed)on several occasions since its ratification. These amendmentsare an important part of the Constitution’s function as a protectionof the citizenry from unlawful or repressive acts of thegovernment. The first ten amendments, called the Bill of Rights, were added in 1791. TheBill of Rights preserves the rights of the individual U.S. citizens, and in some cases U.S.–based businesses, from unlawful acts of government officials, freedom of speech and religion,prohibition on random searches, and others. In all, there have been 27 amendments tothe Constitution. The applicability of the Bill of Rights in the specific context of businessis discussed in detail later in this chapter.OVERVIEW OF FEDERAL POWERSPowers granted to the three branches of government in the Constitution are known asenumerated powers and are typically limited in scope. This means that each act of federallegislation or regulation must come from within one of the very specific, enumeratedpowers. The primary authorization of Constitutional powers is given to Congress underArticle I. 2 Congress has enumerated powers in 18 different clauses. The powers that generallyimpact business owners and managers include (1) the power to regulate commerce(CommerceClause); (2) taxing the citizenry and commercial entities and spending governmentfunds (tax and spend provisions); (3) bankruptcy, patents, and copyrights; and(4) a more general implied authority to make all laws necessary for carrying out its enumeratedpowers (Necessary and Proper Clause).Separation of PowersEnumerated powers are also granted to the executiveand judicial branches. For example, the presidentis granted the power to (1) carry out lawsmade by Congress; (2) be the commander in chief of the armed forces; (3) enter into a treaty (subject to approval by the Senate) and tocarry out foreign policy; and (4) appoint federal officers and judges (also subject toSenate approval). The judiciary is authorized to decide cases and controversies fallingwithin federal jurisdiction. In addition, the three branches also have powers that are partof an overall scheme to provide a system to resolve conflicts among the branches andensure that no one branch exceeds its constitutional authority. This system of checksand balances is called the separation of powers.Table 2.2 sets out some of the various powers each branch has that acts as a check onthe other branches.Judicial ReviewOne of the central concepts in federal Constitutional law is the notion that federal courtshave the right to invalidate state or federal laws that are inconsistent with the U.S. Constitutionin some way. The U.S. Supreme Court is the ultimate judge of federal constitutionallaw. This authority was established by the Court in the landmark case of Marbury v. Madisonin 1803. In Marbury, the Court explicitly ruled that (1) the Constitution was superiorto federal and state statutes, and (2) when there is a conflict between the Constitution andstate or federal law, the Court has the authority to strike down the law as unconstitutional.The Court based these conclusions on the judiciary branch’s enumerated powers found inArticle III, § 2 which includes authority of matters arising under the Constitution or “lawsof the United States.” 3 Marbury, although decided over two hundred years ago, is still consideredvalid precedent, and federal courts regularly cite the case as a source of authorityfor the power to invalidate a law that is in conflict with the Constitution. Over the betterpart of two centuries, the Court further defined its judicial review authority, including thepower of federal courts to review state court decisions to the extent that the decisionsinvolve federal law or federal constitutional issues.Applying the Constitution: Standards of ReviewThe U.S. Supreme Court has established three standards of review for applying Constitutionallaw. These standards appear in a broad range of constitutional law cases, and theCourt has fashioned these standards for use by lower courts in applying the provisions ofthe Constitution as uniformly as possible. When reviewing a government action for constitutionalsoundness (such as passage or enforcement of a federal or state law), the Courtclassifies the action into one of three categories of scrutiny: (1) the rational basis category,(2) intermediate-level scrutiny, or (3) strict scrutiny.Rational Basis Government actions that are in this category are subject to the least amountof scrutiny. In order for the court to uphold the action, the government need only show thattheir action advanced a legitimate government objective (such as public welfare, health, orsafety) and the action was minimally related to the government’s objective. Governmentactions that fall into this category include those that do not involve any fundamental constitutionalrights. Fundamental rights are generally limited to voting, access to criminal appeals,and interstate travel. Therefore, almost every economic- and tax-related law is reviewed usingthis undemanding threshold and ultimately the law is found to be constitutional. For example,suppose that, in response to pressure by consumer advocacy groups to regulate Internetaccess, pricing, and service, Congress passes a law requiring all Internet service providers(ISPs) to be directly regulated by a new federal administrative agency. The law imposes atax on the ISPs to fund the agency. MegaSearch is an ISP subject to the law and files suitcontending the law is an unconstitutional exercise of congressional powers. Because the regulationis purely economic, a court will likely rule against MegaSearch and uphold the law asconstitutional using the rational basis category so long as the government provides evidencethat the law advanced some legitimate government objective (such as consumer protection).Intermediate-Level Scrutiny Some actions are categorized as subject to intermediatelevelscrutiny. Courts will uphold government actions as constitutional so long as the governmentcan prove that their action advanced an important government objective (a higherlevel than “legitimate” used in the rational basis test) and that the action is substantiallyrelated (a higher level than “minimally”) to the government’s objective. A relatively smallnumber of cases fall into this category. For example, courts have used this category in casesinvolving government action related to regulating time, place, and manner of a politicaldemonstration that is protected under the First Amendment. For example, suppose in theMegaSearch case, above, that the management at MegaSearch organizes a protest againstthe law and applies for permits to stage demonstrations opposing the law in several citiesacross the country. One city, Silicone Village, rejects the permit application because Mega-Search’s proposed demonstration would block a high-volume traffic area and endanger bothpedestrians and drivers. The village also points out that a public park located in the villagewould be a more appropriate venue. If MegaSearch sues the village for denying them theirFirst Amendment right to protest, a court would likely find the village’s actions permissibleunder the intermediate-level scrutiny standard because the government’s denial of the permitis substantially related to an important government objective (protection of drivers andpedestrians).Strict Scrutiny When the government action is related to a fundamental right or is basedon a “suspect” classification (i.e., race, national origin, or alienage) courts apply a strictscrutiny standard when deciding whether to uphold the government action. Courts willonly uphold the law if (1) the government’s objective is compelling, (2) the means chosenby the government to advance that objective is necessary to achieve that compelling end,and (3) no less-restrictive alternatives existed. In the strict scrutiny category, the governmenthas the burden of persuasion. As a practical matter, when courts classify government actions as belonging in the strict scrutiny category, they are signaling that the governmentaction is likely to be ruled unconstitutional. For example, suppose that in the MegaSearchcase above, that the government passes a law that imposes a higher level of tax on ISPswho catered to Latino users by assessing the tax based on the number of searches conductedusing words and phrases in Spanish. Such a law would be a clear example of thegovernment’s use of a suspect classification (national origin) and would clearly be struckdown under a strict scrutiny analysis.The Supremacy Clause and PreemptionBecause our federal system of government contemplates the coexistence of federal law withthe various laws of the states, there is sometimes a conflict between federal law and state law.Article VI of the U.S. Constitution provides that valid federal laws (those made pursuant toCongress’s constitutional authority and that are constitutionally sound) are always supremeto any conflicting state law. This is known as the Supremacy Clause and it invalidates anystate law that is in direct conflict with federal law. The power granted by the supremacyclause to override a state law is called preemption. In order for preemption to occur, thefederal law must be directly in conflict with the state law to the point where the two laws cannotcoexist. For example, in Geier v. American Honda Motor Company, the U.S. SupremeCourt held that a federal regulation giving auto manufacturers the choice between airbagsor alternative methods of passenger safety restraints preempted a claim by an injured partyagainst an auto manufacturer under a state common law doctrine based on failing to installairbags. The Court ruled that, because the injured party’s case depended upon a claim thatauto manufacturers had a legal duty to install airbags and the violation of that duty resulted inthe injury, the state common law could not coexist with federal law that specifically allowedauto manufacturers to opt not to install airbags in favor of another type of restraint system.In Case 2.1, a famous dispute involving the early tobacco product liability litigation, theU.S. Supreme Court applied the doctrine of preemption.COMMERCE POWERSCongress’s broadest power is derived from the Commerce Clause whereby Congress isgiven the power to “regulate Commerce among the several states.” Under the moderntrend, federal courts have been largely deferential to legislative decisions under Congress’scommerce powers. Despite some limits placed by the U.S. Supreme Court in therelatively recent past, Congress still exercises very broad powers to pass laws where theactivity being regulated affects interstate commerce in any way.Application of Commerce PowersCongress exercises its commerce powers in various forms. However, the direct and broadpower to regulate all persons and products related to the flow of interstate commerce is thefundamental source of its authority.Interstate versus Intrastate Commercial Activity Congress has the express constitutionalauthority to regulate (1) channels of interstate commerce such as railways and highways,(2) the instrumentalities of interstate commerce such as vehicles used in shipping, and(3) the articles moving in interstate commerce. Even for commercial activity that is purelyintrastate (takes place within one state’s borders), Congress has the power to regulate theactivity so long as it has a substantial economic effecton interstate commerce. For example,suppose that Congress passes the Whistleblower Act, a statute that prohibits any businessengaged in interstate commerce from firing their employees for reporting safety violations.Steel Co., a West Virginia company, begins to engage in a pattern of firing all employees whoreport safety violations. When a government agency files a civil lawsuit against Steel Co. toenforce the Whistleblower Act, Steel Co. defends that the act is unconstitutional because theactivity of firing their employees is purely within the state of West Virginia and not related tointerstate commerce. A court would likely find that if Steel Co. had any commercial activityat all (such as shipping, warehouses, equipment, advertising, or importing) that is outsideof West Virginia, Congress has the authority to regulate Steel Co.’s workplace policies. Inthe dynamics of the modern-day commercial world, a large amount of seemingly intrastateactivity has some degree of economic effect on interstate commerce.The U.S. Supreme Court has even deferred to congressional regulation of a productthat is cultivated for noncommercial purposes solely in one state as sufficiently related to interstate commerce. In Gonzalez v. Raich, 7 the Court ruled that Congress had the powerto criminalize the possession of marijuana even if it was noncommercially cultivated andconsumed by medical prescription all in the same state. The case involved a challenge bytwo California residents to the enforcement by federal officials of the federal ControlledSubstances Act after California passed a state law via voter ballot proposition to exemptanyone involved in the cultivating, prescribing, and consuming marijuana for medical purposesfrom prosecution. The plaintiffs were each arrested by federal officials for possessionof marijuana that had been grown at home. Each had a prescription from a licensedphysician. In refusing to invalidate the Controlled Substances Act, the Court noted thatCongress could have rationally believed that the noncommercially grown marijuana wouldbe drawn into the interstate market and, therefore, the banning of the substance was sufficientlyrelated to interstate commercial activity.Cipollone v. Liggett Group, Inc., et al., 505 U.S. 504 (1992), et al., 505 U.S. 504 (1992)CASE 2.1 Cipollone v. Liggett Group, Inc., et al., 505 U.S. 504 (1992)FACT SUMMARY Cipollone brought suit againstLiggett for violation of several New Jersey consumerprotection statutes alleging that Liggett (and othercigarette manufacturers) were liable for his mother’sdeath because they engaged in a course of conductincluding false advertising, fraudulently misrepresentingthe hazards of smoking, and conspiracy to deprivethe public of medical and scientific information aboutsmoking. Liggett urged the court to dismiss the statelaw claims contending that the claims related to themanufacturer’s advertising and promotional activitieswere preempted by two federal laws: (1) the FederalCigarette Labeling and Advertising Act of 1965, and(2) the Public Health Cigarette Smoking Act of 1969.SYNOPSIS OF DECISION AND OPINION TheU.S. Supreme Court ruled against Cipollone, holdingthat his claims relying on state law were preempted byfederal law. The Court cited both the text of the statuteand the legislative history in concluding that Congress’sintent in enactment of the laws was to preemptstate laws regulating the advertising and promotion oftobacco products. Because Congress chose specificallyto regulate a certain type of advertising (tobacco), federallaw is supreme to any state law that attempts toregulate that same category of advertising.WORDS OF THE COURT: Preemption “Article VI ofthe Constitution provides that the laws of the UnitedStates shall be the supreme Law of the Land. Thus,[. . .] it has been settled that state law that conflictswith federal law is ‘without effect.’ [. . .] Accordingly,‘the purpose of Congress is the ultimate touchstone’of pre-emption analysis. Congress’s intent may be‘explicitly stated in the statute’s language or implicitlycontained in its structure and purpose.’ In the absenceof an express congressional command, state law ispreempted if that law actually conflicts with federallaw, [. . .], or if federal law so thoroughly occupies alegislative field ‘as to make reasonable the inferencethat Congress left no room for the States to supplementit.’ [. . .] [Cipollone’s] claims are preempted tothe extent that they rely on a state-law ‘requirementor prohibition . . . with respect to . . . advertising orpromotion.’”Civil Rights Legislation A key use of the federal commerce power has been in thearea of civil rights legislation. Indeed, the Supreme Court’s level of deference for use ofcongressional commerce powers reached its peak during and directly after the civil rightsera. In the 1964 Civil Rights Act, Congress used its commerce power to ban discriminationin places of public accommodation such as restaurants and hotels. In two importantcivil rights cases decided by the U.S. Supreme Court, the Court ruled that the Civil RightsAct was a permissible application of Congress’s commerce powers. In Heart of AtlantaMotel v. U.S., 8 the Court made clear that a federal ban on racial discrimination was a constitutionallypermitted use of congressional commerce powers because the hotel was open tointerstate travelers. Additionally, the Court deferred to a congressional finding of factthat racial discrimination in accommodations discouraged travel by limiting a substantialportion of the black community’s ability to find suitable lodging. In a companion case, 9Katzenbach v. McClung, the Court held that a local restaurant that was located far fromany interstate highway, and with no appreciable business from interstate travelers, wasnevertheless, subject to the reach of the federal statute because the restaurant purchasedsome food and paper supplies from out-of-state vendors. Since these purchases were ofitems that had moved in commerce, Congress could properly exercise their power to regulatea restaurant whose business interests were primarily local.Noncommercial Activity In 1995, the U.S. Supreme Court signaled that some limitson Congress’s commerce power still exist. In cases where the activity is purely noncommercial(such as when Congress passes a criminal statute that is seemingly unrelated tocommerce), the Court has used increased levels of scrutiny to besure that the activity that Congress seeks to regulate has a sufficientnexus (connection) to some legitimate economic interest. In U.S.v. Lopez, the Court invalidated a federal statute on the basis thatit was beyond Congress’s commerce powers. In Lopez, the Courtstruck down the Gun-Free School Zones Act of 1990, which madeit a federal crime to possess a gun within a certain distance froma school. The Court rejected the government’s argument that gunpossession in schools affected economic productivity (by making it more difficult for studentsto obtain an education) and thus was within the purview of congressional commercepower. The Court held that such a broad interpretation of the commerce power would meanthat congressional power was virtually unlimited, and that such an expansive authority wasdirectly contrary to the express limits imposed by the Constitution. The court reasoned thatthe banning of firearms in local schools was a government police power and, therefore,more appropriately handled by the state government. Five years later, in U.S. v. Morrison,the Court invalidated another statute on the same grounds. In that case, the Court struckdown the Violence Against Women Act, which gave victims of gender-motivated violencethe right to sue their attacker for money damages in a federal court. In light of the Lopezdecision, Congress made exhaustive findings of fact that detailed the cumulative economicaffect of gender-motivated crimes. Nonetheless, the Court held that the congressional findingswere too broad to justify use of the commerce power and that virtually any local crimecould become a federal offense under a similar justification. As a general rule, the furtherthat Congress strays from regulating commercial activity, the more likely the Court will beto give the law intense constitutional scrutiny.Constitutional Restrictions on State Regulation of CommerceThe U.S. Supreme Court has ruled that the mere existence of congressional commercepowers restricts the states from discriminating against or unduly burdening interstate commerce.States often wish to regulate commerce thatcrosses into their state borders. States are free toregulate commerce so long as (1) it does not imposea discriminatory law (such as a tax) on out-of-statebusinesses, and (2) the state law is a legitimate effortto regulate health, safety, and welfare. For example,suppose that in order to protect its own economic interests, the Idaho state legislature imposes an inspection requirement and fee on all non-Idaho grown potatoes sold within Idaho state borders. The state legislature justifies thisprocess and fee on the basis that it is protecting its citizens from rotten potatoes. A courtwould likely strike down the law because it discriminates against out-of-state producers,and its explanation could be seen as a pretext (not the actual reason) since the law presumesthat in-state potatoes are safe. Moreover, the inspection fee and the inspection processitself could be viewed as unreasonably burdening interstate commerce.TAX AND SPEND POWER 12Congress has a far-reaching power to tax the citizenry and to spend the federal government’smoney in any way that promotes the common defense and general welfare. Thepower to tax is an independent source of federal authority. That is, Congress may tax activitiesor property that it might not be authorized to regulate directly under any of the enumeratedregulatory powers. The power to spend is linked to the power to tax in that the moneymay be raised by taxation and then spent on the general welfare of the United States. TheU.S. Supreme Court has been highly deferential to Congress in terms of what constitutesgeneral welfare and under what circumstances Congress may exercise its authority to taxits citizenry and its decision-making power on how to allocate government money.Necessary and Proper ClauseCongress may also place conditions on the use of federal money in order to achieve somepublic policy objective. Congress generally cites the Necessary and Proper Clause asauthorization to set conditions on the spending. This ability to set conditions on the useof federal money has been a somewhat controversial method of congressional regulationbecause it falls outside the areas of traditional regulation. However, the U.S. SupremeCourt has upheld federal spending conditions that are tied to individual states passing certainlaws that carry out a congressionally set ambition. State legislatures have objected tothis type of regulation, characterizing it as a backdoor method for imposing laws on statesthat are outside Congress’s enumerated powers.In South Dakota v. Dole, 13 the Court deferred to Congress’s right to attach certain spendingconditions related to the legal drinking age (a state law issue) 14 on federal funds distributedto the states for use in repairing and building highways. Unless a state passed a lawto raise the legal drinking age to 21 by a certain date, they would lose a certain percentageof their allotted highway funding from the federal government. South Dakota and otherstates challenged the law as an unconstitutional intrusion by Congress into state affairs andan overreaching use of its spending power to regulate. The Court sided with Congress andruled the drinking-age condition is constitutionally permissible under Congress’s spendingauthority so long as the condition itself is not a violation of individual constitutional rights.This case signaled an important victory for Congress and it now regularly uses spendingconditions as a form of regulation for individuals and businesses.CONCEPT SUMMARY Structure and Nature of the Constitution: Federal Powers¦ Under the federal system used by the United States, the federal government has onlylimited powers to regulate individuals and businesses.¦ These powers are specifically enumerated in the Constitution and are limited in scope.¦ The limited powers of the legislative branch, which are specifically enumerated in theConstitution, include (1) the power to regulate commerce; (2) the power to tax andspend; (3) the power to regulate bankruptcy, patents, and copyrights; and (4) a generalimplied authority to make all laws necessary for carrying out its enumerated powers.Similarly, the president is granted the power to (1) carry out laws made by Congress;(2) be the commander in chief of the armed forces; (3) enter into a treaty and carryout foreign policy; and (4) appoint federal officers and judges. Finally, the judiciary isauthorized to decide cases and controversies falling within federal jurisdiction.¦ Congress’s broadest power is derived from the Commerce Clause.¦ Under the Commerce Clause, Congress has the authority to regulate (1) channels ofinterstate commerce such as railways and highways; (2) the instrumentalities of interstatecommerce such as vehicles used in shipping; (3) the articles moving in interstatecommerce; and (4) any activity that has substantial economic effect on interstate commerce,including activities that are not commercial in nature.¦ The U.S. Constitution is composed of a preamble, seven articles, and 27 amendments,the first ten of which are called the Bill of Rights.¦ The first three articles of the Constitution establish a three-part system of governmentwith three coequal branches: the legislative branch, the executive branch, and the judicialbranch.¦ This structure is designed so that each of the branches exercises its respective powers toensure that one branch does not exceed its authority under the Constitution (referred toas a separation of powers or checks and balances).¦ Under the Supremacy Clause, federal laws preempt (override) any conflicting statelaws.¦ Congress has the power to tax the citizenry and to spend the federal government’smoney in any way that promotes the common defense and general welfare.¦ Under the Necessary and Proper Clause, Congress may also place conditions on the useof federal money in order to achieve some public policy objective.CONSTITUTIONAL PROTECTIONSIn addition to the Constitution prescribing the structure of government and granting the governmentcertain powers, it also provides protection for the citizenry from unlawful or repressiveacts by the government. These protections are contained primarily in the Bill of Rights(the first ten amendments) and in other amendments that guarantee the right of due process.From a business perspective, however, it is important to note that corporations and other businessentities do not always receive the same level of constitutional protections as individuals.The Bill of Rights and BusinessThe Bill of Rights contains many of the rights common in the American vernacular. Amongthem are freedom of speech, the press, religion, and expression (First Amendment); freedomfrom government-conducted searches without cause or warrant (Fourth Amendment);rights against self-incrimination and to a speedy jury trial by our peers (Fifth and SixthAmendments); and freedom from cruel and unusual punishments (Eighth Amendment).While each amendment carries it own significance in a historical and public policy context,the coverage of this textbook is primarily concerned with the Bill of Rights provisions thatrelate directly to business and management issues.First AmendmentThe First Amendment contains the important introductory phrase “Congress shall makeno law” and then articulates several specific protections against government encroachmentin the areas of religion, press, speech, assembly, and petition of grievances. The introductoryphrase demonstrates that the framers intended the Constitution to function as a limiton government actions. Although certain First Amendment rights for individuals do notextend to business owners, courts have increasingly broadened protections for businessowners in the area of free speech.Limits on Free Speech Although the U.S. Supreme Court has given broad protectionsto speech that involves political expression, the First Amendment is by no means absolute.Justice Oliver Wendell Holmes famously wrote that the First Amendment was not withoutlimits by giving an example that the Constitution did not protect one that falsely yells“fire” in a crowded theatre. Courts have ruled that the government may place reasonablerestrictions related to time and place of political expression in cases, for example, wherepublic safety may be threatened.Commercial Speech The most common form of commercial speech (ways in whichbusiness entities communicate with the public) is advertising through print, television,radio, and Web-based sources. Traditionally, advertising had little or no First Amendmentprotection, but the Supreme Court has gradually increased the constitutional protectionsrelated to advertising. In Virginia State Board of Pharmacy v. Virginia Citizens ConsumerCouncil, the Supreme Court held that purely commercial speech (speech with no politicalimplications whatsoever) was entitled to partial First Amendment protection so longas the speech was truthful and concerned a lawful activity. In the Virginia case, the Courtstruck down Virginia state laws that prohibited a pharmacist from advertising prices forprescription drugs. The Court rejected the state’s contention that it has a substantial interestin ensuring that cut-rate prices that may be created by competition among pharmaciesdoesn’t result in substandard service. Given that the information banned by the statute waslimiting the free flow of information to consumers, the Court held that such regulationviolated the First Amendment.Four years after the Virginia case, the Court expanded the analytical framework for decidingwhether certain regulations were constitutional in Central Hudson Gas v. Public ServiceCommission. The Central Hudson case created a framework for a four-part test that subjectsgovernment restrictions on commercial speech to a form of intermediate-level scrutiny.¦ Part One. So long as the commercial speech concerns lawful activities and is not misleading,the speech qualifies for protection under the First Amendment. If the speech isentitled to protection, then the government’s regulation must pass the final three partsof the Central Hudson test in order for the restriction to be constitutionally sound.¦ Part Two. A substantial government interest in regulating the speech must exist.¦ Part Three. The government must demonstrate that the restriction directly advances theclaimed government interest.¦ Part Four. The government’s restriction must be not more extensive than necessary (nottoo broad) to achieve the government’s asserted interest.Advertising and Obscenity Regulation Sometimes commercial speech runs afoul ofgovernment’s attempt to ban or regulate materials it deems obscene. However, obscenityregulation of commercial speech is subject to the same scrutiny as any other governmentregulation of commercial speech. For example, a federal appellate court has ruled that astate agency’s decision to effectively prohibit a corporation’s use of a certain label on itsbeer products, which the agency deemed offensive, violated the business owner’s right undercommercial speech protections. In that case, Bad Frog Brewery, Inc. v. N.Y. State LiquorAuthority, 17 the U.S. Court of Appeals for the Second Circuit held that labels on the company’sbeer products, which depicted a frog with his unwebbed “fingers” extended in a mannerevocative of a well-known human gesture of insult, were protected commercial speechunder the First Amendment. The court ruled that when the New York State Liquor Authoritydenied Bad Frog’s application to use the labels in New York on the basis that the labels wereoffensive, the state agency failed to show that their ruling achieved their asserted interest of protecting children from vulgarity. Because the labels were not misleading and did notconcern an unlawful activity, the labels were a protected form of commercial speech andany government regulation must conform with therequirements set out in the Central Hudson case. Rulingin favor of Bad Frog, the court remarked that astate must demonstrate that its commercial speechlimitation is part of a substantial effort to advance a valid state interest, “not merely theremoval of a few grains of offensive sand from the beach of vulgarity.”Political Speech by Corporations Another form of commercial speech, broadlyspeaking, is when corporations and other business entities fund political speech or engagein corporate advocacy of a particular candidate or political issue. May the governmentregulate such commercial speech under the same standards as the Central Hudson case?Generally, the answer depends of the specific form and content of the speech—but typicallypolitical speech by corporations is fully protected by the First Amendment.In First National Bank of Boston v. Bellotti, the Supreme Court created a new levelof First Amendment protection for corporations engaged in politically oriented speechwhen it struck down a Massachusetts state statute that prohibited corporations from usingcorporate assets to fund expenditures related to “influencing or affecting the vote on anyquestion submitted to the voters” (known as a ballot proposition). In Bellotti, the Courtheld that that while some constitutional rights are not afforded to corporations, freedomof corporate political speech is fully protected. As such, any attempt to regulate politicallyoriented speech by corporations is subject to strict scrutiny. The Court also held that acorporation’s freedom of speech is not limited to matters materially affecting its business.Rather, a business has a constitutionally protected right to communicate about any politicalmatter that is consistent with the goal of the First Amendment: societal interest in the freeflow of information and debate. For the first time, the Court recognized that speech thatotherwise would be within the protection of the First Amendment does not lose protectionsimply because its source is a corporation.Political Spending and CorporationsIn a 2010 case that attracted significant media attention, the U.S. Supreme Court ruled thatthe government may not ban all political spending by corporations in candidate elections.In Citizens United v. Federal Election Commission, the Court held that the provisions of the BipartisanCampaign Reform Act of 2002 (commonly referred toas the McCain-Feingold Act), which prohibited corporationsand labor unions from using general fundsto sponsor “electioneering communications,” wereunconstitutional. It is important to note that the rulingdid not involve a challenge to limits imposed by the lawon campaign contributions, or with the prohibition ofcorporate contributions to a candidate. These limits remain intact. Rather, the SupremeCourt’s ruling applies only to independent expenditures on speech. Independent expendituresmean speech (such as advertisements) engaged in by an organization on its ownbehalf, and not with coordination with any candidate.The case originated when Citizens United, a conservative nonprofit corporation, produceda 90-minute documentary called “Hillary: The Movie” which criticized then-Senator Hillary Clinton and questioned her fitness for office. The group planned to release it during the 2008Democratic presidential primaries. Fearful that uncertainties in the law would result in enforcementaction by the government upon release of the movie, Citizens United filed suit against theFederal Elections Commission (FEC) in federal court challenging the act. After they lost thatcase, Citizens United scrapped its plans to release the movie, but continued to appeal the trialcourt’s decision. The U.S. Supreme Court ruled in favor of Citizens United, striking down theprovisions of the law that banned Citizens United from releasing the movie. Justice AnthonyKennedy wrote the majority opinion:OTHER AMENDMENTSIn addition to the First Amendment, certain other protectionsafforded by the Constitution may be important tobusiness owners and managers. The Fourth Amendmentprotects individual citizens’ rights to be secure in their“persons, houses, papers and effects.” The U.S. SupremeCourt has systematically applied a reasonableness testto define the limits of when the government may searchwithout a warrant based on probable cause that criminalactivity is afoot. From a business perspective, it is importantto understand that the law recognizes two basic typesof searches. First, when the government wishes to obtaina warrant to search particular premises while investigatinga criminal offense, they must demonstrate that theyhave sufficient information, called probable cause, thatjustifies the issuance of a search warrant by a court. Second, the government also investigates noncriminaladministrative violation s. The standard for the issuanceof a warrant for a search in an administrative violationinvestigation is lower than for investigating a criminaloffense. Administrative warrants may be used by governmentregulatory agencies (such as the EnvironmentalProtection Agency) to gain access to worksites for complianceinspections. Administrative agencies and administrativewarrants are discussed in detail in Chapter 17,“Administrative Law.”The Fifth Amendment provides that no person“shall be compelled in any criminal case to be a witnessagainst himself.” Simply put, this amendment guaranteesindividuals the right to remain silent both during theinvestigation and during any subsequent judicial proceedings.Although it is clear that this amendment doesnot apply to corporate entities when the government isseeking certain business records, individual corporateofficers and employees are entitled to Fifth Amendmentprotection when facing a criminal investigation by the police, or more commonly in a business context, administrative agencies investigating apossible criminal offense (e.g., the Internal Revenue Service investigating tax fraud). Thisright is a central and fundamental part of the Supreme Court’s famous decision in Mirandav. Arizona. The Miranda case set out specific procedures to be used by the governmentwhen interrogating possible suspects of criminal wrongdoings. The Miranda case is coveredin detail in Chapter 22, “Criminal Law and Procedure in a Business Context.”DUE PROCESS PROTECTIONSIn addition to protection afforded by the Bill of Rights, the law provides protections toindividuals and businesses from government overreaching through constitutional guaranteescontained in the Due Process Clause of the Fifth and Fourteenth Amendments. Theseclauses protect individuals from being deprived of “life, liberty, or property” without dueprocess of law. Fundamentally, due process rights require the government to providesome type of hearing and procedure whenever the government has taken some action thatdeprives an individual or business of some liberty or property interest.Fourteenth AmendmentPerhaps the most important role of the Fourteenth Amendment is that it makes the Billof Rights applicable to the states. Note, for example, that the First Amendment beginswith the explicit restriction that “Congress shall make no law . . .” Originally, the framersintended the Bill of Rights to be a protection against certain acts of the federal government,and therefore states were not bound by the Bill of Rights. However, in the post-CivilWar reconstruction period (mid-1860s), the Fourteenth Amendment was passed, whicheffectively expanded the protections under the Bill of Rights to include restrictions andactions by state governments.The Due Process Clause has two primary functions. First, it imposes certain proceduralrequirements on federal and state governments when they impair life, liberty, or property.The U.S. Supreme Court has held that procedural due process requires the government togive appropriate notice, a neutral hearing, and an opportunity to present evidence beforeany government action may be taken that would affect the life, liberty, or property of anindividual. The Due Process Clause also limits the substantive power of the states to regulatecertain areas related to individual liberty. These substantive due process rights requirethat laws passed by the government be published for public inspection and to be specificenough so that a reasonable person would understand how the law applies. Laws that arevague or overly broad are unconstitutional under the substantive due process doctrine.In Case 2.4, the U.S. Supreme Court applied the Due Process Clause in the context of astate statute that regulated certain jury awards.Equal Protection The Equal Protection Clause is the part of the Fourteenth Amendmentthat prohibits the government from denying citizens’ equal protection of the laws. 23Fundamentally, the clause guarantees that the government will treat people who are similarlysituated equally. Recall from our discussion earlier in this chapter that courts use avariety of levels of review when applying constitutional law. This is especially importantin equal protection cases where courts apply one of the three categories of review that areclassified by their level of scrutiny (strict, intermediate-level, or rational basis).When a government action (such as passage of a statute or enforcing a law or regulation)is based on a suspect classification, or if the action impairs a fundamental right, thestrict scrutiny standard is applied. Courts have held that any government action based on race, national origin, and alienage are automatically suspect classifications. The Court hasheld that government actions related to the right to vote, to have access to the courts, andthe right to migrate from state to state are subject to strict scrutiny standards as well.Note also that semi-suspect (also called quasi-suspect) classifications trigger intermediate levelscrutiny. Courts have used this standard of review when government actions werebased on gender or illegitimacy. Recall from earlier in this chapter that economic or taxregulations are judged under the rational basis category.CONCEPT SUMMARY Constitutional Protections¦ The Bill of Rights contains protection for citizens from unlawful or repressive acts bythe government.¦ Corporations and other business entities do not always receive the same level of constitutionalprotections as individuals.¦ Traditionally, advertising had little or no First Amendment protection, but the SupremeCourt has gradually increased the constitutional protections related to advertising allowingpurely commercial speech to have partial First Amendment protection so long as itis truthful. Commercial political speech has full First Amendment protection.¦ The Due Process Clause of the Fifth and Fourteenth Amendments protect individualsfrom being deprived of “life, liberty, or property” without due process of law.¦ The Fourteenth Amendment makes the Bill of Rights applicable to the states.¦ The Due Process Clause serves two purposes. First, it imposes procedural requirementson federal and state governments. Second, it limits the substantive power of the states toregulate certain areas affecting individual liberties.PRIVACYAlthough not explicitly mentioned in the Constitution, privacy rights play a central role inconstitutional law. The U.S. Supreme Court struggled with the notions of individual rightsof privacy during the early 1900s, but did not formally recognize the right to privacy until1965 in the landmark case of Griswold v. Connecticut. The case involved a challengeto a Connecticut statute that criminalized (1) the use of contraceptives, and (2) aiding orcounseling others in their use. Griswold and others were convicted under the statute forcounseling married couples in the use of contraceptives at a local Planned Parenthoodoffice. The U.S. Supreme Court struck down the statute as unconstitutional. They heldthat the right of privacy was implied by language in the First, Third, Fourth, Fifth, andNinth Amendments, which created a constitutionally protected zone of privacy. The rightof privacy recognized in Griswold was extended to abortion rights in Roe v. Wade, oneof the most famous U.S. Supreme Court decisions in American history. The Roe Courtstruck down a state statute, which banned all abortions under any circumstances, as unconstitutional.The Court recognized that a woman’s right to privacy is fundamental underthe Fourteenth Amendment. Thus, the government has only a limited right to regulate,and could not completely outlaw, abortion procedures and providers. Although the existenceof a constitutional right of privacy has generated intense and emotional debate, the U.S. Supreme Court has reaffirmed the central tenants of the privacy rights recognized inGriswold andRoe over several decades and it has become settled law.Federal StatutesIn addition to privacy rights afforded by the Constitution, Congress has legislated specificprivacy rights such as the Health Insurance Portability and Accountability Act (HIPPA), 27which regulates health-care providers, plans, and plan administrators in gathering, storing,and disclosing medical information about individuals. The law requires specific policiesand record-keeping practices to be used in order to assure privacy of any medical informationsuch as diagnosis, tests, medications, and so forth. Congress has also sought to assurecertain privacy protections by mandating that government agencies allow appropriate publicand media access to agency records and reports under the Freedom of Information Act.One of the more controversial federal statutes that deal with modern privacy issueswas the Uniting and Strengthening America by Providing Appropriate Tools Required toIntercept and Obstruct Terrorism Act (called the USA Patriot Act). The USA Patriot Actwas passed immediately after the terrorist attacks of September 11, 2001, and providesincreased authority for government officials to surreptitiously access and/or monitor individualand corporate financial records, e-mail, telephone conversations, and Internet activitywhen investigating possible terrorism-related activity. Although the law does create aninfrastructure that is designed to prevent government overreaching and protect individualprivacy (e.g., the government must provide evidence that the investigation is related to terrorismand not being used for investigating other matters), critics have derided the law aslacking appropriate safeguards to prevent invasion of privacy.Workplace PrivacyMost privacy rights afforded by the U.S. Constitution do not extend to the workplace. Nonetheless,privacy rights have become increasingly important to business owners and managersas Congress and state legislatures seek to clarify workplace privacy rights by statute in areassuch as employee drug testing, searches of employee areas (such as lockers or desks) byemployers, and electronic monitoring of e-mail and Internet usage. Statutes that regulate theworkplace are covered in detail in Chapter 11, “Employment Regulation and Labor Law.”


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